<PAGE>
THE FUTURE DIMENSIONS VARIABLE ANNUITY
A FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
issued by
---------
SOUTHLAND LIFE INSURANCE COMPANY
AND
SOUTHLAND SEPARATE ACCOUNT A1
This prospectus describes a flexible premium deferred fixed and variable annuity
contract (the "Contract") offered by Southland Life Insurance Company
("Southland," "we" or "us"). The Contract is designed to aid in long-term
financial planning and provides for accumulation of interest, dividends and
capital gains on a tax-deferred basis for retirement or other long-term
purposes. The Contract may sold to or in connection with retirement plans,
including plans that qualify for special federal tax treatment under the
Internal Revenue Code.
The Owner may allocate Purchase Payments and Contract values to one or more of
the Subaccounts of Southland Separate Account A1 (the "Variable Account") or to
the Guaranteed Interest Account, or to both. Twenty-one Subaccounts are
currently available under the Contract. Each of the Subaccounts invests in
shares of a corresponding Portfolio of The Alger American Fund, Variable
Insurance Products Fund, Variable Insurance Products Fund II, Janus Aspen Series
and INVESCO Variable Investment Funds, Inc. The Guaranteed Interest Account
guarantees a minimum fixed rate of interest. The Accumulation Value will vary
daily with the investment results of the Subaccounts and any interest credited
to the Guaranteed Interest Account. We do not guarantee any minimum Cash
Surrender Value for amounts allocated to the Subaccounts.
This prospectus sets forth the information concerning the Contract and the
Variable Account that investors should know before investing. A prospectus for
the Portfolios being considered must accompany this prospectus and should be
read in conjunction with this prospectus. The prospectuses provide information
regarding investment activities and objectives of the Portfolios. A Statement
of Additional Information, dated January 2, 1996 about the Variable Account has
been filed with the Securities and Exchange Commission and is available without
charge by calling or writing our Customer Service Center. The Statement of
Additional Information is incorporated herein by reference.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS NOT VALID
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UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE PORTFOLIOS BEING
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CONSIDERED.
- ----------
AN INVESTMENT IN A CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK NOR IS THE CONTRACT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE RISK OF LOSS OF PURCHASE PAYMENTS
(PRINCIPAL).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C>
ISSUED BY: DISTRIBUTED BY: CUSTOMER SERVICE CENTER:
Southland Life Insurance Company ING America Equities, Inc. Southland Customer Service Center
P.O. Box 173789 5780 Powers Ferry Road P.O. Box 173789
Denver, CO 80217-173789 Atlanta, GA 30327 Denver, CO 80217-173789
---------------------------------
8515 East Orchard Road - 9T2
Englewood, CO 80111
</TABLE>
Date of Prospectus: January 2, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS .............................................................. 1
FEE TABLE ................................................................ 4
SUMMARY .................................................................. 9
GENERAL DESCRIPTION .................................................. 9
PURCHASE PAYMENTS .................................................... 10
ENHANCED DEATH BENEFIT ............................................... 10
YOUR RIGHT TO CANCEL THE CONTRACT .................................... 10
WITHDRAWALS .......................................................... 10
SURRENDERING YOUR CONTRACT ........................................... 11
CHARGES AND FEES ..................................................... 11
PERFORMANCE INFORMATION .................................................. 12
PERFORMANCE DATA FOR SUBACCOUNTS ..................................... 12
7-DAY YIELD FOR VIP MONEY MARKET SUBACCOUNT .......................... 14
AVERAGE ANNUAL TOTAL RETURNS FOR SUBACCOUNTS ......................... 14
CONDENSED FINANCIAL INFORMATION .......................................... 16
FACTS ABOUT SOUTHLAND AND THE VARIABLE ACCOUNT ........................... 16
THE VARIABLE ACCOUNT ................................................. 16
THE PORTFOLIOS ....................................................... 17
CHANGES WITHIN THE VARIABLE ACCOUNT .................................. 19
FACTS ABOUT THE CONTRACT ................................................. 20
YOUR RIGHT TO CANCEL THE CONTRACT .................................... 20
PURCHASE PAYMENTS .................................................... 20
CREDITING AND ALLOCATION OF PURCHASE PAYMENTS ........................ 20
GROUP OR SPONSORED ARRANGEMENTS ...................................... 21
YOUR ACCUMULATION VALUE .............................................. 21
GUARANTEED INTEREST ACCOUNT ACCUMULATION VALUE ....................... 21
SUBACCOUNT ACCUMULATION VALUE ........................................ 22
YOUR RIGHT TO TRANSFER ............................................... 23
DOLLAR COST AVERAGING FACILITY ....................................... 24
AUTOMATIC REBALANCING ................................................ 25
WITHDRAWALS .......................................................... 25
SURRENDERS ........................................................... 27
DEATH BENEFITS ....................................................... 27
ENHANCED DEATH BENEFIT ............................................... 28
WHEN WE MAKE PAYMENTS ................................................ 28
TELEPHONE PRIVILEGES ..................................................... 29
THE GUARANTEED INTEREST ACCOUNT .......................................... 29
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<PAGE>
ADDITIONAL CONTRACT INFORMATION .......................................
THE OWNER ......................................................... 30
THE ANNUITANT ..................................................... 30
THE BENEFICIARY ................................................... 30
CHANGE OF OWNER, BENEFICIARY OR ANNUITANT ......................... 30
OTHER CONTRACT PROVISIONS ......................................... 31
AUTHORITY TO CHANGE CONTRACT TERMS ................................ 31
CONTRACT CHARGES AND FEES ............................................. 31
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE ...................... 31
CHARGES DEDUCTED FROM THE SUBACCOUNTS ............................. 33
PORTFOLIO EXPENSES ................................................ 34
SELECTING AN ANNUITY PAYMENT OPTION ................................... 34
GENERAL PROVISIONS ................................................ 34
ANNUITY PAYMENTS .................................................. 35
ANNUITY PAYMENT OPTIONS ........................................... 36
OTHER INFORMATION ..................................................... 37
REPORTS TO OWNERS ................................................. 37
DISTRIBUTION OF THE CONTRACTS ..................................... 37
ADMINISTRATIVE SERVICES ........................................... 38
VOTING PRIVILEGES ................................................. 38
LEGAL PROCEEDINGS ................................................. 39
FEDERAL TAX CONSIDERATIONS ............................................ 39
INTRODUCTION ...................................................... 39
TAX STATUS OF THE CONTRACT ........................................ 39
TAXATION OF ANNUITIES ............................................. 40
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT ................. 42
WITHHOLDING ....................................................... 42
MULTIPLE CONTRACTS ................................................ 42
TAXATION OF QUALIFIED PLANS ....................................... 43
OTHER TAX CONSEQUENCES ............................................ 44
STATEMENT OF ADDITIONAL INFORMATION ................................... 44
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
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<PAGE>
DEFINITIONS
ACCUMULATION UNIT - A unit of measure used to calculate Variable Account
Accumulation Value.
ACCUMULATION VALUE - The total value under a Contract. It is the sum of the
Variable Account Accumulation Value and the Guaranteed Interest Account
Accumulation Value.
AGE - The age on the birthday prior to any date for which age is determined.
ANNUITANT - The person or persons whose life (or lives) determines the Annuity
Payments payable under the Contract and who receives payments during the Annuity
Period. The maximum number of joint Annuitants is two and provisions referring
to the death of an Annuitant mean the death of the last surviving Annuitant.
ANNUITY DATE - The date as of which, if the Annuitant is still living, the
Accumulation Value (less previously undeducted taxes) is applied under an
Annuity Payment Option and Annuity Payments begin.
ANNUITY PAYMENT - One of a number of periodic payments made by Southland to the
Annuitant under a Contract.
ANNUITY PAYMENT OPTION - An Annuity Payment Option specifies the form that
Annuity Payments take or the type of payments. Various Annuity Payment Options
are offered under the Contract.
ANNUITY PERIOD - The period starting on the Annuity Date when Annuity Payments
are made.
ANNUITY UNIT - A unit of measure used to calculate variable Annuity Payments.
BENCHMARK RATE OF RETURN - An annual rate of return used by the Company to
determine the amount of variable Annuity Payments by assuming (among other
things) that Subaccounts supporting variable Annuity Payments will have a net
annual investment return over the anticipated Annuity Period equal to that rate
of return.
BENEFICIARY - The person(s) designated by the Owner to receive the Death Benefit
upon the death of the Owner prior to the Annuity Date.
CASH SURRENDER VALUE - The Accumulation Value, less any applicable surrender
charges, premium taxes not previously deducted, and the annual administrative
charge.
CODE - The Internal Revenue Code of 1986, as amended.
CONTRACT - The contract offered by this prospectus, including the application
and any riders or endorsements.
CONTRACT ANNIVERSARY - The same date in each Contract Year as the Contract Date.
CONTRACT DATE - The date that the Contract is issued. It is set forth on the
schedule page of your Contract and is used to determine Contract Years and
Contract Anniversaries.
CONTRACT YEAR - A twelve-month period beginning on the Contract Date or on a
Contract Anniversary.
CUSTOMER SERVICE CENTER - Southland's offices at Southland Customer Service
Center, P.O. Box 173789, Denver, CO 80217-3789. For overnight delivery, the
address is 8515 East Orchard Road - 9T2, Englewood, CO 80111.
DEATH BENEFIT - The amount payable to the Beneficiary upon the death of the
Owner prior to the Annuity Date.
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<PAGE>
DEMAND WITHDRAWAL - A withdrawal of Cash Surrender Value made at the Owner's
request.
DUE PROOF OF DEATH - Proof of death satisfactory to Southland. Such proof may
consist of the following if acceptable to Southland: (a) a certified copy of the
death record; (b) a certified copy of a court decree reciting a finding of
death; (c) any other proof satisfactory to Southland.
FREE-LOOK PERIOD - The period during which you may return the Contract and
receive a refund.
GENERAL ACCOUNT - The assets of Southland other than those allocated to the
Variable Account or any other separate account of Southland.
GUARANTEED INTEREST ACCOUNT ACCUMULATION VALUE - The value under a Contract in
the Guaranteed Interest Account.
GUARANTEED INTEREST ACCOUNT - An allocation option under the Contract supported
by Southland's General Account. It is not part of nor dependent upon the
investment performance of the Variable Account.
IRA CONTRACT - A Contract issued as an Individual Retirement Annuity in
connection with sections 408(a) and (b) of the Code.
NON-QUALIFIED CONTRACT - A Non-Qualified Contract is a Contract that is not a
"Qualified Contract."
OWNER - The person(s) who owns the Contract and who is entitled to exercise all
rights and privileges provided in the Contract.
PORTFOLIO - An investment portfolio (sometimes called a series or a fund) of an
open-end management investment company listed in the prospectus or any other
open-end management investment company or unit investment trust in which a
Subaccount invests.
PURCHASE PAYMENT - A payment or payments made by the Owner to purchase the
benefits provided by the Contract.
QUALIFIED CONTRACT - A Contract that is issued in connection with retirement
plans that qualify for special federal income tax treatment under Sections 401,
403(b), or 408 of the Code.
SEC - The U. S. Securities and Exchange Commission.
SUBACCOUNT - A subdivision of the Variable Account, the assets of which are
invested in a corresponding Portfolio.
SUBACCOUNT ACCUMULATION VALUE - The Variable Accumulation Value under a Contract
in a particular Subaccount.
SURRENDER - The termination of the Contract by payment of the Cash Surrender
Value.
VALUATION DAY - For each Subaccount, each day on which the New York Stock
Exchange and Southland's Customer Service Center are both open for business
except for a day that a Subaccount's corresponding Portfolio does not value its
shares.
VALUATION PERIOD - A period that starts at 4:00 p.m. eastern time on one
Valuation Day and ends at 4:00 p.m. eastern time on the next succeeding
Valuation Day.
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<PAGE>
VARIABLE ACCOUNT - Southland Separate Account A1.
VARIABLE ACCOUNT ACCUMULATION VALUE - The value under a Contract in the Variable
Account. It is the sum of the Subaccount Accumulation Values.
VIP AND VIP II - Variable Insurance Products Fund and Variable Insurance
Products Fund II, respectively.
WRITTEN NOTICE - A written notice or request in a form satisfactory to Southland
which is signed by the Owner and received at the Customer Service Center.
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<PAGE>
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchase ...................................... 0%
Maximum Surrender Charge (contingent deferred sales charge)
as a percentage of Purchase Payments ................................ 7%
Withdrawal Transaction Charge/1/ .................................... $25
Excess Transfer Charge
(does not apply to the first 12 transfers in a Contract Year) ....... 25
ANNUAL ADMINISTRATIVE CHARGE PRIOR TO ANNUITY DATE
If aggregate Purchase Payments made less aggregate
withdrawals (including related charges)
are less than $100,000 .......................................... $30
If aggregate Purchase Payments made less aggregate
withdrawals (including related charges)
are $100,000 or more ............................................ None
VARIABLE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF NET ASSETS)
Mortality and Expense Risk Charge
Basic ........................................................... 1.25%
Enhanced Death Benefit (does not apply during the
Annuity Period) ............................................ 0.12%
----
Total Mortality and Expense Risk Charge ........................ 1.37%
Asset-Based Administrative Charge ................................... 0.15%
----
Total Variable Account Expenses .................................... 1.52%
- --------
/1/ The withdrawal transaction charge is the lesser of 2% of the amount
withdrawn or $25 and is assessed on each Demand Withdrawal after the first in
any Contract Year. (See "Withdrawal Transaction Charge," page 32.)
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<PAGE>
ANNUAL PORTFOLIO EXPENSES
(as a percentage of Portfolio average net assets)
<TABLE>
<CAPTION>
Management Other Total Annual
(Advisory) Fees Expenses Expenses
(after (after
reimbursements) reimbursements)
-------------- -------------- ---------------
<S> <C> <C> <C>
The Alger American Fund
- -----------------------
Alger American Growth Portfolio 0.75% 0.11% 0.86%
Alger American Leveraged AllCap Portfolio 0.85% 0.94%/1/ 1.79%
Alger American MidCap Growth Portfolio 0.80% 0.17% 0.97%
Alger American Small Capitalization Portfolio 0.85% 0.11% 0.96%
Variable Insurance Products Fund and Variable Insurance Products Fund II
- ------------------------------------------------------------------------
VIP Equity-Income Portfolio 0.52% 0.06% 0.58%/2/
VIP Growth Portfolio 0.62% 0.07% 0.69%/2/
VIP High Income Portfolio 0.61% 0.10% 0.71%
VIP Money Market Portfolio 0.20% 0.07% 0.27%
VIP Overseas Portfolio 0.77% 0.15% 0.92%
VIP II Asset Manager Portfolio 0.72% 0.08% 0.80%/2/
VIP II Contrafund Portfolio 0.62%/3/ 0.27%/3/ 0.89%/3/
VIP II Index 500 Portfolio 0.00%/4/ 0.28%/4/ 0.28%/4/
VIP II Investment Grade Bond Portfolio 0.46% 0.21% 0.0067
</TABLE>
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/1/ Estimated amounts for the Portfolio's fiscal year ending December 31,
1995. "Other expenses" includes estimated interest expenses of 0.75%.
/2/ A portion of the brokerage commissions the Portfolio paid was used to
reduce its expenses. Without this reduction, total annual expenses for Equity-
Income, Growth and Asset Manager Portfolios would have been 0.60%, 0.70% and
0.81% respectively.
/3/ Expenses estimated for 1995. Portfolio commenced operations on January
3, 1995.
/4/ The expense figures shown are net of certain reimbursements by its
investment adviser. Absent such reimbursement, the management fees, other
expenses and total annual expenses would have been 0.28%, 0.53% and 0.81%
respectively.
-5-
<PAGE>
ANNUAL PORTFOLIO EXPENSES (CONTINUED)
(as a percentage of Portfolio average net assets)
<TABLE>
<CAPTION>
Management Other Total Annual
(Advisory) Fees Expenses Expenses
(after (after
reimbursements) reimbursements)
<S> <C> <C> <C>
Janus Aspen Series/5/
- ------------------
Aggressive Growth Portfolio 0.77% 0.28% 1.05%
Balanced Portfolio 0.83% 0.74% 1.57%
Growth Portfolio 0.66% 0.22% 0.88%
International Growth Portfolio 0.00% 2.50% 2.50%
Short-Term Bond Portfolio 0.00% 0.65% 0.65%
Worldwide Growth Portfolio 0.69% 0.49% 1.18%
INVESCO Variable Investment Funds, Inc.
- ---------------------------------------
Industrial Income Portfolio 0.75% 0.15% 0.90%/6/
Utilities Portfolio 0.60% 0.30% 0.90%/6/
</TABLE>
Premium taxes may be applicable depending upon the laws of various jurisdiction.
The above tables are intended to assist the Owner in understanding the costs and
expenses that he or she will bear directly or indirectly. The tables reflect
the anticipated expenses of the Variable Account and reflect the actual expenses
for each Portfolio for the year ended December 31, 1994 except as follows. The
VIP II Contrafund Portfolio began operations on January 3, 1995. Expenses for
these Portfolios are estimates and are not based on past experience. For a more
complete description of the various costs and expenses, see "CONTRACT CHARGES
AND FEES" and the prospectuses for each Portfolio.
- -------------
/5/ The expense figures shown are net of certain reimbursements from Janus
Capital. Without such waivers, management fees, other expenses and total annual
expenses respectively were: 1.00%, 0.28% and 1.28% for Aggressive Growth
Portfolio; 1.00%, 0.74% and 1.74% for Balanced Portfolio; 1.00%, 0.22% and 1.22%
for Growth Portfolio; 1.00%, 3.62% and 4.62% for International Growth Portfolio;
0.65%, 0.75% and 1.40% for Short-Term Bond Portfolio; and 1.00%, 0.49% and 1.49%
for Worldwide Growth Portfolio.
/6/ The expense figures shown are net of certain reimbursements from INVESCO
Funds Group, Inc. Through at least December 31, 1995, INVESCO Funds Group, Inc.
will reimburse total operating expenses of these portfolios in any year in
excess of 0.90%. If such voluntary expense reimbursements were not made, the
total annual expenses of the Industrial Income Portfolio for the fiscal period
ended December 31, 1994 would have been 32.55%. The Utilities Portfolio did not
commence operations during the fiscal period ended December 31, 1994.
<PAGE>
EXAMPLES
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 Purchase Payment, assuming a 5%
annual rate of return on assets:
<TABLE>
<CAPTION>
One Year Three Years
-------- -----------
<S> <C> <C>
Alger American Small Capitalization Subaccount 95.69 128.83
Alger American MidCap Growth Subaccount 95.78 129.11
Alger American Growth Subaccount 94.72 125.94
Alger American Leveraged AllCap Subaccount 103.66 152.52
VIP Growth Subaccount 93.09 121.03
VIP Overseas Subaccount 95.30 127.67
VIP Money Market Subaccount 89.05 108.83
VIP Equity-Income Subaccount 92.03 117.85
VIP High Income Subaccount 93.28 121.61
VIP II Asset Manager Subaccount 94.15 124.21
VIP II Contrafund Subaccount 95.01 126.81
VIP II Index 500 Subaccount 89.15 109.12
VIP II Investment Grade Bond Subaccount 92.90 120.45
Janus Aggressive Growth Subaccount 96.55 131.41
Janus Balanced Subaccount 101.55 146.28
Janus Growth Subaccount 94.92 126.52
Janus International Growth Subaccount 110.49 172.47
Janus Short-Term Bond Subaccount 92.71 119.88
Janus Worldwide Growth Subaccount 97.80 135.14
INVESCO Industrial Income Subaccount 95.11 127.10
INVESCO Utilities Subaccount 95.11 127.10
</TABLE>
If you do not surrender your Contract or if you annuitize, you would pay the
following expenses on a $1,000 Purchase Payment, assuming a 5% annual rate of
return on assets:
<TABLE>
<CAPTION>
One Year Three Years
-------- -----------
<S> <C> <C>
Alger American Small Capitalization Subaccount 25.69 78.83
Alger American MidCap Growth Subaccount 25.78 79.11
Alger American Growth Subaccount 24.72 75.94
Alger American Leveraged AllCap Subaccount 33.66 102.52
VIP Growth Subaccount 23.09 71.03
VIP Overseas Subaccount 25.30 77.67
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
One Year Three Years
-------- -----------
<S> <C> <C>
VIP Money Market Subaccount 19.05 58.83
VIP Equity-Income Subaccount 22.03 67.85
VIP High Income Subaccount 23.28 71.61
VIP II Asset Manager Subaccount 24.15 74.21
VIP II Contrafund Subaccount 25.01 76.81
VIP II Index 500 Subaccount 19.15 59.12
VIP II Investment Grade Bond Subaccount 22.90 70.45
Janus Aggressive Growth Subaccount 26.55 81.41
Janus Balanced Subaccount 31.55 96.28
Janue Growth Subaccount 24.92 76.52
Janus International Growth Subaccount 40.49 122.47
Janus Short-Term Bond Subaccount 22.71 69.88
Janus Worldwide Growth Subaccount 27.80 85.14
INVESCO Industrial Income Subaccount 25.11 77.10
INVESCO Utilities Subaccount 25.11 77.10
</TABLE>
The examples provided above assume that no transfer charges or premium taxes
have been assessed. The examples also assume that the annual administrative
charge is $30 and that the Accumulation Value per Contract is $10,000, which
translates the administrative charge into an assumed .30% charge for purposes of
the examples based on a $1,000 investment.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RATE OF RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER
THAN THIS ASSUMED RATE.
-8-
<PAGE>
SUMMARY
GENERAL DESCRIPTION
This prospectus has been designed to provide you with the necessary information
to make a decision on purchasing a Future Dimensions Variable Annuity offered by
Southland and funded by the Variable Account as well as by the Guaranteed
Interest Account.
This summary is intended to provide a brief overview of the more significant
aspects of the Contract. Further detail is provided in this prospectus, the
related Statement of Additional Information, the Contract, and the prospectuses
of the Portfolios. The Contract, together with any applications and any Riders
or Endorsements, constitutes the entire agreement between you and us and should
be retained. For further information, contact the Southland Customer Service
Center.
An allocation of Purchase Payments or Accumulation Value to the Variable Account
under the Contract gives you a choice of numerous Portfolios, all of which are
managed by experienced mutual fund advisers. These Portfolios are available
only to serve as the underlying investment for variable annuity and variable
life insurance contracts issued through separate accounts of Southland as well
as other life insurance companies. They are not available to the general
public.
This Contract also offers a Guaranteed Interest Account where you may allocate
all or a portion of your Purchase Payments and transfer your Accumulation Value.
The Guaranteed Interest Account is a part of our General Account and guarantees
principal and a minimum interest rate of 3%. This interest will be paid
regardless of the actual investment experience of the General Account; we bear
the full amount of the investment risk for any amounts allocated to the
Guaranteed Interest Account.
We do not promise that your Accumulation Value will increase. Depending on the
investment experience of the Subaccounts and interest credited to the Guaranteed
Interest Account, the Accumulation Value, Cash Surrender Value and Death Benefit
may increase or decrease on any day. You bear the investment risk for funds
invested in the Subaccounts but also enjoy the potential rewards.
You have the opportunity to benefit from growth of the Accumulation Value based
on investment results of the Subaccounts and interest credited to the Guaranteed
Interest Account. The Contract also offers a choice of Annuity Payment Options
to which you may apply the Accumulation Value (less taxes incurred but not
deducted) as of the Annuity Date. These Annuity Payment Options are also
available to the Beneficiary to apply the Death Benefit. You have the option to
change the Annuity Date within certain limits.
We will issue a Contract if the Owner and Annuitant are not older than Age 85,
and we will accept additional Purchase Payments prior to the Annuity Date until
the Owner reaches the Age of 86. For an IRA Contract or other Qualified
Contract, you may not make Purchase Payments after March 31 of the year
following the year in which you reach Age 70 1/2. Southland recommends
consulting your tax adviser concerning this matter. (See "FEDERAL TAX
CONSIDERATIONS," page 39.)
The ultimate effect of federal income taxes on the amounts held under a
Contract, on Annuity Payments and on the economic benefits to the Owner,
Annuitant or Beneficiary depends on Southland's tax status and upon the tax
status of the parties concerned. In general, an Owner is not taxed on increases
in value under an annuity contract until some form of distribution is made under
it. There may be tax penalties if you make a withdrawal or Surrender the
Contract before reaching Age 59 1/2. (See "FEDERAL TAX CONSIDERATIONS," page
39.)
-9-
<PAGE>
PURCHASE PAYMENTS
The minimum initial Purchase Payment is $5,000 ($1,000 for an IRA Contract).
The minimum subsequent Purchase Payment we will accept is $500 ($250 for an IRA
Contract or $90 if you have set up your IRA to make Purchase Payments on a
monthly basis.) We may refuse to accept a Purchase Payment if it would cause
the sum of all Purchase Payments received under the Contract to exceed
$1,500,000.
The initial Purchase Payment is allocated to each Subaccount or the Guaranteed
Interest Account, or both, as specified on the application, unless the Contract
is issued in a state that requires the return of Purchase Payments during the
Free Look Period. In those states, your initial Purchase Payment allocated to a
Subaccount will be allocated to the VIP Money Market Subaccount for a period of
15 days (or a longer period if the Free Look Period in your state is longer than
10 days) from the date that the Contract is mailed from the Customer Service
Center. At the expiration of this period, such portion of the Purchase Payment,
as adjusted to reflect the investment performance of the VIP Money Market
Subaccount during this period, is then allocated to the Subaccounts as specified
in the application. (See "YOUR RIGHT TO CANCEL THE CONTRACT," page 20.)
If you elect to invest in a particular Subaccount, at least 1% of your initial
Purchase Payment and any subsequent Purchase Payment must be allocated to that
Subaccount. All percentage allocations must be in whole numbers. We allocate
any subsequent Purchase Payments among the Subaccounts and the Guaranteed
Interest Account in the same proportion that your Subaccount Accumulation Values
and the Guaranteed Interest Account Accumulation Value bear to your Accumulation
Value as of the date we receive the Purchase Payment at our Customer Service
Center, unless otherwise instructed by you. You may designate a different
allocation with respect to any Purchase Payment by sending us Written Notice
with the Purchase Payment. (See "CREDITING AND ALLOCATION OF PURCHASE
PAYMENTS," page 20.)
You may choose to have a specified dollar amount transferred from the VIP Money
Market Subaccount or the Janus Short-Term Bond Subaccount to any other
Subaccounts on a monthly basis prior to the Annuity Date. (See "DOLLAR COST
AVERAGING FACILITY," page 24.)
You may transfer your Accumulation Value between and among the Subaccounts and
the Guaranteed Interest Account any time after the end of the Free Look Period.
Prior to the Annuity Date, there is no charge for the first 12 transfers per
Contract Year. A $25 charge will be assessed for each transfer in excess of 12
during a Contract Year. If you elect a variable Annuity Payment Option, you may
make up to four Annuity Unit exchanges per Contract Year during the Annuity
Period, and no transfer charge will be assessed.
ENHANCED DEATH BENEFIT
The Contract provides an Enhanced Death Benefit to the Beneficiary if the Owner
dies prior to the Annuity Date. For more details, (see "ENHANCED DEATH BENEFIT,"
page 28.)
YOUR RIGHT TO CANCEL THE CONTRACT
At any time during the Free Look Period, you may cancel your Contract and
receive a refund equal to your Accumulation Value plus charges deducted.
However, if required by state law, we will return the Purchase Payments made.
The Free Look Period is a ten day period of time beginning when the Contract is
delivered to you. Some states may require that we provide a longer Free Look
Period.
WITHDRAWALS
After the Free Look Period and prior to the Annuity Date, you may, subject to
certain restrictions, withdraw part of the Cash Surrender Value each year under
any of three options: the Demand Withdrawal option, the Systematic
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<PAGE>
Withdrawal Program or the IRA Income Program. (See "WITHDRAWALS," page 25) A
withdrawal may have adverse federal income tax consequences including the
possibility of being subject to a penalty tax.
SURRENDERING YOUR CONTRACT
You may Surrender the Contract at any time prior to the Annuity Date and receive
its Cash Surrender Value. No Annuity Options are available upon Surrender. No
Surrender may be made on or after the Annuity Date. Surrenders may be subject to
a surrender charge and may have adverse federal income tax consequences. A
penalty tax may also be assessed upon Surrender. (See "CHARGES DEDUCTED FROM
THE ACCUMULATION VALUE," page 31 and "TAXATION OF ANNUITIES," page 40.)
CHARGES AND FEES
We deduct the following charges and fees:
If a Purchase Payment is withdrawn or surrendered within five full Contract
Years since the Contract Anniversary following the Purchase Payment, a surrender
charge is assessed. For example, if a Purchase Payment is made as of the first
day of a Contract Year, a surrender charge will apply against this Purchase
Payment for six full years. No surrender charge is assessed upon the withdrawal
or Surrender of Accumulation Value in excess of aggregate Purchase Payments
(less prior withdrawals) or on Purchase Payments made more than five full
Contract Years since the Contract Anniversary following the Purchase Payment.
For purposes of determining the amount of Purchase Payments withdrawn and the
surrender charge, Accumulation Value in excess of Purchase Payments (less prior
withdrawals) is considered withdrawn before Purchase Payments and Purchase
Payments are considered withdrawn on a first-in-first-out basis. The surrender
charge is 7% of the Purchase Payment if withdrawn in the Contract Year during
which the Purchase Payment was made and reduces each year for the next five
Contract Years and is 0% in the sixth Contract Year following the Contract Year
in which the Purchase Payment was made. (See "CHARGES DEDUCTED FROM THE
ACCUMULATION VALUE," page 31.)
If you take more than one Demand Withdrawal in a Contract Year, we impose a
withdrawal transaction charge equal to the lesser of $25 or 2% of the amount
withdrawn. (See "Demand Withdrawal Option," page 26 and "Withdrawal
Transaction Charge, page 32.)
We charge the Variable Account with a daily asset-based charge equivalent to an
annual rate of 0.15% to cover a portion of our Contract administration costs. (
See "Asset-based Administrative Charge," page 34.)
Prior to the Annuity Date, we charge the Variable Account with a daily asset-
based charge equivalent to an annual rate of 1.37% to compensate us for assuming
certain mortality and expense risks. This charge is reduced to 1.25% during the
Annuity Period. ( See "Mortality and Expense Risk Charge," page 33.)
Prior to the Annuity Date, we deduct an annual administrative charge of $30 per
Contract Year if your aggregate Purchase Payments made less aggregate
withdrawals (and less any withdrawal transaction charges and surrender charges
arising from such withdrawals) are less than $100,000. If your aggregate
Purchase Payments made less aggregate withdrawals (and less any withdrawal
transaction charges and surrender charges arising from such withdrawals) equal
$100,000 or more, the charge is zero. (See "Annual Administrative Charge," page
32.)
Prior to the Annuity Date, a $25 charge will be assessed for each transfer in
excess of 12 during a Contract Year. (See "Excess Transfer Charge," page 33.)
Generally, taxes on Purchase Payments, if any, are incurred as of the Annuity
Date, and a charge for taxes on Purchase Payments is deducted from the
Accumulation Value as of that date. Some jurisdictions impose a tax on Purchase
Payments at the time a Purchase Payment is paid. In those jurisdictions, our
current practice is to pay the tax on Purchase Payments for you and then deduct
the charge for these taxes from your accumulation Value upon
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<PAGE>
Surrender, payment of the Death Benefit or upon the Annuity Date. These taxes
range from 0% to 3.5% of Purchase Payments. (See" Taxes on Purchase Payments,"
page 33.)
There are fees and expenses incurred by the Portfolios. The investment
experience of the Portfolios and the fees and expenses from the Portfolios
underlying the Subaccounts you select will affect your Variable Accumulation
Value and variable Annuity Payments. Please read the prospectus for each of the
Portfolios you are considering for details.
PERFORMANCE INFORMATION
PERFORMANCE DATA FOR SUBACCOUNTS
Southland may advertise or include in sales literature certain performance
related information for the Subaccounts, including yields and average annual
total returns. Certain Portfolios have been in existence prior to the
commencement of the offering of the Contract described in this prospectus. The
Variable Account may advertise the performance of the Subaccounts that invest in
these Portfolios for these prior periods. The performance information of any
period prior to the commencement of the offering of the Contract is calculated
as if the Contract had been offered during those periods, using current charges
and expenses.
Performance information should be considered in light of the investment
objectives, characteristics and quality of the Portfolios in which that
Subaccount invests, and the market conditions during the given time period, and
should not be considered as a representation of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the Subaccounts, see the Statement of Additional Information.
Effective yields, yields and total returns for the Subaccounts are based on the
investment performance of the corresponding Portfolios. The performance of a
Portfolio in part reflects its expenses. See the prospectuses for the
Portfolios.
The yield of the VIP Money Market Subaccount refers to the annualized income
generated by an investment in the Subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly
but, when annualized, the income earned by an investment in the Subaccount is
assumed to be reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment.
The yield of a Subaccount other than the VIP Money Market Subaccount refers to
the annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30-day or one-month period is
generated each period over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time including, but not limited to, a period measured from the date the
Subaccount commenced operations. Average annual total return refers to total
return quotations that are annualized based on an average return over various
periods of time.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average annual percentage change in
the value of an investment in the Subaccount from the beginning date of the
measuring period to the end of that period. This standardized version of
average annual total return reflects all
-12-
<PAGE>
historical investment results, less all charges and deductions applied against
the Subaccount (including any surrender charge that would apply if an owner
terminated the Contract at the end of each period indicated, but excluding any
deductions for premium taxes). When a Subaccount, other than the VIP Money
Market Subaccount, has been in operation for one, five and ten years
respectively, the standard version average annual total return for these periods
will be provided.
In addition to the standard version described above, total return performance
information computed on two different non-standard bases may be used in
advertisements or sales literature. Average annual total return information may
be presented, computed on the same basis as described above, except deductions
will not include the surrender charge. In addition, Southland may from time to
time disclose cumulative total return for Contracts funded by Subaccounts.
From time to time, yields, standard average annual total returns, and non-
standard total returns for the Portfolios may be disclosed, including such
disclosures for periods prior to the date the Variable Account commenced
operations.
Non-standard performance data will only be disclosed if the standard performance
data for the required periods is also disclosed. For additional information
regarding the calculation of other performance data, please refer to the
Statement of Additional Information.
In advertising and sales literature, the performance of each Subaccount may be
compared with the performance of other variable annuity issuers in general or to
the performance of particular types of variable annuities investing in mutual
funds, or investment portfolios of mutual funds with investment objectives
similar to the Subaccount. Lipper Analytical Services, Inc. ("Lipper"), Variable
Annuity Research Data Service ("VARDS") and Morningstar, Inc. ("Morningstar")
are independent services which monitor and rank the performance of variable
annuity issuers in each of the major categories of investment objectives on an
industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance issuers as
well as variable annuity issuers. VARDS rankings compare only variable annuity
issuers. The performance analyses prepared by Lipper, VARDS and Morningstar
each rank such issuers on the basis of total return, assuming reinvestment of
distributions, but do not take sales charges, redemption fees, or certain
expense deductions at the separate account level into consideration. In
addition, VARDS prepares risk rankings, which consider the effects of market
risk on total return performance. This type of ranking provides data as to
which funds provide the highest total return within various categories of funds
defined by the degree of risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and
indices may also be used as a source of performance comparison.
Southland may also report other information including the effect of tax-deferred
compounding on a Subaccount's investment returns, or returns in general, which
may be illustrated by tables, graphs or charts. All income and capital gains
derived from Subaccount investments are reinvested and can lead to substantial
long-term accumulation of assets, provided that the Subaccount investment
experience exceeds 1.52% on an annual basis over many years.
-13-
<PAGE>
7-DAY YIELD FOR VIP MONEY MARKET SUBACCOUNT
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
7-DAY YIELD FOR THE 7-DAY
PERIOD ENDED DECEMBER 31, 1994
- ------------------------------------------------------------------------------------
<S> <C>
Money Market 3.97%
- ------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS FOR SUBACCOUNTS
FOR PERIODS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Since
SUBACCOUNT Inception
of 10 5 3 1
Portfolio Years Years Years Year
- -------------------------------------------------------------------------------------
The Alger American Fund
- -------------------------------------------------------------------------------------
Alger American Small Capitalization 17.10% ___ 11.75% 0.59% (12.94)%
(9/21/88)
- -------------------------------------------------------------------------------------
Alger American MidCap Growth 15.30% ___ ___ ___ (10.15)%
(5/3/93)
- -------------------------------------------------------------------------------------
Alger American Growth (9/21/88) 14.79% ___ 13.14% 8.58% (7.20)%
- -------------------------------------------------------------------------------------
Alger American Leveraged AllCap/7/ ___ ___ ___ ___ ___
- -------------------------------------------------------------------------------------
VIP and VIP II Funds
- -------------------------------------------------------------------------------------
VIP II Asset Manager (9/86/89) 8.16% ___ 8.39% 5.09% (14.69)%
- -------------------------------------------------------------------------------------
VIP II Contrafund/7/ ___ ___ ___ ___ ___
- -------------------------------------------------------------------------------------
VIP Equity-Income (10/9/86) 9.17% ___ 8.03% 10.80% (1.67)%
- -------------------------------------------------------------------------------------
VIP Growth (10/9/86) 10.78% ___ 8.43% 6.05% (8.65)%
- -------------------------------------------------------------------------------------
VIP High Income (9/19/85) 9.13% ___ 11.81% 10.24% 0.1024
- -------------------------------------------------------------------------------------
VIP II Index 500 (8/27/92) 3.50% ___ ___ ___ 0.076
- -------------------------------------------------------------------------------------
VIP II Investment Grade Bond (12/5/88) 4/99% ___ 4.87% 1.14% 0.1233
- -------------------------------------------------------------------------------------
VIP Overseas (1/28/87) 5.30% 3.66% 4.40% 6.93%
- -------------------------------------------------------------------------------------
</TABLE>
- ---------
/7/ Did not commence operations in 1994
-14-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
Since
Inception
of 10 5 3 1
SUBACCOUNT Portfolio Years Years Years Year
- -------------------------------------------------------------------------------------
Janus Aspen Series
- -------------------------------------------------------------------------------------
Aggressive Growth (9/14/93) 21.60% ___ ___ ___ 7.45%
- -------------------------------------------------------------------------------------
Balanced (9/14/93) (0.19)% ___ ___ ___ (7.80)%
- -------------------------------------------------------------------------------------
Growth (9/14/93) 0.58% ___ ___ ___ (5.91)%
- -------------------------------------------------------------------------------------
International Growth (5/2/94) (15.91)%
- -------------------------------------------------------------------------------------
Short-Term Bond (9/14/93) (5.43)% ___ ___ ___ (7.72)%
- -------------------------------------------------------------------------------------
Worldwide Growth (9/14/93) 10.71% (7.12)%
- -------------------------------------------------------------------------------------
INVESCO Variable Insurance Funds, Inc
- -------------------------------------------------------------------------------------
Industrial Income (8/10/94) (14.96)% ___ ___ ___ ___
- -------------------------------------------------------------------------------------
Utilities/7/ ___ ___ ___ ___
- -------------------------------------------------------------------------------------
</TABLE>
________________
/7/ Did not commence operations in 1994
-15-
<PAGE>
CONDENSED FINANCIAL INFORMATION
There is no condensed financial information or other presentation of unit values
included for the Variable Account because, as of the date of this prospectus,
the Variable Account had not yet commenced operations. The audited financial
statements of Southland (as well as the auditors' reports thereon) are in the
Statement of Additional Information.
FACTS ABOUT SOUTHLAND AND THE VARIABLE ACCOUNT
Southland Life Insurance Company is a stock life insurance company organized
under the laws of the State of Texas in 1908. Our headquarters are located at
5780 Powers Ferry Road, N. W., Atlanta, Georgia 30327-4390. We are admitted
to do business in the District of Columbia and all states expect New York and
Vermont. Southland's total assets exceeded $1.4 billion, and shareholder's
equity exceeded $423 million on a Generally Accepted Accounting Principles basis
as of December 31, 1994. We offer a complete line of life insurance and
retirement products, including annuities, individual and group life, and pension
products. Southland's ratings by the independent ratings services are as
follows:
A.M. Best A+ (Superior)
Duff & Phelp's AAA
Moody's Aa2
Standard & Poors AAA
Weiss Research, Inc. A-
The above ratings refer to the claims-paying ability of Southland's General
Account and do not relate to an investment in the Variable Account or the
underlying Portfolios.
Southland is a wholly-owned indirect subsidiary of Internationale Nederlanden
Groep, N.V. ("ING"), one of the world's five largest diversified financial
services organizations. ING is headquartered in The Hague, Netherlands and has
consolidated assets exceeding $206.7 billion as of December 31, 1994.
THE VARIABLE ACCOUNT
All obligations under the Contract are general obligations of Southland. The
Variable Account is a separate investment account used to support our variable
annuity Contracts and for other purposes as permitted by applicable laws and
regulations. The assets of the Variable Account are our property, but are kept
separate from our General Account and our other variable accounts. We may offer
other variable annuity contracts supported by the Variable Account which are not
discussed in this prospectus. The Variable Account may also invest in other
portfolios which are not available to the Contract described in this prospectus.
Income, gains and losses, realized or unrealized, from assets in the Variable
Account are credited to or charged against the Variable Account without regard
to other income, gains or losses of Southland. That portion of the assets of
the Variable Account which is equal to the reserves and other Contract
liabilities with respect to the Variable Account is not chargeable with
liabilities arising out of any other business Southland may conduct. It may,
however, be subject to liabilities arising from Subaccounts whose assets are
attributable to other variable annuity contracts offered by the Variable
Account. If the assets exceed the required reserves and other contract
liabilities, we may transfer the excess to our General Account. The assets in
the Variable Account will at all times, equal or exceed the sum of the
Accumulation Values of all Contracts funded by the Variable Account.
The Variable Account was established on February 25, 1994, and it may invest in
mutual funds or other investment portfolios which we determine to be suitable
for the Contract's purposes. The Variable Account meets the definition
-16-
<PAGE>
of a separate account under federal securities laws. It is registered with the
SEC under the Investment Company Act of 1940 (the "1940 Act") as a unit
investment trust. Such registration does not involve any supervision by the SEC
of the management of the Variable Account or Southland. It is governed by the
laws of Texas, our state of domicile, and may also be governed by laws of other
states in which we do business.
The Variable Account has twenty-one Subaccounts, each of which invests in shares
of a corresponding Portfolio. Therefore, the investment experience of your
Contract depends on the experience of the Subaccounts you select. These
Portfolios are available only to serve as the underlying investment for variable
annuity and variable life insurance contracts issued through separate accounts
of Southland as well as other life insurance companies and as an investment
option under certain qualified retirement plans. They are not available
directly to investors.
THE PORTFOLIOS
Each Subaccount invests in a corresponding Portfolio. See the prospectus for
each of the Portfolios being considered for details.
Shares of these Portfolios are sold to separate accounts of insurance companies,
which may or may not be affiliated with Southland or each other, a practice
known as "shared funding". They may also be sold to separate accounts to serve
as the underlying investment for both variable annuity contracts and variable
life insurance policies, a practice known as "mixed funding". As a result,
there is a possibility that a material conflict may arise between the interests
of Owners of our Contracts, whose Accumulation Values are allocated to the
Variable Account, and of owners of other contracts whose accumulation values are
allocated to one or more other separate accounts investing in any one of the
Portfolios. Shares of some of these Portfolios may also be sold to certain
qualified pension and retirement plans. As a result, there is a possibility
that a material conflict may arise between the interests of Contract Owners
generally or certain classes of Contract Owners, and such retirement plans or
participants in such retirement plans. In the event of any such material
conflicts, Southland will consider what action may be appropriate, including
removing the Portfolio from the Variable Account or replacing the Portfolio with
another portfolio. There are certain risks associated with mixed and shared
funding and with the sale of shares to qualified pension and retirement plans,
as disclosed in each Portfolio's prospectus.
Each of the Portfolios is part of a separate series of an open-end diversified
management investment company which receives investment advice from a registered
investment adviser. The Portfolios as well as their investment objectives are
described below. There is no guarantee that any Portfolio will meet its
investment objectives. Meeting objectives depends on various factors, including,
in certain cases, how well the portfolio manager anticipates changing economic
and market conditions.
Please refer to the prospectus for each of the Portfolios you are considering
for more information. A description of the objectives and investments of each
Portfolio follows:
THE ALGER AMERICAN FUND
- -----------------------
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO - seeks long-term capital
---------------------------------------------
appreciation by investing in a diversified, actively managed portfolio of
equity securities, primarily of companies with total market capitalization
of less than $1 billion.
ALGER AMERICAN GROWTH PORTFOLIO - seeks long-term capital appreciation by
-------------------------------
investing in a diversified, actively managed portfolio of equity
securities, primarily of companies with total market capitalization of $1
billion or greater.
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO - seeks long-term capital
--------------------------------------
appreciation by investing in a diversified, actively managed portfolio of
equity securities, primarily of companies with total market capitalization
between $750 million and $3.5 billion.
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<PAGE>
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO - seeks long-term capital
-----------------------------------------
appreciation by investing in a diversified, actively managed portfolio of
equity securities. The Portfolio may engage in leveraging (up to 33 1/3% of
its assets) and options and futures transactions, which are deemed to be
speculative and which may cause the Portfolio's net asset value to be more
volatile than the net asset value of a fund that does not engage in these
activities.
VARIABLE INSURANCE PRODUCTS FUND ("VIP") AND VARIABLE INSURANCE PRODUCTS FUND II
- --------------------------------------------------------------------------------
("VIP II")
- ----------
VIP MONEY MARKET PORTFOLIO - seeks as high a level of current income as is
--------------------------
consistent with preserving capital and providing liquidity. The Portfolio
will invest only in high quality U.S. dollar-denominated money market
securities of domestic and foreign issuers.
VIP HIGH INCOME PORTFOLIO - seeks high current income by investing in high
-------------------------
yielding, lower-rated, fixed- income securities. Growth of capital is also
considered in security selection.
VIP EQUITY-INCOME PORTFOLIO - seeks high current income by investing in
---------------------------
high yielding, lower-rated, fixed-income securities. Growth of capital is
also considered in security selection.
VIP GROWTH PORTFOLIO - seeks capital appreciation by investing primarily in
--------------------
common stocks, although the Portfolio is not limited to any one type of
security.
VIP OVERSEAS PORTFOLIO - seeks long-term growth of capital, primarily
----------------------
through investments in foreign securities. The Portfolio provides a means
for investors to diversify their own portfolios by participating in
companies and economies outside of the United States.
VIP II INVESTMENT GRADE BOND PORTFOLIO - seeks to obtain as high a level of
--------------------------------------
current income as is consistent with the preservation of capital by
investing in a broad range of investment-grade fixed-income securities. The
Portfolio will maintain a dollar-weighted average maturity of ten years or
less.
VIP II ASSET MANAGER PORTFOLIO - seeks high total return with reduced risk
------------------------------
over the long-term by allocating its assets among domestic and foreign
stocks, bonds, and short-term fixed-income instruments.
VIP II INDEX 500 PORTFOLIO - seeks to provide investment results that
--------------------------
correspond to the total return (i.e., the combination of capital changes
and income) of common stocks publicly traded in the United States. In
seeking this objective, the Portfolio attempts to duplicate the composition
and total return of the Standard & Poor's Composite Index of 500 Common
Stocks while keeping transaction costs and other expenses low. The
Portfolio is designed as a long-term investment option.
VIP II CONTRAFUND PORTFOLIO - seeks capital appreciation by investing
---------------------------
mainly in equity securities of companies that are undervalued or out-of-
favor.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
- ---------------------------------------
INDUSTRIAL INCOME PORTFOLIO - seeks the best possible current income while
---------------------------
following sound investment practices. Capital growth potential is an
additional, but secondary consideration in the selection of portfolio
securities. The Portfolio seeks to achieve its investment objective by
investing in securities which will provide a relatively high yield and
stable return and which, over a period of years, also may provide capital
appreciation.
UTILITIES PORTFOLIO - seeks capital appreciation and income through
-------------------
investments primarily in equity securities of corporations principally
engaged in the public utilities business.
-18-
<PAGE>
JANUS ASPEN SERIES
- ------------------
GROWTH PORTFOLIO - a diversified Portfolio that seeks long-term growth of
----------------
capital by investing primarily in common stocks, with an emphasis on
companies with larger market capitalizations.
AGGRESSIVE GROWTH PORTFOLIO - a nondiversified Portfolio that seeks long-
---------------------------
term growth of capital by investing primarily in common stocks. The common
stocks held by the Portfolio will normally have an average market
capitalization between $1 billion and $5 billion.
WORLDWIDE GROWTH PORTFOLIO - a diversified Portfolio that seeks long-term
--------------------------
growth of capital by investing primarily in common stocks of foreign and
domestic companies.
INTERNATIONAL GROWTH PORTFOLIO - a diversified Portfolio that seeks long-
------------------------------
term growth of capital by investing primarily in common stocks of foreign
companies.
BALANCED PORTFOLIO - a diversified Portfolio that seeks a long-term growth
------------------
of capital balanced by current income. The Portfolio normally invests 40-
60% of its assets in equity securities selected for their growth potential
and 40-60% in fixed-income securities.
SHORT-TERM BOND PORTFOLIO - a diversified Portfolio that seeks a high level
-------------------------
of current income while minimizing interest rate risk while investing in
shorter term fixed-income securities. Its average-weighted maturity is
normally less than three years.
CHANGES WITHIN THE VARIABLE ACCOUNT
We may from time to time make the following changes to the Variable Account:
1. Make additional Subaccounts available to such classes of Contracts as
we may determine. These Subaccounts will invest in Portfolios we find
suitable for the Contract.
2. Eliminate Subaccounts from the Variable Account, combine two or more
Subaccounts or substitute a new Portfolio for the Portfolio in which a
Subaccount invests. A substitution may become necessary if, in our
judgement, a Portfolio is no longer appropriate in light of the
purposes of the Variable Account. A substitution may also become
necessary due to a change in laws or regulations, or a change in a
Portfolio's investment objectives or restrictions, or because the
Portfolio is no longer available for investment, or for some other
reason, such as a declining asset base.
3. Transfer assets of the Variable Account, which we determine to be
associated with the class of contracts to which your Contract belongs,
to another variable account.
4. Withdraw the Variable Account from registration under the 1940 Act.
5. Operate the Variable Account as a management investment company under
the 1940 Act or in any other form permitted by law.
6. Cause one or more Subaccounts to invest in new Portfolios.
7. Create new separate accounts or combine separate accounts, including
the Variable Account.
8. Restrict or eliminate any voting rights as to the Variable Account, as
permitted by applicable laws and regulations.
-19-
<PAGE>
9. Make any changes required by the 1940 Act or the rules or regulations
thereunder or other applicable laws or regulations.
No such changes will be made without any necessary approval of the SEC and
applicable state insurance departments. Contract Owners will be notified of any
changes.
FACTS ABOUT THE CONTRACT
YOUR RIGHT TO CANCEL THE CONTRACT
You may cancel the Contract within your Free Look Period, which is the ten day
period after you receive your Contract. Some states may require a longer Free
Look Period. If you decide to cancel, you may mail or deliver the Contract to
us at our Customer Service Center. We will refund the Accumulation Value plus
any charges we deducted. If you have purchased a Contract in a state that
requires the return of Purchase Payments during the Free Look Period and you
choose to exercise your Free Look right, we will return the Purchase Payment
instead.
PURCHASE PAYMENTS
You purchase the Contract with an initial Purchase Payment. The minimum initial
Purchase Payment is $5,000 ($1,000 for an IRA). We may reduce the minimum
initial Purchase Payment requirements for certain group or sponsored
arrangements. (See "GROUP OR SPONSORED ARRANGEMENTS," page 21.) We generally
will not accept an initial Purchase Payment in excess of $1,500,000 and we
reserve the right to not accept any Purchase Payment for any reason.
We can accept subsequent Purchase Payments until the Owner reaches the Age of
86, or the Annuity Date, if earlier. The minimum subsequent Purchase Payment we
will accept is $500 ($250 for an IRA or $90 if you have set up your IRA Contract
to make Purchase Payments on a monthly basis). We may reduce the minimum
subsequent Purchase Payment requirements for certain group or sponsored
arrangements. We may refuse to accept a Purchase Payment if it would cause the
sum of all Purchase Payments to exceed $1,500,000 and we reserve the right to
not accept any Purchase Payment for any reason.
For IRA Contracts, the maximum aggregate Purchase Payments in any year for an
individual Contract is $2,000. The maximum amount we will accept for a spousal
IRA is the lesser of $2,250 or 100% of compensation, reduced by the contribution
(if any) made by you for the taxable year to your own IRA. However, no more
than $2,000 can go to either your IRA or your spouse's IRA in any one year.
Send Purchase Payments to our Customer Service Center. We will send you a
confirmation notice upon receipt.
CREDITING AND ALLOCATION OF PURCHASE PAYMENTS
If the application for a Contract is properly completed and is accompanied by
all the information necessary to process it, including payment of the initial
Purchase Payment, the initial Purchase Payment will be allocated, as designated
by the Owner, to one or more of the Subaccounts or to the Guaranteed Interest
Account within two business days of receipt of such Purchase Payment by
Southland at our Customer Service Center. If the application is not properly
completed, Southland reserves the right to retain the Purchase Payment for up to
five business days while it attempts to complete the application. If the
application cannot be made complete within five business days, the applicant
will be informed of the reasons for the delay and the initial Purchase Payment
will be returned immediately unless the applicant specifically consents to our
retaining the initial Purchase Payment until the application is made complete.
The initial Purchase Payment will then be credited within two business days
after our receipt of a properly completed application.
We will credit subsequent Purchase Payments that are accepted by us as of the
Valuation Period of receipt at our Customer Service Center.
-20-
<PAGE>
The initial Purchase Payment is allocated among the Subaccounts as specified on
the application, unless the Contract is issued in a state that requires the
return of Purchase Payments during the Free Look Period. In those states, your
initial Purchase Payment allocated to the Guaranteed Interest Account will be
allocated to that Account upon receipt; your initial Purchase Payment allocated
to the Subaccounts will be allocated to the VIP Money Market Subaccount for a
period of 15 days from the date that the Contract is mailed from the Customer
Service Center. At the expiration of this period, such portion of the Purchase
Payment, as adjusted to reflect the investment performance of the VIP Money
Market Subaccount during this period, is then allocated to the Subaccounts as
described above. If your Contract has a Free Look Period of 20 or 30 days, the
allocation to the Subaccounts is made at the expiration of a period of 25 or 35
days (as applicable) from the date that the Contract is mailed from the Customer
Service Center.
You may allocate initial and subsequent Purchase Payments among any or all
Subaccounts available. If you elect to invest in a particular Subaccount, at
least 1% of your Purchase Payment must be allocated to that Subaccount. All
percentage allocations must be in whole numbers.
We allocate any subsequent Purchase Payments among the Subaccounts and the
Guaranteed Interest Account in the same proportion that each of your Subaccount
Accumulation Values and Guaranteed Interest Account Accumulation Value bears to
your Accumulation Value as of the date we receive the Purchase Payment at our
Customer Service Center, unless otherwise instructed by you. You may designate
a different allocation with respect to any Purchase Payment by sending us
Written Notice with the Purchase Payment.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce or eliminate the
surrender charge, the length of time a surrender charge applies, the
administrative charge, the minimum initial Purchase Payment and the minimum
subsequent Purchase Payment requirements, as well as other fees or charges. We
may also increase the number of withdrawals which may be withdrawn without a
surrender charge. Group arrangements include those in which a trustee, an
employer or an association, for example, purchases Contracts covering a group of
individuals on a group basis. Sponsored arrangements include those in which an
employer or association allows us to offer Contracts to its employees or members
on an individual basis. (See "CONTRACT CHARGES AND FEES," page 31.)
Our costs for sales and administration, generally vary with the size and
stability of the group, among other factors. We take all these factors into
account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements. We will make any
reductions according to our rules in effect when an application form for a
Contract is approved. We may change these rules from time to time. If made,
any of the foregoing changes will reflect differences in costs or services and
will not be unfairly discriminatory.
YOUR ACCUMULATION VALUE
The Accumulation Value of your Contract is the sum of Variable Account
Accumulation Value and the Guaranteed Interest Account Accumulation Value. The
Variable Account Accumulation Value is the sum of all the Subaccount
Accumulation Values.
GUARANTEED INTEREST ACCOUNT ACCUMULATION VALUE
The Guaranteed Interest Account Accumulation Value as of the Contract Date is
equal to the amount of the initial Purchase Payment allocated to the Guaranteed
Interest Account.
On subsequent Valuation Days, the Guaranteed Interest Account Accumulation Value
is calculated as follows:
1) The Guaranteed Interest Account Accumulation Value as of the end of
the preceding Valuation Period plus any interest earned during the
Valuation Period; plus
2) Any subsequent Purchase Payments allocated to the Guaranteed Interest
Account during the current Valuation Period; plus
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3) Any Accumulation Value transferred to the Guaranteed Interest Account
during the current Valuation Period; minus
4) Any Accumulation Value transferred from the Guaranteed Interest
Account during the current Valuation Period; minus
5) Any excess transfer charge allocated to the Guaranteed Interest
Account during the current Valuation Period; minus
6) Any withdrawals (and any withdrawal transaction charges and surrender
charges arising from such withdrawals) allocated to the Guaranteed
Interest Account during the current Valuation Period.
SUBACCOUNT ACCUMULATION VALUE
The Subaccount Accumulation Value for any Subaccount as of the Contract Date is
equal to the amount of the initial Purchase Payment allocated to that
Subaccount.
On subsequent Valuation Days, the amount of the Subaccount Accumulation Value is
calculated as follows:
1) The number of Accumulation Units in that Subaccount as of the end of
the preceding Valuation Period multiplied by that Subaccount's
Accumulation Unit Value for the current Valuation Period; plus
2) Any subsequent Purchase Payments allocated to that Subaccount
during the current Valuation Period; plus
3) Any Accumulation Value transferred to such Subaccount
during the current Valuation Period; minus
4) Any Accumulation Value transferred from such Subaccount during the
current Valuation Period; minus
5) Any excess transfer charge allocated to such Subaccount during the
current Valuation Period; minus
6) Any withdrawals (and any withdrawal transaction charges and surrender
charges arising from such withdrawals) allocated to that Subaccount
during the current Valuation Period; minus
7) The portion of the annual administrative charge applicable to that
Subaccount if a Contract Anniversary occurs during the Valuation
Period.
Accumulation Unit Value. Purchase Payments allocated to a Subaccount or amounts
- ------------------------
transferred to a Subaccount are converted into Accumulation Units. For any
Subaccount, the number of Accumulation Units credited is determined by dividing
the dollar amount directed to the Subaccount by the value of the Accumulation
Unit for that Subaccount for the Valuation Period on which the Purchase Payment
is received or the transfer is effective. In this manner, an increase in
Subaccount Accumulation Value under a Contract occurs by the addition of
Accumulation Units of that Subaccount.
The Accumulation Unit value for each Subaccount was arbitrarily set initially at
$10 when the Subaccount was established. Thereafter, for any Subaccount, the
Accumulation Unit value for a Valuation Period equals the Accumulation Unit
value for the preceding Valuation Period multiplied by the Accumulation
Experience Factor (described below) for the Valuation Period.
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Decreases in Subaccount Accumulation Value under a Contract are effected by the
cancellation of Accumulation Units of a Subaccount. Therefore, Surrenders,
withdrawals, transfers out of a Subaccount, payment of a Death Benefit, the
application of the Accumulation Value to an Annuity Payment Option and the
deduction of the annual administrative charge all result in the cancellation of
an appropriate number of Accumulation Units of one or more Subaccounts.
Accumulation Units are cancelled as of the end of the Valuation Period in which
Southland received notice of or instructions regarding the event.
The Accumulation Experience Factor. For each Subaccount, the accumulation
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experience factor reflects the investment experience of the Portfolio in which
that Subaccount invests and the charges assessed against that Subaccount for a
Valuation Period. The accumulation experience factor is calculated by dividing
(1) by (2) and subtracting (3) from the result, where:
(1) is the result of:
a. the net asset value per share of the Portfolio held in the
Subaccount, determined at the end of the current Valuation
Period; plus
b. the per share amount of any dividend or capital gains
distributions made by the Portfolio held in the Subaccount, if
the "ex-dividend" date occurs during the current Valuation
Period; plus or minus
c. a per share charge or credit for any taxes reserved for, which is
determined by Southland to have resulted from the operations of
the Subaccount.
(2) is the net asset value per share of the Portfolio held in the
Subaccount, determined at the end of the last prior Valuation Period.
(3) is a daily factor representing the mortality and expense risk charge
and the asset-based administrative charge deducted from the
Subaccount, adjusted for the number of days in the Valuation Period.
YOUR RIGHT TO TRANSFER
Prior to the Annuity Date and after the Free Look Period, you may transfer your
Accumulation Value among the Subaccounts and the Guaranteed Interest Account.
The minimum amount that may be transferred from each Subaccount or the
Guaranteed Interest Account is the lesser of $100 or the Subaccount Accumulation
Value or the Guaranteed Interest Account Accumulation Value. Percentages must
be in whole numbers. Transfers due to the operation of Dollar Cost Averaging
and Automatic Rebalancing are not included in determining the limit on the
number of transfers allowed without a charge. (See "DOLLAR COST AVERAGING
FACILITY," page 24 and "AUTOMATIC REBALANCING," page 25.) Each request to
transfer is considered one transfer regardless of how many Subaccounts or the
Guaranteed Interest Account are affected by the transfer. We reserve the right
to limit the number of transfers per Contract Year to 12. The table below
summarizes the number of transfers permitted in any one Contract Year without an
excess transfer charge, the total number of transfers permitted in a Contract
Year and the excess transfer charge.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
PRIOR TO ANNUITY DATE ANNUITY PERIOD
- ------------------------------------------------------------------------------
<S> <C> <C>
Free Transfers 12 4
- ------------------------------------------------------------------------------
Total Number of Transfers
Permitted Unlimited 4
- ------------------------------------------------------------------------------
Excess Transfer Charge $25 for each transfer in excess of Not Applicable
12 during any Contract Year
- ------------------------------------------------------------------------------
</TABLE>
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Transfers may be made based upon instructions given by Written Notice or by
telephone. Southland will only honor telephone transfer requests if it has a
currently valid telephone authorization form on file signed by the Owner. (See
"TELEPHONE PRIVILEGES," page 29.)
Southland reserves the right to modify, restrict, suspend or eliminate the
transfer privileges (including the telephone transfer facility) at any time, for
any class of Contracts, for any reason. In particular, Southland reserves the
right to not honor transfers requested by a third party holding a power of
attorney from an Owner where that third party requests simultaneous transfers on
behalf of the Owners of two or more Contracts.
Once during the first 30 days of each Contract Year, you may transfer amounts
from the Guaranteed Interest Account. Transfer requests received within 30 days
prior to the Contract Anniversary will be considered requests to transfer on the
Contract Anniversary. A request to transfer from the Guaranteed Interest
Account that is received on the Contract Anniversary or within the following 30
days will be processed if it is the first such transfer request received during
the 30 day period. Requests for transfers from the Guaranteed Interest Account
received at any other times will not be processed. You may transfer amounts to
the Guaranteed Interest Account at any time.
The maximum transfer amount from the Guaranteed Interest Account to the
Subaccounts of the Variable Account in any Contract Year is the greater of:
(a) 25% of the Guaranteed Interest Account Accumulation Value immediately
prior to the transfer;
(b) $100; or
(c) the sum of the amounts that were transferred out of and withdrawn from
the Guaranteed Interest Account in the prior Contract Year. (For
purposes of calculating this sum, all withdrawals, including those
made under the Systematic Withdrawal Program are included.)
DOLLAR COST AVERAGING FACILITY
If elected at the time of the application or at any time thereafter by Written
Notice, an Owner may systematically transfer on a monthly basis, specified
dollar amounts from the VIP Money Market Subaccount or the Janus Short-Term Bond
Subaccount to other Subaccounts. This is known as the dollar-cost averaging
("Dollar Cost Averaging") method of investment. The fixed dollar amount will
purchase more Accumulation Units of a Subaccount when their value is lower and
fewer units when their value is higher. Over time, the cost per unit averages
out to be less than if all purchases of units had been made at the highest value
and greater than if all purchases had been made at the lowest value. The Dollar
Cost Averaging method of investment reduces the risk of making purchases only
when the price of Accumulation Units is high. It does not assure a profit or
protect against a loss in declining markets.
Owners may only elect Dollar Cost Averaging if their Subaccount Accumulation
Value in either the VIP Money Market Subaccount or the Janus Short-Term Bond
Subaccount is at least $10,000 at the time of the election. The minimum
transfer amount out of the appropriate Subaccount for Dollar Cost Averaging is
$100 per month. The maximum transfer amount out of the appropriate Subaccount
for Dollar Cost Averaging is the Subaccount Accumulation Value in that
Subaccount, at the time of election, divided by 12. If Dollar Cost Averaging
transfers are to be made to more than one Subaccount, percentage allocations of
the transfer amount must be designated as whole number percentages. Dollar
allocations may not be made. If you elect to transfer to more than one
Subaccount, the minimum percentage that may be transferred to any Subaccount is
1% of the total amount transferred under the facility.
The transfer date for Dollar Cost Averaging will be the same calendar day each
month as the Contract Date. If this calendar day is not a Valuation Day, the
next Valuation Day will be used. Once elected, Dollar Cost Averaging remains in
effect for a Contract until the Subaccount Accumulation Value in the Subaccount
from which the transfers are made is depleted, the Annuity Date occurs or until
the Owner cancels the election by Written Notice at least seven days in advance
of the next transfer date. Alternatively, you may specify a date for Dollar
Cost Averaging to terminate. You may also specify a dollar amount so that when
your Accumulation Value reached this dollar amount, Dollar Cost Averaging will
terminate. There is no additional charge for using Dollar Cost
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<PAGE>
Averaging. Southland reserves the right to discontinue offering the Dollar Cost
Averaging facility at any time and for any reason.
You may change the transfer amount or the Subaccounts to which transfers are to
be made once each Contract Year, subject to the above limitations. Any transfer
under this facility will not be included for the purposes of the excess transfer
charge.
If you elect Dollar Cost Averaging and Automatic Rebalancing at the same time,
Dollar Cost Averaging will commence and Autorebalancing will not commence until
the first Valuation Day of the calendar quarter immediately following the
termination of Dollar Cost Averaging. If you elect Dollar Cost Averaging while
the Automatic Rebalancing feature is in effect, Dollar Cost Averaging will not
commence unless you first terminate Automatic Rebalancing by Written Notice.
(See "AUTOMATIC REBALANCING," page 25.)
AUTOMATIC REBALANCING
If elected at the time of the application or requested at any time thereafter by
Written Notice, an Owner may instruct Southland to automatically transfer, on a
quarterly basis, Variable Accumulation Value between and among specified
Subaccounts in order to achieve a particular percentage allocation of Variable
Accumulation Value among such Subaccounts ("Automatic Rebalancing"). Such
percentage allocations must be in whole numbers. Once elected, Automatic
Rebalancing begins on the first Valuation Day of the next calendar quarter (or,
if later, the next calendar quarter after the expiration of the Free-Look
Period).
Owners may stop Automatic Rebalancing at any time at least seven calendar days
before the first Valuation Day in a new calendar quarter. Owners may specify
allocations between and among as many Subaccounts as are available at the time
Automatic Rebalancing is elected. If Automatic Rebalancing is elected but no
allocations are specified, then the rebalancing will be done on the basis of the
Owner's current Purchase Payment allocation instructions. Once Automatic
Rebalancing has been elected, any subsequent allocation instructions that differ
from the then-current Automatic Rebalancing allocation instructions will be
deemed to be a request to change your Automatic Rebalancing allocation. Owners
may change Automatic Rebalancing allocations at any time. Allocation changes
will take effect as of the Valuation Day that we receive your instructions.
Once Automatic Rebalancing is in effect, you may only transfer Variable Account
Accumulation Value among or between Subaccounts by changing your Automatic
Rebalancing allocation instructions. Changes to or termination of Automatic
Rebalancing may be made by instructions given by Written Notice or telephone.
Telephone instructions, however, are only honored if Southland has a currently
valid telephone authorization form on file. (See "TELEPHONE PRIVILEGES," page
29.)
There is no additional charge for Automatic Rebalancing and Automatic
Rebalancing transfers do not count as one the 12 free transfers available during
any Contract Year. If Automatic Rebalancing is elected at the same time as
Dollar Cost Averaging or when Dollar Cost Averaging is in effect, Automatic
Rebalancing will be postponed until the first Valuation Day in the calendar
quarter following the termination of Dollar Cost Averaging.
WITHDRAWALS
Prior to the Annuity Date and after the Free Look Period, you may withdraw part
of the Cash Surrender Value of your Contract. Your request must include tax
withholding information as we may require. Withdrawals may be subject to a 10%
tax penalty. ( See "FEDERAL TAX CONSIDERATIONS," page 39.) A surrender charge
and a withdrawal transaction charge also may be incurred for withdrawals in
excess of certain amounts. (See "CHARGES DEDUCTED FROM THE ACCUMULATION VALUE,"
page 31.)
Certain plans or programs sold on a group or sponsored basis to employee or
professional groups may have additional or fewer restrictions on withdrawal
privileges. (See "GROUP OR SPONSORED ARRANGEMENTS," page 21.)
There are three available withdrawal options: Demand Withdrawals; the
Systematic Withdrawal Program; and the IRA Income Program. All three options
are described below.
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<PAGE>
Demand Withdrawal Option. You may make Demand Withdrawals in minimum amounts of
- ------------------------
$100. The maximum Demand Withdrawal amount is the Cash Surrender Value minus
$500. If the amount of the Demand Withdrawal you specify exceeds the maximum
level, the amount of the Demand Withdrawal will automatically be lowered to the
maximum. (See "SURRENDERS," page 72.)
Unless you specify otherwise, the amount of the Demand Withdrawal will be taken
proportionately from your Subaccount Accumulation Values and Guaranteed Interest
Accumulation Value immediately before the Withdrawal. When specifying otherwise,
you may not withdraw from the Guaranteed Interest Account an amount that is
greater than the total requested Demand Withdrawal amount multiplied by the
ratio of the Guaranteed Interest Account Accumulation Value to the total
Accumulation Value immediately before the withdrawal.
We impose a withdrawal transaction charge for each Demand Withdrawal after the
first in any Contract Year. (See "CHARGES DEDUCTED FROM THE ACCUMULATION
VALUE," page 31.)
Demand Withdrawals may be made based upon instructions given by Written Notice
or by telephone. Southland will only honor a telephone Demand Withdrawal
request if we have a currently valid telephone authorization form on file signed
by the Owner and if the request is for an amount less than $25,000. (See
"TELEPHONE PRIVILEGES," page 29.)
Systematic Withdrawal Program. You may choose to receive systematic withdrawals
- -----------------------------
on a monthly or quarterly basis ("Systematic Withdrawal Program"). Withdrawals
under the Systematic Withdrawal Program will be taken proportionately from your
Subaccount Accumulation Values and Guaranteed Interest Accumulation Value. The
withdrawals under this program may not start sooner than one month after the
Contract Date.
You may select the day of the month when the withdrawals will be made. If no
day is selected, the withdrawals will be made on the same day of the month as
the Contract Date. If this day is not a Valuation Day, the next Valuation Day
will be used. You may select a dollar amount or a percentage amount for your
withdrawal subject to the following maximums:
Frequency Maximum Withdrawal Payment Percentage
- --------- -------------------------------------
Monthly...................1.25% of Accumulation Value on the date of withdrawal
Quarterly.................3.75% of Accumulation Value on the date of withdrawal
Except as described below, payments under this program may not be less than
$100.
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage listed above, the amount
withdrawn will be reduced to equal such percentage. If a percent amount is
selected that exceeds the maximum percentages listed above, the amount withdrawn
will be reduced to equal such percentage. In either case, if the amount to be
withdrawn is then less than $100, the withdrawal will be made, and the
Systematic Withdrawal Program will be canceled.
If the withdrawals under this program end due to an insufficient Accumulation
Value, any remaining Accumulation Value will be paid to you. This will result
in a Surrender of the Contract.
If a Demand Withdrawal is made during a Contract Year when the Systematic
Withdrawal Program is in effect, the remaining payments to be made under the
Systematic Withdrawal Program for that Contract Year will be considered Demand
Withdrawals for the purpose of assessing any applicable surrender charges or
withdrawal transaction charges. Otherwise, withdrawals made under the
Systematic Withdrawal Program are not assessed surrender charges or withdrawal
transaction charges.
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You may change the amount or percentage of your withdrawals under this program
once each Contract Year. You may cancel your participation at any time by
Written Notice, at least seven days prior to the next scheduled withdrawal date.
IRA Income Program - IRA Contracts Only. If you have an IRA Contract, we will
- ---------------------------------------
provide payment of amounts required to be distributed under the Code ("IRA
Income Program"). (See "IRA INCOME PROGRAM," in the Statement of Additional
Information.)
We will determine the amount that is required to be distributed from your
Contract each year based on the information you give us and various choices you
make. If the Systematic Withdrawal Program is in effect at the same time as the
IRA Income Program, additional distributions, if required, will be made at the
same time as the Systematic Withdrawal Program distributions. Otherwise,
minimum distributions will occur when required. For information regarding the
calculation and choices you must make, see the Statement of Additional
Information. The minimum dollar amount of each distribution is $100. At any
time while minimum distributions are being made, if your Cash Surrender Value
falls below $2,000, we will cancel the Contract and send you the amount of your
Cash Surrender Value.
Tax Consequences of Withdrawals. CONSULT YOUR TAX ADVISER REGARDING THE TAX
- -------------------------------
CONSEQUENCES ASSOCIATED WITH TAKING WITHDRAWALS. A withdrawal made before the
taxpayer reaches Age 59 1/2 may result in imposition of a tax penalty of 10% of
the taxable portion withdrawn. Please refer to "FEDERAL TAX CONSIDERATIONS,"
page 39 for more details.
SURRENDERS
You may Surrender the Contract for its Cash Surrender Value at any time prior to
the Annuity Date. Your Contract's Cash Surrender Value fluctuates daily with
the investment experience of the Subaccounts in which you are invested. We do
not guarantee any minimum Cash Surrender Value for amounts invested in the
Subaccounts.
If you do not wish to receive your Cash Surrender Value in a single sum payment
and you are also the Annuitant, you may avoid a surrender charge by accelerating
the Annuity Date under the Contract. However, any designated period selected
under an Annuity Payment Option must be five years or more. (See "SELECTING AN
ANNUITY PAYMENT OPTION," page 34.) Consult your tax adviser regarding the tax
consequences of a Surrender. A Surrender made before age 59 1/2 may result in
the imposition of a 10% penalty tax. (See "FEDERAL TAX CONSIDERATIONS," page
39.)
DEATH BENEFITS
Upon receipt of Due Proof of Death of an Owner before the Annuity Date, the
Death Benefit will be paid according to the provisions in "ENHANCED DEATH
BENEFIT" below. If the Owner is not an individual, the Death Benefit is payable
upon the death of the Annuitant. The Beneficiary can elect to receive the Death
Benefit either as a single lump sum or under an Annuity Option.
Subject to the applicable provisions of the Code discussed under "TAX STATUS OF
THE CONTRACT", page 39, if the Owner (or a Deemed Owner as defined in the Code)
dies prior to the Annuity Date, and:
1. If the Owner's spouse is the joint Owner, then the spouse becomes the
new Owner and no Death Benefit is payable; or
2. If the Owner's spouse is the Beneficiary, then the spouse may elect to
become the Owner (in which case there is no Death Benefit payable) by so
electing within 60 days of the death; if there is no such election, the
Death Benefit is payable to the Beneficiary; or
3. If the Owner's spouse is not the joint Owner or the Beneficiary, then
the Death Benefit is payable to the Beneficiary.
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If Due Proof of Death is not accompanied by the Beneficiary's election of
whether to receive the Death Benefit as a lump sum or under an Annuity Option,
the amount of the Death Benefit will continue to reflect the investment
performance of the Variable Account until such an election is received at our
Customer Service Center. If no such election is received within 60 days of our
receiving Due Proof of Death, we will pay the Death Benefit in a single lump
sum. If the Death Benefit is paid under an Annuity Option, the Beneficiary
becomes the Annuitant and the Contingent Beneficiary becomes the Contingent
Annuitant. Contact our Customer Service Center or your agent for more
information. (See "SELECTING AN ANNUITY PAYMENT OPTION," page 34.)
ENHANCED DEATH BENEFIT
The Death Benefit under the Contract is an enhanced Death Benefit which is
greater than the death benefit payable under some other annuity contracts. The
enhanced Death Benefit is the greatest of the following amounts as of the
Valuation Period on which we receive Due Proof of Death and all information
necessary to process the claim, including the Beneficiary's election of
receiving the Death Benefit in the form of either a single sum or under an
Annuity Payment Option.
1. Purchase Payments made, less withdrawals (and charges associated with
such withdrawals), accumulated at the guaranteed death benefit
accumulation rate shown in your Contract, up to a maximum of two times
(A-B), where A = the sum of all Purchase Payments, and B = the sum of
all withdrawals (and charges associated with such withdrawals); or
2. The Accumulation Value; or
3. The Step-up Benefit (as defined below), plus Purchase Payments made,
less withdrawals (and charges associated with such withdrawals) since
the last step-up anniversary;
The Step-Up Benefit at issue is the initial Purchase Payment. As of each
subsequent step-up anniversary, the then-current Accumulation Value is
compared to the prior determination of the Step-Up Benefit, increased by
Purchase Payments made, less withdrawals (and charges associated with
such withdrawals) since the last step-up anniversary. The greater of
these becomes the new Step-Up Benefit.
The step-up anniversaries are every 6th Contract Anniversary for the
duration of the Contract. (i.e., the 6th, 12th, 18th, etc.)
The amount payable to the Beneficiary is the enhanced Death Benefit as
calculated above, minus any taxes incurred but not previously deducted.
WHEN WE MAKE PAYMENTS
Payments of withdrawals, Surrenders or Death Benefits from the Subaccounts will
usually be made within seven days of receipt of the request at our Customer
Service Center. However, we may postpone the processing of any such
transactions for any of the following reasons:
a) When the New York Stock Exchange ("NYSE") is closed for trading for
other than for customary holiday or weekend closings, or trading on the
NYSE is otherwise restricted, as determined by the SEC;
b) When the SEC determines that an emergency exists that would make the
disposal of securities held in the Variable Account or the determination
of the value of the Variable Account's assets not reasonably
practicable; or
c) When the SEC by order permits a delay for the protection of Contract
Owners.
We may defer up to six months the payment of any withdrawal or proceeds from the
Guaranteed Interest Account.
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TELEPHONE PRIVILEGES
If you have elected this privilege in a form required by us, you may make
transfers or request Demand Withdrawals by telephoning our Customer Service
Center. A telephone authorization form received by Southland at our Customer
Service Center is valid until it is rescinded or revoked by Written Notice or
until a subsequently dated form signed by the Owner is received at the Customer
Service Center. We will send you a written confirmation of all transfers and
withdrawals made pursuant to telephone instructions.
Our Customer Service Center may require a form of personal identification prior
to acting on instructions received by telephone and tape record instructions
received by phone. If Southland follows these procedures, it will not be liable
for any losses due to unauthorized or fraudulent transactions.
THE GUARANTEED INTEREST ACCOUNT
You may allocate all or a portion of your Purchase Payments and transfer your
Accumulation Value to or from the Guaranteed Interest Account, which is part of
our General Account and which pays interest at a declared rate. The General
Account supports our non-variable insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interests in the Guaranteed Interest
Account have not been registered under the Securities Act of 1933, and neither
the Guaranteed Interest Account nor the General Account has been registered as
an investment company under the 1940 Act. Accordingly, neither the General
Account, the Guaranteed Interest Account nor any interest therein are generally
subject to regulation under these Acts. As a result, the staff of the SEC has
not reviewed the disclosures which are included in this prospectus which relate
to the General Account and the Guaranteed Interest Account. These disclosures,
however, may be subject to certain provisions of the federal securities laws
relating to the accuracy and completeness of statements made in this prospectus.
For more details regarding the General Account, see your Contract.
You may accumulate amounts in the Guaranteed Interest Account by (i) allocating
Purchase Payments, (ii) transferring amounts from the Subaccounts, and (iii)
earning interest on amounts you already have in the Guaranteed Interest Account.
(See "CREDITING AND ALLOCATION OF PURCHASE PAYMENTS," page 20.)
The amount you have in the Guaranteed Interest Account at any time is the sum of
all Purchase Payments allocated to this Account, all transfers, and earned
interest. This amount is reduced by amounts transferred out of or withdrawn
from the Guaranteed Interest Account and deductions allocated to the Guaranteed
Interest Account. (See "GUARANTEED INTEREST ACCOUNT ACCUMULATION VALUE," page
21.)
We pay a declared interest rate on all amounts that you have in the Guaranteed
Interest Account. These interest rates will never be less than the minimum
guaranteed effective annual interest rate of 3%. We may declare rates higher
than the guaranteed minimum that will apply to all amounts in the Guaranteed
Interest Account. Such higher interest rates, if declared, are influenced by,
but do not necessarily correspond to, prevailing general market interest rates.
If declared, Southland will determine such higher interest rates at the
beginning of a twelve-month period, and such rates shall apply to all amounts in
the Guaranteed Interest Account throughout that twelve-month period. The Owner
assumes the risk that interest credited may not exceed the guaranteed minimum
rate. Interest at the guaranteed minumum rate or such higher rate as Southland
may determine from year to year, will be paid regardless of the actual
investment experience of the General Account; we bear the full amount of the
investment risk for the amount fortheamount allocated to the Guaranteed
Interest Account.
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ADDITIONAL CONTRACT INFORMATION
THE OWNER
You are the Owner. You are also the Annuitant unless another Annuitant is named
in the application. You have the rights and options described in the Contract.
You and your spouse may be joint Owners; no other joint ownership is allowed.
You (and your spouse, in the case of joint ownership) must be younger than Age
86 as of the Contract Date.
THE ANNUITANT
The Annuitant will receive the Annuity Payments under the Contract as of the
Annuity Date if the Annuitant is living. If the Annuitant dies before the
Annuity Date and a contingent Annuitant is named, the contingent Annuitant
becomes the Annuitant (unless the Owner is not an individual, in which case the
Death Benefit becomes payable). If no contingent Annuitant has been named, the
Owner must designate a new Annuitant. If no designation is made within 30 days
of the Annuitant's death, the Owner will become the Annuitant.
Upon the death of the Annuitant after the Annuity Date, any remaining designated
period Annuity Payments will be continued to any contingent Annuitant. Upon
the death of both the Annuitant and all contingent Annuitants, any remaining
designated period Annuity Payments will be paid to the estate of the last to die
of the Annuitant and the contingent Annuitants. Such amounts may be paid in one
sum if the Owner so elected. (See "SELECTING AN ANNUITY PAYMENT OPTION," page
34.)
THE BENEFICIARY
The Beneficiary is the person to whom we pay the Death Benefit upon the death of
the Owner (or of the Annuitant, if the Owner is not an individual) prior to the
Annuity Date.
The original Beneficiary and any contingent Beneficiaries are named in the
application. contingent Beneficiaries are paid a Death Benefit only if no
Beneficiary survives. If more than one Beneficiary in a class survives, they
will share the Death Benefit equally, unless the Owner's designation provides
otherwise. If there is no designated Beneficiary or contingent Beneficiary
surviving, we will pay the Death Benefit to the Owner's estate. We will pay the
Death Benefit to the most recent Beneficiary designation on file with us.
CHANGE OF OWNER, BENEFICIARY OR ANNUITANT
Prior to the Annuity Date and after the Free Look Period, you may transfer
Ownership of the Contract (unless the Contract is a Qualified Contract) subject
to our published rules at the time of the change. A new Owner must be less than
Age 86.
You may name a new Annuitant prior to the Annuity Date. Any Annuitant or
contingent Annuitant must be younger than Age 86 when named. An Annuitant or
contingent Annuitant that is not an individual may not be named without our
consent. If the Owner is not an individual, the Annuitant may not be changed
without our consent.
The Owner may name a new Beneficiary unless an irrevocable Beneficiary has
previously been named. When an irrevocable Beneficiary has been designated, the
Owner and the irrevocable Beneficiary must act together to make any Beneficiary
changes. If the Contract is a Qualified Contract and a Beneficiary change is
being made, the Owner's spouse must sign a statement agreeing to this
designation.
To make any of these changes, you must send us Written Notice. The change will
take effect as of the day the notice is signed and dated. The change will not
affect any payment made or action taken by us before recording the change at our
Customer Service Center. For possible tax consequences, see "FEDERAL TAX
CONSIDERATIONS," page 39.
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OTHER CONTRACT PROVISIONS
If an Age or sex given in the application is misstated, the amounts payable or
benefits provided by the Contract shall be those that the Purchase Payment would
have bought at the correct Age or sex.
We must receive any election, designation, change, assignment, or any other
change request you make in writing. We may require a return of your Contract for
any Contract change or for paying Death Benefits. If your Contract has been
lost, we will require that you complete and return a "Contract Replacement
Form." The effective date of any change will be the date the request was
signed. Any change will not affect payments made or action taken by us before
the change is recorded at our Customer Service Center.
You may assign this Contract as collateral security upon Written Notice to us.
Once it is recorded with us, the rights of the Owner and Beneficiary are subject
to the assignment. It is your responsibility to make sure the assignment is
valid. There may be tax consequences. (See "FEDERAL TAX CONSIDERATIONS," page
39.)
AUTHORITY TO CHANGE CONTRACT TERMS
Only the President, a Vice President, or the Secretary of Southland has
authority to agree on behalf of the company to any alteration of the Contract or
to any waiver of the right or requirements of the company.
This Contract is intended to qualify as an annuity contract under the Code. To
that end, all terms and provisions of the Contract shall be interpreted to
ensure or maintain such qualification. Southland will make payments and
distributions in the time and manner necessary to maintain such qualification
under the applicable provisions of the Code.
We reserve the right to amend this Contract, to reflect any clarifications or
changes that may be needed or are appropriate, or to conform it to any
applicable changes in the tax requirements, in order to qualify the Contract as
an annuity. We will send you written notice of such amendments.
CONTRACT CHARGES AND FEES
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
General. No sales charge is deducted from Purchase Payments at the time that
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such payments are made. However, within certain time limits described below, a
surrender charge (contingent deferred sales charge) is deducted from
Accumulation Value if a Demand Withdrawal or Surrender occurs prior to the
Annuity Date.
In the event that surrender charges are not sufficient to cover sales expenses,
such expenses will be borne by Southland. Conversely, if the revenue from such
charges exceeds such expenses, the excess of revenues from such charges over
expenses will be retained by Southland. Southland does not currently believe
that the surrender charges deducted will cover the expected costs of
distributing the Contracts. Any shortfall will be made up from Southland's
general assets, which may include amounts derived from the mortality and expense
risk charge.
Charge for Surrender or Demand Withdrawals. The surrender charge is equal to
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the percentage of each Purchase Payment surrendered or withdrawn as shown in the
table below. The surrender charge is separately calculated and applied to each
Purchase Payment at the time that the Payment is surrendered or withdrawn. No
surrender charge applies to Accumulation Value in excess of aggregate Purchase
Payments (less prior withdrawals of such payments) or on Purchase Payments made
more than five full Contract Years since the Contract Anniversary following the
Purchase Payment. For purposes of calculating the surrender charge,
Accumulation Value in excess of aggregate
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Purchase Payments (less prior withdrawals of such payments) is deemed withdrawn
before Purchase Payments and Purchase Payments are considered withdrawn on a
first-in-first-out basis.
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Contract Anniversaries Since Surrender Charge as a Percentage
Purchase Payment Was Made of Purchase Payment Withdrawn
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0 7%
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1 6%
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2 5%
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3 4%
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4 3%
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5 2%
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6+ 0%
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With regard to Demand Withdrawals, the surrender charge is deducted from your
Accumulation Value.
The Amount You May Withdraw Without a Surrender Charge. Demand Withdrawals may
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be taken without a surrender charge in an amount which may be greater than that
provided by other annuity contracts. Each Contract Year, you may withdraw
without a surrender charge, the greater of (1) Accumulation Value in excess of
aggregate Purchase Payments less prior withdrawals (as of the date of the
written request), or (2) 15% of the Accumulation Value as of the last Contract
Anniversary (less any withdrawals already made during the Contract Year,
including any charges arising from such withdrawals, other than withdrawals of
Purchase Payments) plus Purchase Payments held beyond the surrender charge
period.
During any Contract Year, if a Demand Withdrawal is made while the Systematic
Withdrawal Program is in effect, the remaining payments to be made under the
Systematic Withdrawal Program for that Contract Year will be considered Demand
Withdrawals for purposes of calculating withdrawal transaction charges and any
applicable surrender charges. If a Demand Withdrawal is not made in the same
Contract Year, withdrawals made under the Systematic Withdrawal Program will not
be assessed a surrender charge. IRA Income Program withdrawals will not be
assessed a surrender charge.
WITHDRAWAL TRANSACTION CHARGE
Prior to the Annuity Date and after the Free Look Period, you may take one
Demand Withdrawal each Contract Year without a withdrawal transaction charge.
We impose a withdrawal transaction charge on each additional Demand Withdrawal
in that Contract Year equal to the lesser of $25 and 2% of the amount withdrawn.
The withdrawal transaction charge will reduce proportionately your Subaccount
Accumulation Values and Guaranteed Interest Account Accumulation Value. The
withdrawal transaction charge will not apply to withdrawals made pursuant to the
IRA Income Program nor will it apply to withdrawals made pursuant to the
Systematic Withdrawal Program unless a Demand Withdrawal occurs in a Contract
Year while the Systematic Withdrawal Program is in effect. Then, the remaining
payments to be made under the Systematic Withdrawal Program in such a Contract
Year will be considered Demand Withdrawals for purposes of calculating
withdrawal transaction charges. Southland does not expect to make a profit on
this charge.
ANNUAL ADMINISTRATIVE CHARGE
The administrative charge is deducted each year as of the Contract Anniversary.
We also deduct this charge when determining the Cash Surrender Value payable if
you Surrender the Contract prior to the end of a Contract Year. If aggregate
Purchase Payments made less aggregate withdrawals (and any charges arising from
such withdrawals) are
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less than $100,000, the amount deducted is $30 per Contract Year. Otherwise,
the charge is zero. This charge is to cover a portion of our administrative
expenses. Southland does not expect to make a profit on this charge.
The administrative charge is deducted proportionately from your Subaccount
Accumulation Values immediately prior to the deduction. The administrative
charge is not deducted from the Guaranteed Interest Account Accumulation Value.
EXCESS TRANSFER CHARGE
Prior to the Annuity Date, we allow you 12 free transfers among and between the
Subaccounts and the Guaranteed Interest Account per Contract Year. For each
additional transfer, we will charge you $25 at the time each such transfer is
processed. The charge will be deducted proportionately from your Subaccount
Accumulation Values and Guaranteed Interest Account Accumulation Value
immediately prior to the deduction. We do not expect that the total revenues
from the excess transfer charge will be greater than the total expected cost of
administering transfers, on average, over the period that the Contracts are in
force. Any transfer(s) due to the election of Dollar Cost Averaging or
Autorebalancing will not be included in determining if the excess transfer
charge should apply.
After the Annuity Date, only four Annuity Unit exchanges each Contract Year are
allowed, and no transfer charge will be deducted.
TAXES ON PURCHASE PAYMENTS
We make a charge for state and local taxes on Purchase Payments in certain
states and municipalities, which can range from 0% to 3.5% of each Purchase
Payment. The charge generally depends on the Annuitant's place of residence.
Taxes on Purchase Payments are generally incurred by Southland as of the Annuity
Date, and we deduct the charge for taxes on Purchase Payments from your
Accumulation Value as of the Annuity Date. Some jurisdictions impose a tax on
Purchase Payments at the time the Purchase Payments are paid, regardless of the
Annuity Date. In those jurisdictions, our current practice is to pay the tax on
Purchase Payments for you and then deduct the charge for these taxes from your
Accumulation Value upon Surrender, payment of the Death Benefit or upon the
Annuity Date. We reserve the right to deduct any state and local taxes on
Purchase Payments from your Accumulation Value at the time such tax is due.
CHARGES DEDUCTED FROM THE SUBACCOUNTS
MORTALITY AND EXPENSE RISK CHARGE
We will deduct a daily charge from the assets in the Subaccounts to compensate
Southland for mortality and expense risks that we assume under the Contract.
The daily charge prior to the Annuity Date is at the rate of 0.003753%
(equivalent to an annual rate of 1.37%) on the assets of the Variable Account.
The daily charge during the Annuity Period is at the rate of 0.003425%
(equivalent to an annual rate of 1.25%) on the assets in the Subaccounts. Prior
to the Annuity Date, approximately 1.20% of this annual charge is for the
mortality risk and 0.17% is for the expense risk. During the Annuity Period,
when the Death Benefit is no longer available, approximately 1.08% of this
annual charge is for mortality risk and 0.17% is for expense risk. The
mortality and expense risk charge is not deducted from the Guaranteed Interest
Account. If the mortality and expense risk charge is insufficient to cover the
cost of mortality and expense risks undertaken by Southland, Southland will bear
the shortfall. Conversely, if the charge proves more than sufficient, the
excess will be profit to Southland and will be available for any proper
corporate purpose including, among other things, payment of sales expenses.
The mortality risk assumed is the risk that Annuitants, as a group, will live
for a longer time than our actuarial tables predict. As a result, we would be
paying more in Annuity Payments under certain Annuity Payment Options than we
planned. Southland also assumes a mortality risk for paying an Enhanced Death
Benefit, which in periods of declining value and higher mortality rates, could
result in a loss for Southland. The expense risk assumed is the risk
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that it will cost us more to issue and administer the Contract than we expected
in setting certain of the charge levels guaranteed in the Contract.
ASSET-BASED ADMINISTRATIVE CHARGE
We will deduct a daily charge from the assets of the Subaccounts to compensate
Southland for a portion of the administrative expenses under the Contract. The
daily charge is at a rate of 0.000411% (equivalent to an annual rate of 0.15%)
on the assets in the Subaccounts. This charge is not deducted from the
Guaranteed Interest Account.
We do not expect that the total revenues from the asset-based administrative
charge and the annual administrative charge will be greater than the total
expected cost of administering the Contracts, on average, excluding costs that
are properly categorized as distribution expenses, over the period that the
Contracts are in force.
PORTFOLIO EXPENSES
There are fees and charges deducted from the Portfolios. Please read the
prospectus for the Portfolios you are considering for complete details.
SELECTING AN ANNUITY PAYMENT OPTION
GENERAL PROVISIONS
Annuity Payment Option. The proceeds from the Contract are applied to purchase
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the Annuity Payment Option selected by the Owner. The proceeds, for this
purpose, are the Accumulation Value under the Contract on the Annuity Date less
the amount of any taxes incurred by Southland in connection with the Contract
but not yet deducted under the Contract. If such taxes are deducted at this
time, the deduction is allocated proportionately to your Subaccount Accumulation
Values and Guaranteed Interest Account Accumulation Value on the Valuation Day
immediately prior to the Annuity Date.
Election and Changes of Annuity Date. The Annuity Date is the date as of which
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Annuity Payments begin. It may be elected on your application. You may elect
any Annuity Date that is no earlier than the second Contract Anniversary but no
later than the Annuitant's 85th birthday or the tenth Contract Anniversary,
whichever is later. If no Annuity Date is elected in the application, the
Annuity Date will be the first day of the month following the Annuitant's 85th
birthday or the first day of the month following the tenth Contract Anniversary,
whichever is later. However, the Annuity Date limitations may vary according to
state regulation. Please refer to your Contract for a description of these
limitations. You may also change the Annuity Date by Written Notice at least 60
days prior to the then currently elected Annuity Date of the Contract. For an
IRA Contract, the Code stipulates that distributions must commence no later
than April 1 of the calendar year following the calendar year in which you
attain Age 70 1/2. Consult your tax adviser.
Election and Changes of Annuity Payment Option. The Annuity Payment Option is
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composed of both a provision which specifies the type of annuity to be paid and
a provision which determines how long the annuity will be paid, the frequency,
and the amount of each payment. The Owner elects the Annuity Payment Option.
The Owner may change the Annuity Payment Option at any time prior to the Annuity
Date. The Owner must specifically elect if the Annuitant is to have the right
to commute payments as provided below. In selecting an Annuity Payment Option,
the Owner must determine whether the payments will be variable or fixed in
amount. If variable, the Owner must select the Subaccounts to which proceeds
will be applied to purchase variable Annuity Payments. The Owner may also
select a combination of fixed and variable payments as described below. If no
selection has been made by the Annuity Date, proceeds from any Guaranteed
Interest Account Accumulation Value will be applied to purchase fixed Annuity
Payments and proceeds from each Subaccount Accumulation Value will be applied to
purchase variable Annuity Payments from that Subaccount. If no selection has
been made, the Annuity Payment Option will be Annuity Payment Option II (for a
variable Annuity Payment, Benchmark Rate of Return of 3%) with a
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designated period of 20 years. Any Death Benefit applied to purchase Annuity
Payments is allocated among the Subaccounts and/or the Guaranteed Interest
Account as instructed by the Beneficiary rather than the Owner.
ANNUITY PAYMENTS
We will provide Annuity Payments under the Annuity Payment Option in effect on
the Annuity Date.
Fixed Annuity Payments. Fixed Annuity Payments are periodic payments, the
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amount of which are fixed and guaranteed as to dollar amount throughout the
Annuity Period.
The dollar amount of each such Annuity Payment depends on the form and duration
of the Annuity Payment Option chosen, the age of the Annuitant, the sex of the
Annuitant (if applicable), the amount of proceeds from the Contract applied to
purchase the Annuity Payments and the applicable annuity purchase rates
(guaranteed minimum rates are found in the Contract). The guaranteed minimum
rates in the Contract are based on a minimum guaranteed interest rate of 3%.
Southland may, in its sole discretion, make Annuity Payments in an amount based
on a higher interest rate. If fixed Annuity Payments are computed based on an
interest rate in excess of the guaranteed minimum interest rate, then, for the
period of the higher rate, the dollar amount of such Annuity Payments will be
greater than the dollar amount based on 3%. We guarantee that any higher rate
will be in effect for at least 12 months.
Variable Annuity Payments. Variable Annuity Payments are periodic payments
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that: (1) are not pre-determined nor guaranteed as to dollar amount; and (2)
vary in amount with the investment experience of the Subaccounts which you
select.
The dollar amount of the first variable Annuity Payment is determined in the
same manner as that of a fixed Annuity Payment. Therefore, for any particular
amount of proceeds applied to a particular Annuity Payment Option, the dollar
amount of the first variable Annuity Payment and the first fixed Annuity Payment
(assuming such fixed payment is based on the minimum guaranteed 3% interest rate
and that the 3% Benchmark Rate of Return is selected for such variable payment)
would be the same. Variable Annuity Payments after the first payment will vary,
to reflect the net investment performance of the Subaccount(s) selected.
The net investment performance of a Subaccount is translated into a variation in
the amount of variable Annuity Payments through the use of Annuity Units. The
amount of the first variable Annuity Payment associated with each Subaccount is
applied to purchase Annuity Units at the Annuity Unit value for the Subaccount
on the Annuity Date by dividing the dollar amount of the payment by the Annuity
Unit Value. The number of Annuity Units of each Subaccount attributable to a
Contract then remains fixed unless (1) an exchange of Annuity Units is made, or
(2) Annuity Payment Option III is selected, both as described below. Each
Subaccount has a separate Annuity Unit value that changes with each Valuation
Period in substantially the same manner as do Accumulation Units of the
Subaccount.
The dollar value of each variable Annuity Payment after the first is equal to
the sum of the amounts determined by multiplying the number of Annuity Units
under a Contract of each selected Subaccount by the Annuity Unit value for the
Subaccount for the Valuation Period which ends immediately preceding the date of
each such payment. If the net investment return of the Subaccount for a payment
period is equal to the pro-rated portion of the 3% or 5% (whichever was
selected) Benchmark Rate of Return, the variable Annuity Payment attributable to
that Subaccount for that period will equal the payment for the prior period. To
the extent that such net investment return exceeds an annualized rate of 3% or
5% (as applicable) for a payment period, the payment for that period will be
greater than the payment for the prior period and to the extent that such return
for a period falls short of an annualized rate of 3% or 5% (as applicable), the
payment for that period will be less than the payment for the prior period.
You must elect either a 3% or 5% Benchmark Rate of Return. Your election may
not be changed after the Annuity Date. Electing the 5% Benchmark Rate of Return
would mean a larger initial Annuity Payment than would electing the 3% rate.
However, electing the 5% rate would result in more slowly rising or more rapidly
falling subsequent payments if actual investment experience varied from an
annual compound rate of 5% than would be the case if the 3% rate were elected
and actual investment experience varied from an annual compound rate of 3%.
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After the Annuity Date, the Annuitant may change the selected Subaccount(s) by
Written Notice, up to four times per contract year. Such a change will be made
by exchanging Annuity Units of one Subaccount for another on an equivalent
dollar value basis.
See the Statement of Additional Information for examples of Annuity Unit value
calculations and variable Annuity Payment calculations.
Combination Annuity Payment. A combination Annuity Payment is an Annuity
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Payment in which a portion of the payment is variable and a portion of the
payment is fixed as to dollar amount. If a combination Annuity Payment is
selected, at least 25% of the proceeds must be allocated to either option you
elect. As of the Annuity Date, we will then allocate proceeds between the
Guaranteed Interest Account and the Subaccounts to meet the proportions
selected. Any amount of Accumulation Value to be transferred to or from the
Guaranteed Interest Account will be allocated among the Subaccounts in the same
proportion that the Accumulation Value of each of the Subaccounts bears to the
total Variable Accumulation Value. Once a combination Annuity Payment is
selected, the Annuitant may subsequently increase the allocation to a fixed
Annuity Payment but may not increase the allocation to a variable Annuity
Payment. Any Death Benefit to be applied under a combination Annuity Payment
will be allocated to the Subaccounts and the Guaranteed Interest Account as
instructed by the Beneficiary rather than the Owner.
Frequency and Amount of Annuity Payments. Annuity Payments will be made to the
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Annuitant based on the Annuity Payment Option and frequency elected. Payments
may be made monthly, quarterly, semiannually or annually. If we do not receive
Written Notice from you, the Annuity Payments will be made monthly. There may
be certain restrictions on minimum payments that we will allow. We may require
that a one sum payment be made and that the Contract be cancelled if the
proceeds to be applied is less than $2,000. If the payments to the Annuitant
are ever less than $20, we may change the frequency of payments to result in
payments of at least that amount or require a one sum payment, in which case the
Contract would be cancelled.
ANNUITY PAYMENT OPTIONS
OPTION I. PAYMENTS FOR A DESIGNATED PERIOD. Payments 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. If variable Annuity Payments are elected, the dollar amount of
each payment will vary based on the Annuity Unit values of the Subaccount(s)
selected. Variable Annuity Payments may only be elected if prior to the Annuity
Date, the Owner has made an irrevocable election to give the Annuitant the right
to commute any remaining designated period installments under this Annuity
Payment Option. (See "Commuting Provisions" below.) If fixed Annuity Payments
are elected, the dollar amount of each payment will depend upon the designated
period elected and will be equal unless one or more payments are based on an
interest rate in excess of 3%, as described previously. If the Annuitant dies
before the end of the designated period, payments will be continued to the
contingent Annuitant (or to the Owner's estate if no contingent Annuitant has
been named) until the end of the designated period. The amount of the first
monthly payment for each $1,000 of proceeds applied is shown in Payment Option I
Table in your Contract.
OPTION II. LIFE INCOME WITH PAYMENTS FOR A DESIGNATED PERIOD. Payments will be
made in 1, 2, 4, or 12 installments per year throughout the Annuitant's
lifetime, or if longer, for a period of 5, 10, 15, or 20 years as elected. If a
fixed Annuity Payment is elected, the dollar amount of each Payment will be
equal unless one or more payments are based on an interest rate in excess of 3%,
as described previously. If variable Annuity Payments are elected, the dollar
amounts of each payment will vary based on the Annuity Unit values of the
selected Subaccount(s). If the Annuitant dies before the end of the designated
period, payments will be continued to the contingent Annuitant (or to the
Annuitant's estate if no contingent Annuitant has been named) until the end of
the designated period. The amount of each payment will depend upon the
Annuitant's sex, age at the time the first payment is due, the designated period
elected and, if variable Annuity Payments are elected, the investment experience
of the Subaccount(s) selected. The amount of the first monthly payout for each
$1,000 of proceeds applied is shown in Payment Option II Table in your Contract.
This option is only available for ages shown in these Tables.
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OPTION III. JOINT AND LAST SURVIVOR. Payments will be made in 1, 2, 4, or 12
installments per year as elected while both Annuitants are living. The amount
of each payment will depend upon the Age and sex of each Annuitant at the time
the first payment is due. Upon the death of one Annuitant, the Annuity Payments
will continue throughout the lifetime of the surviving Annuitant.
If fixed Annuity Payments are elected, the dollar amount of each payment will be
level while both Annuitants are living and upon the death of one Annuitant will
be reduced to 2/3rds of the installment dollar amount while both Annuitants were
living.
If variable Annuity Payments are elected, the number of Annuity Units supporting
each payment will remain fixed while both Annuitants are living and upon the
death of one Annuitant will be reduced by one-third. The dollar amounts of each
payment will vary based on the Annuity Unit Values of the selected
Subaccount(s).
OPTION IV. OTHER. Payments will be made in any other manner as agreed upon in
writing between you or the Beneficiary and us.
Payments Other Than Monthly. The Annuity Payment Option Tables in your Contract
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show the first monthly installments for Annuity Payment Options I and II. To
arrive at the first annual, semiannual or quarterly payments, multiply the
appropriate figures by 11.839, 5.963 or 2.993 respectively for a Guaranteed
Interest Rate or Benchmark Total Return of 3% and by 11.736, 5.939 or 2.988
respectively if the Benchmark Total Return is 5%. Factors for other designated
periods or for other options that may be provided by mutual agreement will be
provided upon reasonable request.
Commuting Provisions. If the Owner so elects, the Annuitant may commute
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remaining designated period installments under Annuity Payment Option I. If the
election allows, the contingent Annuitant may commute remaining designated
period payments after the death of the Annuitant under Annuity Payment Options I
or II. If no Contingent Annuitant is named, any remaining designated period
payments may be commuted by the Annuitant's estate. Any computation shall be at
the appropriate Benchmark Rate of Return.
OTHER INFORMATION
REPORTS TO OWNERS
Prior to the Annuity Date, we will send you a report within 30 days after the
end of each calendar quarter. This report will show the Subaccount and
Guaranteed Interest Account Accumulation Values, the total Accumulation Value,
the Cash Surrender Value and the Death Benefit, as of the end of the calendar
quarter, as well as activity under the Contract since the last report. During
the Annuity Period, we will send you a report within 30 days after the end of
each calendar year showing any information required by law. The reports will
include any information that may be required by the SEC or the insurance
supervisory official of the jurisdiction in which the Contract is delivered.
We will also send you copies of any shareholder reports of the Portfolios in
which the Subaccounts invest, as well as any other reports, notices or documents
required by law to be furnished to Contract Owners.
DISTRIBUTION OF THE CONTRACTS
ING America Equities, Inc. is principal underwriter and distributor of the
Contracts as well as of other contracts issued through the Variable Account and
other separate accounts of Southland. ING America Equities, Inc. is an
affiliate of Southland. It is registered with the SEC as a broker-dealer and is
a member of the National Association of Securities Dealers, Inc. ("NASD"). We
pay ING America Equities, Inc. for acting as principal underwriter under a
distribution agreement. The Contract will be offered on a continuous basis and
Southland does not anticipate discontinuing the offer.
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ING America Equities, Inc. will enter into sales agreements with broker-dealers
to solicit for the sale of the Contracts through registered representatives who
are licensed to sell securities and variable insurance products, including
variable annuities. Such broker-dealers will generally receive commissions
based on a percent of Purchase Payments made (up to a maximum of 6%), a percent
of Accumulation Value (up to a maximum of .20%), or a combination of these two.
The writing agent will receive a percentage of these commissions from the
respective broker-dealer, depending on the practice of that broker-dealer.
These commissions will be paid to the broker-dealer by ING America Equities,
Inc. and will not be charged to the Owner.
ADMINISTRATIVE SERVICES
Financial Administrative Services Corporation provides administrative services
for Southland at our Customer Service Center at P.O. Box 173789, Denver, CO
80217-3789. The administrative services include processing Purchase Payments,
Annuity Payments, Death Benefits, Surrenders, withdrawals, and transfers;
preparing confirmation notices, and periodic reports; calculating mortality and
expense risk charges; calculating Accumulation and Annuity Unit values; and
distributing voting materials and tax reports.
VOTING PRIVILEGES
In accordance with its view of current applicable law, Southland will vote fund
shares held in the Variable Account at regular and special shareholder meetings
of the Portfolios in accordance with instructions received from persons having
voting interests in the corresponding Subaccounts. If, however, the 1940 Act or
any regulation thereunder should be amended, or if the present interpretation
thereof should change, or Southland otherwise determines that it is allowed to
vote the shares in its own right, it may elect to do so.
The number of votes that an Owner or Annuitant has the right to instruct will be
calculated separately for each Subaccount, and may include fractional votes.
Prior to the Annuity Date, an Owner holds a voting interest in each Subaccount
to which the Variable Accumulation Value is allocated. After the Annuity Date,
the Annuitant has a voting interest in each Subaccount from which variable
Annuity Payments are made.
For each Owner, the number of votes attributable to a Subaccount will be
determined by dividing the Owner's Subaccount Accumulation Value by the net
asset value per share of the Portfolio in which that Subaccount invests. For
each Annuitant, the number of votes attributable to a Subaccount will be
determined by dividing the liability for future variable Annuity Payments to be
paid from that Subaccount by the net asset value per share of the Portfolio in
which that Subaccount invests. This liability for future payments is calculated
on the basis of the mortality assumptions, the selected Benchmark Rate of Return
and the Annuity Unit value of that Subaccount on the date that the number of
votes is determined. As variable Annuity Payments are made to the Annuitant,
the liability for future payments decreases as does the number of votes.
The number of votes available to an Owner or Annuitant will be determined as of
the date coincident with the date established by the Portfolio for determining
shareholders eligible to vote at the relevant meeting of the Portfolio's
shareholders. Voting instructions will be solicited by written communication
prior to such meeting in accordance with procedures established for the
Portfolio. Each Owner or Annuitant having a voting interest in a Subaccount
will receive proxy materials and reports relating to any meeting of shareholders
of the Portfolio in which that Subaccount invests.
Portfolio shares as to which no timely instructions are received and shares held
by Southland in a Subaccount as to which no Owner or Annuitant has a beneficial
interest will be voted in proportion to the voting instructions which are
received with respect to all Contracts participating in that Subaccount. Voting
instructions to abstain on any item to be voted upon will be applied to reduce
the total number of votes eligible to be cast on a matter. Under the 1940 Act,
certain actions affecting the Variable Account (such as some of those described
under "CHANGES WITHIN THE VARIABLE ACCOUNT," page 19) may require Contract
Owner approval. In that case, you will be entitled to vote in proportion to
your Variable Accumulation Value.
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LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or to
which the assets of the Variable Account are subject. Southland, as an
insurance company, is ordinarily involved in litigation. We do not believe that
any current litigation is material to Southland's ability to meet its
obligations under the Contract or to the Variable Account nor do we expect to
incur significant losses from such actions.
FEDERAL TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS GENERAL AND
IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is not intended to address the tax consequences
resulting from all of the situations in which a person may be entitled to or
may receive a distribution under the annuity contract issued by Southland. Any
person concerned about these tax implications should consult a competent tax
advisor before initiating any transaction. This discussion is based upon
Southland's understanding of the present federal income tax laws, as they are
currently interpreted by the Internal Revenue Service ("IRS"). No
representation is made as to the likelihood of the continuation of the present
federal income tax laws or of the current interpretation by the IRS. Moreover,
no attempt has been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis or purchased and
used in connection with plans qualifying for favorable tax treatment. The
Qualified Contract is designed for use by individuals whose Purchase Payments
are comprised solely of proceeds from and/or contributions under retirement
plans which are intended to qualify as plans entitled to special income tax
treatment under sections 401(a), 403(b), or 408 of the Code. The ultimate effect
of federal income taxes on the amounts held under a Contract, or annuity
payments, and on the economic benefit to the owner, the annuitant, or the
beneficiary depends on the type of retirement plan, on the tax and employment
status of the individual concerned, and on Southland's tax status. In addition,
certain requirements must be satisfied in purchasing a Qualified Contract with
proceeds from a tax-qualified plan and receiving distributions from a Qualified
Contract in order to continue receiving favorable tax treatment. Therefore,
purchasers of Qualified Contracts should seek competent legal and tax advice
regarding the suitability of a Contract for their situation, the applicable
requirements, and the tax treatment of the rights and benefits of a Contract.
The following discussion assumes that Qualified Contracts are purchased with
proceeds from and/or contributions under retirement plans that qualify for the
intended special federal income tax treatment.
TAX STATUS OF THE CONTRACT
Diversification Requirements. Section 817(h) of the Code provides that
separate account investment underlying a contract must be "adequately
diversified" in accordance with Treasury regulations in order for the contract
to qualify as an annuity contract under Section 72 of the Code. The Variable
Account, through each underlying fund, intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various subaccounts may be
invested. Although Southland does not have direct control over the funds in
which the Variable Account invests, we believe that each fund in which the
Variable Account owns shares will meet the diversification requirements, and
therefore, the Contract will be treated as an annuity contract under the Code.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable annuity contract owner's gross income. The IRS has stated in
published rulings that a variable contract owner will be considered the owner
of separate account assets if the contract owner possesses incidents of
ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has also announced, in connection
with the
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issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause
the investor (i.e., the contract owner), rather than the insurance company,
---
to be treated as the owner of the assets in the account." This announcement
also states that guidance would be issued by way of regulations or rulings on
the "extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets." As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under the Contracts are similar to, but different
in certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of a Contract has the choice of several subaccounts in which
to allocate net purchase payments and Contract values, and may be able to
transfer among subaccounts more frequently than in such rulings. These
differences could result in an owner being treated as the owner of the assets of
the Variable Account. In addition, Southland does not know what standards will
be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. Southland therefore reserves the
right to modify the Contract as necessary to attempt to prevent the contract
owner from being considered the owner of the assets of the Variable Account.
Required Distributions. In order to be treated as an annuity contract
----------------------
for federal income tax purposes, section 72(s) of the Code requires any Non-
Qualified Contract to provide that: (a) if any owner dies on or after the
annuity date but prior to the time the entire interest in the contract has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of that
owner's death; and (b) if any owner dies prior to the annuity date, the entire
interest in the Contract will be distributed within five years after the date of
the owner's death. These requirements will be considered satisfied as to any
portion of the owner's interest which is payable to or for the benefit of a
"designated beneficiary" and which is distributed over the life of such
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of that
owner's death. The owner's "designated beneficiary" is the person designated by
such owner as a beneficiary and to whom ownership of the contract passes by
reason of death and must be a natural person. However, if the owner's
"designated beneficiary" is the surviving spouse of the owner, the Contract may
be continued with the surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions which are intended to
comply with the requirements of section 72(s) of the Code, although no
regulations interpreting these requirements have yet been issued. Southland
intends to review such provisions and modify them if necessary to assure that
they comply with the requirements of Code section 72(s) when clarified by
regulation or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as
annuity contracts for federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in
general. Southland believes that an owner who is a natural person is not
taxed on increases in the value of a Contract until distribution occurs by
withdrawing all or part of the Accumulation Value (e.g., partial withdrawals
and surrenders) or as annuity payments under the payment option elected. For
this purpose, the assignment, pledge, or agreement to assign or pledge any
portion of the Accumulation Value (and in the case of a Qualified Contract,
any portion of an interest in the qualified plan) generally will be treated
as a distribution. The taxable portion of a distribution (in the form of a
single sum payment or payment option) is taxable as ordinary income.
The owner of any annuity contract who is not a natural person generally
must include in income any increase in the excess of the contract value over
the "investment in the contract" during the taxable year. There are some
exceptions to this rule, and a prospective owner that is not a natural person
may wish to discuss these with a competent tax advisor.
<PAGE>
The following discussion generally applies to Contracts owned by natural
persons.
Partial Withdrawals. In the case of a partial withdrawal from a Qualified
-------------------
Contract, under section 72(e) of the Code, a ratable portion of the amount
received is taxable, generally based on the ratio of the "investment in the
contract" to the participant's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the portion,
if any, of any Purchase Payments paid by or on behalf of the individual under a
Contract which was not excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the "investment in the
contract" can be zero. Special tax rules may be available for certain
distributions from Qualified Contracts.
In the case of a partial withdrawal (including Systematic and Demand
Withdrawals) from a Non-Qualified Contract, under section 72(e), any amounts
received are generally first treated as taxable income to the extent that the
Accumulation Value immediately before the partial withdrawal exceeds the
"investment in the contract" at that time. Any additional amount withdrawn is
not taxable.
In the case of a full surrender under a Qualified or Non-Qualified
Contract, the amount received generally will be taxable only to the extent it
exceeds the "investment in the contract."
Section 1035 of the Code generally provides that no gain or loss shall be
recognized on the exchange of one annuity contract for another. If the
surrendered contract was issued prior to August 14, 1982, the tax rules formerly
provided that the surrender was taxable only to the extent the amount received
exceeds the owner's investment in the contract will continue to apply to amounts
allocable to investments in that contract prior to August 14, 1982. In contrast,
contracts issued after January 19, 1985 in a Code section 1035 exchange are
treated as new contracts for purposes for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to section 1035
transactions. Prospective owners wishing to take advantage of section 1035
should consult their tax adviser.
Annuity Payments. Although tax consequences may vary depending on the
----------------
payment option elected under an annuity contract, under Code section 72(b),
generally (prior to recovery of the investment in the contract) gross income
does not include that part of any amount received as an annuity under an annuity
contract that bears the same ratio to such amount as the investment in the
contract bears to the expected return at the annuity starting date. For variable
annuity payments, the taxable portion is generally determined by an equation
that establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the "investment in the contract" by the
total number of expected periodic payments. However, the entire distribution
will be taxable once the recipient has recovered the dollar amount of his or her
"investment in the contract." For fixed annuity payments, in general, there is
no tax on the portion of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder of each annuity
payment is taxable until the recovery of the investment in the contract, and
thereafter the full amount or each annuity payment is taxable. If death occurs
before full recovery of the investment in the contract, the unrecovered amount
may be deducted on the annuitant's final tax return.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
----------------------------------
Contract because of the death of an owner. Generally, such amounts are
includible in the income of the recipient as follows: (i) if distributed in a
lump sum, they are taxed in the same manner as a full surrender of the contract
or (ii) if distributed under a payment option, they are taxed in the same way as
annuity payments.
Penalty Tax on Certain Withdrawals. In the case of a distribution
----------------------------------
pursuant to a Non-Qualified Contract, there may be imposed a federal penalty tax
equal to 10% of the amount treated as taxable income. In general, however, there
is no penalty on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of the holder (or if the holder is not
an individual, the death of the primary annuitant);
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3. attributable to the taxpayer's becoming disabled;
4. a part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer
and his or her designated beneficiary;
5. made under certain annuities issued in connection with structured
settlement agreements; and
6. made under an annuity contract that is purchased with a single purchase
payment when the annuity date is no later than a year from purchase of
the annuity and substantially equal periodic payments are made, not less
frequently than annually, during the annuity payment period.
Other tax penalties may apply to certain distributions under a Qualified
Contract.
Possible Changes in Taxation. In past years, legislation has been proposed
----------------------------
that would have adversely modified the federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of non-
qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of this
prospectus Congress is not considering any legislation regarding taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date of the
change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership of a Contract, the designation of an annuitant,
payee or other beneficiary who is not also the owner, the selection of certain
annuity dates or the exchange of a Contract may result in certain tax
consequences to the owner that are not discussed herein. An owner contemplating
any such transfer, assignment, or exchange of a Contract should contact a
competent tax advisor with respect to the potential tax effects of such a
transaction.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for
the recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, distributions from certain qualified
plans are generally subject to mandatory withholding. Certain states also
require withholding of state income tax whenever federal income tax is withheld.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts that are issued by Southland
(or its affiliates) to the same owner during any calendar year are treated as
one annuity contract for purposes of determining the amount includible in gross
income under section 72(e) of the Code. The effects of this rule are not yet
clear; however, it could affect the time when income is taxable and the amount
that might be subject to the 10% penalty tax described above. In addition, the
Treasury Department has specific authority to issue regulations that prevent the
avoidance of section 72(e) of the Code through the serial purchase of annuity
contracts or otherwise. There may also be other situations in which the
Treasury Department may conclude that it would be appropriate to aggregate two
or more annuity contracts purchased by the same owner. Accordingly, a Contract
owner should consult a competent tax advisor before purchasing more than one
annuity contract.
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TAXATION OF QUALIFIED PLANS
The Contracts are designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances. Therefore, no attempt is
made to provide more than general information about the use of the Contracts
with the various types of qualified retirement plans. Contract owners, the
annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract, but Southland shall not be bound by the terms and conditions of
such plans to the extent such terms contradict the Contract, unless Southland
consents. Brief descriptions follow of the various types of qualified
retirement plans in connection with a Contract. Southland will amend the
Contract as necessary to conform it to the requirements of such plan.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Section
------------------------------------------------------------
401(a) of the Code permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish these plans for themselves and their employees. Such retirement plans
may permit the purchase of the Contract to provide benefits under the plans.
Employers intending to use the Contract with such plans should seek competent
advice.
Individual Retirement Annuities. Section 408 of the Code permits eligible
-------------------------------
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on
the amount that may be contributed, the persons who may be eligible, and on the
time when distributions may commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" on a tax-deferred basis
into an IRA. Sales of the Contract for use with IRAs may be subject to special
requirements of the Internal Revenue Service. Employers may establish
Simplified Employee Pension (SEP) Plans to provide IRA contributions on behalf
of their employees.
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of
-----------------------
certain section 501(c)(3) organizations and public schools to exclude from their
gross income the purchase payments paid, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These purchase
payments may be subject to FICA (social security) tax.
Deferred Compensation Plans. Section 457 of the Code provides for certain
---------------------------
deferred compensation plans. These plans may be offered with respect to service
for state governments, local governments, political subdivisions, agencies,
instrumentalities, certain affiliates of such entities, and tax exempt
organizations. The plans may permit participants to specify the form of
investment for their deferred compensation account. All investments are owned
by the sponsoring employer and are subject to the claims of the general
creditors of the employer.
POSSIBLE CHARGE FOR SOUTHLAND'S TAXES
At the present time, Southland makes no charge to the subaccounts for any
Federal, state, or local taxes that Southland incurs which may be attributable
to such subaccounts or the Contracts. Southland, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the subaccounts or to the Contracts.
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OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in the Prospectus. Further, the
Federal income tax consequences discussed herein reflect Southland's
understanding of current law and the law may change. Federal estate and state
and local estate, inheritance and other tax consequences of ownership or receipt
of distributions under a Contract depend on the individual circumstances of each
owner or recipient of the distribution. A competent tax advisor should be
consulted for further information.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more details
concerning subjects discussed in this Prospectus. The following is the Table of
Contents for that statement.
SOUTHLAND LIFE INSURANCE COMPANY.................................... 1
PERFORMANCE INFORMATION............................................. 1
Money Market Subaccount Yields................................... 1
Other Subaccount Yields.......................................... 3
Average Annual Total Returns..................................... 4
Other Total Returns.............................................. 6
Effect of the Annual Administrative Charge on Performance Data... 6
VARIABLE ANNUITY PAYMENTS........................................... 6
Annuity Unit Value............................................... 6
Illustration of Calculation of Annuity Unit Value................ 8
Illustration of Variable Annuity Payment......................... 8
VALUATION DAYS...................................................... 8
TERMINATION OF PARTICIPATION AGREEMENTS............................. 9
The Alger American Fund.......................................... 9
Variable Insurance Products Funds................................ 9
INVESCO Variable Investment Funds, Inc........................... 10
Janus Aspen Series............................................... 10
IRA INCOME PROGRAM.................................................. 11
LEGAL MATTERS....................................................... 12
OTHER INFORMATION................................................... 12
EXPERTS............................................................. 12
FINANCIAL STATEMENTS................................................ 13
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