<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996
File No. 33-89574
File No. 811-8976
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------
Pre-Effective Amendment No.
------ ------
Post-Effective Amendment No. 1 X
------ ------
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
------
Amendment No. 2 X
----- ------
SOUTHLAND SEPARATE ACCOUNT A1
(Exact Name of Registrant)
------------------------
SOUTHLAND LIFE INSURANCE COMPANY
(Exact Name of Depositor)
-----------------------
5780 Powers Ferry Road
Atlanta, GA 30327-4390
Depositor's Telephone Number: (770) 980-5663
Francis J. Mulcahy, Esquire
5780 Powers Ferry Road
Atlanta, GA 30327-4390
(Name and Address of Agent for Service of Process)
------------------------------------------------
Copy to:
--------
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 2004-2404
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
immediately upon filing pursuant to paragraph (b)
- -----
X on May 1, 1996, pursuant to paragraph (b)
- -----
60 days after filing pursuant to paragraph (a)
- -----
on (date) pursuant to paragraph (a) of Rule 486
- -----
PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS
ELECTED TO REGISTER AN INDEFINITE AMOUNT OF SECURITIES. PURSUANT TO PARAGRAPH
(B)(2) OF RULE 24F-2, THE REGISTRANT ELECTED NOT TO FILE A RULE 24F-2 NOTICE
BECAUSE IT DID NOT SELL ANY SECURITIES DURING THE MOST RECENT FISCAL YEAR.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rules 481(a) and 495(a)
Showing location in Part A (prospectus) and Part B (statement of additional
information) of registration statement of information required by Form N-4
PART A
<TABLE>
<CAPTION>
<S> <C>
ITEM OF FORM N-4 PROSPECTUS CAPTION
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis Fee Tables; Summary
4. Condensed Financial Information Condensed Financial Information
5. General
(a) Depositor Southland Life Insurance Company
(b) Registrant The Variable Account
(c) Portfolio Company The Portfolios
(d) Fund Prospectus The Portfolios
(e) Voting Rights Voting Privileges
(f) Administrators N/A
6. Deductions and Expenses
(a) General Charges and Fees; Summary
(b) Sales Load Charges and Fees; Summary
(c) Special Purchase Plan Group or Sponsored Arrangements
(d) Commissions Distribution of the Contracts
(e) Expenses - Registrant Charges and Fees; Summary
(f) Fund Expenses Charges and Fees
(g) Organizational Expenses N/A
7. Contracts
(a) Persons with Rights Summary; Changes to the Variable Account;
Facts About the Contracts; Other
Information; Selecting an Annuity
Payment Option; Voting Rights; Death
Benefits
(b)(i) Allocation of Purchase Payments Summary; Your Right to Cancel the
Contract; Crediting and Allocation
of Purchase Payments
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(ii) Transfers Summary; Your Right to Transfer;
Annuity Payment
(iii) Exchanges N/A
(c) Changes Changes to the Variable Account; Facts
About the Contracts
(d) Inquiries Cover Page; Summary
8. Annuity Period Summary; Selecting and Annuity
Option
9. Death Benefit Death Benefits
10. Purchases and Contract Value
(a) Purchases Summary; Purchase Payments; Your
Right to Cancel the Contract; Crediting
and Allocation of Purchase Payments;
Your Right to Transfer; Selecting
an Annuity Option
(b) Valuation Definitions; Facts About the
Contracts; Selecting an Annuity
Payment Opiton
(c) Daily Calculation Definitions; Facts About the
Contracts; Selecting
an Annuity Payment Option
(d) Underwriter Distribution of the Contracts
11. Redemptions
(a) - By Owners Summary; Surrenders; Annuity
Payments; Annuity Payment Options;
Federal Tax Matters
- By Annuitant N/A
(b) Texas ORP N/A
(c) Check Delay When We Make Payments
(d) Lapse N/A
(e) Free Look Summary; Your Right to Cancel the
Contract
12. Taxes Summary; Federal Tax Considerations
13. Legal Proceedings Legal Proceedings
14. Table of Contents for the Statement Statement of Additional Information
of Additional Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B
<S> <C>
ITEM OF N-4 PART B CAPTION
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Southland Life Insurance Company
18. Services
(a) Fees and Expenses of Registrant Charges and Fees (prospectus)
(b) Management Contracts N/A
(c) Custodian Safekeeping of Variable Account Assets
Independent Public Accountant Experts
(d) Assets of Registrant The Variable Account (prospectus)
(e) Affiliated Persons Southland Life Insurance Company;
Southland Life Insurance Company
(prospectus)
(f) Principal Underwriter Distribution of the Contracts (prospectus)
19. Purchase of Securities Being Offered Distribution of the Contracts (prospectus)
20. Underwriters Distribution of the Contracts (prospectus)
21. Calculation of Performance Data Performance Information; Appendix A -
Performance Information (prospectus)
22. Annuity Payments Variable Annuity Payments; Annuity
Payments (prospectus); Selecting an
Annuity Payment Option (prospectus)
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART C
ITEM OF N-4 PART C CAPTION
<S> <C>
24. Financial Statements and Exhibits Financial Statements and Exhibits
(a) Financial Statements (a) Financial Statements
(b) Exhibits (b) Exhibits
25. Directors and Officers of the Depositor Directors and Officers of Southland Life
Insurance Company
26. Persons Controlled By or Under Persons Controlled By or Under
Common Control with the Common Control with the Depositor
Depositor or Registrant or Registrant
27. Number of Contract Owners Number of Contract Owners
28. Indemnification Indemnification
29. Principal Underwriters Principal Underwriter
30. Location of Accounts and Records Location of Books and Records
31. Management Services Management Services
32. Undertakings Undertakings and Representations
</TABLE>
Signature Page Signatures
<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 capital on a tax-deferred
basis for retirement or other long-term purposes. The Contract may be 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 May 1, 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
- -----------------------------------------------------------------------------
UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE PORTFOLIOS BEING
- -----------------------------------------------------------------------
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>
ISSUED BY: DISTRIBUTED BY: CUSTOMER SERVICE CENTER:
<S> <C> <C>
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 80217-3789 Atlanta, GA 30327-4390 Denver, CO 80217-3789
---------------------------------
8515 East Orchard Road - 9T2
Englewood, CO 80111
</TABLE>
Date of Prospectus: May 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS................................................... -1-
FEE TABLE..................................................... -4-
SUMMARY....................................................... -8-
PURCHASE PAYMENTS.......................................... -9-
ENHANCED DEATH BENEFIT..................................... -9-
YOUR RIGHT TO CANCEL THE CONTRACT.......................... -9-
WITHDRAWALS................................................ -9-
SURRENDERING YOUR CONTRACT................................. -10-
CHARGES AND FEES........................................... -10-
CONDENSED FINANCIAL INFORMATION............................... -11-
FACTS ABOUT SOUTHLAND AND THE VARIABLE ACCOUNT................ -11-
THE VARIABLE ACCOUNT....................................... -11-
THE PORTFOLIOS............................................. -12-
CHANGES WITHIN THE VARIABLE ACCOUNT........................ -14-
FACTS ABOUT THE CONTRACT...................................... -15-
YOUR RIGHT TO CANCEL THE CONTRACT.......................... -15-
PURCHASE PAYMENTS.......................................... -15-
CREDITING AND ALLOCATION OF PURCHASE PAYMENTS.............. -16-
GROUP OR SPONSORED ARRANGEMENTS............................ -16-
YOUR ACCUMULATION VALUE.................................... -17-
GUARANTEED INTEREST ACCOUNT ACCUMULATION VALUE............. -17-
SUBACCOUNT ACCUMULATION VALUE.............................. -17-
YOUR RIGHT TO TRANSFER..................................... -19-
DOLLAR COST AVERAGING FACILITY............................. -20-
AUTOMATIC REBALANCING...................................... -21-
WITHDRAWALS................................................ -21-
SURRENDERS................................................. -23-
DEATH BENEFITS............................................. -23-
ENHANCED DEATH BENEFIT..................................... -24-
WHEN WE MAKE PAYMENTS...................................... -24-
TELEPHONE PRIVILEGES.......................................... -25-
THE GUARANTEED INTEREST ACCOUNT............................... -25-
ADDITIONAL CONTRACT INFORMATION............................... -26-
THE OWNER.................................................. -26-
ii
<PAGE>
THE ANNUITANT................................................ -26-
THE BENEFICIARY.............................................. -26-
CHANGE OF OWNER, BENEFICIARY OR ANNUITANT.................... -26-
OTHER CONTRACT PROVISIONS.................................... -27-
AUTHORITY TO CHANGE CONTRACT TERMS........................... -27-
CONTRACT CHARGES AND FEES....................................... -27-
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE................. -27-
CHARGES DEDUCTED FROM THE SUBACCOUNTS........................ -30-
PORTFOLIO EXPENSES........................................... -30-
SELECTING AN ANNUITY PAYMENT OPTION............................. -30-
GENERAL PROVISIONS........................................... -30-
ANNUITY PAYMENTS............................................. -31-
ANNUITY PAYMENT OPTIONS...................................... -33-
OTHER INFORMATION............................................... -34-
REPORTS TO OWNERS............................................ -34-
DISTRIBUTION OF THE CONTRACTS................................ -34-
CUSTOMER SERVICE CENTER...................................... -34-
VOTING PRIVILEGES............................................ -35-
LEGAL PROCEEDINGS............................................ -35-
FEDERAL TAX CONSIDERATIONS...................................... -36-
INTRODUCTION................................................. -36-
TAX STATUS OF THE CONTRACT................................... -36-
TAXATION OF ANNUITIES........................................ -37-
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT............ -39-
WITHHOLDING.................................................. -39-
MULTIPLE CONTRACTS........................................... -39-
TAXATION OF QUALIFIED PLANS.................................. -40-
POSSIBLE CHARGE FOR SOUTHLAND'S TAXES........................ -41-
OTHER TAX CONSEQUENCES....................................... -41-
STATEMENT OF ADDITIONAL INFORMATION............................. -41-
APPENDIX A - PERFORMANCE INFORMATION............................ -A-1-
PERFORMANCE DATA FOR SUBACCOUNTS................................ -A-1-
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.
iii
<PAGE>
DEFINITIONS
As used in this prospectus, the following terms have the indicated meanings.
- ----------------------------------------------------------------------------
There are other capitalized terms which are explained or defined in other parts
- -------------------------------------------------------------------------------
of this prospectus.
- -------------------
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.
-1-
<PAGE>
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.
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.
-2-
<PAGE>
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.
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.
-3-
<PAGE>
FEE TABLE
The following 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, 1995. Premium taxes may be
applicable depending upon the laws of various jurisdictions. For a more complete
description of the various costs and expenses, see "CONTRACT CHARGES AND FEES"
and the prospectuses for each Portfolio.
<TABLE>
<CAPTION>
<S> <C>
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%
----
</TABLE>
- -----------------
/1// The withdrawal transaction charge is the lesser of 2% of the amount
any Contract Year. (See "Withdrawal Transaction Charge," page 29.)
-4-
<PAGE>
ANNUAL PORTFOLIO EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Other Total Annual
Expenses Expenses
Management (after (after
(Advisory) Fees reimbursements) reimbursements)
<S> <C> <C> <C>
The Alger American Fund
Alger American Growth Portfolio 0.75% 0.10% 0.85%
- -----------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio 0.85% 0.71%///// 1.56%
- -----------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth Portfolio 0.80% 0.10% 0.90%
- -----------------------------------------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio 0.85% 0.07% 0.92%
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund and Variable Insurance Products Fund II
- -----------------------------------------------------------------------------------------------------------------
VIP Equity-Income Portfolio 0.51% 0.10% 0.61%
- -----------------------------------------------------------------------------------------------------------------
VIP Growth Portfolio 0.61% 0.09% 0.70%
- -----------------------------------------------------------------------------------------------------------------
VIP High Income Portfolio 0.60% 0.11% 0.71%
- -----------------------------------------------------------------------------------------------------------------
VIP Money Market Portfolio 0.24% 0.09% 0.33%
- -----------------------------------------------------------------------------------------------------------------
VIP Overseas Portfolio 0.76% 0.15% 0.91%
- -----------------------------------------------------------------------------------------------------------------
VIP II Asset Manager Portfolio 0.71% 0.08% 0.79%/2//
- -----------------------------------------------------------------------------------------------------------------
VIP II Contrafund Portfolio 0.61% 0.11% 0.72%/2//
- -----------------------------------------------------------------------------------------------------------------
VIP II Index 500 Portfolio 0.09% 0.19% 0.28%/3//
- -----------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond Portfolio 0.45% 0.14% 0.59%
</TABLE>
- ------------------
/1/ Included in Other Expenses is 0.06% of interest expense. The adviser
has agreed to reimburse the Portfolio for expenses in excess of certain amounts.
Absent reimbursements, the amounts of Other Expenses and Total Annual Expenses
would have been 3.07% and 3.92% respectively.
/2/ The adviser has directed certain portfolio trades to brokers who paid a
portion of the Portfolio's expenses. Without this expense reduction, Total
Annual Expenses for Asset Manager and Contrafund Portfolios would have been
0.81% and 0.73% respectively.
/3/ The adviser has agreed to reimburse a portion of the Portfolio's expenses.
Absent reimbursement, Management Fees, Other Expenses and Total Annual Expenses
would have been 0.28%, 0.19% and 0.47% respectively.
-5-
<PAGE>
ANNUAL PORTFOLIO EXPENSES (CONTINUED)
(as a percentage of portfolio average net assets)
<TABLE>
<CAPTION>
Other Total Annual
Expenses Expenses
Management (after (after
(Advisory) Fees reimbursements) reimbursements)
<S> <C> <C> <C>
Janus Aspen Series/4//
Aggressive Growth Portfolio 0.75% 0.11% 0.86%
Balanced Portfolio 0.82% 0.55% 1.37%
Growth Portfolio 0.65% 0.13% 0.78%
International Growth Portfolio 0.84% 1.85% 2.69%
Short-Term Bond Portfolio 0.00% 0.70% 0.70%
Worldwide Growth Portfolio 0.68% 0.22% 0.90%
INVESCO Variable Investment Funds, Inc.
Industrial Income Portfolio 0.75% 0.15% 0.90%/5/
Utilities Portfolio 0.60% 0.30% 0.90%/5/
</TABLE>
- -------------------
/4/ The expense figures shown are net of fee waivers or reductions from Janus
Capital. Without such waivers or reductions, Management Fees, Other Expenses and
Total Annual Expenses respectively were: 0.82%, 0.11% and 0.93% for Aggressive
Growth Portfolio; 1.00%, 0.55% and 1.55% for Balanced Portfolio; 0.85%, 0.13%
and 0.98% for Growth Portfolio; 1.00%, 2.57% and 3.57% for International Growth
Portfolio; 0.65%, 0.72% and 1.37% for Short-Term Bond Portfolio; and 0.87%,
0.22% and 1.09% for Worldwide Growth Portfolio.
/5/ The expense figures shown are net of certain reimbursements from INVESCO
Funds Group, Inc. If such voluntary expense reimbursements were not made, the
Total Annual Expenses of the Industrial Income Portfolio and the Utilities
Portfolio would have been 2.31% and 57.13%, respectively.
-6-
<PAGE>
The following examples depict the dollar amount of expenses that would be
incurred under this Contract assuming a $1,000 initial Purchase Payment and a
5% annual rate of return on assets. The examples provided ssume 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 $30,000, which translates the administrative charge into an
assumed .10% for purposes of the examples based on a $1,000 investment.
<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR CONTRACT AT IF YOU DO NOT SURRENDER YOUR
THE END OF THE APPLICABLE CONTRACT OR IF YOU ANNUITIZE AT THE
TIME PERIOD. END OF THE APPLICABLE TIME PERIOD.
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 3 5 10 1 3 5 0
YEAR YEARS YEARS YEARS YEAR YEARS YEARS YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alger American Small Capitalization 95 128 163 281 25 78 133 281
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth 95 127 162 279 25 77 132 279
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Growth 95 126 159 275 25 76 129 275
- ------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap 101 146 193 340 31 96 163 340
- ------------------------------------------------------------------------------------------------------------------------------------
VIP Growth 93 121 152 260 23 71 122 260
- ------------------------------------------------------------------------------------------------------------------------------------
VIP Overseas 95 127 162 280 25 77 132 280
- ------------------------------------------------------------------------------------------------------------------------------------
VIP Money Market 90 111 134 224 20 61 104 224
- ------------------------------------------------------------------------------------------------------------------------------------
VIP Equity-Income 92 119 148 251 22 69 118 251
- ------------------------------------------------------------------------------------------------------------------------------------
VIP High Income 93 122 152 261 23 72 122 261
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager 94 125 157 271 24 75 127 271
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Contrafund 93 122 153 263 23 72 123 263
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Index 500 89 109 131 219 19 59 101 213
- ------------------------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond 92 118 147 249 22 68 117 249
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Aggressive Growth 95 126 160 275 25 76 130 275
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Balanced 100 141 184 323 30 91 154 323
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Growth 94 124 156 268 24 74 126 268
- ------------------------------------------------------------------------------------------------------------------------------------
Janus International Growth 112 178 244 436 42 128 214 436
- -----------------------------------------------------------------------------------------------------------------------------------
Janus Short-Term Bond 93 121 152 260 23 71 122 260
- ------------------------------------------------------------------------------------------------------------------------------------
Janus Worldwide Growth 95 127 162 279 25 77 132 279
- ------------------------------------------------------------------------------------------------------------------------------------
INVESCO Industrial Income 95 127 162 279 25 77 132 279
- ------------------------------------------------------------------------------------------------------------------------------------
INVESCO Utilities 95 127 162 279 25 77 132 279
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
-7-
<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 generally
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 directly 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 generally 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 1336
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
38.)
-8-
<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 15.)
All Purchase Payment percentage allocations must be in whole numbers. We
allocate any Purchase Payments received after the Free Look Period among the
Subaccounts and the Guaranteed Interest Account according to the allocation
instructions in your application or in your most recent Written Notice. You may,
by telephone, designate a different allocation with respect to any Purchase
Payment, if a currently valid telephone authorization form is on file with us.
(See "CREDITING AND ALLOCATION OF PURCHASE PAYMENTS," page 16.)
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 20.)
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 24.)
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.
-9-
<PAGE>
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 Withdrawal
Program or the IRA Income Program. (See "WITHDRAWALS," page 21.) 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 92700.)
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 927
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 21 and "Withdrawal
Transaction Charge, page 29.)
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 30.)
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 30.)
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
29.)
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 29.)
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 Surrender, payment of the Death Benefit or upon the
Annuity Date. These taxes range from 0% to 3.5% of Purchase Payments. In
jurisdictions where such state and local taxes are incurred as of the
-10-
<PAGE>
Annuity Date, a charge for such taxes is deducted from the Accumulation Value as
of that date. (See" Taxes on Purchase Payments," page 29.)
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.
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' report 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 except New York and
Vermont. Southland's total assets exceeded $ 1.8 billion, and shareholder's
equity exceeded $ 386 million on a Generally Accepted Accounting Principles
basis as of December 31, 1995. We offer a complete line of life insurance and
retirement products, including annuities, individual and group life, and pension
products.
Southland is a wholly-owned indirect subsidiary of ING 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
$ 247.2 billion as of December 31, 1995.
-11-
<PAGE>
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 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
-12-
<PAGE>
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 at least 65% of its total assets in equity securities
of companies that, at the time of purchase of the securities, have total market
capitalization within the range of companies included in the Russell 2000 Growth
Index, updated quarterly.
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 at least 65% of its total assets in equity securities of companies
that, at the time of purchase of the securities, have total market
capitalization within the range of companies included in the S&P MidCap 400
Index, updated quarterly.
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 income by investing primarily
- -------------------------
in high yielding, lower-rated, fixed-income securities. Growth of capital is
also considered in security selection.
VIP EQUITY-INCOME PORTFOLIO - seeks reasonable income by investing primarily in
- ---------------------------
income-producing equity securities. In selecting investments, the Portfolio also
considers potential for capital appreciation.
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
primarily in a broad range of investment-grade fixed-income securities.
-13-
<PAGE>
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 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 considered undervalued or out-of-favor
by the Portfolio's manager.
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.
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, with an emphasis on
securities issued by medium-sized companies.
WORLDWIDE GROWTH PORTFOLIO - a diversified Portfolio that seeks long-term growth
- --------------------------
of capital by investing primarily in common stocks of foreign and domestic
issuers.
INTERNATIONAL GROWTH PORTFOLIO - a diversified Portfolio that seeks long-term
- -----------------------------
growth of capital by investing primarily in common stocks of foreign issuers.
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 securities selected primarily for their growth potential and 40-60% of
its assets in securities selected primarily for their income potential.
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.
-14-
<PAGE>
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.
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 16.) 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.
-15-
<PAGE>
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. Checks should be made
payable to Southland Life Insurance Company. 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.
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 as well as to the Guaranteed Interest Account. All
Purchase Payment percentage allocations must be in whole numbers. Subsequent to
your initial Purchase Payment, we allocate any additional Purchase Payments
among the Subaccounts and the Guaranteed Interest Account on the same basis as
the initial Purchase Payment unless we receive a Written Notice with new
instructions. You may,
-16-
<PAGE>
by telephone, designate a different allocation with
respect to any Purchase Payment to be made, if a currently valid telephone
authorization form is on file with us. (See "TELEPHONE PRIVILEGES," page 25.)
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 effected 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 27.)
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
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.
-17-
<PAGE>
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, if any, 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.
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
- ----------------------------------
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:
-18-
<PAGE>
(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
20 and "AUTOMATIC REBALANCING," page 21.) Each request to transfer is
considered one transfer regardless of how many Subaccounts or the Guaranteed
Interest Account are affected by the transfer. Except for Contracts issued in
certain states, 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>
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 25.)
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. Such third-party transfers may
cause increased trading and transaction costs, disruption of planned investment
strategies, forced and unplanned portfolio turnover, lost opportunity costs and
may subject the Portfolios to large asset swings that diminish the Portfolios'
ability to provide maximum investment return to all Owners.
-19-
<PAGE>
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.
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
Subaccount Accumulation Value in the VIP Money Market Subaccount or Janus
Short-Term Bond Subaccount, as applicable, reached this dollar amount, Dollar
Cost Averaging will terminate. There is no additional charge for using Dollar
Cost Averaging. Southland reserves the right to discontinue offering the Dollar
Cost Averaging facility at any time and for any reason. Any transfer under this
facility will not be included for the purposes of the excess transfer charge.
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. Telephone
instructions, however, are only honored if a currently valid telephone
authorization form is on file with us. (See "TELEPHONE PRIVILEGES," page 25.)
-20-
<PAGE>
If you elect Dollar Cost Averaging and Automatic Rebalancing at the same time,
Dollar Cost Averaging will commence and Automatic Rebalancing 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 21.)
AUTOMATIC REBALANCING
If elected at the time of the application or if subsequently requested prior to
the Annuity Date 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
-21-
<PAGE>
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 with us. (See "TELEPHONE PRIVILEGES,"
page 25.)
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 133600ACCUMULATION 927.)
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 16.)
There are three available withdrawal options: Demand Withdrawals; the
Systematic Withdrawal Program; and the IRA Income Program. All three options are
described below.
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 723
-22-
<PAGE>
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 927
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 25.)
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.
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.
-23-
<PAGE>
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") unless the minimum distributions are otherwise satisfied. (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 1336
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 30.) 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
1336
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 36, 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.
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
-24-
<PAGE>
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 30.)
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 (0% after Age 75 and for
Contracts issued in certain states), 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.
-25-
<PAGE>
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 16.)
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
17.)
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%. When a Purchase Payment is
received or an amount is transferred into the Guaranteed Interest Account, an
interest rate will be credited to that amount. The rate will be guaranteed for a
twelve-month period. Thereafter, interest rates credited to that amount (and
amounts earned on that amount) will be similarly guaranteed for successive
periods of at least twelve-months at the then current interest rate. Therefore,
different interest rates may apply to different amounts in the Guaranteed
Interest Account, depending on when and how the amount was initially allocated.
Interest at the guaranteed minimum rate or such higher rate as Southland may
determine 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
allocated to the Guaranteed Interest Account while the Owner assumes the risk
that interest credited may not exceed the guaranteed minimum rate.
-26-
<PAGE>
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
30.)
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 38.
-27-
<PAGE>
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, except for those changes for which telephone
privileges are available.The effective date of any such change will be the date
the request was signed. 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." 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
38.)
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
- -------
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
- ------------------------------------------
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 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.
-28-
<PAGE>
- ----------------------------------------------------------------
Contract Anniversaries Since Surrender Charge as a Percentage
Purchase Payment Was Made of Purchase Payment Withdrawn
- ----------------------------------------------------------------
0 7%
- ----------------------------------------------------------------
1 6%
- ----------------------------------------------------------------
2 5%
- ----------------------------------------------------------------
3 4%
- ----------------------------------------------------------------
4 3%
- ----------------------------------------------------------------
5 2%
- ----------------------------------------------------------------
6+ 0%
- ----------------------------------------------------------------
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
- ------------------------------------------------------
be taken without a surrender charge in an amount which may be greater than that
provided by other annuity contracts. In addition to Purchase Payments held
beyond the surrender charge period, 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 receipt 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).
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 or 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 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.
-29-
<PAGE>
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 Automatic
Rebalancing 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.
In those jurisdictions in which taxes on Purchase Payments are incurred by
Southland as of the Annuity Date, we will deduct the charge for taxes at that
time. In jurisdictions that impose a tax on Purchase Payments at the time the
Purchase Payments are paid, regardless of the Annuity Date, 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 1.02% of this annual charge is for the mortality risk and
0.35% is for the expense risk. During the Annuity Period, when the Death Benefit
is no longer available, approximately 0.90% of this annual charge is for
mortality risk and 0.35% 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 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.
-30-
<PAGE>
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
- ----------------------
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
- ------------------------------------
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. An earlier Annuity Date may be required in certain states.
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
- ----------------------------------------------
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 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.
-31-
<PAGE>
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
- ----------------------
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
- -------------------------
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%.
After the Annuity Date, the Owner 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.
-32-
<PAGE>
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
- ---------------------------
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
- ----------------------------------------
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 Annuitant'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 (unless otherwise prohibited by state law), 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.
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 (unless otherwise prohibited by
state law) 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.
-33-
<PAGE>
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
- ---------------------------
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
- --------------------
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.
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 7%), a percent of
Accumulation Value (up to a maximum of .20%), or a combination of these two. The
registered representative 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
-34-
<PAGE>
broker-dealer by ING America Equities, Inc. and will not be charged to the
Owner. In addition, we may also pay override payments, expense allowances,
bonuses, wholesaler fees and training allowances. Registered representatives who
meet specified production levels may qualify, under our sales incentive
programs, to receive non-cash compensation such as expense-paid trips, expense-
paid educational seminars and merchandise.
CUSTOMER SERVICE CENTER
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 14) may require Contract
Owner approval. In that case, you will be entitled to vote in proportion to your
Variable Accumulation Value.
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.
-35-
<PAGE>
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 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
-36-
<PAGE>
"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.
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
-37-
<PAGE>
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. "Investment in the contract" is not affected by the death of the Owner
or the Annuitant. That is, the "investment in the contract" remains the amount
of Purchase Payments 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, which
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 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);
3. attributable to the taxpayer's becoming disabled;
-38-
<PAGE>
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.
-39-
<PAGE>
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. As
--
of the date of this prospectus, the Contract is not available for use with these
- --------------------------------------------------------------------------------
plans.
- ------
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. As of the date of this prospectus,
----------------------------------
the Contract is not available for use with these plans.
- -------------------------------------------------------
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. As of the date of this prospectus, the Contract is
--------------------------------------------------
not available for use with these plans.
- ---------------------------------------
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.
-40-
<PAGE>
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.
<TABLE>
<S> <C>
SOUTHLAND LIFE INSURANCE COMPANY................................................. 1
PERFORMANCE INFORMATION ......................................................... 1
Money Market Subaccount Yields.............................................. 1
Other Subaccount Yields..................................................... 2
Average Annual Total Returns................................................ 3
Other Total Returns........................................................ 4
Effect of the Annual Administrative Charge on Performance Data.............. 5
VARIABLE ANNUITY PAYMENTS........................................................ 5
Annuity Unit Value.......................................................... 5
Illustration of Calculation of Annuity Unit Value........................... 6
Illustration of Variable Annuity Payment.................................... 6
VALUATION DAYS.................................................................... 6
TERMINATION OF PARTICIPATION AGREEMENTS.......................................... 6
The Alger American Fund..................................................... 6
Variable Insurance Products Funds and Variable Insurance Products Fund II... 7
INVESCO Variable Investment Funds, Inc...................................... 7
Janus Aspen Series.......................................................... 7
IRA INCOME PROGRAM .............................................................. 8
LEGAL MATTERS.................................................................... 8
OTHER INFORMATION................................................................ 8
EXPERTS.......................................................................... 9
FINANCIAL STATEMENTS............................................................. 9
</TABLE>
-41-
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Future Dimensions Deferred Combination Fixed and Variable
Annuity Contract
Issued by
Southland Life Insurance Company
and
Southland Separate Account A1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
THE INFORMATION CONTAINED HEREIN SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS FOR THE SOUTHLAND LIFE INSURANCE COMPANY DEFERRED COMBINATION FIXED
AND VARIABLE ANNUITY CONTRACT WHICH IS REFERRED TO HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW
BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS, SEND A WRITTEN REQUEST TO OUR
CUSTOMER SERVICE CENTER AT
P.O. Box 173789, Denver, CO 80217, OR TELEPHONE 1-800-224-3035.
DATE OF PROSPECTUS: May 1, 1996
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SOUTHLAND LIFE INSURANCE COMPANY......................................... 1
PERFORMANCE INFORMATION.................................................. 1
Money Market Subaccount Yields....................................... 1
Other Subaccount Yields.............................................. 2
Average Annual Total Returns......................................... 3
Other Total Returns.................................................. 4
Effect of the Annual Administrative Charge on Performance Data....... 5
VARIABLE ANNUITY PAYMENTS................................................ 5
Annuity Unit Value................................................... 5
Illustration of Calculation of Annuity Unit Value.................... 6
Illustration of Variable Annuity Payments............................ 6
VALUATION DAYS........................................................... 6
TERMINATION OF PARTICIPATION AGREEMENTS.................................. 6
The Alger American Fund.............................................. 6
Variable Insurance Products Fund and Variable Insurance
Products Fund II.................................................. 7
INVESCO Variable Investment Funds, Inc............................... 7
Janus Aspen Series................................................... 7
IRA INCOME PROGRAM....................................................... 8
LEGAL MATTERS............................................................ 8
OTHER INFORMATION........................................................ 8
EXPERTS.................................................................. 9
FINANCIAL STATEMENTS..................................................... 9
</TABLE>
-i-
<PAGE>
SOUTHLAND LIFE INSURANCE COMPANY
Southland Life Insurance Company is an indirect wholly-owned subsidiary of
ING Groep, N.V. ("ING"), a Dutch insurance and financial corporation primarily
engaged in banking and insurance services which include life and non-life
insurance, life reinsurance, funds transfer services, savings plans, investments
in securities and other capital market instruments, lending, mortgages, leasing,
investment banking, debtor finance, debt conversion and international project
management, property development, finance and management.
Southland's immediate parent, Internationale Nederlanden America Life
Corporation, is a Georgia corporation whose principal business is to act as the
holding company for ING's U.S. life insurance companies. Southland's indirect
intermediate parents, Internationale Nederlanden U.S. Insurance Holdings, Inc.
and Internationale Nederlanden Verzekeringen N.V. are Dutch insurance and
financial corporations owned by ING.
Southland acts as its own custodian for the Variable Account. ING America
Equities, Inc., an affiliate of Southland, is the principal underwriter of the
Contracts in a continuous offering.
PERFORMANCE INFORMATION
From time to time, Southland may disclose yields, total returns, and other
performance data pertaining to the Contracts for a Subaccount. Such performance
data will be computed, or accompanied by performance data computed, in
accordance with the standards defined by the SEC.
Because of the charges and deductions imposed under a Contract, the yield
for the Subaccounts will be lower than the yield for their respective
Portfolios. The calculations of yields, total returns and other performance data
do not reflect the effect of any premium tax that may be applicable to a
particular Contract. Premium taxes currently range from 0% to 3.5% of the
Purchase Payments made based on the jurisdiction in which the Contract is sold.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the
current annualized yield of the VIP Money Market Subaccount for a seven-day
period in a manner which does not take into consideration any realized or
unrealized gains or losses on shares of the VIP Money Market Portfolio or on
that Portfolio's securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven-day period in the value
of a hypothetical account under a Contract having a balance of one unit of the
VIP Money Market Subaccount at the beginning of the period, dividing such net
change in account value by the value of the hypothetical account at the
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects: 1)
net income from the Portfolio attributable to the hypothetical account; and 2)
charges and deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: 1) the annual administrative charge; 2) the
mortality and expense risk charge; and 3) the asset-based administrative charge.
For purposes of calculating current yields for a Contract, an average per unit
annual administrative charge is used based on the $30 annual administrative
charge deducted at the end of each Contract Year. Current Yield is calculated
according to the following formula:
-1-
<PAGE>
Current Yield = ((NCS / UV) - ES) x (365/7)
Where:
NCS = the net change in the value of the Money Market Portfolio
(exclusive of realized gains or losses on the sale of securities
and unrealized appreciation and depreciation) for the seven-day
period attributable to a hypothetical account having a balance of
1 Subaccount unit.
ES = per unit expenses attributable to the hypothetical account for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
Effective Yield = (1 + (NCS/UV) - ES)/365/7/ - 1
Where:
NCS the net change in the value of the VIP Money Market Portfolio
(exclusive of realized gains or losses on the sale of securities
and unrealized appreciation and depreciation) for the seven-day
period attributable to a hypothetical account having a balance of
1 Subaccount unit.
ES = per unit expenses attributable to the hypothetical account for
the seven-day period.
UV = the unit value for the first day of the seven-day period.
Because of the charges and deductions imposed under the Contract, the yield
for the VIP Money Market Subaccount is lower than the yield for the VIP Money
Market Portfolio.
The current and effective yields on amounts held in the VIP Money Market
Subaccount normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD
FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The VIP Money Market Subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the VIP Money Market Portfolio, the types and quality of
portfolio securities held by the Portfolio and the Portfolio's operating
expenses. Yields on amounts held in the VIP Money Market Subaccount may also be
presented for periods other than a seven-day period.
Yield calculations do not take into account the surrender charge under the
Contract equal to 1% to 7% of certain purchase payments during the five full
contract years subsequent to the Contract Anniversary following each payment.
OTHER SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the VIP Money Market
Subaccount) for a Contract for 30-day or one-month periods. The annualized
yield of a Subaccount refers to income generated by the Subaccount during a 30-
day or one-month period and is assumed to be generated each period over a 12-
month period.
The yield is computed by: 1) dividing the net investment income of the
Portfolio attributable to the Subaccount units less Subaccount expenses for the
period; by 2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by two. Expenses attributable to the Subaccount include the annual
administrative charge, the asset-based administrative charge and the mortality
and expense
-2-
<PAGE>
risk charge. The yield calculation assumes an annual administrative charge of
$30 per year per Contract deducted at the end of each Contract Year. For
purposes of calculating the 30-day or one-month yield, an average administrative
charge based on the average Accumulation Value in the Variable Account is used
to determine the amount of the charge attributable to the Subaccount for the 30-
day or one-month period. The 30-day or one-month yield is calculated according
to the following formula:
Yield = 2 X (((NI - ES)/(U X UV) + 1)/6/ - 1)
Where:
NI = net income of the Portfolio for the 30-day or one-month
period attributable to the Subaccount's units.
ES = expenses of the Subaccount for the 30-day or one-month
period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in
the 30-day or one-month period.
Because of the charges and deductions imposed under the Contracts, the
yield for the Subaccount is lower than the yield for the corresponding
Portfolio.
The yield on the amounts held in the Subaccounts normally fluctuates over
time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. A Subaccount's
actual yield is affected by the types and quality of the securities held by the
corresponding Portfolio and that Portfolio's operating expenses.
Yield calculations do not take into account the surrender charge under the
Contract equal to 1% to 7% of certain Purchase Payments during the five full
contract years subsequent to the Contract Anniversary following each payment.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
standard average annual total returns for one or more of the Subaccounts for
various periods of time.
When a Subaccount or Portfolio has been in operation for 1, 5, and 10
years, respectively, the standard average annual total return for these periods
will be provided. Average annual total returns for other periods of time may,
from time to time, also be disclosed.
Standard average annual total returns 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. The ending date for each period for which total return
quotations are provided will be for the most recent calendar quarter-end
practicable, considering the type of the communication and the media through
which it is communicated.
Standard average annual total returns are calculated using Subaccount unit
values which Southland calculates on each Valuation Day based on the performance
of the Subaccount's underlying Portfolio, the deductions for the mortality and
expense risk charge, the deductions for the asset-based administrative charge
and the annual administrative charge. The calculation assumes that the annual
administrative charge is $30 per year per Contract deducted at the end of each
Contract year. For purposes of calculating standard average annual total
return, an average per-dollar per-day annual administrative charge attributable
to the hypothetical account for the
-3-
<PAGE>
period is used. The calculation also assumes Surrender of the Contract at the
end of the period for the return quotation. Standard average annual total
returns will therefore reflect a deduction of the surrender charge for any
period less than six years. The standard average annual total return is
calculated according to the following formula:
TR = ((ERV/P)/1/N/) - 1
Where:
TR = the average annual total return net of Subaccount recurring
charges.
ERV = the ending redeemable value (net of any applicable surrender
charge) of the hypothetical account at the end of the
period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
From time to time, sales literature or advertisements may quote standard
average annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Subaccounts is
calculated based on the performance of the various Portfolios and the assumption
that the Subaccounts were in existence for the same periods as those indicated
for the Portfolios, with the level of Contract charges that were in effect at
the inception of the Subaccounts.
The total return information for the Portfolios has been provided by the
appropriate mutual fund (Janus Aspen Series, The Alger American Fund, Variable
Insurance Products Fund, Variable Insurance Products Fund II, and INVESCO
Variable Investment Funds, Inc. (the "Funds")), including Portfolio total return
information used to calculate the standard average annual total returns of the
Subaccounts for periods prior to the inception of the Subaccounts. The Funds
are not affiliated with Southland. While Southland has no reason to doubt the
accuracy of these figures provided by the Funds, Southland has not independently
verified the accuracy of these figures.
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the surrender charge. These
are calculated in exactly the same way as standard average annual total returns
described above, except that the ending redeemable value of the hypothetical
account for the period is replaced with an ending value for the period that does
not take into account any charges on amounts surrendered or withdrawn.
Southland may disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of Subaccount recurring
charges for the period.
ERV = The ending redeemable value of the hypothetical investment
at the end of the period.
P = A hypothetical single payment of $1,000.
-4-
<PAGE>
EFFECT OF THE ANNUAL ADMINISTRATIVE CHARGE ON PERFORMANCE DATA
The Contract provides for a $30 annual administrative charge to be deducted
annually at the end of each Contract Year, from the Subaccounts based on the
proportion of the Variable Account Accumulation Value invested in each such
Subaccount. For purposes of reflecting the charge in yield and total return
quotations, the charge is converted into a per-dollar per-day charge based on
the average Variable Account Accumulation Value of all Contracts on the last day
of the period for which quotations are provided. The per-dollar per-day average
charge will then be adjusted to reflect the basis upon which the particular
quotation is calculated.
VARIABLE ANNUITY PAYMENTS
ANNUITY UNIT VALUE
The value of an Annuity Unit is calculated at the same time that the value
of an Accumulation Unit is calculated and is based on the same values for
Portfolio shares and other assets and liabilities. (See "YOUR ACCUMULATION
VALUE" in the Prospectus.) The Annuity Unit value for each Subaccount's first
valuation period was set at $10. The Annuity Unit value for a Subaccount is
calculated for each subsequent Valuation Period by dividing (2) by (3), and then
multiplying the result by (1), where:
(1) is the Annuity Unit value for the immediately preceding Valuation
Period;
(2) is the Annuity Experience Factor for the current Valuation Period; and
(3) is a special factor designed to compensate for the Benchmark Rate of
Return of 3% or 5% built into the table used to compute the first
variable Annuity Payment.
For each Subaccount, the Annuity 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 Annuity 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.
The following illustrations show, by use of hypothetical examples, the
method of determining the Annuity Unit value and the amount of several variable
Annuity Payments based on one Subaccount.
-5-
<PAGE>
ILLUSTRATION OF CALCULATION OF ANNUITY UNIT
VALUE
<TABLE>
<CAPTION>
<S> <C> <C>
1. Annuity unit value for immediately preceding
Valuation Period 10.00000000
2. Annuity Experience Factor 1.00036164
3. Daily factor to compensate for Benchmark Rate of
Return of 3% 1.00008099
4. Adjusted Annuity Experience Factor (2)/(3) 1.00028063
5. Annuity unit value for current Valuation Period
(4)x(1) 10.00280630
</TABLE>
ILLUSTRATION OF VARIABLE ANNUITY PAYMENTS
(assuming no premium tax is applicable)
<TABLE>
<CAPTION>
<C> <S> <C>
1. Number of Accumulation Units at Annuity Date 1,000.00
2. Accumulation Unit Value 12.55548000
3. Adjusted contract value (1)x(2) $ 12,555.48
4. First monthly annuity payment per $1,000 of
adjusted Contract Value $ 9.63
5. First monthly annuity payment (3)x(4)/1,000 $ 120.91
6. Annuity Unit Value 10.00280630
7. Number of annuity units (5)/(6) 12.08760785
8. Assume Annuity Unit value for second month
equal to 10.04000000
9. Second Monthly Annuity Payment (7)X(8) $ 121.36
10. Assume Annuity Unit value for third month
equal to 10.05000000
11. Third Monthly Annuity Payment (7)X(10) $ 121.48
</TABLE>
VALUATION DAYS
As defined in the prospectus, for each Subaccount a Valuation Day is a day on
which both the NYSE and Southland's Customer Service Center are open for
business, except for a day that a Subaccount's corresponding Portfolio does not
value its shares. During 1996, the only dates on which the NYSE is open but
Southland's Customer Service Center is closed are July 5th, November 29th and
December 24th. Therefore, these days will not be Valuation Days in 1996.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares to
the Variable Account contain varying provisions regarding termination. The
following generally summarizes those provisions:
THE ALGER AMERICAN FUND
This agreement provides for termination: (1) on six months' advance written
notice by any party; (2) at Southland's option if shares of any Portfolio are
not reasonably available to meet the requirements of the Contracts or are not
registered, issued or sold in accordance with applicable state and/or federal
law; (3) at Southland's option upon the institution of formal proceedings
against the Fund by the SEC, NASD or other regulators; (4) at Southland's option
after having been notified by the Fund of any termination or proposed
termination of the Fund's investment advisory agreement with Fred Alger &
Company; (5) at Southland's option upon the Fund's breach of any material
provision of this agreement; (6) at the option of the Fund, upon a determination
(after 60
-6-
<PAGE>
days notice) that Southland has suffered a material adverse change in its
business, operations, financial condition or prospects or is the subject of
material adverse publicity; (7) at Southland's option upon a determination
(after 60 days notice) that the Fund is the subject of material adverse
publicity; (8) at the Fund's option upon the institution of formal proceedings
against Southland by the SEC, NASD or other regulators; (9) at the Fund's option
if the Contracts cease to qualify as annuity contracts or endowment contracts
under the Code (or if the Fund reasonably believes that the Contracts may cease
to so qualify) or if the Contracts are not registered, issued or sold in
accordance with state and/or federal law; (10) at the Fund's option upon a
reasonable determination by its board of directors that it is no longer
advisable or in the shareholders' best interests to continue to operate under
this agreement; (11) at the Fund's option upon Southland's breach of any
material provision of this agreement; (12) at Southland's option or the Fund's
option upon a determination by either that a material irreconcilable conflict
exists between the interests of Owners and other investors in the Fund or
between Southland's interests and the interests of other insurance companies
invested in the Fund; or (13) upon a requisite vote of Owners to substitute
shares of another fund for the Fund.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
These agreements provide for termination: (1) on six months' advance written
notice by any party; (2) at Southland's option if shares of any Portfolio are
not reasonably available to meet the requirements of the Contracts or are not
registered, issued or sold in accordance with applicable state and/or federal
law; (3) at Southland's option if any Portfolio ceases to be qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code
(the "Code"); (4) at Southland's option if any Portfolio fails to meet certain
diversification requirements of the Code; (5) at the option of the Fund or
Fidelity Distributors Corporation (the "Underwriter") upon a determination that
Southland (or any of its affiliates) has suffered a material adverse change in
its business, operations, financial condition or prospects or is the subject of
material adverse publicity; (6) at Southland's option upon a determination that
either the Fund or the Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects or is the subject of
material adverse publicity; or (7) at the Fund's option or the Underwriter's
option if Southland provides written notice of its intent to use another
investment company as a funding vehicle for the Contracts.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
This agreement provides for termination: (1) on twelve months advance
written notice by any party; (2) at Southland's option if shares of any
Portfolio are not reasonably available to meet the requirements of the Contracts
or are not registered, issued or sold in accordance with applicable state and/or
federal law; (3) at Southland's option if any Portfolio ceases to be qualified
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code (the "Code"); (4) at Southland's option if any Portfolio fails to meet
certain diversification requirements of the Code; (5) at Southland's option,
upon its determination (after 60 days notice) that the Fund or INVESCO has
suffered a material adverse change in its business, operations, financial
condition or prospects or is the subject of material adverse publicity; (6) at
Southland's option upon the institution of formal proceedings against the Fund
by the SEC, NASD or other regulators; (7) at the Fund's option upon the
institution of formal proceedings against Southland by the SEC, NASD or other
regulators; (8) at the option of the Fund or INVESCO if either determines (after
60 days notice) that Southland has suffered a material adverse change in its
business, operations, financial condition or prospects or is the subject of
material adverse publicity; (9) at the Fund's or INVESCO's option if Southland
provides written notice of its intent to use another investment company as a
funding vehicle for the Contracts; or (10) upon a requisite vote of Owners to
substitute shares of another fund for the Fund.
JANUS ASPEN SERIES
This agreement provides for termination: (1) on six months advance written
notice by any party; (2) at Southland's option if shares of any Portfolio are
not reasonably available to meet the requirements of the Contracts or are not
registered, issued or sold in accordance with applicable state and/or federal
law; (3) at Southland's option, upon its determination (after 60 days notice)
that the Fund has suffered a material adverse change in its
-7-
<PAGE>
business, operations, financial condition or prospects or is the subject of
material adverse publicity; (4) at Southland's option upon the institution of
formal proceedings against the Fund by the SEC, NASD or other regulators; (5) at
the Fund's option upon the institution of formal proceedings against Southland
by the SEC, NASD or other regulators; (6) at the option of the Fund if it
determines (after 60 days notice) that Southland has suffered a material adverse
change in its business, operations, financial condition or prospects or is the
subject of material adverse publicity; (7) at the Fund's option if the Contracts
cease to qualify as annuity contracts under the Code or if the Contracts are
not registered, issued or sold in accordance with state and/or federal law; (8)
at the option of either the Fund or Southland upon the breach by the other of
any material provision of this agreement; or (9) by Southland or the Fund upon a
determination by either that a material irreconcilable conflict exists between
the interests of Owners and other investors in the Fund or interests of
Southland and other insurance companies invested in the Fund.
IRA INCOME PROGRAM
If you have an IRA Contract, we will provide payment of amounts required to be
distributed by the Internal Revenue Service, unless the minimum distributions
are otherwise satisfied. Southland notifies the Owner of the current IRA
regulations in the IRA Disclosure Statement, which you will receive during the
application process.
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. The Owner specifies whether the withdrawal amount will be based on a life
expectancy calculated on a single life basis (Owner's life only) or, if the
Owner is married, on a joint life basis (Owner's and spouse's life combined).
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. 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 the Cash Surrender Value.
Southland calculates a required distribution amount each year based on the
Code's minimum distribution rules. We do this by dividing the Accumulation Value
by the life expectancy. In the first year that distributions begin, we use the
Accumulation Value, less taxes incurred but not deducted, as of the date of the
first payment. Thereafter, we use the Accumulation Value as of December 31st of
the prior year. The life expectancy is recalculated each year. If payments
under an Annuity Payment Option selected by the Owner are less than the minimum
distribution, we will increase the payments to this amount in order to avoid the
penalty tax applied to distributions which are less than the minimum required by
the Code. Special minimum distribution rules govern payments if the Beneficiary
is other than the Owner's spouse and the Beneficiary is more than ten years
younger than the Owner.
LEGAL MATTERS
All matters relating to Texas law pertaining to the Contracts, including the
validity of the Contracts and Southland's authority to issue the Contracts, have
been passed upon by Francis J. Mulcahy, Esquire, Vice President - Law, and
Secretary of Southland. Sutherland, Asbill & Brennan of Washington, D.C. has
provided advice on certain matters relating to the federal securities laws.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act
of 1933, as amended, with respect to the Contracts discussed in this Statement
of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional
-8-
<PAGE>
Information. Statements contained in this Statement of Additional Information
concerning the content of the Contracts and other legal instruments are
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the SEC.
EXPERTS
The balance sheets of Southland as of December 31, 1995 and 1994, and the
related statements of income, stockholder's equity, and cash flows for the years
ended December 31, 1995, 1994 and 1993, appearing in this Statement of
Additional Information and in the Registration Statement, have been audited by
Ernst & Young LLP, 600 Peachtree Street, Atlanta, GA 30308, independent
auditors, as set forth in their report thereon appearing elsewhere in this
Statement of Additional Information and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
FINANCIAL STATEMENTS
Southland's balance sheets as of December 31, 1995 and 1994, and the related
statements of income, stockholder's equity, and cash flows for the years ended
December 31, 1995, 1994, and 1993, which are included in this Statement of
Additional Information, should be considered only as bearing on Southland's
ability to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the assets held in the
Variable Account.
-9-
<PAGE>
APPENDIX A - 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 7-day yield
for the VIP Money Market Subaccount for the period ended December 31, 1995 was
3.93%. For the same period, the effective yield was 4.00%
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 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.
-A-1-
<PAGE>
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. Normally,
these rankings and ratings are published by independent tracking services and
publications of general interest, including, but not limited to: Lipper, VARDS,
Morningstar, Donoghue, magazines such as Money, Forbes, Kiplinger's Personal
Finance, Financial World, Consumer Reports, Business Week, Time, Newsweek,
National Underwriter, U.S. News and World Report, rating services such as LIMRA,
Value, Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports,
and other publications such as The Wall Street Journal, Barron's, Investor's
Daily, and Standard & Poor's Outlook.
Southland is also rated by independent financial ratings services, among which
are A.M. Best, Duff & Phelp's, Moody's, Standard & Poor's, and Weiss Research,
Inc. Such ratings refer to the claims-paying ability of Southland's General
Account and do not relate to an investment in the Variable Account or in the
underlying Portfolios.
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. Subaccount performance may also be compared to
the Shearson/Lehman Intermediate and Long-Term Government/Corporate Bond
Indices, the Donoghue Money Fund Average, the U.S. Treasury Note Index, and
other indices.
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.
All returns on the following page assume that the annual administrative charge
is $30 and that the Accumulation Value per Contract is $30,000, which translates
the administrative charge into an assumed .10% annual asset charge. The
performance figures reflect past performance only and neither guarantee nor
predict future investment results under a Contract.
-A-2-
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS FOR SUBACCOUNTS
FOR PERIODS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/95
AS OF 12/31/95 ASSUMING CONTRACT SURRENDERED AT THE
ASSUMING CONTRACT NOT SURRENDERED END OF THE APPLICABLE TIME PERIOD
- -------------------------------------------------------------------------------------------------------------------
SUBACCOUNT 1 YEAR 5 YEARS SINCE 1 YEAR 5 YEARS SINCE
INCEPTION/ INCEPTION/
10 YEARS/1// 10 YEARS/1//
- -------------------------------------------------------------------------------------------------------------------
THE ALGER AMERICAN FUND
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alger American Small Capitalization 42.04% 18.70% 20.70% 35.04% 18.39% 20.70%
(9/21/88)
- -------------------------------------------------------------------------------------------------------------------
Alger American MidCap Growth (5/3/93) 42.18% 27.01% 35.18% 25.74%
- -------------------------------------------------------------------------------------------------------------------
Alger American Growth (1/9/89) 34.24% 19.83% 17.65% 27.24% 19.54% 17.65%
- -------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap 71.77%/2// 64.77%/2//
(1/25/95)
- -------------------------------------------------------------------------------------------------------------------
VIP AND VIP II FUNDS
- -------------------------------------------------------------------------------------------------------------------
VIP II Asset Manager (9/6/89) 15.10% 10.97% 9.48% 8.10% 10.57% 9.48%
- -------------------------------------------------------------------------------------------------------------------
VIP II Contrafund (1/3/95) 37.53%/2// 30.53%/2//
- -------------------------------------------------------------------------------------------------------------------
VIP Equity-Income (10/9/86) 32.95% 19.42% 11.55% 25.95% 19.12% 11.55%
- -------------------------------------------------------------------------------------------------------------------
VIP Growth (10/9/86) 33.23% 18.89% 13.04% 26.23% 18.59% 13.04%
- -------------------------------------------------------------------------------------------------------------------
VIP High Income (9/19/85) 18.80% 17.06% 9.72% 11.80% 16.74% 9.72%
- -------------------------------------------------------------------------------------------------------------------
VIP II Index 500 (8/27/92) 35.04% 13.61% 28.04% 12.72%
- -------------------------------------------------------------------------------------------------------------------
VIP II Investment Grade Bond (12/5/88) 15.45% 7.50% 7.19% 8.45% 7.05% 7.19%
- -------------------------------------------------------------------------------------------------------------------
VIP Overseas (1/28/87) 7.93% 6.40% 5.61% 0.93% 5.93% 5.61%
- -------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- -------------------------------------------------------------------------------------------------------------------
Aggressive Growth (9/13/93) 25.46% 25.76% 18.46% 24.14%
- -------------------------------------------------------------------------------------------------------------------
Balanced (9/13/93) 22.81% 12.07% 15.81% 10.18%
- -------------------------------------------------------------------------------------------------------------------
Growth (9/13/93) 28.11% 14.62% 21.11% 12.78%
- -------------------------------------------------------------------------------------------------------------------
International Growth (5/2/94) 21.19% 9.60% 14.19% 6.17%
- -------------------------------------------------------------------------------------------------------------------
Short-Term Bond (9/13/93) 7.79% 2.89% 0.79% 0.76%
- -------------------------------------------------------------------------------------------------------------------
Worldwide Growth (9/14/93) 25.35% 19.52% 18.35% 17.78%
- -------------------------------------------------------------------------------------------------------------------
INVESCO VARIABLE INVESTMENT FUNDS, INC.
- -------------------------------------------------------------------------------------------------------------------
Industrial Income (8/10/94) 27.21% 19.08% 20.21% 15.08%
- -------------------------------------------------------------------------------------------------------------------
Utilities (1/1/95) 7.34% 7.34% 0.34% 0.34%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
/1// Return shown is for the 10-year period ended December 31, 1995 or since
inception of the Portfolio, if less than 10 years.
/2// Return shown is cumulative total return since inception.
-A-3-
<PAGE>
Financial Statements
Southland Life Insurance Company
Years ended December 31, 1995, 1994 and 1993
--------------------------------------------
with Report of Independent Auditors
-----------------------------------
<PAGE>
Southland Life Insurance Company
Financial Statements
Years ended December 31, 1995, 1994 and 1993
CONTENTS
Report of Independent Auditors.............................................. l
Audited Financial Statements
Balance Sheets.............................................................. 2
Statements of Income........................................................ 4
Statements of Stockholder's Equity.......................................... 5
Statements of Cash Flows.................................................... 6
Notes to Financial Statements............................................... 8
<PAGE>
Report of Independent Auditors
Board of Directors
Southland Life Insurance Company
We have audited the accompanying balance sheets of Southland Life Insurance
Company as of December 31, 1995 and 1994, and the related statements of income,
stockholder's equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southland Life Insurance
Company at December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1994 and 1993 the Company
changed its method of accounting for investments in debt and equity securities
and income taxes, respectively.
ERNST & YOUNG LLP
Atlanta, Georgia
April 5, 1996
F-1
<PAGE>
Southland Life Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-----------------------
<S> <C> <C>
(In Thousands)
--------------
ASSETS
Investments (Notes 1, 2, 3 and 4):
----------------------
Fixed maturities:
Available-for-sale, at fair value (amortized cost: 1995-
$793,055; 1994 - $645,554) $ 871,637 $ 623,831
Held-to-maturity, at amortized cost (fair value: 1994 -
$201,704) - 200,554
Equity securities, at fair value (cost: 1995 - $614;
1994 - $1,532) 764 1,602
Mortgage loans on real estate 300,671 231,406
Investment real estate, at cost, less accumulated
depreciation (1995 - $10; 1994 - $6) 190 515
Policy loans 80,164 79,437
Other long-term investments - 59
-----------------------
Total investments 1,253,426 1,137,404
Cash 1,268 10,831
Accrued investment income 15,951 16,728
Reinsurance recoverable:
Paid benefits 8,886 188
Unpaid benefits and IBNR 16,400 2,614
Prepaid insurance premiums 282,943 240,824
Deferred policy acquisition costs 145,431 133,543
Present value of future profits less accumulated
amortization (1995 - $163,605; 1994 - $145,535) 78,204 100,602
Goodwill less accumulated amortization (1995 - $9,540;
1994 - $7,999) 50,921 52,462
Property and equipment, at cost, less accumulated
depreciation (1994 - $105) - 626
Current federal income taxes (Note 8) - 1,797
--------
Other assets 5,841 6,634
-----------------------
Total assets $1,859,271 $1,704,253
=======================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------------------------
(In Thousands,
Except Share Amounts)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits:
Life and annuity reserves $1,052,649 $ 944,710
Accident and health reserves 10,473 10,996
Guaranteed investment contracts 276,365 233,691
Policyholders' funds 2,890 3,292
Advance premiums 83 91
Accrued dividends and dividends
on deposit 764 808
Unpaid claims 30,383 11,001
Total future policy benefits 1,373,607 1,204,589
----------------------------
Accounts payable and accrued expenses 5,383 3,987
Indebtedness to related parties 5,939 11,200
Other liabilities 27,146 31,946
Federal income taxes payable (Note 8):
------
Current 5,816 -
Deferred 55,236 29,130
----------------------------
Total liabilities 1,473,127 1,280,852
Stockholder's equity (Note 9):
-----
Common stock, $3 par value:
Authorized-2,550,000 shares
Issued and outstanding-2,500,000 shares 7,500 7,500
Additional paid-in capital 254,353 366,536
Net unrealized 37,906 (8,874)
investment gains (losses) (Note 1)
-----
Retained earnings 86,385 58,239
----------------------------
Total stockholder's equity 386,144 423,401
----------------------------
Total liabilities and stockholder's
equity $1,859,271 $1,704,253
</TABLE>
See accompanying notes.
- -----------------------
F-3
<PAGE>
Southland Life Insurance Company
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(In Thousands)
<S> <C> <C> <C>
Revenues:
Traditional life insurance premiums $ 39,182 $ 36,116 $ 38,343
Health insurance premiums 60,318 18,495 10,002
Universal life and investment product charges 67,073 56,735 45,184
Reinsurance assumed 201 1,740 1,519
------------------------------------------
166,774 113,086 95,048
Reinsurance ceded premiums (45,419) (17,501) (10,669)
------------------------------------------
121,355 95,585 84,379
Net investment income 103,279 93,802 89,169
Net realized gains (losses) on investments 2,880 (1,345) 6,254
Other revenues 797 2,148 1,923
------------------------------------------
Total revenues 228,311 190,190 181,725
Benefits and expenses:
Insurance claims and benefits incurred:
Traditional life insurance:
Death benefits 24,305 24,124 26,634
Other benefits 21,661 21,830 22,444
Universal life and investment contracts:
Interest credited to account balances 31,465 25,181 21,462
Death benefit incurred inexcess of
account balances 33,902 12,690 13,697
Health benefits 28,883 8,841 6,730
Increase in policy reserves and other funds 94 3,757 57
Reinsurance recoveries (39,883) (9,489) (8,092)
------------------------------------------
100,427 86,934 82,932
Commissions 15,229 8,178 6,457
Insurance operating expenses (Note 11) 20,924 18,945 19,273
-------
Amortization of goodwill 1,541 1,541 1,361
Amortization of present value of future profits,
net of accrued interest 10,155 10,414 11,253
Amortization of deferred policy acquisition costs 13,326 10,060 8,595
------------------------------------------
161,602 136,072 129,871
------------------------------------------
Income before federal income taxes and the
cumulative effect of changes in accounting methods 66,709 54,118 51,854
Federal income taxes (Note 8) 23,828 18,722 12,551
------ ------------------------------------------
Net income before the cumulative effect of the
changes inaccounting methods 42,881 35,396 39,303
Cumulative effect of the changes in
accounting methods (Note 1) - - (7,823)
----- ------------------------------------------
Net income $ 42,881 $ 35,396 $ 31,480
==========================================
</TABLE>
See accompanying notes.
- -----------------------
F-4
<PAGE>
Southland Life Insurance Company
Statements of Stockholder's Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------------
(In Thousands)
--------------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 7,500 $ 7,500 $ 7,500
=============================================
Additional paid-in capital:
Balance at beginning of year $ 366,536 $366,536 $366,536
Return of capital to stockholder (112,183) - -
----------------------------------------------
Balance at end of year $ 254,353 $366,536 $366,536
=============================================
Net unrealized investment gains
(losses) on securities:
Balance at beginning of year $ (8,874) $ (23) $ 328
Adjustment to beginning balance for adoption
of SFAS 115, net of income taxes of $20,440
and effect on DPAC and PVFP of $14,692
(net of income taxes of $7,911) (Note 1) - 23,268 -
------
Change in net unrealized investment gains
(losses), net of tax 65,248 (52,010) (351)
Effect on DPAC and PVFP of unrealized gains
(losses) on fixed maturities, net of tax (18,468) 19,891 -
----------------------------------------------
Balance at end of year $ 37,906 $ (8,874) $ (23)
=============================================
Retained earnings:
Balance at beginning of year $ 58,239 $ 51,543 $ 36,663
Net income 42,881 35,396 31,480
Dividends to stockholder (14,735) (28,700) (16,600)
----------------------------------------------
Balance at end of year $ 86,385 $ 58,239 $ 51,543
=============================================
Total stockholder's equity $ 386,144 $423,401 $425,556
=============================================
</TABLE>
See accompanying notes.
- ----------------------
F-5
<PAGE>
Southland Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------
(In Thousands)
--------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 42,881 $ 35,396 $ 31,480
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in future policy benefits 92,996 189,867 96,138
Net increase (decrease) in federal income taxes 8,528 (5,682) 1,946
Increase (decrease) in accounts
payable and accrued expenses and other liabilities (3,404) 3,967 (3,186)
(Increase) decrease in accrued investment income 777 (2,092) 584
Net realized investment (gains) losses (2,880) 1,345 (6,254)
(Increase) decrease in reinsurance recoverable (22,484) 197 907
Increase in prepaid reinsurance premiums (42,119) (161,654) (71,341)
Depreciation and amortization expense 11,708 12,001 12,722
Policy acquisition costs deferred (41,581) (38,423) (41,439)
Amortization of deferred policy acquisition costs 13,326 10,060 8,594
Cumulative effect of accounting changes - - 7,823
Other, net (1,057) (7,313) 5,485
----------------------------------
Net cash provided by operating activities 56,691 37,669 43,459
INVESTING ACTIVITIES
Securities available-for-sale:
Sales:
Fixed maturities 118,212 34,553 27,952
Equity securities 1,105 50,485 60,641
Maturities - fixed maturities 36,740 38,925 67,554
Purchases:
Fixed maturities (201,698) (143,013) (132,809)
Equity securities (186) (43,685) (55,893)
Securities held-to-maturity:
Maturities - fixed maturities 19,202 40,114 -
Purchases - fixed maturities - (43,000) -
Sale, maturity or repayment of investments:
Mortgage loans on real estate 16,613 22,069 20,975
Investment real estate 450 3,068 2,937
Other long-term investments - 250 -
</TABLE>
F-6
<PAGE>
Southland Life Insurance Company
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
(In Thousands)
--------------
<S> <C> <C> <C>
INVESTING ACTIVITIES
(CONTINUED)
Purchase or issuance of investments:
Mortgage loans on real estate (85,580) (76,403) (50,928)
Investment real estate - (462) (374)
Policy loans, net (727) 2,812 1,945
Short-term investments, net - 14,600 (11,400)
Additions to property and equipment (62) (9) (12)
Disposal of property and equipment 780 206 75
---------------------------------
Net cash used by investing activities (95,151) (99,490) (69,337)
FINANCING ACTIVITIES
(Decrease) increase in indebtedness to related parties (5,261) 3,968 4,410
Receipts from interest sensitive
products credited to policyholder account balances 101,462 81,927 75,635
Return of policyholder account balances on interest
sensitive policies (25,244) (16,305) (15,295)
Return of capital and dividends paid to stockholder (42,060) (23,70 (16,600)
---------------------------------
Net cash provided by financing activities 28,897 45,890 48,150
---------------------------------
Net (decrease) increase in cash (9,563) (15,931) 22,272
Cash at beginning of year 10,831 26,762 4,490
---------------------------------
Cash at end of year $ 1,268 $ 10,831 $ 26,762
=================================
</TABLE>
SIGNIFICANT NONCASH TRANSACTIONS
During 1995, the Company transferred fixed maturity securities having a fair
value plus accrued interest of $92,305,000 and $27,325,000 of cash to the parent
company as a return of capital. This transaction was approved by state
regulatory authorities and is reflected in the accompanying statement of
stockholder's equity as a reduction to additional paid-in capital and unrealized
investment gains on securities.
Held-to-maturity fixed maturity securities having an amortized cost value of
$182,430,000 and a fair value of $199,206,000 were transferred to the available-
for-sale category on December 26, 1995.
The Company declared a $5,000,000 dividend to its parent company during 1994
which was unpaid as of December 31, 1994 and was presented as indebtedness to
related parties in the accompanying balance sheet. The dividend was paid in
cash by the Company in January 1995.
See accompanying notes.
- -----------------------
F-7
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENTS
Southland Life Insurance Company (the Company) is a wholly-owned subsidiary of
Internationale Nederlanden America Life Corporation (America Life), an indirect,
wholly-owned subsidiary of Internationale Nederlanden Groep. The accompanying
financial statements have been prepared on the basis of generally accepted
accounting principles.
NATURE OF OPERATIONS
The Company's market focus is on the middle-income consumer. The life insurance
products offered address retirement accumulation, wealth transfer and estate
planning, and death protection needs. Products include universal life,
survivorship and traditional life. The Company also provides stop-loss coverage
on group health insurance. Operations are conducted through independent
producers. The Company is presently licensed in forty-eight states (all states
except for New York and Vermont), the District of Columbia, and Puerto Rico.
The significant accounting policies followed by the Company that materially
affect the financial statements are summarized below:
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
Effective January 1, 1993, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 109, Accounting for Income Taxes. Prior to 1993, the
---------------------------
Company accounted for income taxes under the provisions of APB Opinion No. 11,
Accounting for Income Taxes. As permitted under the new rules, prior years'
- ---------------------------
financial statements have not been restated. The cumulative effect of adopting
FASB Statement 109 as of January 1, 1993 was to decrease net income by
$7,800,000.
In 1993 the Company adopted FASB Statement No. 113, Accounting and Reporting
------------------------
for Reinsurance of Short-Duration and Long-Duration Contracts. This statement
- -------------------------------------------------------------
eliminates the practice of reporting amounts for reinsured contracts net of the
effects of reinsurance. The statement requires that reinsurance receivables and
prepaid reinsurance premiums are to be reported as assets. The statement
establishes conditions required for a contract with a reinsurer to qualify for
reinsurance accounting. Contacts that do not result in the possibility that the
reinsurer may realize significant gain or loss from the insurance risk assumed
would be accounted for as deposits. The adoption of this statement had no
effect on income before the cumulative effect of accounting changes or net
income.
In May 1993, the Financial Accounting Standards Board issued FASB Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities. The
----------------------------------------------------------------
Company adopted the provisions of the new standard for investments held as of or
acquired after January 1, 1994. In accordance with the statement, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect as of January 1, 1994 of adopting Statement
115 had no impact on income. The opening balance of stockholder's equity was
increased by $37,960,000 (net of tax of $20,440,000) to reflect the net
unrealized holding gains on securities classified as available-for-sale
previously carried at amortized cost less an adjustment for $14,692,000 (net of
tax of $7,911,000) to deferred policy acquisition costs and present value of
future profits (PVFP) for the change in expected future gross profits.
In 1994, the Company adopted the provisions of FASB Statement No. 119,
Disclosures about Derivative Financial Instruments and Fair Value of Financial
- ------------------------------------------------------------------------------
Instruments, which require disclosures about derivative financial instruments
- ------------
such as futures, forwards,
F-9
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES (CONTINUED)
swaps and options and other financial instruments with similar characteristics.
The statement also amends existing disclosure requirements of FASB Statement No.
105, Disclosure of Information about Financial Instruments with Off-Balance
----------------------------------------------------------------------
Sheet Risk and No. 107, Disclosures about Fair Value of Financial Instruments.
- ---------- -----------------------------------------------------
Beginning in 1995, the Company adopted FASB Statement No. 114, Accounting by
-------------
Creditors for Impairment of a Loan, and FASB Statement No. 118, Accounting by
- ----------------------------------- -------------
Creditors for Impairment of a Loan - Income Recognition and Disclosures, which
- ------------------------------------------------------------------------
amends Statement No. 114. Under the amended statement, the 1995 allowance for
credit losses related to loans that are identified for evaluation in accordance
with Statement 114 is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Adoption of this standard had no impact on net
income or stockholder's equity.
INVESTMENTS
Investments are shown on the following bases:
The carrying value of fixed maturities depends on the classification of the
security: securities held-to-maturity, securities available-for-sale, and
trading securities. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of tax, and
deferred acquisition cost and present value of future profit adjustments,
reported in a separate component of stockholder's equity.
The Company does not hold trading securities.
F-10
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in net investment
income as earned.
Equity securities are reported at fair value. Mortgage loans are carried at the
unpaid balances. Investment real estate is carried at cost, less accumulated
depreciation. Investment real estate is depreciated on a straight line basis
over the estimated useful life of the respective properties. Policy loans are
carried at unpaid balances. Short-term investments are carried at cost, which
approximates fair value. Derivatives are accounted for on the same basis as the
asset hedged.
Realized gains and losses, and declines in value judged to be other-than-
temporary are included in net realized gains (losses) on investments. The cost
of securities sold is based on the specific identification method.
RECOGNITION OF PREMIUM REVENUES AND COSTS
For life and annuity contracts other than universal life or investment-type
contracts, premiums are recognized as revenues over the premium-paying period,
with valuation reserves for future benefits established on a pro-rata basis from
such premiums.
Revenues for universal life and investment-type contracts consist of policy
charges for the cost of insurance and policy administration and surrender
charges assessed during the period. Expenses include interest credited to
policy account balances and benefits incurred in excess of policy account
balances. Certain profits on limited-payment policies are deferred and
recognized over the policy term.
For accident and health policies, gross premiums are prorated over the contract
term of the policies with the unearned premium included in the policy reserves.
Anticipated investment income is considered in determining if a premium
deficiency related to short-term contracts exists.
F-11
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring traditional life insurance, universal
life insurance (including interest sensitive products) and investment products
that vary with and are primarily related to the production of new and renewal
business have been deferred. Traditional life insurance acquisition costs are
being amortized over the premium-paying period of the related policies using
assumptions consistent with those used in computing policy benefit reserves.
For universal life insurance and investment products, acquisition costs are
being amortized generally in proportion to the present value (using the assumed
crediting rate) of expected gross profits from surrender charges and investment,
mortality, and expense margins. This amortization is adjusted retrospectively
when estimates of current or future gross profits to be realized from a group of
products are revised.
Deferred policy acquisition costs are adjusted to reflect changes that would
have been necessary if unrealized investment gains and losses related to
available-for-sale securities had been realized. The Company has reflected
those adjustments in the asset balance with the offset as a direct adjustment to
stockholder's equity.
FUTURE POLICY BENEFITS
Benefit reserves, with the exception of reserves for universal life-type
policies and investment products, are computed using a net level premium method
including assumptions as to investment yields, mortality, withdrawals and other
assumptions based on the Company's and industry experience, modified as
necessary to reflect anticipated trends to include provisions for possible
unfavorable deviations. Reserve interest assumptions are those deemed
appropriate at the time of policy issue, and range from 2.5% to 5%. Policy
benefit claims are charged to expense in the year that the claims are incurred.
Health reserves consist principally of unearned premiums and claim reserves.
Benefit reserves for interest sensitive products (including universal life-type
policies) and investment products are computed under a retrospective deposit
method and represent policy account balances before applicable surrender
charges. Policy benefits and claims that are charged to expense include benefit
claims incurred during the year in
F-12
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE POLICY BENEFITS (CONTINUED)
excess of related policy account balances. Interest crediting rates for
universal life and investment products range from 4.5% to 8.18% during 1995 and
1994, and 5% to 8.75% during 1993.
Included in life and annuity reserves is an unearned revenue reserve that
reflects the unamortized balance of excess first year policy service fees over
renewal period policy service fees on universal life and investment products.
These excess fees have been deferred and are being recognized in income over the
periods benefited, using the same assumptions and factors used to amortize
deferred policy acquisition costs.
UNPAID CLAIMS
The liabilities for unpaid claims include estimates of amounts due on reported
claims and claims that have been incurred but were not reported as of December
31. Such estimates are based on actuarial projections applied to historical
claim payment data. Such liabilities are reasonable and adequate to discharge
the Company's obligations for claims incurred but unpaid as of December 31.
GOODWILL
The excess cost of acquired subsidiaries over the sum of amounts assigned to
identifiable assets at acquisition, less liabilities assumed, is recorded as
goodwill. Generally, goodwill is amortized using the straight-line method over
forty years.
PRESENT VALUE OF FUTURE PROFITS
The present value of future profits (PVFP) represents the profits to be realized
from future premiums on insurance in-force (at the date of acquisition) from
businesses acquired. The PVFP arises from the acquisition of the Company by
America Life.
F-13
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRESENT VALUE OF FUTURE PROFITS (CONTINUED)
The PVFP is being amortized over the years that it is anticipated such profits
will be received. In general, this value is determined using the same
assumptions applied to compute benefit reserves and deferred policy acquisition
costs, discounted to provide an appropriate rate of return. Interest for
traditional life business is accrued at a rate of 8.45% and 9% in 1995 and 1994,
respectively, grading down to 6% over the next 14 years. Interest for universal
life business is amortized based on the credited rate.
An analysis of the PVFP for the years ended December 31 follows:
1995 1994 1993
-------------------------------
(In Thousands)
Balance at beginning of year $100,602 $107,318 $118,571
Interest accrued on unamortized balance 7,915 8,882 10,381
Amortization (18,070) (19,296) (21,634)
FAS 115 adjustment (12,243) 3,698 -
-------------------------------
Balance at end of year $ 78,204 $100,602 $107,318
===============================
The estimated amount to be amortized during each of the next five years is
shown below (in thousands):
AMORTIZATION
OF PVFP
--------------
(In Thousands)
1996 $16,552
1997 14,746
1998 13,051
1999 11,579
2000 10,103
F-14
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Depreciation for major classes of assets is calculated on a straight-line basis
over the estimated useful lives of the respective assets.
FEDERAL INCOME TAXES
Deferred federal income taxes have been provided or credited to reflect
significant temporary differences between income reported for tax and financial
reporting purposes using reasonable assumptions.
CASH FLOW INFORMATION
Cash includes cash on hand and demand deposits.
PENDING ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
-----------------------------
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
- -----------------------------------------------------------------
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts.
Statement No. 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt Statement No. 121 in the
first quarter of 1996, and based on current circumstances, management does not
believe the effect of adoption will be material.
RECLASSIFICATIONS
Certain amounts in the 1993 and 1994 financial statements have been reclassified
to conform to the 1995 presentation.
F-15
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-----------------------------------------
(In Thousands) (In Thousands)
-------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available-for-sale $871,637 $871,637 $623,831 $623,831
Held-to-maturity - - 200,554 201,704
Equity securities 764 764 1,602 1,602
Commercial mortgages 300,445 331,584 231,171 231,068
Residential mortgages 226 226 235 235
Policy loans 80,164 69,383 79,437 67,279
LIABILITIES
Supplemental contracts without life
contingencies 934 934 966 966
Other policyholder funds left on
deposit 2,992 2,992 3,208 3,208
Individual and group annuities, net
of reinsurance 22,452 22,220 26,032 25,690
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair value disclosures for financial instruments:
FIXED MATURITIES AND EQUITY SECURITIES: The fair values for fixed maturities
- ---------------------------------------
(including redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturities not actively traded, fair values are estimated
using values obtained from independent pricing services or, in the case of
private placements and collateralized mortgage obligations and other mortgage
derivative investments, are estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality, and
maturity of the investments. The fair values of equity securities are based on
quoted market prices.
F-16
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE: Estimated fair values for commercial real
- -----------------------------
estate loans are generated using a discounted cash flow approach. Loans in
good standing are discounted using interest rates determined by U.S. Treasury
yields on December 31 and spreads required on new loans with similar
characteristics. The amortizing features of all loans are incorporated in the
valuation. Where data on options features is available, option values are
determined using a binomial valuation method and are incorporated into the
mortgage valuation. Restructured loans are valued in the same manner; however,
these are discounted at a greater spread to reflect increased risk. Fair values
for residential loans are based on discounted cash flows and approximate
carrying value.
POLICY LOANS: The fair values for policy loans are estimated by discounting
- ------------
cash flows at the interest rates charged on policy loans of similar policies
currently being issued. Loans with similar characteristics are aggregated for
purposes of the calculations.
DERIVATIVE FINANCIAL INSTRUMENTS: Fair values for on-balance-sheet derivative
- --------------------------------
financial instruments (swaps hedging fixed maturities) are based on
broker/dealer valuations or on internal discounted cash flow pricing models
taking into account current cash flow assumptions and the counterparties' credit
standing. Swaps with a fair value of $1,544,000 at December 31, 1995 and
$(4,690,000) at December 31, 1994 represent asset hedges and are reported as a
component of fixed maturity securities on the accompanying balance sheets.
OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the Company's
- -----------------------------------------
deferred annuity contracts and supplemental contracts without life contingencies
are estimated based on the cash surrender value. The carrying values of other
liabilities including immediate annuities, dividend accumulations, and premium
deposits approximate their fair values.
F-17
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS
The amortized cost and estimated fair value of investments in fixed maturities
and equity securities are as follows at December 31, 1995:
<TABLE>
<CAPTION>
COST OR GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
------------
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 41,415 $ 8,310 $ - $ 49,725
States, municipalities and political
subdivisions 6,208 232 - 6,440
Public utilities securities 48,451 6,217 - 54,668
Corporate securities 418,769 47,814 64 466,519
Mortgage-backed securities 239,419 12,677 397 251,699
Other asset-backed securities 38,793 2,284 35 41,042
Derivatives hedging fixed maturities - 1,774 230 1,544
--------------------------------------------------
Total fixed maturities 793,055 79,308 726 871,637
Preferred stocks 530 73 12 591
Common stocks 84 108 19 173
--------------------------------------------------
Total $793,669 $79,489 $757 $872,401
==================================================
</TABLE>
F-18
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of investments in fixed maturities
and equity securities are as follows at December 31, 1994:
<TABLE>
<CAPTION>
COST OR GROSS GROSS ESTIMATED
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
--------------
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 43,654 $ 1,159 $ 298 $ 44,515
Public utilities securities 29,493 801 658 29,636
Corporate securities 326,240 3,385 11,658 317,967
Mortgage-backed securities 227,008 4,514 13,171 218,351
Other asset-backed securities 19,159 116 1,223 18,052
Derivatives hedging fixed maturities - - 4,690 (4,690)
------------------------------------------------------------------
Total fixed maturities 645,554 9,975 31,698 623,831
Preferred stocks (nonredeemable) 1,532 7 18 1,521
Common stocks - 81 - 81
------------------------------------------------------------------
Total $647,086 $10,063 $31,716 $625,433
==================================================================
Held-to -maturity:
Public utilities securities $ 23,391 $ 1,008 $ - $ 24,399
Corporate securities 168,229 3,881 3,537 168,573
Other asset-backed securities 8,934 56 258 8,732
-----------------------------------------------------------------
Total $200,554 $ 4,945 $ 3,795 $201,704
=================================================================
</TABLE>
F-19
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Held-to-maturity fixed maturity securities having an amortized cost of
$182,430,000 and a fair value of $199,206,000 were transferred to the available-
for-sale category on December 26, 1995, resulting in a net unrealized gain of
$10,904,000 (net of $5,872,000 of deferred taxes). The Company reassessed the
appropriateness of its classification of securities as held-to-maturity upon
reviewing the interpretive guidance provided in the FASB publication A Guide to
----------
Implementation of Statement 115 on Accounting for Certain Investments in Debt
- -----------------------------------------------------------------------------
and Equity Securities.
- ---------------------
The amortized cost and estimated fair value of debt securities by contractual
maturity and marketable equity securities at December 31, 1995 are shown in the
following table. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------------------
(In Thousands)
--------------
Available-for-sale:
Due in one year or less $ 3,989 $ 4,098
Due after one year through five years 94,604 102,648
Due after five years through ten years 231,262 253,977
Due after ten years 184,988 218,173
-----------------------
514,843 578,896
Mortgage-backed securities 239,419 251,699
Other asset-backed securities 38,793 41,042
Equity securities 614 764
-----------------------
Total available-for-sale $793,669 $872,401
=======================
F-20
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Changes in unrealized gains (losses) on investments in available-for-sale
securities for the years ended December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
FIXED EQUITY TOTAL
----------------------------
<S> <C> <C> <C>
(In Thousands)
--------------
Gross unrealized gains $ 79,308 $181 $ 79,489
Gross unrealized losses 726 31 757
----------------------------
Net unrealized gains 78,582 150 78,732
Deferred income tax expense (27,504) (53) (27,557)
----------------------------
Net unrealized gains after taxes 51,078 97 51,175
Less:
Balance at beginning of year (14,120) 47 (14,073)
----------------------------
Change in net unrealized gains $ 65,198 $ 50 $ 65,248
============================
DECEMBER 31, 1994
FIXED EQUITY TOTAL
----------------------------
<S> <C> <C> <C>
(In Thousands)
--------------
Gross unrealized gains $ 9,975 $ 88 $ 10,063
Gross unrealized losses 31,698 18 31,716
----------------------------
Net unrealized gains (losses) (21,723) 70 (21,653)
Deferred income tax benefit
(expense) 7,603 (23) 7,580
----------------------------
Net unrealized gains (losses) after
taxes (14,120) 47 (14,073)
Less:
Balance at beginning of year - (23) (23)
Adjustments for change in
accounting method 37,960 - 37,960
----------------------------
Change in net unrealized gains
(losses) $(52,080) $ 70 $(52,010)
============================
</TABLE>
F-21
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
As part of its overall investment management strategy, the Company has entered
into agreements to purchase securities as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------
(In Thousands)
--------------
<S> <C> <C>
Investment purchase commitments $21,865 $12,340
Major categories of investment income for the years ended
December 31 are summarized as follows:
1995 1994 1993
----------------------------------
(In Thousands)
--------------
<S> <C> <C> <C>
Fixed maturities $ 74,911 $69,031 $67,570
Equity securities 73 - -
Mortgage loans on real estate 23,851 19,139 15,848
Policy loans 4,775 4,735 4,821
Other investments 1,457 2,986 2,839
----------------------------------
105,067 95,891 91,078
Investment expenses (1,788) (2,089) 1,909
----------------------------------
Net investment income $103,279 $93,802 $89,169
==================================
</TABLE>
F-22
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Net realized gains (losses) on investments for the years ended December 31 are
summarized as follows:
1995 1994 1993
--------------------------
(In Thousands)
--------------
Fixed maturities $2,824 $ 1,248 $ 1,820
Equity securities - (2,577) (1,066)
Real estate and other 56 (16) 5,500
--------------------------
Net realized gain (losses) on investments $2,880 $(1,345) $ 6,254
==========================
During 1995 and 1994, debt and marketable equity securities available-for-sale
were sold with a fair value at the date of sale of $119,317,000 and $85,038,000,
respectively. Gross gains of $3,494,000 and $1,940,000 and gross losses of
$670,000 and $3,269,000 were realized on those sales in 1995 and 1994,
respectively. Proceeds from sales of investments in fixed maturities during
1993 were $27,952,000. Gross gains of $5,085,000 and gross losses of
$3,265,000 were realized on those sales.
4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate contracts to reduce and manage interest
rate risk associated with individual assets and liabilities and its overall
aggregate portfolio.
Interest rate swap agreements generally involve the exchange of fixed and
floating interest payments over the life of the agreement without an exchange of
the underlying principal amount. The differential to be paid or received is
accrued as interest rates change and is recognized as an adjustment to interest
expense or income. The related amount payable to or receivable from
counterparties is included in other liabilities or assets.
F-23
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
The Company manages the potential credit exposure from interest rate contracts
through careful evaluation of the counterparty credit standing and master
netting agreements. The Company is exposed to credit loss in the event of
nonperformance by counterparties on interest rate contracts; however, the
Company does not anticipate nonperformance by any of these counterparties. The
amount of such exposure is generally the unrealized gains in such contracts.
The table below summarizes the Company's interest rate contracts at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
NOTIONAL AMORTIZED FAIR BALANCE
AMOUNT COST VALUE SHEET
--------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $28,000,000 $ - $ 1,774,425 $ 1,774,425
Swaps-affiliates 25,000,000 - (230,300) (230,300)
--------------------------------------------------------
Total swaps $53,000,000 $ - $ 1,544,125 $ 1,544,125
========================================================
DECEMBER 31, 1994
NOTIONAL AMORTIZED FAIR BALANCE
AMOUNT COST VALUE SHEET
--------------------------------------------------------
Interest rate contracts:
Swaps $28,000,000 $ - $(1,866,315) $(1,866,315)
Swaps-affiliates 25,000,000 - (2,823,186) (2,823,186)
--------------------------------------------------------
Total swaps $53,000,000 $ - $(4,689,501) $(4,689,501)
========================================================
</TABLE>
F-24
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
5. CONCENTRATIONS OF CREDIT RISK
At December 31, 1995, the Company held less-than-investment-grade bonds
classified as available-for-sale with a carrying value of $11,625,000 and a fair
value of $11,826,000. These holdings amounted to 1.4% of the Company's
investment in bonds and less than 1% of total assets. The holdings of less-
than-investment-grade bonds are widely diversified and of satisfactory quality
based on the Company's investment policies and credit standards.
At December 31, 1995, the Company's commercial mortgages involved a
concentration of properties located in Florida (23%), Pennsylvania (12%) and
Georgia (11%). The remaining commercial mortgages relate to properties located
in 22 other states. The portfolio is well diversified, covering many different
types of income-producing properties on which the Company has first mortgage
liens. The maximum mortgage outstanding on any individual property is
$6,900,000.
6. EMPLOYEE BENEFIT PLANS
The Company does not sponsor an employee retirement plan. Home office and field
office services are provided to the Company by employees of Life Insurance
Company of Georgia (Life of Georgia), an affiliated insurer. The Company
reimburses Life of Georgia for the actual cost of salaries and fringe benefits
of employees utilized in providing administrative services to the Company.
The Company does not sponsor a deferred compensation plan, but reimburses Life
of Georgia for the actual cost of fringe benefits for employees providing
administrative services to the Company. The Company has an unfunded
noncontributory, nonqualified deferred compensation plan covering certain agents
in the General Agency Sales Division.
7. REINSURANCE
The Company is involved in both ceded and assumed reinsurance with other
companies for the purpose of diversifying risk and limiting exposure on larger
risks. Substantially all of the guaranteed investment contracts and the
associated prepaid reinsurance premiums are ceded under a reinsurance agreement
with an affiliate. As of
F-25
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
7. REINSURANCE (CONTINUED)
December 31, 1995, the Company's retention limit for acceptance of risk on life
insurance policies had been set at various levels up to $250,000. Reinsurance
premiums, commissions, expense reimbursements, and reserves related to reinsured
business are accounted for on bases consistent with those used in accounting for
the original policies issued and the terms of the reinsurance contacts.
To the extent that the assuming companies become unable to meet their
obligations under these treaties, the Company remains contingently liable to its
policyholders for the portion reinsured. Consequently, allowances are
established for amounts deemed uncollectible. To minimize its exposure to
significant losses from reinsurer insolvencies, the Company evaluates the
financial condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic characteristics
of the reinsurer.
The carrying values of amounts recoverable from reinsurers approximate their
fair value.
F-26
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
7. REINSURANCE (CONTINUED)
Additional information regarding the Company's reinsurance activity for the
years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
CEDED TO OTHER ASSUMED FROM OTHER NET AMOUNT ASSUMED
GROSS AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In Thousands)
--------------
1995
Life insurance in force $18,048,076 $4,138,717 $ 809 $13,910,168 0.01%
===============================================================================================
Premiums:
Life insurance $ 39,182 $ 8,073 $ 201 $ 31,310 0.64%
Health insurance 60,318 37,346 - 22,972 0.00%
-----------------------------------------------------------------------------------------------
Total premiums $ 99,500 $ 45,419 $ 201 $ 54,282 0.37%
===============================================================================================
1994
Life insurance in force $15,284,670 $3,396,943 $2,307 $11,890,034 0.02%
===============================================================================================
Premiums:
Life insurance $ 36,116 $ 7,356 $1,740 $ 30,500 5.70%
Health insurance 18,495 10,145 - 8,350 0.00%
-----------------------------------------------------------------------------------------------
Total premiums $ 54,611 $ 17,501 $1,740 $ 38,850 4.48%
===============================================================================================
1993
Life insurance in force $13,952,869 $2,405,218 $1,078 $11,548,729 0.01%
===============================================================================================
Premiums:
Life insurance $ 38,343 $ 7,660 $1,519 $ 32,202 4.72%
Health insurance 10,002 3,009 - 6,993 0.00%
-----------------------------------------------------------------------------------------------
Total premiums $ 48,345 $ 10,669 $1,519 $ 39,195 3.87%
===============================================================================================
</TABLE>
F-27
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
8. INCOME TAXES
The Company, which was acquired by America Life in 1989, filed a separate
federal income tax return for years prior to 1995 due to consolidated return
eligibility regulations.
The Company will file a consolidated federal income tax return in 1995 with
Internationale Nederlanden U.S. Insurance Holdings (the direct parent of America
Life) and other U.S. affiliates and subsidiaries, with the exception of First
ING Life Insurance Company of New York. The affiliated companies that join in
the filing of the consolidated federal return have entered into a tax sharing
agreement which provides for an allocation of taxes among life and nonlife
members. Under the agreement, a life member may not receive the full benefit of
a taxable loss in the year the loss is incurred. The agreement provides that a
loss member will receive at least 50% of the loss utilized by other members and
that any remaining benefit will be fully repaid when the loss member could have
used the loss had they filed a separate federal income tax return. The deferred
payments or receipts for the use of losses are accounted for as a component of
the Company's deferred tax liability.
The current tax liability of $5,816,000 is payable to the parent company,
America Life, under the terms of the tax sharing agreement.
F-28
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31
1995 1994
-----------------
(In Thousands)
--------------
Deferred income tax liability:
Deferred policy acquisition costs $34,700 $33,400
PVFP 7,500 5,600
Deferred investment gains 2,300 -
Unrealized investment gains and losses 24,800 -
Reserves - 3,400
Bond/mortgage loans market discount 700 900
Other reserves 2,100 2,300
-----------------
Total deferred income tax liability 72,100 45,600
Deferred income tax asset:
Unrealized investment gains and losses - 8,200
Reinsurance liability - 5,300
Benefit reserves 14,100 -
Other assets 2,764 1,900
Other liabilities - 1,070
-----------------
Total deferred income tax asset 16,864 16,470
Valuation allowance for deferred tax asset - -
-----------------
Deferred income tax asset after allowance 16,864 16,470
-----------------
Net deferred income tax liability $55,236 $29,130
=================
F-29
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the accompanying statements of income follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-preferred investment income - (.1) (.1)
Goodwill .7 1.0 .9
Change in deferred liability due to tax settlement - - (7.2)
Other items, net - (1.3) (4.4)
---------------------------------
Effective tax rate 35.7% 34.6% 24.2%
=================================
</TABLE>
The components of federal income tax expense consist of the following:
1995 1994 1993
---------------------------
(In Thousands)
--------------
Current $22,913 $13,768 $11,649
Deferred 915 4,954 902
---------------------------
Federal income tax expense $23,828 $18,722 $12,551
===========================
The Company made net income tax payments of $16,254,000 during 1995, $22,585,000
during 1994, and $10,604,000 during 1993 for current income taxes and
settlements of prior year returns.
9. STATUTORY ACCOUNTING INFORMATION AND PRACTICES
Statutory capital and surplus was $78,992,000 and $159,223,000 at December 31,
1995 and 1994, respectively. Statutory net income was $42,182,000, $36,539,000,
and $36,871,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
F-30
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
9. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED)
The Company exceeded its minimum statutory capital and surplus requirements at
December 31, 1995. Additionally, the amount of dividends which can be paid by
the Company to its stockholder without prior approval of the state insurance
department is generally limited to the greater of 10% of statutory surplus or
the statutory net gain from operations.
The Company, which is domiciled in Texas, prepares its statutory-basis financial
statements in accordance with accounting principles and practices prescribed or
permitted by the state of Texas. "Prescribed" statutory accounting practices
include state laws, regulations and general administrative rules, as well as a
variety of publications of the National Association of Insurance Commissioners
(NAIC). "Permitted" statutory accounting practices encompass all accounting
practices that are not prescribed; such practices may differ from state to
state, from company to company within the state, and may change in the future.
The NAIC is currently in the process of codifying statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which
is expected to be completed in 1997, will likely change, to some extent,
prescribed statutory accounting practices, and may result in changes to the
accounting practices that insurance companies use to prepare their statutory
financial statements. The Company does not currently apply permitted statutory
practices which differ from prescribed accounting practices.
During 1992 and 1993, the NAIC approved certain Risk-Based Capital (RBC)
requirements for life/health insurance companies. Those requirements were
effective in 1993 and require that the amount of capital maintained by an
insurance company is to be determined based on the various risk factors related
to it. At December 31, 1995, the Company met RBC requirements.
At December 31, 1995 and 1994, bonds with an amortized cost of $8,376,000 and
$7,634,000 , respectively, were on deposit with various state insurance
departments to meet regulatory requirements.
F-31
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
10. COMMITMENTS AND CONTINGENT LIABILITIES
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments may
be partially recovered through a reduction in future premium taxes in certain
states. The Company has accrued for estimated future assessments net of future
premium tax deductions.
11. SERVICE AGREEMENT WITH AFFILIATE
The Company has a service agreement with Life of Georgia whereby this affiliate
provides personnel, certain services and facilities for the conduct of the
Company's operations in return for payment representing the costs incurred in
providing such services and facilities. Substantially all insurance operating
expenses and employment taxes are incurred under the terms of this service
agreement. During 1995, 1994, and 1993, the Company reimbursed Life of Georgia
$24,573,000, $28,000,000, and $27,843,000, respectively, under this agreement.
The Company has a payable to Life of Georgia of $5,894,000 and $6,200,000 at
December 31, 1995 and 1994, respectively, related to this agreement. This
payable is included within indebtedness to related parties in the accompanying
balance sheets.
12. FINANCING ARRANGEMENTS
The Company has a revolving line of credit totaling $40,000,000 which matures 30
days from the date of advancement. This line of credit expires February 29,
1996. Interest rates on these borrowings are tied to the Federal Funds rate
plus .25%. Outstanding borrowings under this agreement were $0 at December 31,
1995 and 1994.
F-32
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B.
(b) Exhibits
(1) Certified resolution by the board of directors of Southland Life
Insurance Company (the "Company") establishing Southland Separate Account
A1 (the "Account")/12/.
(2) Not Applicable
(3) (a) Form of Underwriting Agreement between the Company, the Account
ING America Equities, Inc. ("INGAE" and)./2/
(b) Form of distribution agreement between INGAE and retail broker
dealers./2/
(4) (a) Form of Contract for Variable Annuity /2/
(b) Form of Individual Retirement Annuity Endorsement/ 2/
(5) Form of Contract Application/2/
(6) (a) Form of amended and restated Articles of Incorporation of the
Company./2/
(b) By-Laws of the Company/1/.
(7) Not Applicable
(8) (a) Form of participation/distribution agreement between Janus Aspen
Series and the Company.//
(b) Form of participation/distribution agreement between The Alger
American Fund and the Company./2/
- -----------------------
/1/ Incorporated herein by reference to the Form N-4 Registration Statement
filed with the Securities and Exchange Commission on February 17, 1995
(File No. 33-89574).
/2/ Incorporated herein by reference to the Form N-4 Registration Statement
filed with the Securities and Exchange Commission on September 29, 1995
(File No. 33-89574).
<PAGE>
<TABLE>
<S> <C>
(c) Form of participation/distribution agreement between Variable Insurance
Products Fund and the Company./2/
(d) Form of participation/distribution agreement between Variable Insurance
Products Fund II and the Company./2/
(e) Form of participation/distribution agreement between INVESCO Variable
Investment Funds, Inc. and the Company./2/
(f) Form of Administration Services Agreement between Financial Administrative
Services Corporation and the Company./2/
(9) Opinion and Consent of Francis J. Mulcahy, Esquire.
(10) (a) Consent of Sutherland, Asbill & Brennan.
(b) Consent of Ernst & Young, LLP.
(11) Not Applicable.
(12) Not Applicable.
(13) Performance Data Computations.
(14) Not Applicable.
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY
DIRECTORS
Name and Principal Business Address*
-----------------------------------
Michael W. Cunningham
Linda B. Emory
R. Glenn Hilliard
P. Randall Lowery
Francis J. Mulcahy
Robert J. St. Jacques
James D. Thompson
- ---------------------
/2/ Incorporated herein by reference to the Form N-4 Registration Statement
filed with the Securities and Exchange Commission on September 29, 1995
(File No. 33-89574).
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE COMPANY (cont'd)
OFFICERS
Name and Principal Position With Depositor
- ------------------- -------------------------
Business Address*
- -----------------
Glenn R. Hilliard Chairman of the Board
Robert J. St. Jacques Vice Chairman & Chief Executive Officer
James D. Thompson President & Chief Operating Officer
John R. Barmeyer Senior Vice President
P. Thomas Chester Senior Vice President & Chief Marketing Officer
William A. Tyler Senior Vice President & Chief Information Officer
Pamela Crane Senior Vice President - Actuarial/Finance
P. Randy Lowery Senior Vice President
David R. Greene Vice President - General Agency Sales
William S. Adams, Jr. Vice President - General Agency Sales
Alan Jeglinski Senior Vice President -Operations
Francis J. Mulcahy Vice President, General Counsel & Secretary
Charlene P. Cochran Actuarial Officer
Carroll S. Glenn Tax Officer
David Mitchell Valuation Actuary
Lyndon S. Oliver Treasurer
Joel S. Silva Financial Officer
James Cooper Underwriting Officer
James Russell Vice President - Human Rescources Technical
Services
William Johnson Vice President - Agency Management
John Krawietz Vice President - Human Rescources
Lynn C. McPherson Atlanta Operations Management Officer
Larry Nordin Vice President - Sales
Roger Painting President - Business Insurance Operations
Richard Wolf Vice President - Group Actuary
* The principal business address of each director and officer is
Southland Life Insurance Company, 5780 Powers Ferry Road, N.W., Atlanta, GA
30327.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
The registrant is a segregated asset account of the Company and is
therefore owned and controlled by the Company. All of the Company's
outstanding stock is owned and controlled by Internationale Nederlanden
Groep N.V. ("ING"). ING is described more fully in the statement of
additional information included in this registration statement. Various
companies and other entities controlled by ING may therefore be considered
to be under common control with the registrant or the Company. Such other
companies and entities, together with the identity of their controlling
persons (where applicable), are set forth on the following organizational
chart.
<PAGE>
ING GROUP N.V (THE NETHERLANDS)-NO FEIN(NON-INSURER)
ING BANK N.V. (THE NETHERLANDS)-NO FEIN(NON-INSURER)
ING VERZEKERINGEN N.V. (THE NETHERLANDS)-NO FEIN (NON-INSURER)
ING INSURANCE INTERNATIONAL B.V. (THE NETHERLANDS)-NO FEIN(NON-
INSURER)
NEDERLANDSE REASSURANTIE GROEP HOLDING N.V. (THE
NETHERLANDS) (NON-INSURER)
NRG AMERICA HOLDING COMPANY (PENNSYLVANIA) (NON-
INSURER)(23-2074221)
NRG AMERICA SYNDICATE (NEW YORK) (NON-INSURER) (22-
2281839)
NRG AMERICA MANAGEMENT CORPORATION (PENNSYLVANIA)
(23-1667532)
NRG AMERICA LIFE REASSURANCE CORPORATION
(PENNSYLVANIA)(23-2038295)
PHILADELPHIA REINSURANCE CORPORATION (PENNSYLVANIA)
(23-1620930)
NATIONALE-NEDERLANDEN INTERTRUST B.V. (THE NETHERLANDS)
(NON-INSURER)
CHICAGO STACTE (DELAWARE) (NON-INSURER) (98-0043300)
NN INTERVEST II (DELAWARE) (NON-INSURER) (98-0042249)
NNUS REALTY CORPORATION (DELAWARE) (NON-INSURER)(13-3062172)
ING AMERICA INSURANCE HOLDINGS, INC. (DELAWARE) (NON-INSURER)
(02-0333654)
INTERNATIONALE NEDERLANDEN NORTH AMERICA INVESTMENT CENTRE
INC. (DELAWARE) (NON-INSURER)(58-1515059)
ING NORTH AMERICA INSURANCE CORPORATION (DELAWARE)
(NON-INSURER)(52-1317217)
INTERNATIONALE-NEDERLANDEN U.S. P&C HOLDINGS, INC. (DELAWARE)
(NON-INSURANCE)(51-0290450)
EXCELSIOR INSURANCE COMPANY (NEW HAMPSHIRE) (15-0302550)
PEERLESS INSURANCE COMPANY (NEW HAMPSHIRE) (02-0177030)
FIRST OF GEORGIA INSURANCE COMPANY (GEORGIA) (58-1438724)
AMERICA FIRST INSURANCE COMPANY (FLORIDA) (58-0963149)
ALABAMA FIRST INSURANCE COMPANY (ALABAMA) (63-0830057)
FIDELITY SOUTHERN INSURANCE COMPANY (TEXAS) (74-1276503)
DIVERSIFIED SETTLEMENTS, INC. (NEW HAMPSHIRE) (NON-INSURER)
(02-0424648)
THE NETHERLANDS INSURANCE COMPANY (NEW HAMPSHIRE) (12-0342937)
INDIANA INSURANCE COMPANY (INDIANA) (35-0410010)
CONSOLIDATED INSURANCE COMPANY (INDIANA) (35-6018568)
COOLING GRUMME MUMFORD COMPANY, INC. (INDIANA) (NON-INSURANCE)
(35-0246520)
INTERNATIONALE NEDERLANDEN AMERICA LIFE CORPORATION (GEORGIA)
(NON-INSURER)(58-1360182)
SOUTHLAND LIFE INSURANCE COMPANY (TEXAS) (75-0572420)
GAC CAPITAL, INC. (DELAWARE) (NON-INSURER)(51-0266924)
LIFE INSURANCE COMPANY OF GEORGIA (GEORGIA) (58-0298930)
SPRINGSTREET ASSOCIATES, INC. (GEORGIA) (NON-INSURER)
(58-1822054)
SECURITY LIFE OF DENVER INSURANCE COMPANY (COLORADO) (84-0499703)
ING AMERICA EQUITIES, INC. (COLORADO) (NON-INSURER)(84-0499703)
MIDWESTERN UNITED LIFE INSURANCE COMPANY(INDIANA) (35-0838945)
FIRST SECURED MORTGAGE DEPOSIT CORPORATION (COLORADO)
(NON-INSURANCE)(84-1086427)
CAMVEST COMPANY NO. 3 (COLORADO) (NON-INSURER)(84-0647364)
UNITED PROTECTIVE COMPANY (ARIZONA) (NON-INSURER)(92-2535650)
FIRST ING OF NEW YORK (NEW YORK) (13-2740556)
WILDERNESS ASSOCIATE (COLORADO) (NON-INSURER)
COLUMBINE LIFE INSURANCE COMPANY (COLORADO)(52-1222820)
SECURITY LIFE OF DENVER INTERNATIONAL, LTD (NON-INSURER)
SLR MANAGEMENT, LTD (BERMUDA) (NON-INSURER)
LION CUSTOM INVESTMENTS(DELAWARE) (NON-INSURER)
ORANGE INVESTMENT ENTERPRISES, INC.(DELAWARE) (NON-INSURER)
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
None
ITEM 28. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers, and controlling persons of Southland
pursuant to the following or otherwise, Southland has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the 1933 Act and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Southland of
expenses incurred or paid by a director, officer or controlling person of
Southland in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Southland will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the 1933 Act and will be governed by
the final adjudication of such issue.
Texas Business Corporations Act Article 2.02-1 is a comprehensive provision
that defines the power of Texas corporations to provide for the indemnification
of its directors, officers, employees and agents. This Article also grants to
corporations the power to purchase director and officer insurance.
Article XXVIII of the Southland Life Insurance Company Bylaws provides as
follows:
ARTICLE XXVIII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. Authorization for indemnification of Directors and officers in
actions by or in the right of a company to procure a judgment in its favor.
(a) Any person made party to an action by or in the right of the Company to
procure a judgment in its favor by reason of the fact that he, his testator or
intestate, is or was a Director or officer of the Company, shall be indemnified
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred by him in connection with the defense of such action, or in
connection with an appeal therein, except in relation to matters as to which
such Director or officer is adjudged to have breached his duty to the Company.
(b) The indemnification authorized under paragraph (a) shall in no case
include:
(1) Amounts paid in settling or otherwise disposing of a threatened or
a pending action with or without court approval; or
<PAGE>
(2) Expenses incurred in defending a threatened action or a pending
action which is settled or otherwise disposed of without court approval.
SECTION 2. Authorization for indemnification of Directors and officers in
actions or proceedings other than by or in the right of a company to procure a
judgement in its favor.
(a) Any person made, or threatened to be made, a party in an action or
proceeding other than one by or in the right of the company to procure a
judgement in its favor, whether civil, criminal or administrative, including an
action by or in the right of any other company of any type or kind, domestic or
foreign, which any Director or officer of the Company, served in any capacity at
the request of the Company, by reason of the fact that he, his testator or
intestate, was a Director or officer of the Company, or served such other
company in any capacity, shall be indemnified against judgements, fines, amounts
paid in settlement and reasonable expenses, including attorneys' fees actually
and necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such Director of officer acted, in good faith, for a purpose which
he reasonably believed to be in the best interests of the Company and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful.
(b) The termination of any such civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such Director or
officer did not act in good faith for a purpose which he reasonably believed to
be in the best interests of the Company or that he had reasonable cause to
believe that this conduct was unlawful.
SECTION 3. Payment of indemnification other than by court award.
(a) A person who has been wholly successful, on the merits or otherwise, in
the defense of a civil, criminal, or administrative action or proceeding of the
character described in Section 1 or Section 2 above shall be entitled to
indemnification as authorized in such Section 1 or Section 2.
(b) Except as provided in Paragraph (a) of this Section 3, any
indemnification under Section 1 or Section 2 above, unless ordered by a court,
shall be made by the Company only if authorized in the specific case:
(1) By the Board of Directors acting by a quorum consisting of
Directors who are not parties to such action or proceeding upon a finding that
the Director or officer has met the standard of conduct set forth in Section 1
or Section 2, as the case may be; or
(2) If a quorum of the Board of Directors is not obtainable with due
diligence:
(A) By the Board of Directors upon the opinion in writing of
independent legal counsel that indemnification is proper in the circumstances
because the applicable standard of conduct set forth in Section 1 or Section 2
above has been met by such Director or officer, or
<PAGE>
(B) By the stockholder (excluding the director or officer) upon a
finding that the Director or officer has met the applicable standard of conduct
set forth in Section 1 or Section 2 above.
(c) Reasonable expenses incurred in defending a civil, criminal or
administrative action or proceeding may be paid by the Company in advance of the
final disposition of such action or proceeding if authorized under paragraph (b)
of this Section 3 and if the Director or officer submits a written affirmation
that he meets the standards necessary for indemnification and if the facts known
to those making the determination would not preclude indemnification, but
subject to a written undertaking of repayment if ultimately found not to be
entitled to indemnification under the provisions hereof.
SECTION 4. General.
The foregoing provisions of this Article XXVIII shall be deemed to be a
contract between the Company and each Director and officer who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The foregoing rights of indemnification shall not be deemed exclusive of
any other rights to which any Director or officer may be entitled apart from the
provisions of this Article XXVIII.
The Board of Directors in its discretion shall have the power on behalf of
the Company to indemnify any person, other than a Director or officer, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an employee of the company. Such
indemnification shall be to the same extent and subject to the same standards as
indemnification for a director or officer.
SECTION 5. Liability Insurance
The company and/or the Board of Directors may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the company or who is or was serving at the request of the company
as a director, officer, partner, venturer, proprietor, trustee, employee, agent,
or similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, other enterprise or employee benefit
plan, against any and all liability asserted against him and/or incurred by him
in such capacity or arising out of his status as such a person, whether or not
such person would be subject to or eligible for indemnification under the other
provisions of this Article XXVIII.
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
(a) INGAE is the principal underwriter (as defined in the Investment
Company Act of 1940) for the Contracts and is also the principal
underwriter for variable life insurance contracts to be issued by the
Company.
(b) Name and Principal Position with INGAE
------------------- -------------------
Business Address*
-----------------
Frank T. Wright Director & Vice President
Edward K. Campbell Director & Vice President
Melodie A. Maxwell-Jones Director & Chief Compliance Officer
Eugene L. Copeland Secretary
Irene M. Colorosa Assistant Secretary
Debra Bell Chief Financial Officer
Shari Ann Enger Treasurer
Jerrianne N. Smith Chief Operating Officer
*The principal business address of each officer and director is
Security Life of Denver, 1290 Broadway, Denver, CO 80203.
ITEM 30. LOCATION OF BOOKS AND RECORDS
All of the accounts, books, records or other documents required
to be kept by Section 31(a) of the Investment Company Act of 1940 and
rules thereunder, are maintained by the Company at 5780 Powers Ferry
Road, N.W., Atlanta, GA 30327 or at 8515 East Orchard Road - 9T2,
Englewood, CO 80111.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of
this registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS
(a) The registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that
the audited financial statements in the registration statement are never
more than 16 months old for as long as purchase payments under the
contracts offered herein are being accepted.
<PAGE>
(b) The registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space
that an applicant can check to request a statement of additional
information, of (2) a post card or similar written communication affixed
to or included in the prospectus that the applicant can remove and send
to the Company for a statement of additional information.
(c) the registrant undertakes to deliver any statement of additional
information and any financial statements required to be made available
under this Form N-4 promptly upon written or oral request to the Company
at the address or phone number listed in the prospectus.
(d) The Company represents that in connection with its offering of the
contracts as funding vehicles for retirement plans meeting the
requirements of Section 403(b) of the Internal Revenue Code of 1986, as
amended, it is relying on a no-action letter dated November 28, 1988, to
the American Council of Life Insurance (Ref. No. IP-6-88) regarding
Sections 22(e), 27(c)(1) and 27(d) of the Investment Company Act of 1940,
and the paragraphs numbered (1) through (4) of that letter will be
complied with.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Southland Separate Account A1, certifies
that it meets the requirements of Securities Act Rule 486(b) for effectiveness
of this Amendment to the Registration Statement and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to thereunto affixed and
attested, all in the County of Fulton, State of Georgia, this 25th day of April,
1996.
[CORPORATE SEAL OF Southland Separate Account A1
SOUTHLAND LIFE Southland Life Insurance Company
APPEARS HERE] (Depositor)
Attest: /s/ Francis J. Mulcahy BY: /s/ James D. Thompson
------------------------------- --------------------------------
Francis J. Mulcahy, Vice President James D. Thompson, President &
Secretary & General Counsel Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, Southland Life
Insurance Company has duly caused this Registration Statement to be signed on
its behalf by the undersigned persons in their capacities with Southland Life
Insurance Company thereunto authorized, and its seal, to thereunto affixed and
attested, all in the County of Fulton, State of Georgia, this 25th day of
April, 1996.
PRINCIPAL OFFICERS
Signature Title Date
- --------- ----- ----
/s/ James D. Thompson President & April 25, 1996
- ---------------------------
James D. Thompson Chief Operating Officer
/s/ Robert J. St. Jacques Chief Executive Officer April 25, 1996
- ---------------------------
Robert J. St. Jacques
/s/ Francis J. Mulcahy Vice President, Secretary & April 25, 1996
- ---------------------------
Francis J. Mulcahy General Counsel
<PAGE>
BOARD OF DIRECTORS
Signature Title Date
- --------- ----- ----
/s/ R. Glenn Hilliard Chairman of the Board April 25, 1996
- -------------------------
R. Glenn Hilliard
/s/ Robert J. St. Jacques Vice Chairman April 25, 1996
- -------------------------
Robert J. St. Jacques
/s/ Michael W. Cunningham Director April 25, 1996
- ------------------------
Michael W. Cunningham
/s/ Linda B. Emory Director April 25, 1996
- -------------------------
Linda B. Emory
/s/ James D. Thompson Director April 25, 1996
- -------------------------
James D. Thompson
/s/ P. Randall Lowery Director April 25, 1996
- -------------------------
P. Randall Lowery
/s/ Francis J. Mulcahy Director April 25, 1996
- -------------------------
Francis J. Mulcahy
<PAGE>
EXHIBIT 10(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Condensed Financial
Information" and "Experts" and to the use of our report dated April 5, 1996, in
Post-Effective Amendment No. 1 to the Registration Statement (Form N-4 No. 33-
89574) and related Prospectus of Southland Separate Account A1 (dated May 1,
1996).
ERNST & YOUNG LLP
Atlanta, Georgia
April 24, 1996
<PAGE>
EXHIBIT 13
VIP MONEY MARKET SUBACCOUNT
7-DAY YIELD AND EFFECTIVE YIELD
7-day period ended 12/31/95
---------------------------
YIELD
-----
( Base Period Return ) x (365/7)
= 0.00075324 x (365/7)
= 3.93%
EFFECTIVE YIELD
---------------
(1 + Base Period Return )/365/7/ - 1
= (1 + 0.00075324)/365/7/ - 1
= 4.00%
WHERE:
UV = Unit Value
NCS = UV \\Beginning of Period\\ - UV \\End of Period\\
= 10.47260000 - 10.46451700
= 0.00808300
ES = Annual Contract Charge per Week, based on Average Account Size
= (30 / (365/7) ) / Average Account Size of $30,000
= 0.00001918
Base Period Return = (NCS / UV\\Beginning of Period\\) - ES
= (0.00808300 / 10.46451700) - 0.00001918
= 0.00075324
<PAGE>
AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET SUBACCOUNTS
P(1 + T)/n/ = ERV
Where:
[P] equals a hypothetical initial purchase payment of $1,000
[T] equals the average annual total return ( or fractional period
thereof )
[n] equals the number of years
[ERV] equals the ending redeemable value of a hypothetical $1,000
Purchase Payment made at the beginning of the period
Except Subaccounts with less than 1 year from the inception date to
12/31/95
Alger American Leveraged AllCap
Fidelity VIP II Contrafund
P(1 + Cumulative Total Return) = ERV
Where:
[P] equals a hypothetical initial purchase payment of $1,000
[ERV] equals the ending redeemable value of a hypothetical
$1,000 Purchase Payment made at the beginning of the period
[Cumulative Total Return] equals the total return since inception
<PAGE>
ALGER AMERICAN SMALL CAPITALIZATION
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 10.22429343 14.53252500 1421.37
- ----------------------------------------------------------------------
12/31/95 -70.00 14.53252500 14.53252500 -70.00
- ----------------------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 35.04% ERV: 1350.37
PERIOD : 5
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/90 1000.00 6.15035965 14.53252500 2362.87
- ----------------------------------------------------------------------
12/31/91 -1.00 9.54364110 14.53252500 -1.52
- ----------------------------------------------------------------------
12/31/92 -1.00 9.72972325 14.53252500 -1.49
- ----------------------------------------------------------------------
12/31/93 -1.00 10.85557895 14.53252500 -1.34
- ----------------------------------------------------------------------
12/31/94 -1.00 10.22429343 14.53252500 -1.42
- ----------------------------------------------------------------------
12/31/95 -30.00 14.53252500 14.53252500 -30.00
- ----------------------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 18.39% ERV: 2326.10
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
9/21/88 1000.00 3.68401659 14.53252500 3944.75
- ----------------------------------------------------------------------
9/21/89 -1.00 5.62209051 14.53252500 -2.58
- ----------------------------------------------------------------------
9/21/90 -1.00 5.41419647 14.53252500 -2.68
- ----------------------------------------------------------------------
9/21/91 -1.00 8.10276439 14.53252500 -1.79
- ----------------------------------------------------------------------
9/21/92 -1.00 8.41223930 14.53252500 -1.73
- ----------------------------------------------------------------------
9/21/93 -1.00 10.08581847 14.53252500 -1.44
- ----------------------------------------------------------------------
9/21/94 -1.00 9.89477461 14.53252500 -1.47
- ----------------------------------------------------------------------
9/21/95 -1.00 16.29975800 14.53252500 -0.89
- ----------------------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 20.70% ERV: 3931.16
DAYS = 101
YEARS= 7
<PAGE>
ALGER AMERICAN SMALL CAPITALIZATION
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- --------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------------------
12/31/94 1000.00 10.22429343 14.53252500 1421.37
- --------------------------------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 42.04% ERV: 1420.37
PERIOD : 5
- --------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------------------
12/31/90 1000.00 6.15035965 14.53252500 2362.87
- --------------------------------------------------------------------------------
12/31/91 -1.00 9.54364110 14.53252500 -1.52
- --------------------------------------------------------------------------------
12/31/92 -1.00 9.72972325 14.53252500 -1.49
- --------------------------------------------------------------------------------
12/31/93 -1.00 10.85557895 14.53252500 -1.34
- --------------------------------------------------------------------------------
12/31/94 -1.00 10.22429343 14.53252500 -1.42
- --------------------------------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 18.70% ERV: 2356.10
PERIOD : INCEPTION
- --------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------------------
9/21/88 1000.00 3.68401659 14.53252500 3944.75
- --------------------------------------------------------------------------------
9/21/89 -1.00 5.62209051 14.53252500 -2.58
- --------------------------------------------------------------------------------
9/21/90 -1.00 5.41419647 14.53252500 -2.68
- --------------------------------------------------------------------------------
9/21/91 -1.00 8.10276439 14.53252500 -1.79
- --------------------------------------------------------------------------------
9/21/92 -1.00 8.41223930 14.53252500 -1.73
- --------------------------------------------------------------------------------
9/21/93 -1.00 10.08581847 14.53252500 -1.44
- --------------------------------------------------------------------------------
9/21/94 -1.00 9.89477461 14.53252500 -1.47
- --------------------------------------------------------------------------------
9/21/95 -1.00 16.29975800 14.53252500 -0.89
- --------------------------------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 20.70% ERV: 3931.16
DAYS = 101
YEARS= 7
ALGER AMERICAN MIDCAP GROWTH
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- --------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------------------
12/31/94 1000.00 10.16321100 14.45979200 1422.76
- --------------------------------------------------------------------------------
12/31/95 -70.00 14.45979200 14.45979200 -70.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 35.18% ERV: 1351.76
PERIOD : INCEPTION
- --------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------------------
5/3/93 1000.00 7.63399628 14.45979200 1894.13
- --------------------------------------------------------------------------------
5/3/94 -1.00 9.90205382 14.45979200 -1.46
- --------------------------------------------------------------------------------
5/3/95 -1.00 11.37286300 14.45979200 -1.27
- --------------------------------------------------------------------------------
12/31/95 -50.00 14.45979200 14.45979200 -50.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 25.74% ERV: 1840.40
Days 242
Years 2
<PAGE>
ALGER AMERICAN MIDCAP GROWTH
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 10.16321100 14.45979200 1422.76
- ----------------------------------------------------------------------
12/31/95 0.00 14.45979200 14.45979200 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 42.18% ERV: 1421.76
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
5/3/93 1000.00 7.63399628 14.45979200 1894.13
- ----------------------------------------------------------------------
5/3/94 -1.00 9.90205382 14.45979200 -1.46
- ----------------------------------------------------------------------
5/3/95 -1.00 11.37286300 14.45979200 -1.27
- ----------------------------------------------------------------------
12/31/95 0.00 14.45979200 14.45979200 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 27.01% ERV: 1890.40
Days 242
Years 2
<PAGE>
ALGER AMERICAN GROWTH
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 8.91726831 11.97934100 1343.39
- ----------------------------------------------------------------------
12/31/95 -70.00 11.97934100 11.97934100 -70.00
- ----------------------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 27.24% ERV: 1272.39
PERIOD : 5
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/90 1000.00 4.83461405 11.97934100 2477.83
- ----------------------------------------------------------------------
12/31/91 -1.00 6.68483754 11.97934100 -1.79
- ----------------------------------------------------------------------
12/31/92 -1.00 7.39878178 11.97934100 -1.62
- ----------------------------------------------------------------------
12/31/93 -1.00 8.92439742 11.97934100 -1.34
- ----------------------------------------------------------------------
12/31/94 -1.00 8.91726831 11.97934100 -1.34
- ----------------------------------------------------------------------
12/31/95 -30.00 11.97934100 11.97934100 -30.00
- ----------------------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 19.54% ERV: 2440.73
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
1/9/89 1000.00 3.83955261 11.97934100 3119.98
- ----------------------------------------------------------------------
1/9/90 -1.00 4.70810308 11.97934100 -2.54
- ----------------------------------------------------------------------
1/9/91 -1.00 4.57724735 11.97934100 -2.62
- ----------------------------------------------------------------------
1/9/92 -1.00 6.96448759 11.97934100 -1.72
- ----------------------------------------------------------------------
1/9/93 -1.00 7.39234239 11.97934100 -1.62
- ----------------------------------------------------------------------
1/9/94 -1.00 9.10910131 11.97934100 -1.32
- ----------------------------------------------------------------------
1/9/95 -1.00 8.90684177 11.97934100 -1.34
- ----------------------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 17.65% ERV: 3107.82
DAYS = 356
YEARS= 6
<PAGE>
<TABLE>
<CAPTION>
ALGER AMERICAN GROWTH
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- -----------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 8.91726831 11.97934100 1343.39
- -----------------------------------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------------------------------
AVG ANNUAL RETURN: 34.24% ERV: 1342.39
PERIOD : 5
- -----------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------------
12/31/90 1000.00 4.83461405 11.97934100 2477.83
- -----------------------------------------------------------------------------------
12/31/91 -1.00 6.68483754 11.97934100 -1.79
- -----------------------------------------------------------------------------------
12/31/92 -1.00 7.39878178 11.97934100 -1.62
- -----------------------------------------------------------------------------------
12/31/93 -1.00 8.92439742 11.97934100 -1.34
- -----------------------------------------------------------------------------------
12/31/94 -1.00 8.91726831 11.97934100 -1.34
- -----------------------------------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------------------------------
AVG ANNUAL RETURN: 19.83% ERV: 2470.73
PERIOD : INCEPTION
- -----------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------------
1/9/89 1000.00 3.83955261 11.97934100 3119.98
- -----------------------------------------------------------------------------------
1/9/90 -1.00 4.70810308 11.97934100 -2.54
- -----------------------------------------------------------------------------------
1/9/91 -1.00 4.57724735 11.97934100 -2.62
- -----------------------------------------------------------------------------------
1/9/92 -1.00 6.96448759 11.97934100 -1.72
- -----------------------------------------------------------------------------------
1/9/93 -1.00 7.39234239 11.97934100 -1.62
- -----------------------------------------------------------------------------------
1/9/94 -1.00 9.10910131 11.97934100 -1.32
- -----------------------------------------------------------------------------------
1/9/95 -1.00 8.90684177 11.97934100 -1.34
- -----------------------------------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------------------------------
AVG ANNUAL RETURN: 17.65% ERV: 3107.82
DAYS = 356
YEARS= 6
</TABLE>
<PAGE>
ALGER AMERICAN LEVERAGED ALLCAP
ASSUMING CONTRACT SURRENDERED
PERIOD : INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -------------------------------------------------------------------------
1/25/95 1000.00 8.57535113 14.73836400 1718.69
- -------------------------------------------------------------------------
12/31/95 -70.00 14.73836400 14.73836400 -70.00
- -------------------------------------------------------------------------
12/31/95 -1.00 14.73836400 14.73836400 -1.00
- -------------------------------------------------------------------------
CUMULATIVE TOTAL 64.77% ERV: 1647.69
RETURN:
Days= 340
Years= 0
<PAGE>
ALGER AMERICAN LEVERAGED ALLCAP
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : INCEPTION
- --------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------
1/25/95 1000.00 8.57535113 14.73836400 1718.69
- --------------------------------------------------------------------
12/31/95 0.00 14.73836400 14.73836400 0.00
- --------------------------------------------------------------------
12/31/95 -1.00 14.73836400 14.73836400 -1.00
- --------------------------------------------------------------------
CUMULATIVE TOTAL 71.77% ERV: 1717.69
RETURN RETURN:
Days= 340
Years= 0
<PAGE>
FIDELITY VIP II ASSET MANAGER
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.46375076 10.90198800 1151.97
- ---------------------------------------------------------------------------------
12/31/95 -70.00 10.90198800 10.90198800 -70.00
- ---------------------------------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- ---------------------------------------------------------------------------------
AVG ANNUAL RETURN: 8.10% ERV: 1080.97
PERIOD : 5
- ---------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ---------------------------------------------------------------------------------
12/31/90 1000.00 6.45632484 10.90198800 1688.57
- ---------------------------------------------------------------------------------
12/31/91 -1.00 7.79351249 10.90198800 -1.40
- ---------------------------------------------------------------------------------
12/31/92 -1.00 8.57468762 10.90198800 -1.27
- ---------------------------------------------------------------------------------
12/31/93 -1.00 10.23860276 10.90198800 -1.06
- ---------------------------------------------------------------------------------
12/31/94 -1.00 9.46375076 10.90198800 -1.15
- ---------------------------------------------------------------------------------
12/31/95 -30.00 10.90198800 10.90198800 -30.00
- ---------------------------------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- ---------------------------------------------------------------------------------
AVG ANNUAL RETURN: 10.57% ERV: 1652.69
PERIOD : INCEPTION
- ---------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ---------------------------------------------------------------------------------
9/6/89 1000.00 6.12252830 10.90198800 1780.63
- ---------------------------------------------------------------------------------
9/6/90 -1.00 6.10341581 10.90198800 -1.79
- ---------------------------------------------------------------------------------
9/6/91 -1.00 7.51297734 10.90198800 -1.45
- ---------------------------------------------------------------------------------
9/6/92 -1.00 8.29991469 10.90198800 -1.31
- ---------------------------------------------------------------------------------
9/6/93 -1.00 9.59425986 10.90198800 -1.14
- ---------------------------------------------------------------------------------
9/6/94 -1.00 9.89535954 10.90198800 -1.10
- ---------------------------------------------------------------------------------
9/6/95 -1.00 10.51680300 10.90198800 -1.04
- ---------------------------------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- ---------------------------------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- ---------------------------------------------------------------------------------
AVG ANNUAL RETURN: 9.48% ERV: 1771.81
DAYS = 116
YEARS= 6
</TABLE>
<PAGE>
FIDELITY VIP II ASSET MANAGER
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.46375076 10.90198800 1151.97
- ---------------------------------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- ---------------------------------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- ---------------------------------------------------------------------------------
AVG ANNUAL RETURN: 15.10% ERV: 1150.97
PERIOD : 5
- ---------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ---------------------------------------------------------------------------------
12/31/90 1000.00 6.45632484 10.90198800 1688.57
- ---------------------------------------------------------------------------------
12/31/91 -1.00 7.79351249 10.90198800 -1.40
- ---------------------------------------------------------------------------------
12/31/92 -1.00 8.57468762 10.90198800 -1.27
- ---------------------------------------------------------------------------------
12/31/93 -1.00 10.23860276 10.90198800 -1.06
- ---------------------------------------------------------------------------------
12/31/94 -1.00 9.46375076 10.90198800 -1.15
- ---------------------------------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- ---------------------------------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- ---------------------------------------------------------------------------------
AVG ANNUAL RETURN: 10.97% ERV: 1682.69
PERIOD : INCEPTION
- ---------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ---------------------------------------------------------------------------------
9/6/89 1000.00 6.12252830 10.90198800 1780.63
- ---------------------------------------------------------------------------------
9/6/90 -1.00 6.10341581 10.90198800 -1.79
- ---------------------------------------------------------------------------------
9/6/91 -1.00 7.51297734 10.90198800 -1.45
- ---------------------------------------------------------------------------------
9/6/92 -1.00 8.29991469 10.90198800 -1.31
- ---------------------------------------------------------------------------------
9/6/93 -1.00 9.59425986 10.90198800 -1.14
- ---------------------------------------------------------------------------------
9/6/94 -1.00 9.89535954 10.90198800 -1.10
- ---------------------------------------------------------------------------------
9/6/95 -1.00 10.51680300 10.90198800 -1.04
- ---------------------------------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- ---------------------------------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- ---------------------------------------------------------------------------------
AVG ANNUAL RETURN: 9.48% ERV: 1771.81
DAYS = 116
YEARS= 6
</TABLE>
<PAGE>
FIDELITY VIP II CONTRAFUND
ASSUMING CONTRACT SURRENDERED
PERIOD: INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
1/3/95 1000.00 10.00000000 13.76256496 1376.26
- -----------------------------------------------------------------------
12/31/95 -70.00 13.76256496 13.76256496 -70.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.76256496 13.76256496 -1.00
- -----------------------------------------------------------------------
CUMULATIVE TOTAL 30.53% ERV: 1305.26
RETURN:
DAYS= 362
<PAGE>
FIDELITY VIP II CONTRAFUND
ASSUMING CONTRACT NOT SURRENDERED
PERIOD: INCEPTION
- --------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------
1/3/95 1000.00 10.00000000 13.76256496 1376.26
- --------------------------------------------------------------------
12/31/95 0.00 13.76256496 13.76256496 0.00
- --------------------------------------------------------------------
12/31/95 -1.00 13.76256496 13.76256496 -1.00
- --------------------------------------------------------------------
CUMULATIVE TOTAL 37.53% ERV: 1375.26
RETURN:
DAYS= 362
<PAGE>
FIDELITY VIP EQUITY INCOME
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 20.74330024 27.59974552 1330.54
- ----------------------------------------------------------------------
12/31/95 -70.00 27.59974552 27.59974552 -70.00
- ----------------------------------------------------------------------
12/31/95 -1.00 27.59974552 27.59974552 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 25.95% ERV: 1259.54
PERIOD : 5
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/90 1000.00 11.32995569 27.59974552 2436.00
- ----------------------------------------------------------------------
12/31/91 -1.00 14.66653889 27.59974552 -1.88
- ----------------------------------------------------------------------
12/31/92 -1.00 16.88414518 27.59974552 -1.63
- ----------------------------------------------------------------------
12/31/93 -1.00 19.67103410 27.59974552 -1.40
- ----------------------------------------------------------------------
12/31/94 -1.00 20.74330024 27.59974552 -1.33
- ----------------------------------------------------------------------
12/31/95 -30.00 27.59974552 27.59974552 -30.00
- ----------------------------------------------------------------------
12/31/95 -1.00 27.59974552 27.59974552 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 19.12% ERV: 2398.75
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
10/9/86 1000.00 10.00000000 27.59974552 2759.97
- ----------------------------------------------------------------------
10/9/87 -1.00 11.81061032 27.59974552 -2.34
- ----------------------------------------------------------------------
10/9/88 -1.00 11.79995892 27.59974552 -2.34
- ----------------------------------------------------------------------
10/9/89 -1.00 14.45746485 27.59974552 -1.91
- ----------------------------------------------------------------------
10/9/90 -1.00 10.60342286 27.59974552 -2.60
- ----------------------------------------------------------------------
10/9/91 -1.00 13.68850665 27.59974552 -2.02
- ----------------------------------------------------------------------
10/9/92 -1.00 15.29749279 27.59974552 -1.80
- ----------------------------------------------------------------------
10/9/93 -1.00 19.59658023 27.59974552 -1.41
- ----------------------------------------------------------------------
10/9/94 -1.00 20.89505100 27.59974552 -1.32
- ----------------------------------------------------------------------
10/9/95 -1.00 25.81971457 27.59974552 -1.07
- ----------------------------------------------------------------------
12/31/95 0.00 27.59974552 27.59974552 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 27.59974552 27.59974552 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 11.55% ERV: 2742.17
DAYS = 83
YEARS = 9
<PAGE>
FIDELITY VIP EQUITY INCOME
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 20.74330024 27.59974552 1330.54
- -----------------------------------------------------------------------
12/31/95 0.00 27.59974552 27.59974552 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 27.59974552 27.59974552 -1.00
- -----------------------------------------------------------------------
AVG ANNUAL RETURN: 32.95% ERV: 1329.54
PERIOD : 5
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/90 1000.00 11.32995569 27.59974552 2436.00
- -----------------------------------------------------------------------
12/31/91 -1.00 14.66653889 27.59974552 -1.88
- -----------------------------------------------------------------------
12/31/92 -1.00 16.88414518 27.59974552 -1.63
- -----------------------------------------------------------------------
12/31/93 -1.00 19.67103410 27.59974552 -1.40
- -----------------------------------------------------------------------
12/31/94 -1.00 20.74330024 27.59974552 -1.33
- -----------------------------------------------------------------------
12/31/95 0.00 27.59974552 27.59974552 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 27.59974552 27.59974552 -1.00
- -----------------------------------------------------------------------
AVG ANNUAL RETURN: 19.42% ERV: 2428.75
PERIOD : INCEPTION
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
10/9/86 1000.00 10.00000000 27.59974552 2759.97
- -----------------------------------------------------------------------
10/9/87 -1.00 11.81061032 27.59974552 -2.34
- -----------------------------------------------------------------------
10/9/88 -1.00 11.79995892 27.59974552 -2.34
- -----------------------------------------------------------------------
10/9/89 -1.00 14.45746485 27.59974552 -1.91
- -----------------------------------------------------------------------
10/9/90 -1.00 10.60342286 27.59974552 -2.60
- -----------------------------------------------------------------------
10/9/91 -1.00 13.68850665 27.59974552 -2.02
- -----------------------------------------------------------------------
10/9/92 -1.00 15.29749279 27.59974552 -1.80
- -----------------------------------------------------------------------
10/9/93 -1.00 19.59658023 27.59974552 -1.41
- -----------------------------------------------------------------------
10/9/94 -1.00 20.89505100 27.59974552 -1.32
- -----------------------------------------------------------------------
10/9/95 -1.00 25.81971457 27.59974552 -1.07
- -----------------------------------------------------------------------
12/31/95 0.00 27.59974552 27.59974552 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 27.59974552 27.59974552 -1.00
- -----------------------------------------------------------------------
AVG ANNUAL RETURN: 11.55% ERV: 2742.17
DAYS = 83
YEARS = 9
<PAGE>
FIDELITY VIP GROWTH
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 10.12377944 13.49805600 1333.30
- -----------------------------------------------------------------------
12/31/95 -70.00 13.49805600 13.49805600 -70.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- -----------------------------------------------------------------------
AVG ANNUAL RETURN: 26.23% ERV: 1262.30
PERIOD : 5
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/90 1000.00 5.66654359 13.49805600 2382.06
- -----------------------------------------------------------------------
12/31/91 -1.00 8.12137302 13.49805600 -1.66
- -----------------------------------------------------------------------
12/31/92 -1.00 8.74403595 13.49805600 -1.54
- -----------------------------------------------------------------------
12/31/93 -1.00 10.28038659 13.49805600 -1.31
- -----------------------------------------------------------------------
12/31/94 -1.00 10.12377944 13.49805600 -1.33
- -----------------------------------------------------------------------
12/31/95 -30.00 13.49805600 13.49805600 -30.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- -----------------------------------------------------------------------
AVG ANNUAL RETURN: 18.59% ERV: 2345.21
PERIOD : INCEPTION
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
10/9/86 1000.00 4.33174550 13.49805600 3116.08
- -----------------------------------------------------------------------
10/9/87 -1.00 5.44464570 13.49805600 -2.48
- -----------------------------------------------------------------------
10/9/88 -1.00 5.11034980 13.49805600 -2.64
- -----------------------------------------------------------------------
10/9/89 -1.00 6.70453766 13.49805600 -2.01
- -----------------------------------------------------------------------
10/9/90 -1.00 5.26769869 13.49805600 -2.56
- -----------------------------------------------------------------------
10/9/91 -1.00 7.16759167 13.49805600 -1.88
- -----------------------------------------------------------------------
10/9/92 -1.00 7.54423144 13.49805600 -1.79
- -----------------------------------------------------------------------
10/9/93 -1.00 10.25831952 13.49805600 -1.32
- -----------------------------------------------------------------------
10/9/94 -1.00 9.70488999 13.49805600 -1.39
- -----------------------------------------------------------------------
10/9/95 -1.00 13.17260900 13.49805600 -1.02
- -----------------------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- -----------------------------------------------------------------------
AVG ANNUAL RETURN: 13.04% ERV: 3097.98
DAYS= 83
YEARS= 9
<PAGE>
FIDELITY VIP GROWTH
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------------
12/31/94 1000.00 10.12377944 13.49805600 1333.30
- ----------------------------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- ----------------------------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- ----------------------------------------------------------------------------
AVG ANNUAL RETURN: 33.23% ERV: 1332.30
PERIOD : 5
- ----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------------
12/31/90 1000.00 5.66654359 13.49805600 2382.06
- ----------------------------------------------------------------------------
12/31/91 -1.00 8.12137302 13.49805600 -1.66
- ----------------------------------------------------------------------------
12/31/92 -1.00 8.74403595 13.49805600 -1.54
- ----------------------------------------------------------------------------
12/31/93 -1.00 10.28038659 13.49805600 -1.31
- ----------------------------------------------------------------------------
12/31/94 -1.00 10.12377944 13.49805600 -1.33
- ----------------------------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- ----------------------------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- ----------------------------------------------------------------------------
AVG ANNUAL RETURN: 18.89% ERV: 2375.21
PERIOD : INCEPTION
- ----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------------
10/9/86 1000.00 4.33174550 13.49805600 3116.08
- ----------------------------------------------------------------------------
10/9/87 -1.00 5.44464570 13.49805600 -2.48
- ----------------------------------------------------------------------------
10/9/88 -1.00 5.11034980 13.49805600 -2.64
- ----------------------------------------------------------------------------
10/9/89 -1.00 6.70453766 13.49805600 -2.01
- ----------------------------------------------------------------------------
10/9/90 -1.00 5.26769869 13.49805600 -2.56
- ----------------------------------------------------------------------------
10/9/91 -1.00 7.16759167 13.49805600 -1.88
- ----------------------------------------------------------------------------
10/9/92 -1.00 7.54423144 13.49805600 -1.79
- ----------------------------------------------------------------------------
10/9/93 -1.00 10.25831952 13.49805600 -1.32
- ----------------------------------------------------------------------------
10/9/94 -1.00 9.70488999 13.49805600 -1.39
- ----------------------------------------------------------------------------
10/9/95 -1.00 13.17260900 13.49805600 -1.02
- ----------------------------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- ----------------------------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- ----------------------------------------------------------------------------
AVG ANNUAL RETURN: 13.04% ERV: 3097.98
DAYS= 83
YEARS= 9
<PAGE>
FIDELITY VIP HIGH INCOME
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------------
12/31/94 1000.00 22.67427941 26.95967264 1189.00
- ----------------------------------------------------------------------------
12/31/95 -70.00 26.95967264 26.95967264 -70.00
- ----------------------------------------------------------------------------
12/31/95 -1.00 26.95967264 26.95967264 -1.00
- ----------------------------------------------------------------------------
AVG ANNUAL RETURN: 11.80% ERV: 1118.00
PERIOD : 5
- ----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------------
12/31/90 1000.00 12.22956871 26.95967264 2204.47
- ----------------------------------------------------------------------------
12/31/91 -1.00 16.27058368 26.95967264 -1.66
- ----------------------------------------------------------------------------
12/31/92 -1.00 19.73704456 26.95967264 -1.37
- ----------------------------------------------------------------------------
12/31/93 -1.00 23.40477598 26.95967264 -1.15
- ----------------------------------------------------------------------------
12/31/94 -1.00 22.67427941 26.95967264 -1.19
- ----------------------------------------------------------------------------
12/31/95 -30.00 26.95967264 26.95967264 -30.00
- ----------------------------------------------------------------------------
12/31/95 -1.00 26.95967264 26.95967264 -1.00
- ----------------------------------------------------------------------------
AVG ANNUAL RETURN: 16.74% ERV: 2168.10
PERIOD : 10
- ----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------------
12/31/85 1000.00 10.59007403 26.95967264 2545.75
- ----------------------------------------------------------------------------
12/31/86 -1.00 12.27448233 26.95967264 -2.20
- ----------------------------------------------------------------------------
12/31/87 -1.00 12.23681334 26.95967264 -2.20
- ----------------------------------------------------------------------------
12/31/88 -1.00 13.45515721 26.95967264 -2.00
- ----------------------------------------------------------------------------
12/31/89 -1.00 12.69954266 26.95967264 -2.12
- ----------------------------------------------------------------------------
12/31/90 -1.00 12.22956871 26.95967264 -2.20
- ----------------------------------------------------------------------------
12/31/91 -1.00 16.27058368 26.95967264 -1.66
- ----------------------------------------------------------------------------
12/31/92 -1.00 19.73704456 26.95967264 -1.37
- ----------------------------------------------------------------------------
12/31/93 -1.00 23.40477598 26.95967264 -1.15
- ----------------------------------------------------------------------------
12/31/94 -1.00 22.67427941 26.95967264 -1.19
- ----------------------------------------------------------------------------
12/31/95 0.00 26.95967264 26.95967264 0.00
- ----------------------------------------------------------------------------
12/31/95 -1.00 26.95967264 26.95967264 -1.00
- ----------------------------------------------------------------------------
AVG ANNUAL RETURN: 9.72% ERV: 2528.65
<PAGE>
FIDELITY VIP HIGH INCOME
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- -----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------
12/31/94 1000.00 22.67427941 26.95967264 1189.00
- -----------------------------------------------------------------------------
12/31/95 0.00 26.95967264 26.95967264 0.00
- -----------------------------------------------------------------------------
12/31/95 -1.00 26.95967264 26.95967264 -1.00
- -----------------------------------------------------------------------------
AVG ANNUAL RETURN: 18.80% ERV: 1188.00
PERIOD : 5
- -----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------
12/31/90 1000.00 12.22956871 26.95967264 2204.47
- -----------------------------------------------------------------------------
12/31/91 -1.00 16.27058368 26.95967264 -1.66
- -----------------------------------------------------------------------------
12/31/92 -1.00 19.73704456 26.95967264 -1.37
- -----------------------------------------------------------------------------
12/31/93 -1.00 23.40477598 26.95967264 -1.15
- -----------------------------------------------------------------------------
12/31/94 -1.00 22.67427941 26.95967264 -1.19
- -----------------------------------------------------------------------------
12/31/95 0.00 26.95967264 26.95967264 0.00
- -----------------------------------------------------------------------------
12/31/95 -1.00 26.95967264 26.95967264 -1.00
- -----------------------------------------------------------------------------
AVG ANNUAL RETURN: 17.06% ERV: 2198.10
PERIOD : 10
- -----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------
12/31/85 1000.00 10.59007403 26.95967264 2545.75
- -----------------------------------------------------------------------------
12/31/86 -1.00 12.27448233 26.95967264 -2.20
- -----------------------------------------------------------------------------
12/31/87 -1.00 12.23681334 26.95967264 -2.20
- -----------------------------------------------------------------------------
12/31/88 -1.00 13.45515721 26.95967264 -2.00
- -----------------------------------------------------------------------------
12/31/89 -1.00 12.69954266 26.95967264 -2.12
- -----------------------------------------------------------------------------
12/31/90 -1.00 12.22956871 26.95967264 -2.20
- -----------------------------------------------------------------------------
12/31/91 -1.00 16.27058368 26.95967264 -1.66
- -----------------------------------------------------------------------------
12/31/92 -1.00 19.73704456 26.95967264 -1.37
- -----------------------------------------------------------------------------
12/31/93 -1.00 23.40477598 26.95967264 -1.15
- -----------------------------------------------------------------------------
12/31/94 -1.00 22.67427941 26.95967264 -1.19
- -----------------------------------------------------------------------------
12/31/95 0.00 26.95967264 26.95967264 0.00
- -----------------------------------------------------------------------------
12/31/95 -1.00 26.95967264 26.95967264 -1.00
- -----------------------------------------------------------------------------
AVG ANNUAL RETURN: 9.72% ERV: 2528.65
<PAGE>
FIDELITY VIP II INDEX 500
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- -----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------
12/31/94 1000.00 9.69784582 13.10568500 1351.40
- -----------------------------------------------------------------------------
12/31/95 -70.00 13.10568500 13.10568500 -70.00
- -----------------------------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------------------------
AVG ANNUAL RETURN: 28.04% ERV: 1280.40
PERIOD : INCEPTION
- -----------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------------
8/27/92 1000.00 8.52493549 13.10568500 1537.34
- -----------------------------------------------------------------------------
8/27/93 -1.00 9.59055032 13.10568500 -1.37
- -----------------------------------------------------------------------------
8/27/94 -1.00 9.96388770 13.10568500 -1.32
- -----------------------------------------------------------------------------
8/27/95 -1.00 11.90078900 13.10568500 -1.10
- -----------------------------------------------------------------------------
12/31/95 -40.00 13.10568500 13.10568500 -40.00
- -----------------------------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------------------------
AVG ANNUAL RETURN: 12.72% ERV: 1492.55
DAYS = 126
YEARS= 3
<PAGE>
FIDELITY VIP II INDEX 500
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 9.69784582 13.10568500 1351.40
- ----------------------------------------------------------------------
12/31/95 0.00 13.10568500 13.10568500 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 35.04% ERV: 1350.40
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
8/27/92 1000.00 8.52493549 13.10568500 1537.34
- ----------------------------------------------------------------------
8/27/93 -1.00 9.59055032 13.10568500 -1.37
- ----------------------------------------------------------------------
8/27/94 -1.00 9.96388770 13.10568500 -1.32
- ----------------------------------------------------------------------
8/27/95 -1.00 11.90078900 13.10568500 -1.10
- ----------------------------------------------------------------------
12/31/95 0.00 13.10568500 13.10568500 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 13.61% ERV: 1532.55
DAYS = 126
YEARS= 3
<PAGE>
FIDELITY VIP II INVESTMENT GRADE BOND
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 14.22819788 16.44081812 1155.51
- ----------------------------------------------------------------------
12/31/95 -70.00 16.44081812 16.44081812 -70.00
- ----------------------------------------------------------------------
12/31/95 -1.00 16.44081812 16.44081812 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 8.45% ERV: 1084.51
PERIOD : 5
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/90 1000.00 11.40697950 16.44081812 1441.29
- ----------------------------------------------------------------------
12/31/91 -1.00 13.07500518 16.44081812 -1.26
- ----------------------------------------------------------------------
12/31/92 -1.00 13.73417637 16.44081812 -1.20
- ----------------------------------------------------------------------
12/31/93 -1.00 15.01005322 16.44081812 -1.10
- ----------------------------------------------------------------------
12/31/94 -1.00 14.22819788 16.44081812 -1.16
- ----------------------------------------------------------------------
12/31/95 -30.00 16.44081812 16.44081812 -30.00
- ----------------------------------------------------------------------
12/31/95 -1.00 16.44081812 16.44081812 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 7.05% ERV: 1405.59
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/5/88 1000.00 10.00000000 16.44081812 1644.08
- ----------------------------------------------------------------------
12/5/89 -1.00 10.88220522 16.44081812 -1.51
- ----------------------------------------------------------------------
12/5/90 -1.00 11.31304995 16.44081812 -1.45
- ----------------------------------------------------------------------
12/5/91 -1.00 12.81180778 16.44081812 -1.28
- ----------------------------------------------------------------------
12/7/92 -1.00 13.64935877 16.44081812 -1.20
- ----------------------------------------------------------------------
12/6/93 -1.00 14.99877498 16.44081812 -1.10
- ----------------------------------------------------------------------
12/5/94 -1.00 14.34701349 16.44081812 -1.15
- ----------------------------------------------------------------------
12/5/95 -1.00 16.30010616 16.44081812 -1.01
- ----------------------------------------------------------------------
12/31/95 0.00 16.44081812 16.44081812 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 16.44081812 16.44081812 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 7.19% ERV: 1634.38
DAYS 26
YEARS 7
<PAGE>
FIDELITY VIP II INVESTMENT GRADE BOND
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 14.22819788 16.44081812 1155.51
- ----------------------------------------------------------------------
12/31/95 0.00 16.44081812 16.44081812 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 16.44081812 16.44081812 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 15.45% ERV: 1154.51
PERIOD : 5
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/90 1000.00 11.40697950 16.44081812 1441.29
- ----------------------------------------------------------------------
12/31/91 -1.00 13.07500518 16.44081812 -1.26
- ----------------------------------------------------------------------
12/31/92 -1.00 13.73417637 16.44081812 -1.20
- ----------------------------------------------------------------------
12/31/93 -1.00 15.01005322 16.44081812 -1.10
- ----------------------------------------------------------------------
12/31/94 -1.00 14.22819788 16.44081812 -1.16
- ----------------------------------------------------------------------
12/31/95 0.00 16.44081812 16.44081812 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 16.44081812 16.44081812 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 7.50% ERV: 1435.59
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/5/88 1000.00 10.00000000 16.44081812 1644.08
- ----------------------------------------------------------------------
12/5/89 -1.00 10.88220522 16.44081812 -1.51
- ----------------------------------------------------------------------
12/5/90 -1.00 11.31304995 16.44081812 -1.45
- ----------------------------------------------------------------------
12/5/91 -1.00 12.81180778 16.44081812 -1.28
- ----------------------------------------------------------------------
12/7/92 -1.00 13.64935877 16.44081812 -1.20
- ----------------------------------------------------------------------
12/6/93 -1.00 14.99877498 16.44081812 -1.10
- ----------------------------------------------------------------------
12/5/94 -1.00 14.34701349 16.44081812 -1.15
- ----------------------------------------------------------------------
12/5/95 -1.00 16.30010616 16.44081812 -1.01
- ----------------------------------------------------------------------
12/31/95 0.00 16.44081812 16.44081812 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 16.44081812 16.44081812 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 7.19% ERV: 1634.38
DAYS 26
YEARS 7
<PAGE>
FIDELITY VIP OVERSEAS
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 9.56960200 10.33796400 1080.29
- ----------------------------------------------------------------------
12/31/95 -70.00 10.33796400 10.33796400 -70.00
- ----------------------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 0.93% ERV: 1009.29
PERIOD : 5
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/90 1000.00 7.54868331 10.33796400 1369.51
- ----------------------------------------------------------------------
12/31/91 -1.00 8.02940483 10.33796400 -1.29
- ----------------------------------------------------------------------
12/31/92 -1.00 7.06006841 10.33796400 -1.46
- ----------------------------------------------------------------------
12/31/93 -1.00 9.55100969 10.33796400 -1.08
- ----------------------------------------------------------------------
12/31/94 -1.00 9.56960200 10.33796400 -1.08
- ----------------------------------------------------------------------
12/31/95 -30.00 10.33796400 10.33796400 -30.00
- ----------------------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 5.93% ERV: 1333.59
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
1/28/87 1000.00 6.30691400 10.33796400 1639.15
- ----------------------------------------------------------------------
1/28/88 -1.00 5.69527621 10.33796400 -1.82
- ----------------------------------------------------------------------
1/28/89 -1.00 6.50096436 10.33796400 -1.59
- ----------------------------------------------------------------------
1/28/90 -1.00 7.63203739 10.33796400 -1.35
- ----------------------------------------------------------------------
1/28/91 -1.00 7.49736581 10.33796400 -1.38
- ----------------------------------------------------------------------
1/28/92 -1.00 8.11809591 10.33796400 -1.27
- ----------------------------------------------------------------------
1/28/93 -1.00 7.30873784 10.33796400 -1.41
- ----------------------------------------------------------------------
1/28/94 -1.00 9.87268054 10.33796400 0.00
- ----------------------------------------------------------------------
1/28/95 -1.00 9.17412800 10.33796400 -1.13
- ----------------------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 5.61% ERV: 1628.19
DAYS= 337
YEARS= 8
<PAGE>
FIDELITY VIP OVERSEAS
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- --------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------------------
12/31/94 1000.00 9.56960200 10.33796400 1080.29
- --------------------------------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 7.93% ERV: 1079.29
PERIOD : 5
- -------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------------------
12/31/90 1000.00 7.54868331 10.33796400 1369.51
- --------------------------------------------------------------------------------
12/31/91 -1.00 8.02940483 10.33796400 -1.29
- --------------------------------------------------------------------------------
12/31/92 -1.00 7.06006841 10.33796400 -1.46
- --------------------------------------------------------------------------------
12/31/93 -1.00 9.55100969 10.33796400 -1.08
- --------------------------------------------------------------------------------
12/31/94 -1.00 9.56960200 10.33796400 -1.08
- --------------------------------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 6.40% ERV: 1363.59
PERIOD : INCEPTION
- -------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -------------------------------------------------------------------------------
1/28/87 1000.00 6.30691400 10.33796400 1639.15
- --------------------------------------------------------------------------------
1/28/88 -1.00 5.69527621 10.33796400 -1.82
- --------------------------------------------------------------------------------
1/28/89 -1.00 6.50096436 10.33796400 -1.59
- --------------------------------------------------------------------------------
1/28/90 -1.00 7.63203739 10.33796400 -1.35
- --------------------------------------------------------------------------------
1/28/91 -1.00 7.49736581 10.33796400 -1.38
- --------------------------------------------------------------------------------
1/28/92 -1.00 8.11809591 10.33796400 -1.27
- --------------------------------------------------------------------------------
1/28/93 -1.00 7.30873784 10.33796400 -1.41
- --------------------------------------------------------------------------------
1/28/94 -1.00 9.87268054 10.33796400 0.00
- --------------------------------------------------------------------------------
1/28/95 -1.00 9.17412800 10.33796400 -1.13
- --------------------------------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- --------------------------------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- --------------------------------------------------------------------------------
AVG ANNUAL RETURN: 5.61% ERV: 1628.19
DAYS= 337
YEARS= 8
<PAGE>
JANUS ASPEN SERIES AGGRESSIVE GROWTH
ASSUMING CONTRACT SURRENDERED
PERIOD: 1
- -------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -------------------------------------------------------------------------------
[S] [C] [C] [C] [C]
12/31/94 1000.00 13.51655117 16.97113635 1255.58
- -------------------------------------------------------------------------------
12/31/95 -70.00 16.97113635 16.97113635 -70.00
- -------------------------------------------------------------------------------
12/31/95 -1.00 16.97113635 16.97113635 -1.00
- -------------------------------------------------------------------------------
AVG. ANNUAL RETURN: 18.46% ERV: 1184.58
PERIOD: INCEPTION
- -------------------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -------------------------------------------------------------------------------
9/13/93 1000.00 10.00000000 16.97113635 1697.11
- -------------------------------------------------------------------------------
9/13/94 -1.00 12.78577817 16.97113635 -1.33
- -------------------------------------------------------------------------------
9/13/95 -1.00 16.08402372 16.97113635 -1.06
- -------------------------------------------------------------------------------
12/31/95 -50.00 16.97113635 16.97113635 -50.00
- -------------------------------------------------------------------------------
12/31/95 -1.00 16.97113635 16.97113635 -1.00
- -------------------------------------------------------------------------------
AVG. ANNUAL RETURN: 24.14% ERV: 1643.73
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES AGGRESSIVE GROWTH
ASSUMING CONTRACT NOT SURRENDERED
PERIOD: 1
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 13.51655117 16.97113635 1255.58
- -----------------------------------------------------------------------
12/31/95 0.00 16.97113635 16.97113635 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 16.97113635 16.97113635 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 25.46% ERV: 1254.58
PERIOD: INCEPTION
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 16.97113635 1697.11
- -----------------------------------------------------------------------
9/13/94 -1.00 12.78577817 16.97113635 -1.33
- -----------------------------------------------------------------------
9/13/95 -1.00 16.08402372 16.97113635 -1.06
- -----------------------------------------------------------------------
12/31/95 0.00 16.97113635 16.97113635 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 16.97113635 16.97113635 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 25.76% ERV: 1693.73
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES BALANCED
ASSUMING CONTRACT SURRENDERED
PERIOD: 1
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 10.59934701 13.02751209 1229.09
- -----------------------------------------------------------------------
12/31/95 -70.00 13.02751209 13.02751209 -70.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.02751209 13.02751209 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 15.81% ERV: 1158.09
PERIOD: INCEPTION
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 13.02751209 1302.75
- -----------------------------------------------------------------------
9/13/94 -1.00 10.85634806 13.02751209 -1.20
- -----------------------------------------------------------------------
9/13/95 -1.00 12.35773305 13.02751209 -1.05
- -----------------------------------------------------------------------
12/31/95 -50.00 13.02751209 13.02751209 -50.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.02751209 13.02751209 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 10.18% ERV: 1249.50
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES BALANCED
ASSUMING CONTRACT NOT SURRENDERED
PERIOD: 1
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 10.59934701 13.02751209 1229.09
- -----------------------------------------------------------------------
12/31/95 0.00 13.02751209 13.02751209 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.02751209 13.02751209 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 22.81% ERV: 1228.09
PERIOD: INCEPTION
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 13.02751209 1302.75
- -----------------------------------------------------------------------
9/13/94 -1.00 10.85634806 13.02751209 -1.20
- -----------------------------------------------------------------------
9/13/95 -1.00 12.35773305 13.02751209 -1.05
- -----------------------------------------------------------------------
12/31/95 0.00 13.02751209 13.02751209 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.02751209 13.02751209 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 12.07% ERV: 1299.50
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES GROWTH
ASSUMING CONTRACT SURRENDERED
PERIOD: 1
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 10.69923179 13.71724371 1282.08
- -----------------------------------------------------------------------
12/31/95 -70.00 13.71724371 13.71724371 -70.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.71724371 13.71724371 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 21.11% ERV: 1211.08
PERIOD: INCEPTION
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 13.71724371 1371.72
- -----------------------------------------------------------------------
9/13/94 -1.00 10.81890387 13.71724371 -1.27
- -----------------------------------------------------------------------
9/13/95 -1.00 13.28457980 13.71724371 -1.03
- -----------------------------------------------------------------------
12/31/95 -50.00 13.71724371 13.71724371 -50.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.71724371 13.71724371 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 12.78% ERV: 1318.42
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES GROWTH
ASSUMING CONTRACT NOT SURRENDERED
PERIOD: 1
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 10.69923179 13.71724371 1282.08
- -----------------------------------------------------------------------
12/31/95 0.00 13.71724371 13.71724371 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.71724371 13.71724371 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 28.11% ERV: 1281.08
PERIOD: INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 13.71724371 1371.72
- -----------------------------------------------------------------------
9/13/94 -1.00 10.81890387 13.71724371 -1.27
- -----------------------------------------------------------------------
9/13/95 -1.00 13.28457980 13.71724371 -1.03
- -----------------------------------------------------------------------
12/31/95 0.00 13.71724371 13.71724371 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 13.71724371 13.71724371 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 14.62% ERV: 1368.42
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES INTERNATIONAL GROWTH
ASSUMING CONTRACT SURRENDERED
PERIOD: 1
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 9.62211643 11.67098135 1212.93
- -----------------------------------------------------------------------
12/31/95 -70.00 11.67098135 11.67098135 -70.00
- -----------------------------------------------------------------------
12/31/95 -1.00 11.67098135 11.67098135 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 14.19% ERV: 1141.93
PERIOD: INCEPTION
- -----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
5/2/94 1000.00 10.00000000 11.67098135 1167.10
- -----------------------------------------------------------------------
5/2/95 -1.00 9.65175335 11.67098135 -1.21
- -----------------------------------------------------------------------
12/31/95 -60.00 11.67098135 11.67098135 -60.00
- -----------------------------------------------------------------------
12/31/95 -1.00 11.67098135 11.67098135 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 6.17% ERV: 1104.89
DAYS 243
YEARS 1
<PAGE>
JANUS ASPEN SERIES INTERNATIONAL GROWTH
ASSUMING CONTRACT NOT SURRENDERED
PERIOD: 1
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 9.62211643 11.67098135 1212.93
- -----------------------------------------------------------------------
12/31/95 0.00 11.67098135 11.67098135 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 11.67098135 11.67098135 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 21.19% ERV: 1211.93
PERIOD: INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
5/2/94 1000.00 10.00000000 11.67098135 1167.10
- -----------------------------------------------------------------------
5/2/95 -1.00 9.65175335 11.67098135 -1.21
- -----------------------------------------------------------------------
12/31/95 0.00 11.67098135 11.67098135 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 11.67098135 11.67098135 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 9.60% ERV: 1164.89
DAYS 243
YEARS 1
<PAGE>
JANUS ASPEN SERIES SHORT TERM BOND
ASSUMING CONTRACT SURRENDERED
PERIOD: 1
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 9.92472710 10.70758531 1078.88
- -----------------------------------------------------------------------
12/31/95 -70.00 10.70758531 10.70758531 -70.00
- -----------------------------------------------------------------------
12/31/95 -1.00 10.70758531 10.70758531 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 0.79% ERV: 1007.88
PERIOD: INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 10.70758531 1070.76
- -----------------------------------------------------------------------
9/13/94 -1.00 9.89951777 10.70758531 -1.08
- -----------------------------------------------------------------------
9/13/95 -1.00 10.09236992 10.70758531 -1.06
- -----------------------------------------------------------------------
12/31/95 -50.00 10.70758531 10.70758531 -50.00
- -----------------------------------------------------------------------
12/31/95 -1.00 10.70758531 10.70758531 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 0.76% ERV: 1017.62
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES SHORT TERM BOND
ASSUMING CONTRACT NOT SURRENDERED
PERIOD: 1
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 9.92472710 10.70758531 1078.88
- -----------------------------------------------------------------------
12/31/95 0.00 10.70758531 10.70758531 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 10.70758531 10.70758531 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 7.79% ERV: 1077.88
PERIOD: INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 10.70758531 1070.76
- -----------------------------------------------------------------------
9/13/94 -1.00 9.89951777 10.70758531 -1.08
- -----------------------------------------------------------------------
9/13/95 -1.00 10.09236992 10.70758531 -1.06
- -----------------------------------------------------------------------
12/31/95 0.00 10.70758531 10.70758531 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 10.70758531 10.70758531 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 2.89% ERV: 1067.62
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES WORLDWIDE GROWTH
ASSUMING CONTRACT SURRENDERED
PERIOD: 1
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 12.03603327 15.09918440 1254.50
- -----------------------------------------------------------------------
12/31/95 -70.00 15.09918440 15.09918440 -70.00
- -----------------------------------------------------------------------
12/31/95 -1.00 15.09918440 15.09918440 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 18.35% ERV: 1183.50
- -----------------------------------------------------------------------
PERIOD: INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 15.09918440 1509.92
- -----------------------------------------------------------------------
9/13/94 -1.00 12.36127435 15.09918440 -1.22
- -----------------------------------------------------------------------
9/13/95 -1.00 14.48553586 15.09918440 -1.04
- -----------------------------------------------------------------------
12/31/95 -50.00 15.09918440 15.09918440 -50.00
- -----------------------------------------------------------------------
12/31/95 -1.00 15.09918440 15.09918440 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 17.78% ERV: 1456.65
DAYS 109
YEARS 2
<PAGE>
JANUS ASPEN SERIES WORLDWIDE GROWTH
ASSUMING CONTRACT NOT SURRENDERED
PERIOD: 1
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
12/31/94 1000.00 12.03603327 15.09918440 1254.50
- -----------------------------------------------------------------------
12/31/95 0.00 15.09918440 15.09918440 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 15.09918440 15.09918440 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL 25.35% ERV: 1253.50
RETURN:
PERIOD: INCEPTION
DATE PAYMENT AUV BEG AUV END VALUE
- -----------------------------------------------------------------------
9/13/93 1000.00 10.00000000 15.09918440 1509.92
- -----------------------------------------------------------------------
9/13/94 -1.00 12.36127435 15.09918440 -1.22
- -----------------------------------------------------------------------
9/13/95 -1.00 14.48553586 15.09918440 -1.04
- -----------------------------------------------------------------------
12/31/95 0.00 15.09918440 15.09918440 0.00
- -----------------------------------------------------------------------
12/31/95 -1.00 15.09918440 15.09918440 -1.00
- -----------------------------------------------------------------------
AVG. ANNUAL RETURN: 19.52% ERV: 1506.65
DAYS 109
YEARS 2
<PAGE>
INVESCO INDUSTRIAL INCOME
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 10.18066677 12.96146300 1273.14
- ----------------------------------------------------------------------
12/31/95 -70.00 12.96146300 12.96146300 -70.00
- ----------------------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 20.21% ERV: 1202.14
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
8/10/94 1000.00 10.11955146 12.96146300 1280.83
- ----------------------------------------------------------------------
8/10/95 -1.00 11.64953200 12.96146300 -1.11
- ----------------------------------------------------------------------
12/31/95 -60.00 12.96146300 12.96146300 -60.00
- ----------------------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 15.08% ERV: 1218.72
DAYS 149
YEARS 1
<PAGE>
INVESCO INDUSTRIAL INCOME
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
12/31/94 1000.00 10.18066677 12.96146300 1273.14
- ----------------------------------------------------------------------
12/31/95 0.00 12.96146300 12.96146300 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 27.21% ERV: 1272.14
PERIOD : INCEPTION
- ----------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- ----------------------------------------------------------------------
8/10/94 1000.00 10.11955146 12.96146300 1280.83
- ----------------------------------------------------------------------
8/10/95 -1.00 11.64953200 12.96146300 -1.11
- ----------------------------------------------------------------------
12/31/95 0.00 12.96146300 12.96146300 0.00
- ----------------------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- ----------------------------------------------------------------------
AVG ANNUAL RETURN: 19.08% ERV: 1278.72
DAYS 149
YEARS 1
<PAGE>
INVESCO UTILITIES
ASSUMING CONTRACT SURRENDERED
PERIOD : 1
- --------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------
1/1/95 1000.00 10.07439999 10.82408200 1074.41
- --------------------------------------------------------------------
12/31/95 -70.00 10.82408200 10.82408200 -70.00
- --------------------------------------------------------------------
12/31/95 -1.00 10.82408200 10.82408200 -1.00
- --------------------------------------------------------------------
AVG ANNUAL RETURN: 0.34% ERV: 1003.41
<PAGE>
INVESCO UTILITIES
ASSUMING CONTRACT NOT SURRENDERED
PERIOD : 1
- --------------------------------------------------------------------
DATE PAYMENT AUV BEG AUV END VALUE
- --------------------------------------------------------------------
1/1/95 1000.00 10.07439999 10.82408200 1074.41
- --------------------------------------------------------------------
12/31/95 0.00 10.82408200 10.82408200 0.00
- --------------------------------------------------------------------
12/31/95 -1.00 10.82408200 10.82408200 -1.00
- --------------------------------------------------------------------
AVG ANNUAL RETURN: 7.34% ERV: 1073.41
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
