-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UHeLS2VEEV6MT3Wh/BvNHcywXroCl4YXiby+ZfAs9eSHYovruXXYEIm6LhD6C2Yc 06m/gEkTgouWhKw3V18kcA== 0000917677-00-000019.txt : 20000307 0000917677-00-000019.hdr.sgml : 20000307 ACCESSION NUMBER: 0000917677-00-000019 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20000302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY LIFE SEPARATE ACCOUNT L1 CENTRAL INDEX KEY: 0000917677 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 840499703 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 333-90577 FILM NUMBER: 559943 BUSINESS ADDRESS: STREET 1: 1290 BROADWAY STREET 2: C/O SECURITY LIFE CENTER CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038601290 MAIL ADDRESS: STREET 1: 1290 BROADWAY CITY: DENVER STATE: CO ZIP: 80203-5699 485APOS 1 CVBUL AND SB As filed with the Securities and Exchange Commission on March 2, 2000. Registration No. 333-90577 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 Post-Effective Amendment No. 1 ----------------- SECURITY LIFE SEPARATE ACCOUNT L1 (Exact Name of Trust) SECURITY LIFE OF DENVER INSURANCE COMPANY (Name of Depositor) 1290 Broadway Denver, Colorado 80203-5699 (Address of Depositor's Principal Executive Offices) Copy to: GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ. Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP 1290 Broadway 1275 Pennsylvania Avenue, NW Denver, Colorado 80203-5699 Washington, D.C. 20004-2415 (202) 383-0314 (Name and Address of Agent for Service) ---------------------------- It is proposed that this filing will become effective: on April 15, 1999 pursuant to paragraph (a) of Rule 485 X 60 days after filing pursuant to paragraph (a) of Rule 485 on May 1, 1999 pursuant to paragraph (b) of Rule 485 immediately upon filing pursuant to paragraph (b) of Rule 485 this post-effective amendment designates a new effective date for a previously filed post-effective amendment Title of securities being registered: Corporate Benefits variable life insurance policies. Approximate date of proposed public offering: as soon as practicable after the effective date of this Registration Statement. Form V-112-00 SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-90577) Cross-Reference Table Form N-8B-2 Item No. Caption in Prospectus 1, 2 Cover; Security Life of Denver Insurance Company; Security Life Separate Account L1 3 Inapplicable 4 Security Life of Denver Insurance Company 5, 6 Security Life Separate Account L1 7 Inapplicable 8 Financial Statements 9 Inapplicable 10(a), (b), (c), (d), (e) Policy Summary; Policy Values, Determining the Values in the Variable Division; Charges and Deductions; Surrender; Partial Withdrawals; Guaranteed Interest Division; Transfers of Account Value; Right to Exchange Policy; Lapse; Reinstatement; Premiums 10(f) Voting Privileges; Right to Change Operations 10(g), (h) Right to Change Operations 10(i) Tax Considerations; Detailed Information about the Corporate Benefits Policy; General Policy Provisions; Guaranteed Interest Division 11, 12 Security Life Separate Account L1 13 Policy Summary; Charges and Deductions; Group or Sponsored Arrangements and Corporate Purchasers ii Form N-8B-2 Item No. Caption in Prospectus 14, 15 Policy Summary; Free Look Period; General Policy Provisions; Applying for a Policy 16 Premiums; Allocation of Net Premiums; How We Calculate Accumulation Unit Values 17 Payment; Surrender; Partial Withdrawals 18 Policy Summary; Tax Considerations; Detailed Information about the Corporate Benefits Policy; Security Life Separate Account L1 19 Reports to Owners; Notification and Claims Procedures; Performance Information (Appendix B) 20 See 10(g) & 10(a) 21 Policy Loans 22 Policy Summary; Premiums; Grace Period; Security Life Separate Account L1; Detailed Information about the Corporate Benefits Policy 23 Inapplicable 24 Inapplicable 25 Security Life of Denver Insurance Company 26 Inapplicable 27, 28, 29, 30 Security Life of Denver Insurance Company 31, 32, 33, 34 Inapplicable 35 Inapplicable 36 Inapplicable iii Form N-8B-2 Item No. Caption in Prospectus 37 Inapplicable 38, 39, 40, 41(a) General Policy Provisions; Distribution of the Policies; Security Life of Denver Insurance Company 41(b), 41(c), 42, 43 Inapplicable 44 Determining Values in the Variable Division; How We Calculate Accumulation Unit Values 45 Inapplicable 46 Partial Withdrawals; Detailed Information about the Corporate Benefits Policy 47, 48, 49, 50 Inapplicable 51 Detailed Information about the Corporate Benefits Policy 52 Determining Values in the Variable Division; Right to Change Operations 53(a) Tax Considerations 53(b), 54, 55 Inapplicable 56, 57, 58 Inapplicable 59 Financial Statements iv Prospectus CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY issued by SECURITY LIFE OF DENVER INSURANCE COMPANY AND SECURITY LIFE SEPARATE ACCOUNT L1 Consider carefully the policy charges and deductions beginning on page 39 in this prospectus. You should read this prospectus and keep it for future reference. A prospectus for each underlying investment portfolio must accompany and should be read together with this prospectus. This policy is not available in all jurisdictions. This policy is not offered in any jurisdiction where this type of offering is not legal. Depending on the state where it is issued, policy features may vary. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. Replacing your existing life insurance policy(ies) with this policy may not be beneficial to you. YOUR POLICY o is a flexible premium variable universal life insurance policy; o is issued by Security Life of Denver Insurance Company; o is designed primarily for use on a multi-life basis when the insured people share a common employment or business relationship; and o is returnable by you during the free look period if you are not satisfied. YOUR PREMIUM PAYMENTS o are flexible, so the premium amount and frequency may vary; o are allocated to variable investment options and the guaranteed interest division based on your instructions; o are invested in shares of the underlying investment portfolios under each variable investment option; and o can be invested in as many as eighteen investment options over the policy's lifetime. YOUR ACCOUNT VALUE o is the sum of your holdings in the variable division, the guaranteed interest division and the loan division; o has no guaranteed minimum cash surrender value under the variable division. The value varies with the value of the underlying investment portfolio; o has a minimum guaranteed rate of return for amounts in the guaranteed interest division; and o is subject to specified expenses and charges. DEATH PROCEEDS o are paid if the policy is still in force when the insured person dies; o are equal to the death benefit minus an outstanding policy loan, accrued loan interest and unpaid charges incurred before the insured person dies; o are calculated under your choice of options; * Option 1- a fixed minimum death benefit * Option 2- a stated death benefit plus your account value * Option 3- a stated death benefit plus the sum of the premiums we receive minus partial withdrawals; and o are generally not federally income taxed if your policy continues to meet the federal income tax definition of life insurance. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY INSURED, OR BACKED BY ANY BANK OR GOVERNMENT AGENCY. DATE OF PROSPECTUS: MAY 1, 2000 Form V-112-00 ISSUED BY: Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc. Insurance Company 1290 Broadway ING Security Life Center Denver, CO 80203-5699 1290 Broadway (303) 860-2000 Denver, CO 80203-5699 (800) 525-9852 THROUGH ITS: Security Life Separate Account L1 ADMINISTERED BY: Customer Service Center P.O. Box 173888 Denver, CO 80217-3888 (800) 848-6362 - -------------------------------------------------------------------------------- Corporate Benefits 2 TABLE OF CONTENTS POLICY SUMMARY.................................................................4 Your Policy...............................................................4 Free Look Period..........................................................4 Premium Payments..........................................................4 Charges and Deductions....................................................4 Transfers of Account Value................................................7 Special Policy Features...................................................7 Policy Modification, Termination and Continuation Features..............................................................8 Death Benefits............................................................8 Tax Considerations........................................................9 SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS...............................................11 Security Life of Denver Insurance Company................................11 Security Life Separate Account L1........................................11 Investment Portfolio Objectives..........................................12 OBJECTIVES....................................................................12 Guaranteed Interest Division.............................................15 Maximum Number of Investment Options.....................................16 DETAILED INFORMATION ABOUT THE CORPORATE BENEFITS POLICY................................................16 Applying for a Policy....................................................16 Temporary Insurance......................................................17 Premiums.................................................................17 Premium Payments Affect Your Coverage....................................19 Death Benefits...........................................................19 Special Features.........................................................25 Policy Values............................................................26 Transfers of Account Value...............................................28 Dollar Cost Averaging....................................................28 Automatic Rebalancing....................................................29 Policy Loans.............................................................30 Partial Withdrawals......................................................31 Lapse....................................................................32 Reinstatement............................................................33 Surrender................................................................33 General Policy Provisions................................................33 Free Look Period.....................................................33 Your Policy..........................................................33 Age ................................................................34 Ownership............................................................34 Beneficiary(ies).....................................................34 Collateral Assignment................................................34 Incontestability.....................................................34 Misstatements of Age or Gender.......................................35 Suicide..............................................................35 Transaction Processing...............................................35 Notification and Claims Procedures...................................35 Telephone Privileges.................................................36 Non-participation....................................................36 Distribution of the Policies.........................................36 Advertising Practices and Sales Literature...........................37 Settlement Provisions................................................37 Administrative Information About the Policy..............................37 CHARGES AND DEDUCTIONS........................................................39 Deductions from Premiums.................................................39 Deferred Sales Charge....................................................39 Monthly Deductions from Account Value....................................41 Policy Transaction Fees..................................................42 Group or Sponsored Arrangements or Corporate Purchasers...........................................................43 TAX CONSIDERATIONS............................................................43 Tax Status of the Policy.................................................43 Diversification Requirements.............................................44 Tax Treatment of Policy Death Benefits...................................44 Modified Endowment Contracts.............................................45 Multiple Policies........................................................45 Distributions Other than Death Benefits from Modified Endowment Contracts.........................................45 Distributions Other than Death Benefits from Policies That Are Not Modified Endowment Contracts............................................................45 Investment in the Policy.................................................45 Policy Loans.............................................................46 Section 1035 Exchanges...................................................46 Tax-exempt Policy Owners.................................................46 Possible Tax Law Changes.................................................46 Changes to Comply with the Law...........................................46 Other....................................................................46 ILLUSTRATIONS.................................................................48 ADDITIONAL INFORMATION........................................................62 Directors and Officers...................................................62 Regulation...............................................................63 Legal Matters............................................................63 Legal Proceedings........................................................63 Experts..................................................................63 Registration Statement...................................................63 FINANCIAL STATEMENTS..........................................................65 APPENDIX A....................................................................67 APPENDIX B....................................................................68 - -------------------------------------------------------------------------------- Corporate Benefits 3 POLICY SUMMARY* YOUR POLICY This policy is available only to groups of ten or more insured people. Generally, we require a minimum total group first year premium of at least $250,000. However, depending on underwriting circumstances, we may reduce the minimum total group first year premium in some cases. We generally require a minimum target death benefit of $50,000 per policy. We may reduce the minimum target death benefit if the average target death benefit at policy issuance for the group is at least $50,000. SEE POLICY ISSUANCE, PAGE 17. Your policy provides life insurance protection on the insured person. The policy includes the basic policy, applications, and any riders or endorsements. As long as the policy remains in force, we pay a death benefit at the death of the insured person. While your policy is in force, you may access a portion of your policy value by taking loans or partial withdrawals. You may surrender your policy for its net account value. At the policy anniversary nearest the insured person's 100th birthday, the policy may be surrendered or continued under the continuation of coverage option. SEE CONTINUATION OF COVERAGE, PAGE 26. We designed this policy primarily for use on a multi-life basis where the insured people share common employment or a business relationship. The policy may be owned individually or by a corporation, trust, association or similar entity. Life insurance is not a short-term investment. You should evaluate your need for life insurance coverage and this policy's long-term investment potential and risks before purchasing a policy. FREE LOOK PERIOD Within limits as specified by state law, you have the right to examine your policy and return it for a refund of all premium payments we have received from you or the account value, if you are not satisfied for any reason. The policy is then void. SEE FREE LOOK PERIOD, PAGE 33. PREMIUM PAYMENTS The policy is a flexible premium policy because the amount and frequency of the premium payments you make may vary within limits. You must make premium payments: o for us to issue your policy; and o sufficient to keep your policy in force. The amount of premium you pay affects the length of time your policy stays in force. SEE PREMIUMS, PAGE 17. ALLOCATION OF NET PREMIUMS This policy has premium-based charges which are subtracted from your payments. We add the balance, or net premium, to your policy based on your investment instructions. You may allocate the net premium among one or more variable investment options and the guaranteed interest division. SEE ALLOCATION OF NET PREMIUMS, PAGE 18. CHARGES AND DEDUCTIONS INITIAL SALES CHARGE We deduct a percentage of each premium to cover a portion of our expenses in selling your policy. This charge is 2% of premiums we receive in the first policy or segment year up to target premium. - -------- *This summary highlights some of the important points about your policy. The policy is more fully described in the attached, complete prospectus. Please read the prospectus carefully. "We," "us," "our," and the "company" refer to Security Life of Denver Insurance Company. "You" and "your" refer to the policy owner. The owner is the individual, entity, partnership, representative or party who may exercise all rights over the policy and receive the policy benefits during the insured person's lifetime. State variations are covered in a special policy form for use in that state. This prospectus provides a general description of the policy. Your actual policy and riders are the controlling documents. If you would like to review a copy of the policy and riders, contact our customer service center. - -------------------------------------------------------------------------------- Corporate Benefits 4 Thereafter, this charge is 0.5% of the premiums we receive. This charge is a guaranteed maximum. SEE DEDUCTIONS FROM PREMIUMS, PAGE 39. Premiums are subject to both initial and deferred sales charges, which in the aggregate can equal as much as 4% of premiums we receive in the first policy or segment year up to the target premium, and 1% of premiums we receive in the first policy or segment year in excess of target. DEFERRED SALES CHARGE In addition to the initial sales charge, we impose a deferred sales charge. The deferred sales charge is based on a percentage of the premiums that you pay during the first ten policy or segment years. It is deducted from the account value at the beginning of each policy year for seven years after a year in which a premium payment is made. A deferred sales charge is calculated for premiums paid for each policy segment. This charge is a guaranteed maximum. SEE DEFERRED SALES CHARGE, PAGE 39, AND CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23. Policy or | Deferred Sales Charge | Segment | (% of Premium)* | Year When --------------------------- Deducted at Premium | up to in Excess | Beginning of Payment | Target of Target | Policy or are Made | Premium Premium | Segment Years - -------------| ----------------------- |-------------- | | 1 | 2% 1% | 2 - 8 2 | 1.75% N/A | 3 - 9 3 | 1.75% N/A | 4 - 10 4 | 1.75% N/A | 5 - 11 5 | 0.5% N/A | 6 - 12 6 | 0.5% N/A | 7 - 13 7 | 0.5% N/A | 8 - 14 8 | 0.5% N/A | 9 - 15 9 | 0.5% N/A | 10 - 16 10 | 0.5% N/A | 11 - 17 * THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS. We take these deductions: CHARGES Other Than Investment Portfolio Annual Expenses and Sales Charge (SEE CHARGES AND DEDUCTION, PAGE 39)
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED - ------ ----------------------- --------------- TAX CHARGES EACH PREMIUM PAYMENT RECEIVED 2.5% FOR STATE AND LOCAL TAXES; 1.5% FOR ESTIMATED FEDERAL INCOME TAX TREATMENT OF DEFERRED ACQUISITION COSTS. MORTALITY & EXPENSE RISK DAILY, INCLUDED IN UNIT VALUE 0.01667% MONTHLY CHARGE 0.002055% (0.20% ANNUALLY) POLICY CHARGE MONTHLY FROM ACCOUNT VALUE $15 PER MONTH FOR FIRST TEN POLICY YEARS AND $9 PER MONTH THEREAFTER. MONTHLY ADMINISTRATIVE CHARGE MONTHLY FROM ACCOUNT VALUE $12 PER MONTH FOR THE FIRST POLICY YEAR THEN $6 PER MONTH FOR EACH POLICY YEAR THEREAFTER. COST OF INSURANCE CHARGE MONTHLY FROM ACCOUNT VALUE VARIES BASED ON CURRENT COST OF INSURANCE RATES AND NET AMOUNT AT RISK ON THE LIVES OF THE INSURED PEOPLE. SEE YOUR POLICY SCHEDULE PAGES. PARTIAL WITHDRAWAL FEE TRANSACTION DATE FROM ACCOUNT UP TO $25 VALUE
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CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED - ------ ----------------------- --------------- TRANSFER FEE TRANSACTION DATE FROM ACCOUNT TWELVE FREE TRANSFERS PER POLICY YEAR, VALUE THEN $10 PER TRANSFER. ILLUSTRATIONS TRANSACTION DATE FROM ACCOUNT ONE FREE ILLUSTRATION PER POLICY YEAR, VALUE THEN A $25 FEE MAY APPLY. PREMIUM ALLOCATION CHANGE TRANSACTION DATE FROM ACCOUNT TWELVE FREE PREMIUM ALLOCATION VALUE CHANGES PER POLICY YEAR, THEN $25 PER CHANGE. CONTINUATION OF COVERAGE POLICY ANNIVERSARY NEAREST INSURED ONE-TIME $400 ADMINISTRATIVE FEE. PERSON'S 100TH BIRTHDAY FROM ACCOUNT VALUE
VARIABLE DIVISION If you invest in any of the variable investment options under the variable division, you may make or lose money depending on market conditions. The variable investment options are described in the prospectuses for the underlying investment portfolios. Each investment portfolio has its own investment objective. SEE INVESTMENT PORTFOLIO OBJECTIVES, PAGE 12. FEES AND EXPENSES OF THE INVESTMENT PORTFOLIOS The separate account purchases shares of the underlying investment portfolios, or series, at net asset value. This price reflects investment management fees and other expenses that are deducted from the portfolio assets. This table describes these fees and expenses in gross amounts and in net amounts after any expenses or fees have been waived or reimbursed by the investment portfolio advisers. [TO BE UPDATED BY AMENDMENT.] INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
Fees and Investment Total Expenses Total Net Management Other Portfolio Waived or Portfolio Portfolio Fees Expenses Expenses Reimbursed Expenses --------- ---- -------- -------- ---------- -------- AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund % % % NA % AIM V.I. Government Securities Fund % % % NA % THE ALGER AMERICAN FUND Alger American Growth Portfolio % % % NA % Alger American MidCap Growth Portfolio % % % NA % Alger American Small Capitalization Portfolio % % % NA % FIDELITY VARIABLE INSURANCE PRODUCTS FUND VIP Growth Portfolio % % % NA % VIP Overseas Portfolio % % % NA % FIDELITY VARIABLE INSURANCE PRODUCTS FUND II VIP II Index 500 Portfolio % % % % % GCG TRUST Equity Income Portfolio % % % NA %
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Fees and Investment Total Expenses Total Net Management Other Portfolio Waived or Portfolio Portfolio Fees Expenses Expenses Reimbursed Expenses --------- ---- -------- -------- ---------- -------- Growth Portfolio % % % NA % Hard Assets Portfolio % % % NA % Limited Maturity Bond Portfolio % % % NA % Liquid Asset Portfolio % % % NA % Mid-Cap Growth Portfolio % % % NA % Research Portfolio % % % NA % Total Return Portfolio % % % % % INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO VIF-Equity Income Fund % % % % % INVESCO VIF-High Yield Fund % % % NA % INVESCO VIF-Small Company Growth Fund % % % % % NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST Partners Portfolio % % % NA % VAN ECK WORLDWIDE INSURANCE TRUST Worldwide Bond Fund % % % NA % Worldwide Emerging Markets Fund % % % % % Worldwide Real Estate Fund % % % % %
GUARANTEED INTEREST DIVISION The guaranteed interest division guarantees principal and is part of our general account. Any amount you direct into the guaranteed interest division is credited with interest at a fixed rate. SEE GUARANTEED INTEREST DIVISION, PAGE 15. POLICY VALUES Your policy account value is the amount you have in the guaranteed interest division, plus the amount you have in each variable investment option. If you have an outstanding policy loan, your account value includes the amount in the loan division. SEE POLICY VALUES, PAGE 7 AND PARTIAL WITHDRAWALS, PAGE 31. YOUR ACCOUNT VALUE IN THE VARIABLE DIVISION Accumulation units are the way we measure value in the variable division. Accumulation unit value is the value of one unit of a variable investment option on a valuation date. Each variable investment option has a different accumulation unit value. SEE DETERMINING VALUES IN THE VARIABLE DIVISION, PAGE 26. The accumulation unit value for each variable investment option reflects the investment performance of the underlying investment portfolio during the valuation period. Each accumulation unit value reflects asset-based charges under the policy and the expenses of the investment portfolios. SEE DETERMINING VALUES IN THE VARIABLE DIVISION, PAGE 26 AND HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 27. TRANSFERS OF ACCOUNT VALUE With some limitations, you may make twelve free transfers among the variable investment options or to the guaranteed interest division each policy year. We charge $25 for each transfer over twelve in a policy year. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 28. SPECIAL POLICY FEATURES DESIGNATED DEDUCTION OPTION You may designate one investment option from which we will deduct all of your monthly deductions and your deferred sales charge. SEE DESIGNATED DEDUCTION OPTION, PAGE 25. RIDERS You may attach additional benefits to your policy with the adjustable term insurance rider. SEE RIDERS, PAGE 24. - -------------------------------------------------------------------------------- Corporate Benefits 7 DOLLAR COST AVERAGING Dollar cost averaging is a systematic plan of transferring account values to selected investment options. It is intended to protect your policy's value from short-term price fluctuations. However, dollar cost averaging does not assure a profit, nor does it protect against a loss in a declining market. Dollar cost averaging is free. SEE DOLLAR COST AVERAGING, PAGE 28. AUTOMATIC REBALANCING Automatic rebalancing periodically reallocates your net account value among your selected investment options to maintain your specified distribution of account value among those investment options. Automatic rebalancing is free. SEE AUTOMATIC REBALANCING, PAGE 29. LOANS You may take loans against your policy's net account value. We charge an annual loan interest rate of 3.25%. We credit an annual interest rate of 3% on amounts held in the loan division as collateral for your loan. SEE POLICY LOANS, PAGE 30. PARTIAL WITHDRAWALS You may withdraw part of your net account value any time after your first policy anniversary. You may make only one partial withdrawal per policy year. Partial withdrawals may reduce your policy's death benefit and will reduce your account value. SEE PARTIAL WITHDRAWALS, PAGE 31. POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES RIGHT TO EXCHANGE POLICY For 24 months after the policy date you may exchange your policy for a guaranteed policy, unless state law requires differently. The transfer to make this exchange is free. SEE RIGHT TO EXCHANGE POLICY, PAGE 25. SURRENDER You may surrender your policy for its net cash surrender value at any time while the insured person is living. All insurance coverage ends on the date we receive your request. SEE SURRENDER, PAGE 33. LAPSE In general, insurance coverage continues as long as your net account value is enough to pay the monthly deductions. SEE LAPSE, PAGE 32. REINSTATEMENT You may reinstate your policy and the adjustable term insurance rider within five years of its lapse if you still own the policy and the insured person is still living and meets our underwriting requirements. You will need to give proof of insurability at policy issue. You will also need to pay required reinstatement premiums. If you had a policy loan existing when coverage ended, we will reinstate it with accrued loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 33. POLICY MATURITY If the insured person is still living on the maturity date or the policy anniversary nearest the insured person's 100th birthday and you do not choose the continuation of coverage feature, you must surrender your policy. We will pay the net account value. Your policy then ends. SEE POLICY MATURITY, PAGE 26. CONTINUATION OF COVERAGE At the policy anniversary nearest the insured person's 100th birthday, you may choose to let the continuation of coverage feature become effective. If you do so, we will deduct a one-time administrative fee of $200 and keep your policy in force. SEE CONTINUATION OF COVERAGE, PAGE 26. DEATH BENEFITS At the insured person's death, we pay death proceeds to the beneficiary(ies) if your policy is still in force. Based on the death benefit option you have chosen, the base death benefit varies. There is no minimum stated death benefit to issue a policy. Generally, there is a minimum target death benefit of $50,000 to issue your policy. SEE APPLYING FOR A POLICY, PAGE 16 AND DEATH BENEFITS, - -------------------------------------------------------------------------------- Corporate Benefits 8 PAGE 19. You may change your death benefit amount while your policy is in force, subject to certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23. TAX CONSIDERATIONS Under current federal income tax law, death benefits of life insurance policies generally are not subject to income tax. In order for this treatment to apply, the policy must qualify as a life insurance contract. We believe it is reasonable to conclude that the policy will qualify as a life insurance contract. SEE TAX STATUS OF THE POLICY, PAGE 43. Assuming the policy qualifies as a life insurance contract under current federal income tax law, your account value earnings are generally not subject to income tax as long as they remain within your policy. However depending on circumstances, the following events may cause taxable consequences for you: o partial withdrawals; o surrender; or o lapse. In addition, if your policy is a modified endowment contract, a loan against or secured by the policy may cause income taxation. A penalty tax may be imposed on a distribution from a modified endowment contract as well. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 45. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new policy or a change in an existing policy should consult a tax adviser. You should consult a qualified legal or tax adviser before you purchase your policy. - -------------------------------------------------------------------------------- Corporate Benefits 9 How the Policy Works YOUR PREMIUM Premium Deductions You make a premium ----------------------------> payment o initial sales charge o deferred sales charge o tax charges <---------------------------- NET PREMIUM We allocate the net premium to the investment options you choose | | ----------------------------------------- | | \/ \/ GUARANTEED VARIABLE INVESTMENT INVESTMENT PORTFOLIOS The investment INTEREST DIVISION OPTIONS The variable investment manager deducts Amounts you allocate Amounts you allocate are <-- options invest in investment are held in our general account held in our separate account --> investment portfolios ------> management fees | | and other ----------------------------------------- portfolio expenses | | | | | Monthly Deductions o cost of insurance | ---------------------> charge | | o monthly administrative | | charge \/ | ACCUMULATED VALUE | The total value of your --| policy | | | Separate Account | | Deductions | |---------------------> o mortality and expense \/ | risk charge LOAN DIVISION | Amount set aside to | secure a policy loan | | | Transaction Fees o partial withdrawal fee ---------------------> o transfer fee o illustration fee o premium allocation change charge o continuation of coverage fee
- -------------------------------------------------------------------------------- Corporate Benefits 10 SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS SECURITY LIFE OF DENVER INSURANCE COMPANY Security Life of Denver Insurance Company (Security Life) is a stock life insurance company organized under the laws of the State of Colorado in 1929. Our headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699. We are admitted to do business in the District of Columbia and all states except New York. At the close of 1999, the company and its consolidated subsidiaries had over $XXX.X billion of life insurance in force. As of December 31, 1999, our total assets were over $XX.X billion, and our shareholder's equity was over $XXX million. We have a complete line of life insurance products, including: o annuities; o individual life; o group life; o pension products; and o market life reinsurance. Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING"). ING is one of the world's three largest diversified financial services organizations. ING is headquartered in Amsterdam, The Netherlands. It has consolidated assets over $XXX.X billion on a Dutch (modified U.S.) generally accepted accounting principles basis, as of December 31, 1999. The principal underwriter and distributor for our policies is ING America Equities, Inc. ING America Equities is a stock corporation organized under the laws of the State of Colorado in 1993. It is a wholly owned subsidiary of Security Life and is registered as a broker-dealer with the SEC and the NASD. ING America Equities, Inc. is located at 1290 Broadway, Denver, Colorado 80203-5699. SECURITY LIFE SEPARATE ACCOUNT L1 SEPARATE ACCOUNT STRUCTURE We established Security Life Separate Account L1 (the separate account) on November 3, 1993, under Colorado's insurance law. It is a unit investment trust, registered with the SEC under the Investment Company Act of 1940. The SEC does not supervise our management of the separate account or Security Life. The separate account is used to support our variable life insurance policies and for other purposes allowed by law and regulation. We keep the separate account assets separate from our general account and other separate accounts. We may offer other variable life insurance contracts with different benefits and charges that invest in the separate account. We do not discuss these contracts in this prospectus. The separate account may invest in other securities not available for the policy described in this prospectus. The company owns all the assets in the separate account. We credit gains to or charge losses against the separate account without regard to performance of other investment accounts. ORDER OF SEPARATE ACCOUNT LIABILITIES State law provides that we may not charge general account liabilities against separate account assets equal to its reserves and other liabilities. This means that if we ever become insolvent, the separate account assets will be used first to pay separate account policy claims. Only if separate account assets remain after these claims have been satisfied can these assets be used to pay other policy owners and creditors. The separate account may have liabilities from assets credited to other variable life policies offered by the separate account. If the assets of the separate account are greater than required reserves and policy liabilities, we may transfer the excess to our general account. INVESTMENT OPTIONS Investment options include the variable and the guaranteed interest divisions, but not the loan division. The separate account has several variable investment options which invest in shares of underlying investment portfolios. This means that the investment performance of a policy depends on the performance of the investment portfolios you choose. Each investment portfolio has its own - -------------------------------------------------------------------------------- Corporate Benefits 11 investment objective. These investment portfolios are not available directly to individual investors. They are available only as underlying investments for variable annuity and variable life insurance contracts and certain pension accounts. INVESTMENT PORTFOLIOS Each of the investment portfolios is a separate series of an open-end management investment company. The investment company receives investment advice from a registered investment adviser who, other than the GCG Trust, is not associated with us. Currently, some variable investment options invest in a portfolio of the GCG Trust. Directed Services, Inc. ("DSI") serves as the manager to each portfolio of the GCG Trust. The GCG Trust and DSI have retained several portfolio managers to manage the assets of each portfolio of the GCG Trust. The investment portfolios sell shares to separate accounts of insurance companies. These insurance companies may or may not be affiliated with us. This is known as "shared funding." Investment portfolios may sell shares as the underlying investment for both variable annuity and variable life insurance contracts. This process is known as "mixed funding." The investment portfolios may sell shares to certain qualified pension and retirement plans that qualify under Section 401 of the Internal Revenue Code ("IRC"). As a result, a material conflict of interest may arise between insurance companies, owners of different types of contracts and retirement plans, or their participants. If there is a material conflict, we will consider what should be done, including removing the investment portfolio from the separate account. There are certain risks with mixed and shared funding, and with selling shares to qualified pension and retirement plans. See the investment portfolios' prospectuses. INVESTMENT PORTFOLIO OBJECTIVES Each investment portfolio has a different investment objective that it tries to achieve by following its own investment strategy. The objectives and policies of each investment portfolio affect its return and its risks. With this prospectus, you must receive the current prospectus for each investment portfolio. We summarize the investment objectives for each investment portfolio here. You should read each investment portfolio prospectus. Certain investment portfolios offered under this policy have investment objectives and policies similar to other funds managed by the portfolio's investment adviser. The investment results of a portfolio may be higher or lower than those of other funds managed by the same adviser. There is no assurance, and no representation is made, that the investment results of any investment portfolio will be comparable to those of another fund managed by the same investment adviser. Some investment portfolio advisers (or their affiliates) may pay us compensation for servicing, administration or other expenses. The amount of compensation is usually based on the aggregate assets of the investment portfolio from contracts that we issue or administer. Some advisers may pay us more or less than others. INVESTMENT PORTFOLIO OBJECTIVES
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB-ADVISER American Growth Portfolio The Alger American Fund Seeks long-term capital appreciation by focusing on growing companies that generally have broad product lines, markets, financial resources and depth of management.
- -------------------------------------------------------------------------------- Corporate Benefits 12 INVESTMENT PORTFOLIO OBJECTIVES
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB-ADVISER American MidCap Growth The Alger American Fund Seeks long-term capital appreciation by Portfolio focusing on midsize companies with promising growth potential. American Small Capitalization The Alger American Fund Seeks long-term capital appreciation by Portfolio focusing on small, fast-growing companies that offer innovative products, services or technologies to a rapidly expanding marketplace. VIP Overseas Portfolio Fidelity Variable Insurance Seeks long-term growth of capital by Products Fund and Variable investing at least 65% of total assets in Insurance Products Fund II/ foreign securities. Fidelity Management & Research Company VIP II Index 500 Portfolio Fidelity Variable Insurance Seeks investment results that correspond to Products Fund and Variable the total return of common stocks publicly Insurance Products Fund II/ traded in the United States as represented by Fidelity Management the S&P(R)500. Research Company/ Bankers Trust Company Equity Income Portfolio GCG Trust/Directed Seeks substantial dividend income as well as Services, Inc./T. Rowe Price long-term growth of capital. Invests Associates, Inc. primarily in common stocks of well-established companies paying above-average dividends. Sub-advised by T. Rowe Price Associates, Inc. Growth Portfolio GCG Trust/Directed Seeks capital appreciation. Invests primarily Services, Inc./Janus Capital in common stocks of growth companies that Corporation have favorable relationships between price/earnings ratios and growth rates in sectors offering the potential for above-average returns. Sub-advised by Janus Capital Corporation. Hard Assets Portfolio GCG Trust/Directed Seeks long-term capital appreciation. Invests Services, Inc./Baring primarily in hard asset securities. Hard asset International Investment companies produce a commodity which the Limited (an affiliate) portfolio manager is able to price on a daily or weekly basis. Sub-advised by Baring International Investment Limited (an affiliate).
- -------------------------------------------------------------------------------- Corporate Benefits 13 INVESTMENT PORTFOLIO OBJECTIVES
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB-ADVISER Limited Maturity Bond GCG Trust/Directed Seeks highest current income consistent with Portfolio Services, Inc./ING low risk to principal and liquidity. Also seeks Investment Management, to enhance its total return through capital LLC (an affiliate) appreciation when market factors, such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. Invests primarily in diversified limited maturity debt securities with average maturity dates of five years or shorter and in no cases more than seven years. Sub-advised by ING Investment Management, LLC (an affiliate). Liquid Asset Portfolio GCG Trust/Directed Seeks high level of current income consistent Services, Inc./ING with the preservation of capital and liquidity. Investment Management, Invests primarily in obligations of the U.S. LLC (an affiliate) Government and its agencies and instrumentalities, bank obligations, commercial paper and short-term corporate debt securities. All securities will mature in less than one year. Sub-advised by ING Investment Management, LLC (an affiliate). Mid-Cap Growth Portfolio GCG Trust/Directed Seeks long-term growth of capital. Invests Services, Inc./Massachusetts primarily in equity securities of companies Financial Services Company with medium market capitalization which the portfolio manager believes have above-average growth potential. Sub-advised by Massachusetts Financial Services Company. Research Portfolio GCG Trust/Directed Seeks long-term growth of capital and future Services, Inc./Massachusetts income. Invests primarily in common stocks Financial Services Company or securities convertible into common stocks of companies believed to have better than average prospects for long-term growth. Sub-advised by Massachusetts Financial Services Company. Total Return Portfolio GCG Trust/Directed Seeks above-average income (compared to a Services, Inc./Massachusetts portfolio entirely invested in equity securities) Financial Services Company consistent with the prudent employment of capital. Invests primarily in a combination of equity and fixed income securities. Sub-advised by Massachusetts Financial Services Company.
- -------------------------------------------------------------------------------- Corporate Benefits 14 INVESTMENT PORTFOLIO OBJECTIVES
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB-ADVISER VIF-Equity Income Fund INVESCO Variable Seeks high current income, with growth of Investment Funds, Inc./ capital as a secondary objective by investing INVESCO Funds Group, at least 65% of its assets in dividend-paying Inc. common and preferred stocks. The rest of the fund's assets are invested in debt securities, and lower-grade debt securities. VIF-High Yield Fund INVESCO Variable Seeks to provide a high level of current Investment Funds, Inc./ income by investing substantially all of its INVESCO Funds Group, assets in lower-rated debt securities and Inc. preferred stock, including securities issued by foreign companies. VIF-Small Company Growth INVESCO Variable Seeks investment growth over the long term Fund Investment Funds, Inc./ by investing at least 80% of its assets in INVESCO Funds Group, equity securities of companies with market Inc. capitalizations of $1 billion or less. The remainder of the fund's assets can be invested in a wide range of securities that may or may not be issued by small companies. Partners Portfolio Neuberger Berman Advisers Seeks growth of capital by investing mainly Management Trust/ in common stocks of mid- to Neuberger Berman large-capitalization companies. Management Inc./ Neuberger Berman, LLC Worldwide Bond Fund Van Eck Worldwide Seeks high total return--income plus capital Insurance Trust/ Van Eck appreciation--by investing globally, Associates Corporation primarily in a variety of debt securities. Worldwide Emerging Markets Van Eck Worldwide Seeks long term capital appreciation by Fund Insurance Trust/ Van Eck investing in equity securities in emerging Associates Corporation markets around the world. Worldwide Real Estate Fund Van Eck Worldwide Seeks high total return by investing in equity Insurance Trust/ Van Eck securities of companies that own significant Associates Corporation real estate or principally do business in real estate.
Guaranteed Interest Division You may allocate all or a part of your net premium and transfer your net account value into the guaranteed interest division. The guaranteed interest division guarantees principal and is part of our general account. It pays interest at a fixed rate that we declare. The general account contains all of our assets other than those held in the separate account (variable investment options) or other separate accounts. The general account supports our non-variable insurance and annuity obligations. We have not registered interests in the guaranteed interest division under the Securities Act of 1933. Also, we have not registered the guaranteed interest division or the - -------------------------------------------------------------------------------- Corporate Benefits 15 general account as an investment company under the Investment Company Act of 1940 (because of exemptive and exclusionary provisions). This means that the general account, the guaranteed interest division and its interests are generally not subject to regulation under these Acts. The SEC staff has not reviewed the disclosures in this prospectus relating to the general account and the guaranteed interest division. These disclosures, however, may be subject to certain requirements of the federal securities law regarding accuracy and completeness of statements made. The amount you have in the guaranteed interest division is all of the net premium you allocate to that division, plus transfers you make to the guaranteed interest division plus interest earned. Amounts you transfer out of or withdraw from the guaranteed interest division reduce this amount. It is also reduced by deductions for charges from your account value allocated to the guaranteed interest division. We declare the interest rate that applies to all amounts in the guaranteed interest division. This interest rate is never less than the minimum guaranteed interest rate of 3% and will be in effect for at least twelve months. Interest compounds daily at an effective annual rate that equals the declared rate. We credit interest to the guaranteed interest division on a daily basis. We pay interest regardless of the actual investment performance of our account. We bear all of the investment risk for the guaranteed interest division. MAXIMUM NUMBER OF INVESTMENT OPTIONS There are three divisions: the variable division, the guaranteed interest division and the loan division. Under the variable division, there are numerous variable investment options. SEE SECURITY LIFE SEPARATE ACCOUNT L1, PAGE 11 AND INVESTMENT PORTFOLIO OBJECTIVES, PAGE 12. You may invest in a total of eighteen investment options over the life of your policy. Investment options include the variable and the guaranteed interest divisions, but not the loan division. As an example, if you have had funds in seventeen variable investment options and the guaranteed interest division, these are the only investment options to which you may later add or transfer funds. However, you could still take a policy loan and access the loan division. You may want to use fewer investment options in the early years of your policy, so that you can invest in others in the future. If you invest in eighteen variable investment options, you will not be able to invest in the guaranteed interest division. DETAILED INFORMATION ABOUT THE CORPORATE BENEFITS POLICY This prospectus describes our standard Corporate Benefits variable universal life insurance policy. There may be differences in the policy because of state requirements where we issue your policy. We will describe any such differences in your policy. The illustrations beginning on page 50 show how the policies work. APPLYING FOR A POLICY You purchase this variable universal life policy by submitting an application to us. On the policy date, the insured person must be no less than 15 years of age and no more than age 85. The insured person is the person on whose life we issue a policy and upon whose death we pay death proceeds. SEE AGE, PAGE 34. You may request that we back-date the policy up to six months to allow the insured person to give proof of a younger age for the purposes of your policy. This policy is available only to groups of ten or more insured people. Generally, we require a minimum total group first year premium of at least $250,000. However depending on underwriting circumstances, we may reduce the minimum total group first year premium in some cases. We generally require a minimum target death benefit of $50,000 to issue your policy. We may reduce the minimum target death benefit so long as the average target death benefit at policy issuance for the group or sponsored arrangement is at least $50,000. There - -------------------------------------------------------------------------------- Corporate Benefits 16 is no minimum required stated death benefit. Our underwriting and reinsurance procedures in effect at the time you apply limit the maximum death benefit. TEMPORARY INSURANCE If you apply and qualify, we may issue temporary insurance in an amount equal to the face amount of the permanent insurance for which you applied. The maximum amount of temporary insurance for binding limited life insurance coverage is $3 million, which includes any other in-force coverage you have with us. Temporary coverage begins when: 1. you have completed and signed our binding limited life insurance coverage form; 2. we receive and accept a premium payment of at least your scheduled premium (selected on your application); and 3. part I of the application is complete. Temporary life insurance coverage ends on the earliest of: o the date we return your premium payments; o five days after we mail notice of termination to the address on your application; o the date your policy coverage starts; o the date we refuse to issue a policy based on your application; or o 90 days after you sign our binding limited life insurance coverage form. There is no death benefit under the temporary insurance agreement if: o there is a material misrepresentation in your answers on the binding limited life insurance coverage form; o there is a material misrepresentation in statements on your application; o the person or persons intended to be the insured people die by suicide or self-inflicted injury; or o the bank does not honor your premium check. POLICY ISSUANCE Before we issue a policy, we require satisfactory evidence of insurability of the insured person and payment of your initial premium. This evidence may include a medical examination and completion of all underwriting and issue requirements. The policy date shown on your policy schedule determines: o monthly processing dates; o policy months; o policy years; and o policy anniversaries. It is not affected by the date you receive the policy. The policy date may be different from the date we receive your first premium payment. If the policy date is earlier, we charge monthly deductions from the date we receive your initial premium. The policy date is determined one of three ways: 1. the date you designate on your application, subject to our approval; or 2. the back-date of the policy to save age, subject to our approval and state law. 3. if there is no designated date or back-date, the policy date is: o the date all underwriting and administrative requirements have been met if we receive your initial premium before we issue your policy; or o the date we receive your initial premium if it is after we approve your policy for issue. DEFINITION OF LIFE INSURANCE We apply a test to make sure that your policy meets the federal tax definition of life insurance. The cash value accumulation test applies to your policy. We may limit premium payments relative to your policy death benefit under this test. SEE TAX STATUS OF THE POLICY, PAGE 43. PREMIUMS You may choose the amount and frequency of premium payments, within limits. You cannot make premium payments after the death of the insured person or after the continuation of coverage period begins. SEE CONTINUATION OF COVERAGE, PAGE 26. - -------------------------------------------------------------------------------- Corporate Benefits 17 We consider any payment we receive to be a premium if you do not have an outstanding loan. After we deduct certain expenses from your premium payment, we add the remaining net premium to your account value. SCHEDULED PREMIUMS Your premiums are flexible. You may select your scheduled premium (within our limits) when you apply for your policy. The scheduled premium, shown in your policy and schedule, is the amount you choose to pay over a stated time period. THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You may receive premium reminder notices for the scheduled premium on a quarterly, semiannual or annual basis. You are not required to pay the scheduled premium. You may choose to pay your premium by electronic funds transfer each month. This option is not available for your initial premium. The financial institution that makes your electronic funds transfer may charge for this service. You can change the amount of your scheduled premium within our minimum and maximum limits at any time. If you fail to pay your scheduled premium or if you change the amount of your scheduled premium, your policy performance will be affected. UNSCHEDULED PREMIUM PAYMENTS Generally speaking, you may make unscheduled premium payments at any time, however: 1. We may limit the amount of your unscheduled premium payments that would result in an increase in the base death benefit amount required by the federal income tax law definition of life insurance. We may require satisfactory evidence that the insured person is insurable at the time that you make the unscheduled premium payment if the death benefit is increased due to your unscheduled premium payments; 2. We may require proof that the insured person is insurable if your unscheduled premium payment will cause the net amount at risk to increase; and 3. We will return premium payments which are greater than the "seven-pay" limit for your policy if your payment would cause your policy to become a modified endowment contract, unless you have acknowledged in writing the new modified endowment contract status for your policy. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 45 AND CHANGES TO COMPLY WITH THE LAW, PAGE 46. If you have an outstanding policy loan and you make an unscheduled payment, we will consider it a loan repayment, unless you tell us otherwise. If your payment is a loan repayment, we do not take out tax or sales charges which apply to premium payments. TARGET PREMIUM Target premiums are not based on the scheduled premium. Target premiums are actuarially determined based on the age, gender, premium class and rating of the insured person. The sales target premium is used in determining your sales charge, deferred sales charge and the distribution allowance we pay our agents/registered representatives. It may or may not be enough to keep your policy in force. You are not required to pay the target premium and there is no penalty for paying more or less. The target premium for your policy and any segments added since the policy date are listed in the policy schedule we provide to you. SEE PREMIUMS, PAGE 17. INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS The net premium is the balance remaining after we take premium-based charges from your premium payment. Your initial premium is the premium we must receive before coverage can begin. The initial premium is the first premium we receive and apply to your policy. It must be at least equal to the sum of the scheduled premiums which are due from your policy date through your investment date. The investment date is the first date we apply the net premium we have received to your policy. If we receive your initial premium after we approve your policy for issue, the investment date is the date we receive your initial premium. We apply net premiums we have received from you to your policy after: a) we receive the amount of premium required for your insurance coverage to begin; b) all issue requirements have been met and - -------------------------------------------------------------------------------- Corporate Benefits 18 received by our customer service center; c) we approve your policy application; and d) we approve your policy for issue. Amounts you designate for the guaranteed interest division will be allocated to that division on the investment date. If your state requires the return of your premium during the free look period, we initially invest amounts you have designated for the variable division in the GCG Trust Liquid Asset Portfolio. We later transfer these amounts from the Liquid Asset Portfolio to your selected variable investment options, based on your most recent premium allocation instructions, at the earlier of the following dates: 1. five days after we mailed your policy and your state free look period has ended; or 2. you have actually received your policy, we have received your delivery receipt and your state free look period has ended. If your state provides for return of account value during the free look period or no free look period, we invest amounts you designated for the variable division directly into your selected variable investment options. We allocate all later premium payments to your policy on the valuation date of receipt. We use your most recent premium allocation instructions specified in whole numbers totaling 100% and using up to eighteen investment options over the life of your policy. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 16. You may make twelve free premium allocation changes per year, after which a transaction fee applies. If you change your designated deduction investment option from which monthly deductions are taken, we consider this a premium allocation change for which there may be a charge. SEE DESIGNATED DEDUCTION OPTION, PAGE 25 AND POLICY TRANSACTION FEES, PAGE 42. PREMIUM PAYMENTS AFFECT YOUR COVERAGE Your coverage lasts only as long as your net account value is enough to pay the monthly charges and your account value is more than your outstanding policy loan plus accrued loan interest. If you do not meet these conditions, your policy will enter the 61-day grace period and you must make a premium payment to avoid lapse. SEE LAPSE, PAGE 32, AND GRACE PERIOD, PAGE 32. MODIFIED ENDOWMENT CONTRACTS There are special federal income tax rules for distributions from life insurance policies which are modified endowment contracts. These rules apply to policy loans, surrenders and partial withdrawals. Whether or not these rules apply depends upon whether or not the premiums we receive are greater than the "seven-pay" limit. If we find that your scheduled premium causes your policy to be a modified endowment contract on your policy date, we will require you to acknowledge that you know the policy is a modified endowment contract. We will issue your policy based on the scheduled premium you selected. If you do not want your policy to be issued as a modified endowment contract, you may reduce your scheduled premium to a level which does not cause your policy to be a modified endowment contract. We will then issue your policy based on the revised scheduled premium. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 45. DEATH BENEFITS Death benefits are calculated as of the date of death of the insured person. You can decide the amount of insurance you need, now and in the future. You can combine the long-term advantages of permanent life insurance (base coverage) with the flexibility and short-term advantages of term life insurance. Both permanent and term life insurance are available with your one policy. There is no minimum stated death benefit to issue a policy. We generally require a minimum target death benefit of $50,000 to issue your policy. Our underwriting and reinsurance procedure in effect at the time you apply limit the maximum death benefit. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23. When we issue your policy, we base the initial insurance coverage on the instructions in your application. The death benefit at issue may vary from the stated death benefit plus adjustable term insurance coverage for some 1035 exchanges. The - -------------------------------------------------------------------------------- Corporate Benefits 19 stated death benefit is the permanent element of your policy. The adjustable term insurance rider is the term insurance element of your policy. It may be to your economic advantage to include part of your insurance coverage under the adjustable term insurance rider. Both the cost of insurance under the adjustable term insurance rider and the cost of insurance for the base death benefit are deducted monthly from your account value and generally increase with the age of the insured person. Use of the adjustable term insurance rider may reduce sales compensation, but may increase the monthly cost of insurance. SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 24. DEATH BENEFIT SUMMARY THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES, INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL WITHDRAWALS ARE LESS THAN THE PREMIUM WE RECEIVE.
OPTION 1 OPTION 2 OPTION 3 ============== =================================== =================================== ====================================== STATED The amount of policy death The amount of policy death The amount of policy death DEATH benefit at issue, not including benefit at issue, not including benefit at issue, not including BENEFIT rider coverage. This amount rider coverage. This amount rider coverage. This amount stays level throughout the life of stays level throughout the life of stays level throughout the life of the contract. the contract. the contract. BASE DEATH The greater of the stated death The greater of the stated death The greater of the stated death BENEFIT benefit or the account value benefit plus the account value, benefit plus the sum of all multiplied by the appropriate or the account value multiplied premiums we receive minus factor from the definition of life by the appropriate factor from partial withdrawals you have insurance factors. the definition of life insurance taken, or the account value factors. multiplied by the appropriate factor from the definition of life insurance factors. TARGET Stated death benefit plus Stated death benefit plus Stated death benefit plus DEATH adjustable term insurance rider adjustable term insurance rider adjustable term insurance rider BENEFIT benefit. Assuming no schedule benefit. Assuming no schedule benefit. Assuming no schedule changes, this amount remains changes, this amount remains changes, this amount remains level level throughout the life of the level throughout the life of the throughout the life of the policy. policy. policy. TOTAL DEATH This is the total death proceeds. This is the total death proceeds. This is the total death proceeds. BENEFIT It is the greater of the target It is the greater of the target It is the greater of the target death benefit or the base death death benefit plus the account death benefit plus the sum of all benefit. value, or the base death benefit. premiums we receive minus partial withdrawals you have taken, or the base death benefit. ADJUSTABLE The adjustable term insurance The adjustable term insurance The adjustable term insurance TERM rider benefit is the total death rider benefit is the total death rider benefit is the total death INSURANCE benefit minus base death benefit, benefit minus the base death benefit minus the base death RIDER but it will not be less than zero. benefit, but it will not be less benefit, but it will not be less BENEFIT If the account value multiplied than zero. If the account value than zero. If the account value by the death benefit corridor multiplied by the death benefit multiplied by the death benefit factor is greater than the stated corridor factor is greater than the corridor factor is greater than the death benefit, the adjustable stated death benefit plus the stated death benefit plus the sum term insurance benefit will be account value, the adjustable of all premiums we receive decreased. It will be decreased term insurance rider benefit will minus partial withdrawals you so that the sum of the base death be decreased. It will be have taken, the adjustable term benefit and the adjustable term decreased so that the sum of the insurance rider benefit will be insurance rider benefit is not base death benefit and the decreased. It will be decreased greater than the target death adjustable term insurance rider so that the sum of the base death benefit. If the base death benefit benefit is not greater than the benefit and the adjustable term becomes greater than the target target death benefit plus the insurance rider benefit is not death benefit, then the adjustable account value. If the base death greater than the target death term insurance rider benefit is benefit becomes greater than the benefit plus the sum of all zero. target death benefit plus the premiums we receive minus account value, then the partial withdrawals you have adjustable term insurance rider taken. If the base death benefit benefit is zero. becomes greater than the target death benefit plus the sum of all premiums we receive minus partial withdrawals you have taken, then the adjustable term insurance rider benefit is zero.
- -------------------------------------------------------------------------------- Corporate Benefits 20 BASE DEATH BENEFIT Your base death benefit can be different from your stated death benefit as a result of: o your choice of death benefit option; o increases or decreases in the stated death benefit; or o a change in your death benefit option. As long as your policy is in force, we will pay the death proceeds to your beneficiary(ies) calculated when the insured person dies. The beneficiary(ies) is(are) the person (people) you name to receive the death proceeds from your policy. The death proceeds are: o your base death benefit; plus o rider benefits; minus o your outstanding policy loan with accrued loan interest; minus o outstanding policy charges due before the insured person's date of death. There could be outstanding policy charges if the insured dies while your policy is in the grace period. DEATH BENEFIT OPTIONS You have a choice of three death benefit options: option 1, option 2 or option 3 (described below). You may choose death benefit option 3 only prior to the issue of your policy. Your choice may result in your having a base death benefit which is greater than your stated death benefit. You may change your death benefit option (but not to option 3 or from option 3 to option 2) after the first policy anniversary and before the continuation of coverage feature begins. SEE CHANGES IN DEATH BENEFIT OPTIONS, PAGE 22 AND SEE CONTINUATION OF COVERAGE, PAGE 26. If you choose death benefit option 1, your base death benefit is the greater of: 1. your stated death benefit on the date of the insured person's death; or 2. your account value on the date of the insured person's death multiplied by the appropriate factor from the definition of life - -------------------------------------------------------------------------------- Corporate Benefits 21 insurance factors shown in Appendix A. Under option 1 positive investment performance generally reduces your net amount at risk which lowers your policy's cost of insurance. Option 1 offers insurance coverage that is a set amount with potentially lower cost of insurance charges over time. If you choose death benefit option 2, your base death benefit is the greater of: 1. your stated death benefit plus your account value on the date of the insured person's death; or 2. your account value on the date of the insured person's death multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 2, investment performance is reflected in your insurance coverage. If you choose death benefit option 3, the base death benefit is the greater of: 1. your stated death benefit plus the sum of all premiums we have received minus partial withdrawals you have taken under your policy; or 2. your account value on the date of the insured person's death multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 3, the base death benefit generally will increase as you pay premiums and decrease as you take partial withdrawals. In no event will your base death benefit be less than your stated death benefit. Federal income tax law requires that your death benefit be at least as much as your account value multiplied by a factor defined by law. This factor is based on: o the insured person's age; o the insured person's gender. o the cash value accumulation test for the federal income tax law definition of life insurance. SEE APPENDIX A, PAGE 67. Death benefit options 2 and 3 are not available during the continuation of coverage period. If you select option 2 or 3 on your policy, it automatically converts to death benefit option 1 when the continuation of coverage period begins. SEE CONTINUATION OF COVERAGE, PAGE 26. CHANGES IN DEATH BENEFIT OPTIONS You may request a change in your death benefit option at any time after your policy date and before the continuation of coverage feature begins. Your requested death benefit option change is effective on your next monthly processing date after we accept and approve your requested change, so long as at least one day remains before your monthly processing date. If fewer than one day remains before your monthly processing date, your death benefit option change will be effective on the second following monthly processing date. We may require proof of insurability to change from death benefit option 1 to 2. A death benefit option change applies to your entire stated or base death benefit. You may change from death benefit option 1 to option 2, from option 2 to option 1 or from option 3 to option 1. YOU MAY NOT CHANGE FROM DEATH BENEFIT OPTION 1 OR 2 TO OPTION 3, OR OPTION 3 TO OPTION 2. After we approve your request, we send a new policy schedule page to you. You should attach it to your policy. We may ask you to return your policy to our customer service center so that we can make this change for you. We may not approve a death benefit option change if it reduces the target or stated death benefit below the minimum we require to issue your policy. On the effective date of your option change, your stated death benefit changes as follows: Change Change Stated Death Benefit From To Following Change: ---- -- ---------------- Option 1 Option 2 your stated death benefit before the change minus your account value as of the effective date of the change. Option 2 Option 1 your stated death benefit before the change plus your account value as of the effective date of the change. Option 3 Option 1 your stated death benefit before the change plus (a) the sum of the premiums we have received, minus (b) partial withdrawals you have taken as of the effective date of the change. - -------------------------------------------------------------------------------- Corporate Benefits 22 We increase or decrease your stated death benefit on the date of your death benefit option change to keep the net amount at risk the same. There is no change to the amount of term insurance if you have an adjustable term insurance rider. SEE COST OF INSURANCE CHARGE, PAGE 41. If you change your death benefit option, we adjust the stated death benefit for each of your segments by allocating your account value to each benefit segment. For example, if you change from death benefit option 1 to option 2, your stated death benefit is decreased by the amount of your account value allocation to that segment. If you change from death benefit option 2 to option 1, your stated death benefit is increased by the amount allocated to that segment. We do not adjust the target premium when you change your death benefit option. Changing your death benefit option may reduce or increase your target death benefit, as well as your stated death benefit. CHANGES IN DEATH BENEFIT AMOUNTS You may want to increase your policy's target or stated death benefit. You may do so while your policy is in force and before the policy anniversary when the insured person turns age 75. Contact your agent/registered representative or our customer service center to request a change in your policy's death benefit. The request is effective on the next monthly processing date after we receive and approve your request. There may be underwriting or other requirements which must be met before your request can be approved. Your requested change must be for at least $1,000. After we approve your request, we will send you a new policy schedule page which includes the: o stated death benefit; o benefits under applicable riders; o guaranteed cost of insurance rates of each segment; and o target death benefit schedule. Keep the new schedule with your policy. We may ask you to send your policy to us so that we can make the change for you. We may not approve a requested change if it will disqualify your policy as life insurance under federal income tax law. If we disapprove a change for any reason, we provide you with a notice of our decision. SEE TAX CONSIDERATIONS, PAGE 43. You may not reduce your death benefit in the first policy year. Requested reductions in the death benefit will be applied first to decrease the target death benefit. We decrease your stated death benefit only after your adjustable term insurance rider coverage is reduced to zero. If you have more than one segment, we divide decreases in stated death benefit among your benefit segments pro rata unless state law requires differently. There may be tax consequences as a result of a decrease in your death benefit. SEE TAX STATUS OF THE POLICY, PAGE 43 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 45. You cannot decrease the stated death benefit below $1,000. You must provide satisfactory evidence that the insured person is still insurable to increase your death benefit. Unless you tell us differently, we assume your request for an increase in your target death benefit is also a request for an increase to your stated death benefit. Thus, the amount of your adjustable term insurance rider will not change. You may change the death benefit once in a policy year. The initial death benefit segment, or first segment, is the stated death benefit on your policy's effective date. A requested increase in stated death benefit will cause a new segment to be created. Once we create a new segment, it is permanent unless state law requires differently. The segment year runs from the segment effective date to its anniversary. Each new segment may have: o a new initial sales charge; o a new deferred sales charge; o new cost of insurance charges; o a new incontestability period; o a new suicide exclusion period; and o a new target premium. We allocate the net amount at risk among segments in the same proportion that each segment bears to the total stated death benefit. Premiums we receive after an increase are applied to your policy segments in the same proportion as the target premium for each segment bears to the total target premium for all segments. Sales charges are deducted from each segment's premium based on the length of time that - -------------------------------------------------------------------------------- Corporate Benefits 23 segment has been effective. If a death benefit option change causes the stated death benefit to increase, no new segment is created. Instead, the size of each existing segment(s) is(are) changed. If it causes the stated death benefit to decrease, each segment is decreased. If a death benefit option change causes the stated death benefit to increase, no new segment is created. Instead, the size of each existing segment(s) is(are) changed. If it causes the stated death benefit to decrease, each segment is decreased. RIDERS Your policy may include benefits, which we attach by use of a rider. A rider adds an additional cost to your policy. You may cancel these rider benefits at any time. Periodically we may offer other riders than the one listed here. You should contact your agent/registered representative for a complete list of the riders now available. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 45 FOR INFORMATION ON THE POSSIBLE TAX EFFECTS OF ADDING OR CANCELING THESE BENEFITS. ADJUSTABLE TERM INSURANCE RIDER There is no maximum stated death benefit to issue a policy. We generally require a minimum target death benefit of $50,000 to issue your policy. You may increase your death proceeds by adding an adjustable term insurance rider. This rider allows you to schedule the pattern of death benefits appropriate for anticipated needs. The amount we pay is the term death benefit in force at the time of the death of the insured person. As the name suggests, the adjustable term insurance rider adjusts over time to maintain your desired level of coverage. You specify a target death benefit when you apply for this rider. The target death benefit can be level for the life of your policy or can be scheduled to change at the beginning of policy year(s). SEE DEATH BENEFITS, PAGE 23. The adjustable term insurance rider benefit is the difference between your target death benefit and your base death benefit, but not less than zero. The rider's death benefit automatically adjusts daily as your base death benefit changes. Your death benefits depend on which death benefit option is in effect: OPTION 1: If option 1 is in effect, the total death benefit is the greater of: a. the target death benefit; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. OPTION 2: If option 2 is in effect, the total death benefit is the greater of: a. the target death benefit plus the account value; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. OPTION 3: If option 3 is in effect, the total death benefit is the greater of: a. the target death benefit plus the sum of the premiums we have received minus partial withdrawals you have taken; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. For example, under option 1, assume your base death benefit increases as a result of an increase in your account value. The adjustable term insurance rider adjusts to provide death benefits equal to your target death benefit in each year: Base Death Target Death Adjustable Term Benefit Benefit Insurance Rider Amount ------- ------- ---------------------- $201,500 $250,000 $48,500 202,500 250,000 47,500 202,250 250,000 47,750 It is possible that the amount of your adjustable term insurance may be zero if your base death benefit increases enough. Using the same example, if the base death benefit under your policy grew to $250,000 or more, the adjustable term insurance would be zero. - -------------------------------------------------------------------------------- Corporate Benefits 24 Even when the adjustable term insurance is reduced to zero, your rider remains in effect until you remove it from your policy. Therefore, if later the base death benefit drops below your target death benefit, the adjustable term insurance rider amount reappears to maintain your desired death benefit. You may change the target death benefit schedule after it is issued, based on our rules. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23. We may deny future, scheduled increases to your target death benefit if you cancel a scheduled change, or if you ask for an unscheduled decrease in your target death benefit. Partial withdrawals, changes from death benefit option 1 to option 2 and base decreases may reduce your target death benefit. SEE PARTIAL WITHDRAWALS, PAGE 31, AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 22. There is no defined premium for a given amount of adjustable term insurance coverage. Instead, we deduct a separate monthly cost of insurance charge from your account value. The cost of insurance for this rider is calculated as the monthly cost of insurance rate for the rider coverage multiplied by the adjustable term death benefit in effect at the monthly processing date. The cost of insurance rates are determined by us from time to time. They are based on the issue age, gender, ratings and premium class of the person insured, as well as your policy date. If the target death benefit is increased by you after the rider is issued, we use the same cost of insurance rate schedule for the entire coverage for this rider. These rates are based on the original premium class even though satisfactory new evidence of insurability is required for the increased schedule. The monthly guaranteed maximum cost of insurance rates for this rider will be stated in the policy. SEE COST OF INSURANCE CHARGE, PAGE 41. At policy maturity, if you have an adjustable term insurance rider, the target death benefit becomes the stated death benefit. The adjustable term insurance rider then terminates. If you have no adjustable term insurance rider, your stated death benefit is unchanged. The only charge for this rider is the cost of insurance charge. There is no sales charge for this rider. The total charges that you pay may be less if you have greater coverage under an adjustable term insurance rider rather than as base death benefit. However, not all policy features apply to the adjustable term insurance rider. The adjustable term insurance rider does not contribute to the policy account value and there is no surrender value. It does not affect investment performance and cannot be used toward a policy loan. The adjustable term insurance rider provides benefits only at the insured person's death. SPECIAL FEATURES DESIGNATED DEDUCTION INVESTMENT OPTION You may designate an investment option from which we will deduct your monthly charges and your deferred sales charge. You may make this designation at any time. You may not use the loan division as your designated deduction investment option. You may elect not to choose a designated deduction investment option, or the amount in your designated deduction investment option may not be enough to cover the monthly deductions and deferred sales charge. If so, these charges are taken from the variable and guaranteed interest divisions in the same proportion that your account value in each has to your total net account value on the monthly processing date. If you change your designated deduction investment option, we consider this a premium allocation change for which there may be a charge. SEE POLICY TRANSACTION FEES, PAGE 42. RIGHT TO EXCHANGE POLICY During the first 24 months after your policy date, you have the right to exchange your policy for a guaranteed policy, unless state law requires differently. We transfer the amount you have in the variable division to the guaranteed interest division. We allocate all of your future net premiums only to the guaranteed interest division. We do not allow future payments or transfers to the variable investment options after you exercise this right. We do not charge for the transfer to make this exchange. SEE GUARANTEED INTEREST DIVISION, PAGE 15. - -------------------------------------------------------------------------------- Corporate Benefits 25 POLICY MATURITY You can surrender your policy at any time. At the policy anniversary nearest the insured person's 100th birthday if you do not want the continuation of coverage feature the policy matures. You may then surrender the policy for the net account value and end coverage. Part of this payment may be taxable. You should consult your tax adviser. CONTINUATION OF COVERAGE The continuation of coverage feature allows your insurance coverage to continue in force beyond policy maturity. If on the policy anniversary nearest the insured person's 100th birthday you choose to allow the continuation of coverage feature to become effective, we: o convert death benefit option 2 or 3 to death benefit option 1, if applicable; o terminate all riders; o deduct a one-time $200 administrative fee to cover future expenses; o transfer your net account value (excluding the amount in the loan division) into the guaranteed interest division; and o terminate dollar cost averaging and automatic rebalancing. Your insurance coverage continues in force until the death of the insured person, unless the policy lapses or is surrendered. However: o you may make no further premium payments; o we deduct no further cost of insurance charges; o your monthly deductions cease; and o your net account value may not be transferred into the variable investment options. During the continuation of coverage period, you may take policy loans or partial withdrawals from your policy. If you have an outstanding policy loan, interest continues to accrue. If you fail to make sufficient loan or loan interest payments, it is possible that the loan balance plus accrued interest may become greater than your account value and cause your policy to lapse. To avoid this lapse, you may make loan and loan interest payments during the continuation of coverage period. If you wish to stop coverage during the continuation of coverage period, you may surrender your policy and receive the net account value. All normal consequences of surrender apply. SEE SURRENDER, PAGE 33. The continuation of coverage feature may not be available in all states. If a state has approved this feature, it is an automatic feature and you do not need to take any action to activate it. The tax consequences of coverage continuing beyond the insured person's 100th birthday are uncertain. You should consult a tax adviser as to those consequences. POLICY VALUES ACCOUNT VALUE Your account value is the total amount you have in the guaranteed interest division, the variable division and the loan division. Your account value reflects: o net premiums applied; o charges deducted; o partial withdrawals taken; o investment performance of the variable investment options; o interest earned on the guaranteed interest division; and o interest earned on the loan division. NET ACCOUNT VALUE Your policy's net account value is your account value minus the amount of your outstanding policy loan and accrued loan interest, if any. Your cash surrender value is the same as your net account value. DETERMINING VALUES IN THE VARIABLE DIVISION The amounts in the variable division are measured by accumulation units and accumulation unit values. The value of each variable investment option is the accumulation unit value for that option multiplied by the number of accumulation units you own in that option. Each variable investment option has a different accumulation unit value. We purchase accumulation units for you when you allocate premium or make transfers to a variable investment option, including transfers from the loan division. - -------------------------------------------------------------------------------- Corporate Benefits 26 A valuation date is one on which the net asset value of the investment portfolio shares and unit values of the variable investment options are determined. A valuation date is each day the New York Stock Exchange and the company's customer service center are open for business, except for days on which an investment portfolio does not value its shares or any other day as required by law. Each valuation date ends at 4:00 p.m. Eastern time. Our customer service center may not be open for business on: New Year's Day, Martin Luther King, Jr.'s birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving, Christmas Day and the day before or after Christmas. We sell accumulation units for you: o when amounts are transferred from a variable investment option (including transfers to the loan division); o for your policy's monthly deductions from your account value; o for policy transaction charges; o when you take a partial withdrawal; o when you surrender your policy; and o to pay the death proceeds. We calculate the number of accumulation units purchased or sold by: 1. dividing the dollar amount of your transaction by: 2. the accumulation unit value for that variable investment option calculated at the close of business on the valuation date of the transaction. The accumulation unit value is the value of one accumulation unit determined on each valuation date. The accumulation unit value of each variable investment option varies with the investment performance of the underlying portfolio. It reflects: o investment income; o realized and unrealized gains and losses; and o investment portfolio expenses. SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 27. The date of a transaction is the date we receive your premium or transaction request at our customer service center, so long as the date of receipt is a valuation date. We use the accumulation unit value which is next calculated after we receive your premium or transaction request and we use the number of accumulation units attributable to your policy on the date of receipt. We take monthly deductions from your account value on the monthly processing date. If your monthly processing date is not a valuation date, the monthly deduction is processed on the next valuation date. The value of amounts allocated to the variable investment options goes up or down depending on investment performance of the underlying investment portfolio. FOR AMOUNTS IN THE VARIABLE INVESTMENT OPTIONS, THERE IS NO GUARANTEED MINIMUM CASH SURRENDER VALUE. HOW WE CALCULATE ACCUMULATION UNIT VALUES We determine accumulation unit values on each valuation date. We generally set the accumulation unit value for a variable investment option at $10 when the investment option is first opened. After that first date, the accumulation unit value on any valuation date is: 1. the accumulation unit value for the preceding valuation date multiplied by 2. the variable investment option's accumulation experience factor for the valuation period. Every valuation period begins at 4:00 p.m. Eastern time on a valuation date and ends at 4:00 p.m. Eastern time on the next valuation date. We calculate an accumulation experience factor for each variable investment option every valuation date as follows: 1. We take the share value of the underlying portfolio shares as reported to us by the investment portfolio managers as of the close of business on that valuation date. 2. We add dividends or capital gain distributions declared per share and reinvested by the investment portfolio on the date that the share value is affected. If applicable, we subtract a charge for taxes. - -------------------------------------------------------------------------------- Corporate Benefits 27 3. We divide the resulting amount by the value of the shares in the underlying investment portfolio at the close of business on the previous valuation date. TRANSFERS OF ACCOUNT VALUE You may make twelve free transfers among the variable investment options or the guaranteed interest division in each policy year with a $25 fee per transaction after that. If your state requires a refund of premium during the free look period, you may not make transfers until after your free look period ends. We do not limit the number of transfers you may make. Transfers for automatic rebalancing or dollar cost averaging do not count toward your twelve free transfers. You may not make transfers during the continuation of coverage period. SEE POLICY TRANSACTION FEES, PAGE 42 AND CONTINUATION OF COVERAGE, PAGE 26. You may make transfer requests in writing, or by telephone if you have telephone privileges, to our customer service center. Your transfer takes effect on the valuation date we receive your request. The minimum amount you may transfer is $100. This minimum does not need to come from one investment option or be transferred to one investment option as long as the total amount you transfer is at least $100. However, if the amount remaining in an investment option is less than $100 and you make a transfer request from that investment option, we transfer the entire amount. EXCESSIVE TRADING Excessive trading activity can disrupt investment portfolio management strategies and increase portfolio expenses through: o increased trading and transaction costs; o forced and unplanned portfolio turnover; o lost opportunity costs; and o large asset swings that decrease the investment portfolio's ability to provide maximum investment return to all policyowners. In response to excessive trading, we may place restrictions or refuse transfers made by third-party agents acting on behalf of owners such as market timing services. We will refuse or place restrictions on transfers when we determine, in our sole discretion, that transfers are harmful to the investment portfolios or to policyowners as a whole. GUARANTEED INTEREST DIVISION TRANSFERS Transfers into the guaranteed interest division are not restricted. You may transfer amounts from the guaranteed interest division only in the first 30 days of each policy year. Transfer requests received within 30 days before your policy anniversary will be processed on your policy anniversary. A request received by us within 30 days after your policy anniversary is effective on the valuation date we receive it. Transfer requests made at any other time will not be processed. Transfers from the guaranteed interest division are limited to the largest of: o 25% of your guaranteed interest division balance at the time of your first transfer or withdrawal out of it in that policy year; o the sum of the amounts you have transferred and withdrawn from the guaranteed interest division in the prior policy year; or o $100. DOLLAR COST AVERAGING If your policy has at least $10,000 invested in either qualifying source investment portfolio, you may elect dollar cost averaging. The qualifying source investment portfolios are the GCG Trust Liquid Asset Portfolio or the GCG Trust Limited Maturity Bond Portfolio. The main goal of dollar cost averaging is to protect your policy values from short-term price changes. DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A LOSS IN A DECLINING MARKET. This systematic plan of transferring account values is intended to reduce the risk of investing too much when the price of an investment portfolio's shares is high. It is intended to reduce the risk of investing too little when the price of an investment portfolio's shares is low. Since you transfer the same dollar amount to other investment options each period, you purchase more units in an investment option when the unit value is low and you purchase fewer units if the unit value is high. - -------------------------------------------------------------------------------- Corporate Benefits 28 We do not count dollar cost averaging transfers toward your twelve free transfers per policy year. There is no charge for this feature. You may add dollar cost averaging to your policy at any time. The first dollar cost averaging date must be at least one day after we receive your dollar cost averaging request. If your state requires refund of all premiums we receive during the free look period, dollar cost averaging cannot begin until your free look period has ended. With dollar cost averaging, you designate either a dollar amount or a percentage of your account value for automatic transfer from a qualifying source investment portfolio. Each period we automatically transfer the amount you select from your chosen source investment portfolio to one or more other variable investment options. You may not use the guaranteed interest division or the loan division in dollar cost averaging. The minimum percentage you may transfer to any one investment option is 1% of the total amount you transfer. You must transfer at least $100 on each dollar cost averaging transfer date. Dollar cost averaging may occur on the same day of the month on a monthly, quarterly, semi-annual or annual basis. Unless you tell us otherwise, dollar cost averaging automatically takes place monthly on the monthly processing date. You may have both dollar cost averaging and automatic rebalancing at the same time. However, the dollar cost averaging source investment portfolio cannot be included in your automatic rebalancing program. CHANGING DOLLAR COST AVERAGING You may change your dollar cost averaging program one time per policy year. If you have telephone privileges, you may change the program by telephoning our customer service center. SEE TELEPHONE PRIVILEGES, PAGE 36. TERMINATING DOLLAR COST AVERAGING You may cancel dollar cost averaging by sending satisfactory notice to our customer service center. We must receive it at least one day before the next dollar cost averaging date. Dollar cost averaging will terminate when: 1. you specify a termination date; or 2. your balance in the source investment portfolio reaches a dollar amount you set; or 3. the amount in the source investment portfolio is equal to or less than the amount to be transferred on a dollar cost averaging date. We will transfer the remaining amount and dollar cost averaging ends. AUTOMATIC REBALANCING Automatic rebalancing is a method of maintaining a consistent approach to investing account values over time and simplifying the process of asset allocation among your chosen investment options. Transfers made for automatic rebalancing do not count toward your twelve free transfers per policy year. There is no charge for this feature. If you choose this feature, on each rebalancing date we transfer amounts among the investment options to match your pre-set automatic rebalancing allocation. After the transfer, the ratio of your account value in each investment option to your total account value for all investment options included in automatic rebalancing matches the automatic rebalancing allocation percentage you set for that investment option. This action rebalances the amounts in the investment options that do not match your set allocation. This mismatch can happen if an investment option outperforms the other investment options for that time period. You may choose the automatic rebalancing feature on your application or later by completing our customer service form. Automatic rebalancing may occur on the same day of the month on a monthly, quarterly, semi-annual or annual basis. If you do not specify a frequency, automatic rebalancing will occur quarterly. If you choose automatic rebalancing on your policy application, the first transfer occurs on the date you select (after your free look period if your state requires return of all premiums we receive during the free look period). If you elect this feature after your policy date, we process the first transaction on the date you request. If you do not request a date, - -------------------------------------------------------------------------------- Corporate Benefits 29 processing is on the last valuation date of the calendar quarter we receive your request. When you choose automatic rebalancing allocations, you may choose up to eighteen total investment options. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 16. You may have both automatic rebalancing and dollar cost averaging at the same time. However, the source investment portfolio for your dollar cost averaging cannot be included in your automatic rebalancing program. You may not include the loan division in your automatic rebalancing program. CHANGING AUTOMATIC REBALANCING You may change your allocation percentages for automatic rebalancing at any time. Your allocation change is effective on the valuation date that we receive it at our customer service center. If you reduce the amount allocated to the guaranteed interest division, it is considered a transfer from that division. You must meet the requirements for the maximum transfer amount and time limitations on transfers from the guaranteed interest division. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 28. TERMINATING AUTOMATIC REBALANCING You may terminate automatic rebalancing at any time, as long as we receive your notice of termination at least one day before the next automatic rebalancing date. POLICY LOANS The loan division is part of our general account specifically designed to hold money used as collateral for loans and loan interest. You may borrow from your policy at any time after the first monthly processing date by using your policy as security for a loan, or as otherwise required by state law. The amount you borrow is called a policy loan. Your policy loan is: 1. the total amount you borrow from your policy; plus 2. policy loan interest that is capitalized when due; minus 3. policy loan or interest repayments you make. Unless state law requires differently, a new policy loan must be at least $100. The maximum amount you may borrow on any valuation date, unless required differently by state law, is your net account value minus the monthly deductions to your next policy anniversary or 13 monthly deductions if you take a loan within thirty days before your next policy anniversary. Your request for a policy loan must be directed to our customer service center. If you have telephone privileges, you may request a policy loan of less than $25,000 by telephoning our customer service center. SEE TELEPHONE PRIVILEGES, PAGE 36. When you request a loan you may specify one investment option from which the loan will be taken. If you do not specify one, the loan will be taken proportionately from each active investment option you have, including the guaranteed interest division. Loan interest charges on your policy loan accrue daily at an annual interest rate of 3.25%. Interest is due in arrears on each policy anniversary. If you do not pay your interest when it is due, we add it to your policy loan. When you take a policy loan, we transfer an amount equal to your policy loan to the loan division. We follow this same process for loan interest due at your policy anniversary. We credit the loan division with interest at an annual rate of 3%. If you request an additional loan, we add the new loan amount to your existing policy loan. This way, there is only one loan outstanding on your policy at any time. LOAN REPAYMENT You may repay your policy loan at any time while your policy is in force. We assume that payments you make, other than scheduled premiums, are policy loan repayments. You must tell us if you want payments to be premium payments. When you make a loan payment, we transfer an amount equal to your payment from the loan division to the variable investment options and the guaranteed interest division in the same proportion as your current premium allocation, unless you tell us otherwise. - -------------------------------------------------------------------------------- Corporate Benefits 30 EFFECTS OF A POLICY LOAN ON YOUR POLICY Taking a loan decreases the amount you have in the investment options. Accruing loan interest will change your net account value as compared to what it would have been if you did not take a loan. Even if you repay your loan, it has a permanent effect on your account value. The benefits under your policy may be affected. The loan is a first lien on your policy. If you do not repay your policy loan, we deduct your outstanding policy loan and accrued loan interest from the death proceeds payable or the cash surrender value payable on surrender. Failure to repay your loan may affect the length of time your policy remains in force. If you do not make loan payments your policy could lapse. Policy loans may cause your policy to lapse if your net account value is not enough to pay your deductions each month. SEE LAPSE, PAGE 32. Policy loans may have tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 45. If you use the continuation of coverage feature and you have a policy loan, loan interest continues to accrue. PARTIAL WITHDRAWALS You may request a partial withdrawal to be processed on any valuation date after your first policy anniversary by contacting our customer service center. You make a partial withdrawal when you withdraw part of your net account value. If your request is by telephone, it must be for less than $25,000 and may not cause a decrease in your death benefit. Otherwise, your request must be in writing. SEE TELEPHONE PRIVILEGES, PAGE 36. You may take only one partial withdrawal per policy year. The minimum partial withdrawal you may take is $100. The maximum partial withdrawal you may take is the amount which leaves $500 as your net account value. If you request a withdrawal of more than this maximum, we require you to surrender your policy or reduce the withdrawal. When you take a partial withdrawal, we deduct your withdrawal amount plus a service fee from your account value. SEE CHARGES, PAGE 39. Unless you tell us otherwise, we will make a partial withdrawal from the guaranteed interest division and the variable investment options in the same proportion that each has to your net account value immediately before your withdrawal. You may select one investment option from which your partial withdrawal will be taken. If you select the guaranteed interest division however, the amount withdrawn from it may not be for more than your total withdrawal multiplied by the ratio of your account value in the guaranteed interest division to your total net account value immediately before the partial withdrawal transaction. Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 45. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 1 If you selected death benefit option 1, no more than fifteen years have passed since your policy date and the insured person is not yet age 81, you may make a partial withdrawal of up to the greater of 10% of your account value or 5% of your stated death benefit without decreasing your stated death benefit. Otherwise amounts you withdraw will reduce your stated death benefit by the amount of the withdrawal unless your policy death benefit has been increased due to the federal income tax definition of life insurance. If your policy death benefit has been increased due to the federal income tax definition of life insurance at the time of the partial withdrawal, then at least part of your partial withdrawal may be made without reducing your stated death benefit. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 2 If you have selected death benefit option 2, a partial withdrawal does not reduce your stated or target death benefit. However, because your account value is reduced, we reduce the total death benefit by at least the partial withdrawal amount. - -------------------------------------------------------------------------------- Corporate Benefits 31 PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 3 If you have selected death benefit option 3 and your partial withdrawal is less than the total of premiums we have received minus the total of your partial withdrawals, then your stated death benefit will not be reduced. However, because your account value is reduced, your total death benefit will be reduced. If your partial withdrawal is more than the amount of premiums we have received minus the total of your prior partial withdrawals, a two step process is used: 1. Your withdrawal of the amount that makes premiums paid minus all partial withdrawals equal to zero is taken; then 2. The excess withdrawal amount you requested will reduce your stated death benefit if: o the excess amount is greater than 10% of your account value after step "1" above; or o the excess amount is greater than 5% of your stated death benefit. Regardless of your chosen death benefit option, partial withdrawals do not reduce your stated death benefit if: o your base death benefit has been increased to qualify your policy as life insurance under the federal income tax laws; and o you withdraw an amount that is no greater than the amount that reduces your account value to a level which no longer requires your base death benefit to be increased to qualify as life insurance for federal income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE 43. We require a minimum stated death benefit and a minimum target death benefit to issue your policy. You may not take a partial withdrawal if it reduces your stated death benefit or target death benefit below this minimum. SEE POLICY ISSUANCE, PAGE 43. We will send a new policy schedule page for your policy showing the effect of your withdrawal if there is any change to your stated death benefit or your target death benefit. In order to make this change, we may ask that you return the policy to our customer service center. Your withdrawal and any reductions in the death benefits are effective as of the valuation date on which we receive your request. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 45. LAPSE Your insurance coverage continues as long as your net account value is enough to pay your deductions each month. If the continuation of coverage feature is active, your policy could lapse if there is an outstanding policy loan even though there are no further monthly deductions. GRACE PERIOD Your policy enters a 61-day lapse grace period if, on a monthly processing date your net account value is zero (or less). We notify you that your policy is in a grace period at least 30 days before it ends. We send this notice to you (or a person to whom you have assigned your policy) at your last known address in our records. We notify you of the premium payment necessary to prevent your policy from lapsing. This amount is generally past due charges, plus your estimated monthly policy deductions for the next two months. If the insured person dies during the grace period we pay death proceeds to your beneficiary(ies), but with reductions for your policy loan balance, accrued loan interest and monthly deductions owed. If we receive payment of the required amount before the end of the grace period, we apply it to your account value in the same manner as your other premium payments, then we deduct the overdue amounts from your account balance. If you do not pay the full amount within the 61-day grace period, your policy and its rider lapses without value. We withdraw your remaining account balance from the variable and guaranteed interest divisions. We deduct amounts you owe us and inform you that your policy coverage has ended. REINSTATEMENT If you do not pay enough premium before the end of the grace period, your policy lapses. You may still - -------------------------------------------------------------------------------- Corporate Benefits 32 reinstate your policy and its rider within five years of the end of the grace period if you still own the policy and the insured person is still living. Unless state law requires differently, we will reinstate your policy and rider if: 1. you have not surrendered your policy; 2. you provide satisfactory evidence to us that the insured person is alive and still insurable according to our normal rules of underwriting; and 3. we receive enough premium from you to keep your policy and its rider in force from the beginning to the end of the grace period and for two months after the reinstatement date. Reinstatement is effective on monthly processing date following our approval of your reinstatement application. If you had a policy loan when coverage ended, we reinstate it with accrued loan interest to the date of lapse. The cost of insurance charges at the time of reinstatement are adjusted to reflect the time since the lapse. We apply net premiums received after reinstatement according to your most recent instructions which may be the premium allocation instructions in effect at the start of the grace period. SURRENDER You may surrender your policy for its cash surrender value any time while the insured person is living. You may take your net cash surrender value as of the valuation date we receive your written surrender request and policy at our customer service center. All insurance coverage ends on the date we receive your surrender request and policy. SEE POLICY VALUES, PAGE 7 AND SETTLEMENT PROVISIONS, PAGE 37. We do not pro-rate or add back charges and expenses to your account value before the date your surrender is effective. A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 45, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 45. GENERAL POLICY PROVISIONS FREE LOOK PERIOD You have the right to examine your policy. The right to examine your policy, often called the free look period, starts on the date you receive your policy and is a length of time specified by state law. If for any reason you do not want it, you may return your policy to us, your agent/registered representative within the period shown on the policy's face page. If you return your policy to us within that time period, we will consider it canceled as of your policy date. If you cancel your policy during this free look period, you will receive a refund as determined under state law. Generally, there are two types of free look refunds: o some states require a return of all premiums we receive; o other states require payment of account value plus a refund of all charges deducted. Your policy will specify what type of free look refund applies in your state. The type of free look refund allowed in your state will affect when the net premium we receive before the end of the free look period is invested into the variable investment options. SEE ALLOCATION OF NET PREMIUMS, PAGE 18. YOUR POLICY Some groups under this policy may choose to use a master policy with policy certificates, rather than a series of individual policies. The entire contract between you and us is the combination of: o your policy (or certificate); o a copy of your original application and any applications for benefit increases or decreases; o the adjustable term insurance rider; o endorsements; o schedule pages; and o reinstatement applications. If you make a change to your coverage, we give you a copy of your changed application and new schedules. If you send your policy to us, we attach - -------------------------------------------------------------------------------- Corporate Benefits 33 these items to your policy and return it to you. Otherwise, you need to attach them to your policy. Unless there is fraud, we consider all statements made in an application to be representations and not guarantees. We use no statement to deny a claim, unless it is in an application. A president or an officer of our company and our secretary or assistant secretary must sign all changes or amendments we make to your policy. No other person may change the terms or conditions of your policy. GUARANTEED ISSUE We only offer this policy on a guaranteed issue basis. We issue these policies up to a preset face amount with evidence of insurability requirements. AGE We issue your policy at the insured person's age stated in your policy schedule. This is based on the insured person's age as of the nearest birthday to the policy date. We determine the insured person's age at any given time by adding the number of completed policy years to the age calculated at issue and shown in the schedule. At issue of your policy, the insured person must be no less than age 15 and no more than age 85. OWNERSHIP The original owner is the person named as the owner in the policy application. The owner can exercise all rights and receive benefits during the insured person's lifetime before the maturity date. This includes the right to change the owner, beneficiary(ies) or the method designated to pay death proceeds. As a matter of law, all rights of ownership are limited by the rights of any person who has been assigned rights under the policy and any irrevocable beneficiary(ies). You may name a new owner by giving us written notice. The effective date of the change to the new owner is the date the prior owner signs the notice. However, we will not be liable for any action we take before a change is recorded at our customer service center. A change in ownership may cause the prior owner to recognize taxable income on gain under the policy. BENEFICIARY(IES) You, as owner, name the beneficiary(ies) when you apply for your policy. The primary beneficiary(ies) who survives the insured person receives the death proceeds. Other surviving beneficiary(ies) receive death proceeds only if there is no surviving primary beneficiary(ies). If more than one beneficiary(ies) survives the insured person, they share the death proceeds equally, unless you have told us otherwise. If none of your policy beneficiaries has survived the insured person, we pay the death proceeds to you or to your estate, as owner. Once you tell us who the beneficiary(ies) is/are, we keep this information on file. You may name a new beneficiary during the insured person's lifetime. We pay the death proceeds to the beneficiary(ies) whom you have most recently named according to our records. We do not make payments to multiple sets of beneficiaries. COLLATERAL ASSIGNMENT You may assign your policy by sending written notice to us. After we record the assignment, your rights as owner and the beneficiary's(ies') rights (unless the beneficiary(ies) was made an irrevocable beneficiary(ies) under an earlier assignment) are subject to the assignment. It is your responsibility to make sure the assignment is valid. INCONTESTABILITY If your policy has been in force and the insured person is alive for two years from your policy date, we will not question the validity of the statements in your application. If your policy has been in force and the insured person is alive for two years from the effective date of a new segment or from the effective date of an increase in any other benefit with respect to the insured person (such as an increase in stated death benefit) we will not contest the statements in your application for the new segment or other increase. If this policy has been in force and the insured person is alive for two years from the effective date of reinstatement, we will not contest the statements in your application for reinstatement. MISSTATEMENTS OF AGE OR GENDER If the insured person's age or gender has been misstated, we adjust the death benefit to the amount - -------------------------------------------------------------------------------- Corporate Benefits 34 which would have been purchased for the insured person's correct age and gender. We base the adjusted death benefit on the cost of insurance charges deducted from your account value on the last monthly processing date before the insured person's death, or as otherwise required by state law. If unisex cost of insurance rates apply, we do not make any adjustments for a misstatement of gender. SUICIDE If the insured person commits suicide (while that insured person is sane or insane) within two years of your policy date, unless otherwise required by state law, we limit death proceeds payable in one sum to: 1. the total of all premiums we receive to the time of death; minus 2. outstanding policy loan amounts and accrued loan interest; minus 3. partial withdrawals you have taken. We make a limited payment to the beneficiary(ies) for a new segment or other increase if the death of the insured person is due to suicide (while that insured person is sane or insane) within two years of the effective date of a new segment or within two years of an increase in any other benefit, unless otherwise required by state law. The limited payment we make is equal to the cost of insurance and monthly expense charges which were deducted for such increase. TRANSACTION PROCESSING Generally, within seven days of when we receive all information required to process a payment, we pay: o death proceeds; o cash surrender value upon surrender; o partial withdrawals; and o loan proceeds. We may delay processing these transactions if: o the NYSE is closed for trading; o trading on the NYSE is restricted by the SEC; o there is an emergency so that it is not reasonably possible to sell securities in the variable investment options or to determine the value of an investment option's assets; or o a governmental body with jurisdiction over the separate account allows suspension by its order. SEC rules and regulations determine whether or not these conditions exist. We execute transfers among the variable investment options as of the valuation date of our receipt of your request at our customer service center. We determine the death benefit as of the insured person's date of death. The death proceeds are not affected by changes in the value of the variable investment options after that date. We pay interest at our stated rate (or at a higher rate if required by law) from the insured person's date of death to the date of payment. We may delay payment from our guaranteed interest division for up to six months, unless state law requires otherwise, of: o surrender proceeds; o withdrawal amounts; or o loan amounts. We pay interest at our declared rate (or at a higher rate if required by law) from the date we receive the request if we delay payment more than 30 calendar days. NOTIFICATION AND CLAIMS PROCEDURES Except for certain authorized telephone requests, we must receive in writing any election, designation, change, assignment or request made by the owner. You must use a form acceptable to us. We are not liable for actions taken before we receive and record the written notice. We may require you to return your policy for policy changes and at the time of surrender. If an insured person dies while your policy is in force, please let us or your agent/registered representative know as soon as possible. We will immediately send you instructions on how to make a claim at the insured person's death. As proof of the insured person's death, we may require you to provide proof of the deceased insured person's age and a certified copy of the death certificate. The beneficiary(ies) and the deceased insured person's next of kin may need to sign authorization forms. These forms allow us to get information about the deceased insured person. This information - -------------------------------------------------------------------------------- Corporate Benefits 35 may include medical records of doctors and hospitals used by the deceased insured person. TELEPHONE PRIVILEGES Telephone privileges are automatically provided to you and your agent/registered representative, unless you decline it on the application or contact our customer service center. Telephone privileges allow you or your agent/registered representative, if applicable, to call our customer service center to: o make transfers; o change premium allocations; o change features in your dollar cost averaging and automatic rebalancing programs; o request partial withdrawals; or o request a policy loan. Our customer service center uses reasonable procedures to make sure that instructions received by telephone are genuine. These procedures may include: 1. requiring some form of personal identification; 2. providing written confirmation of any transactions; and 3. tape recording telephone calls. By accepting automatic telephone privileges, you authorize us to record your telephone calls with us. If we use reasonable procedures to confirm instructions, we are not liable for losses due to unauthorized or fraudulent instructions. We may discontinue this privilege at any time. NON-PARTICIPATION Your policy does not participate in the surplus earnings of Security Life. DISTRIBUTION OF THE POLICIES The principal underwriter (distributor) for our policies is ING America Equities, Inc., a wholly owned subsidiary of Security Life. It is registered as a broker-dealer with the SEC and the NASD. We pay ING America Equities, Inc. for acting as the principal underwriter under a distribution agreement. We sell our policies through licensed insurance agents who are registered representatives of other broker-dealers including, but not limited to: 1. VESTAX Securities Corporation, an indirect affiliate of Security Life of Denver Insurance Company; 2. Locust Street Securities, Inc., an indirect affiliate of Security Life of Denver Insurance Company; 3. Multi-Financial Securities, Corp., an indirect affiliate of Security Life of Denver Insurance Company; and 4. IFG Network Securities, Inc., an indirect affiliate of Security Life of Denver Insurance Company. All broker-dealers who sell this policy have entered into selling agreements with us. Under these selling agreements, we pay a distribution allowance to broker-dealers, who then pay commissions to the agent/registered representative who sells this policy. During the first policy year, the distribution allowance is 16% of the premium that we receive up to target premium and 2% of premium we receive in excess of target premium. In each of policy years two through four, the distribution allowance is 7% of the premium we receive up to target premium and 1% of premium we receive in excess of target premium. In each of policy years five through ten, the distribution allowance is 2% of the premium we receive up to target premium. Broker-dealers receive annual renewal payments of up to 0.20% of the average net account value for the first ten years of your policy and 0.10% of average net account value each year thereafter. Compensation arrangements may vary and depend on particular circumstances. In addition to the distribution allowances we may pay : o override payments; o expense allowances o special marketing fees; and o wholesaler fees and marketing allowances, bonuses and training allowances. We pay all allowances from our resources which include sales charges deducted from premiums. ADVERTISING PRACTICES AND SALES LITERATURE We may use advertisements and sales literature to - -------------------------------------------------------------------------------- Corporate Benefits 36 promote this product, including: o indices or rankings of investment securities; o articles on variable life insurance and other information published in business or financial publications; and o comparisons with other investment vehicles, including tax considerations. We may use information regarding the past performance of the variable investment options. However, past performance is not indicative of future performance of the investment options or the policies and is not reflective of the actual investment experience of policyowners. We may feature certain investment options and their managers, as well as describe asset levels and sales volumes for our products. We may refer to past, current, or prospective economic trends, investment performance and other information we believe may be of interest to our customers. SETTLEMENT PROVISIONS You may elect to have the beneficiary(ies) receive the death proceeds other than in one payment. If you make this election, you must do so before the death of the insured person. If you have not made this election, the beneficiary(ies) may do so within 60 days after we receive proof of the insured person's death. You may take your cash surrender value in other than one payment. The investment performance of the variable investment options does not affect payments under these settlement options. Instead, interest accrues at a fixed rate based on the option you choose. Payment options are subject to our rules at the time you make your selection. A periodic payment must be at least $20. Currently, these alternate payment options are available if the proceeds are $2,000 or more. Option I: PAYOUTS FOR A DESIGNATED PERIOD Option II: LIFE INCOME WITH PAYOUTS GUARANTEED FOR A DESIGNATED PERIOD Option III: HOLD AT INTEREST Option IV: PAYOUTS OF A DESIGNATED AMOUNT Option V: OTHER OPTIONS WE OFFER AT THE TIME WE PAY THE BENEFIT ADMINISTRATIVE INFORMATION ABOUT THE POLICY VOTING PRIVILEGES We invest the variable investment options' assets in shares of investment portfolios. We are the legal owner of the shares held in the separate account and we have the right to vote on certain issues. Among other things, we may vote on issues described in the fund's current prospectus, or issues requiring a vote by shareholders under the Investment Company Act of 1940. Even though we own the shares, we give you the opportunity to tell us how to vote the number of shares attributable to your account value. We count fractional shares. If you have a voting interest, we send you proxy material and a form on which to give us your voting instructions. Each investment portfolio's shares have the right to one vote. The votes of all investment portfolios are cast together on a collective basis, except on issues for which the interests of the portfolios differ. In these cases, voting is done on a portfolio-by-portfolio basis. Examples of issues that require a portfolio-by-portfolio vote are: 1. changes in the fundamental investment policy of a particular investment portfolio; or 2. approval of an investment advisory agreement. We vote the shares in accordance with your instructions at meetings of investment portfolio shareholders. We vote any investment portfolio shares that are not attributable to policies and any investment portfolio shares for which the owner does not give us instructions, the same way we vote as if we did receive owner instructions. We reserve the right to vote investment portfolio shares without getting instructions from policy owners if the federal securities laws, regulations or - -------------------------------------------------------------------------------- Corporate Benefits 37 their interpretations change to allow this. You may instruct us only on matters relating to the investment portfolios corresponding to variable investment options in which you have invested assets as of the record date set by the investment portfolio's board for the portfolio's shareholders meeting. We determine the number of investment portfolio shares in each variable investment option that we attribute to your policy by dividing your account value allocated to that variable investment option by the net asset value of one share of the matching investment portfolio. MATERIAL CONFLICTS We are required to track events to identify any material conflicts arising from using investment portfolios for both variable life and variable annuity separate accounts. The boards of the investment portfolios, Security Life and other insurance companies participating in the investment portfolios, have this same duty. There may be a material conflict if: o state insurance law or federal income tax law changes; o investment management of an investment portfolio changes; or o voting instructions given by owners of variable life insurance policies and variable annuity contracts differ. The investment portfolios may sell shares to certain qualified pension and retirement plans qualifying under Code Section 401. These include cash or deferred arrangements under Code Section 401(k). Therefore, there is a possibility that a material conflict may arise between the interests of owners in general, or between certain classes of owners; and these retirement plans or participants in these retirement plans. If there is a material conflict, we have the duty to determine appropriate action including removing the portfolios involved from our variable investment options. We may take other action to protect policy owners. This could mean delays or interruptions of the variable operations. When state insurance regulatory authorities require us, we may ignore voting instructions relating to changes in an investment portfolio's adviser or its investment policies. If we do ignore voting instructions, we give you a summary of our actions in the next semi-annual report to owners. Under the Investment Company Act of 1940, we must get your approval for certain actions involving our separate account. In this case, you have one vote for every $100 of value you have in the variable investment options. We cast votes credited to amounts in the variable investment options, but not credited to policies in the same proportion as votes cast by owners. RIGHT TO CHANGE OPERATIONS Subject to state limitations, we may from time to time make any of the following changes to our separate account: 1. Change the investment objective. 2. Offer additional variable investment options which will invest in portfolios we find appropriate for policies we issue. 3. Eliminate variable investment options. 4. Combine two or more variable investment options. 5. Substitute a new investment portfolio for a portfolio in which the division currently invests. A substitution may become necessary if, in our judgment: o a portfolio no longer suits the purposes of your policy; o there is a change in laws or regulations; o there is a change in a portfolio's investment objectives or restrictions; o the portfolio is no longer available for investment; or o another reason we deem a substitution is appropriate. 6. Transfer assets related to your policy class to another separate account. 7. Withdraw the separate account from registration under the 1940 Act. 8. Operate the separate account as a management investment company under the 1940 Act. 9. Cause one or more variable investment options to invest in a mutual fund other than, or in addition to, the investment portfolios. - -------------------------------------------------------------------------------- Corporate Benefits 38 10. Stop selling these policies. 11. End any employer or plan trustee agreement with us under the agreement's terms. 12. Limit or eliminate any voting rights for the separate account. 13. Make any changes required by the 1940 Act or its rules or regulations. We will not make a change until it is effective with the SEC and approved by the appropriate state insurance departments, if necessary. We will notify you of changes. If you wish to transfer the amount you have in the affected investment option to another variable investment option or to the guaranteed interest division, you may do so free of charge. Just notify us at our customer service center. REPORTS TO OWNERS At the end of each policy year we send a report to you that shows: o your total net policy death benefit (your stated death benefit plus adjustable term insurance rider death benefit, if any); o your account value; o your policy loan if any, plus accrued interest; o your cash surrender value; o information about the variable investment options; and o your account transactions during the previous year showing net premiums, transfers, deductions, loan amounts or withdrawals. We also send semi-annual reports with financial information on the investment portfolios, including a list of the investment holdings of each portfolio, to you. We send confirmation notices to you throughout the year for certain policy transactions. CHARGES AND DEDUCTIONS The amount of a charge may not correspond to the cost incurred by us to provide the service or benefits associated with the particular policy. For example, the sales charges may not cover all of the sales and distribution expenses actually incurred by us. Proceeds from other charges, including the mortality and expense risk charge or cost of insurance charges, may be used to cover such expenses. DEDUCTIONS FROM PREMIUMS INITIAL SALES CHARGE We deduct a percentage from each of your premium payments to compensate us for the costs we incur in selling the policies. In the first policy or segment year this charge is 2% of the premiums you pay up to target premium. Each year thereafter, we deduct 0.5% of all premium payments we receive. The initial sales charge helps to cover the costs of distribution, preparing our sales literature, promotional expenses, and other direct and indirect expenses. The amount charged is not specifically related to sales expenses in a particular year. Premiums are subject to both initial and deferred sales charges, which in the aggregate can equal as much as 4% of premiums we receive in the first year up to the target premium and 1% of premiums paid in the first year in excess of target. DEFERRED SALES CHARGE In addition to the initial sales charge, we impose a deterred sales charge. We deduct an annual deferred sales charge that is a percentage of your premium payments in each of the first ten policy or segment years. The charge is deducted from your account value on each of the seven policy or segment anniversaries following the year of the premium payment. Each policy segment has its own deferred sales charge. We allocate your premium payments among policy segments to determine the deferred sales charges under your policy if you have more than one segment. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 23. In light of this schedule, you should consider the timing of premium payments. The deferred sales charge is lower for premiums paid in years five and later. - -------------------------------------------------------------------------------- Corporate Benefits 39 Policy or | Deferred Sales Charge | Segment | (% of Premium)* | Year When --------------------------- Deducted at Premium | up to in Excess | Beginning of Payment | Target of Target | Policy or are Made | Premium Premium | Segment Years - -------------| ----------------------- | ------------- | | 1 | 2% 1% | 2 - 8 2 | 1.75% N/A | 3 - 9 3 | 1.75% N/A | 4 - 10 4 | 1.75% N/A | 5 - 11 5 | 0.5% N/A | 6 - 12 6 | 0.5% N/A | 7 - 13 7 | 0.5% N/A | 8 - 14 8 | 0.5% N/A | 9 - 15 9 | 0.5% N/A | 10 - 16 10 | 0.5% N/A | 11 - 17 * THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS. The deferred sales charge compensates us for a portion of the costs we incur in selling the policies. DEFERRED SALES CHARGE EXAMPLE (BASED ON TWO YEARS OF PREMIUM PAYMENTS) Assume a policy has: o a target premium of $8,000; o premium payments of $10,000 in each of the first two years; and o no change in death benefit. The $10,000 premium payment for the first year incurs a deferred sales charge of $180 each year for years two through eight: 2% of premium up to target plus 1% of premium payments over target [.02 x $8,000 + (.01 x $2,000) = $180]. The $10,000 premium payment for the second year incurs a deferred sales charge of $140 each year for years three through nine: 1.75% of all premium [.0175 x $8,000 = $140]. The deferred sales charge deduction is made on the monthly processing date at the policy (or segment) anniversary. Deferred Total Policy or Deferred Sales Charge Deferred Segment Sales Charge on Second Sales Charge Year of on First Year Year Deducted at Premium Premium Premium Policy Payments Of $10,000 Of $10,000 Anniversary -------- ---------- ---------- ----------- 1 2 $180 $180 3 $180 $140 $320 4 $180 $140 $320 5 $180 $140 $320 6 $180 $140 $320 7 $180 $140 $320 8 $180 $140 $320 9 $140 $140 10 TAX CHARGES We pay state and local taxes in almost all states. These taxes vary in amount from state to state and may vary from jurisdiction to jurisdiction within a state. Currently, state and local taxes range from 0.5% to 5% with some states not imposing these types of taxes. We deduct 2.5% of each premium payment to cover these taxes. This rate approximates the average tax rate we expect to pay in all states. We also deduct 1.5% of each premium payment to cover our estimated costs for the federal income tax treatment of deferred acquisition costs. This cost is determined solely by the amount of life insurance premiums we receive. We reserve the right to increase or decrease your premium expense charge for taxes as a result of changes in the tax law, within limits set by state law. We also reserve the right to increase or decrease your premium expense charge for the federal income tax treatment of deferred acquisition costs based on any change in that cost to us. OTHER CHARGES Under current law, we pay no tax on investment income and capital gains included in variable life insurance policy reserves. This means that no charge is currently made to any variable investment option for our federal income taxes. If the tax law changes and we have federal income tax chargeable to the variable investment options, we may make such a charge in the future. - -------------------------------------------------------------------------------- Corporate Benefits 40 MONTHLY DEDUCTIONS FROM ACCOUNT VALUE We deduct charges from your account value on each monthly processing date. MORTALITY AND EXPENSE RISK CHARGE We deduct a charge each month for the mortality and expense risks we assume. This charge is 0.01667% per month (0.20% annually) of the amount you have in the variable investment options on the monthly processing date. This charge is deducted as a separate charge which appears on your confirmation. The mortality risk we assume is that insured people, as a group, may live less time than we estimated. We assume risk that expenses we incur in issuing and administering the policies and in operating the variable investment options are greater than the amount we estimated when we set these charges. MONTHLY ADMINISTRATIVE CHARGE For this policy, we charge a per month administrative charge of $12 per month for the first policy year and $6 per month for each policy year beyond that. This charge is designed to compensate us for ongoing costs such as: o premium billing and collections; o claim processing; o policy transactions; o record keeping; o reporting and communications with policy owners; and o other expenses and overhead. COST OF INSURANCE CHARGE The cost of insurance charge compensates us for the ongoing costs of providing insurance coverage under the policy, including the expected cost of paying death proceeds that may be more than your account value at the insured person's death. The cost of insurance charge is equal to our current monthly cost of insurance rate multiplied by the net amount at risk for each portion of your death benefit. We calculate the net amount at risk monthly, at the beginning of each policy month. For the base death benefit, the net amount at risk is calculated using the difference between the current base death benefit and your account value. We determine your account value after we deduct your policy charges due on that date other than cost of insurance charges for the base death benefit and adjustable term insurance rider. If your base death benefit at the beginning of a month increases (due to requirements of the federal income tax law definition of life insurance), the net amount at risk for your base death benefit for that month also increases. Similarly, the net amount at risk for your adjustable term insurance rider decreases. This means that your cost of insurance charge varies from month to month with changes in your net amount at risk, changes in the death benefit and with the increasing age of the insured person. We allocate the net amount at risk to segments in the same proportion that each segment has to the total stated death benefit for all coverage segments as of the monthly processing date. We base your cost of insurance rates on the insured person's age, gender, group size, total group premium, rating and premium class on the policy and each segment date. We apply unisex rates where appropriate under the law. This currently includes the State of Montana and policies purchased by employers and employee organizations in connection with employment-related insurance or benefit programs. Separate cost of insurance rates apply to each segment of the base death benefit and your adjustable term insurance rider. We may make changes in the cost of insurance charges for a class of insured persons. We base the new charge on changes in expectations about: o investment earnings; o mortality; o the time policies remain in effect; o expenses; and o taxes. These rates are never more than the guaranteed maximum rates shown in your policy. The guaranteed maximum rates are based on the 1980 Commissioner's Standard Ordinary Sex Distinct Mortality Table. The maximum rates for the initial and any new segment will be printed in the policy schedule which we will provide to you. This may result in higher cost of insurance charges than those that would apply if the policy were on an individual instead of group basis. - -------------------------------------------------------------------------------- Corporate Benefits 41 There are no cost of insurance charges during the continuation of coverage period. POLICY TRANSACTION FEES We also charge fees for certain transactions under your policy. We take these fees from the variable and guaranteed interest divisions pro rata to the account value in each investment option. PARTIAL WITHDRAWALS We deduct the lesser of a $25 service fee or 2% of the requested partial withdrawal from your account value for each partial withdrawal you take to cover our costs. SEE PARTIAL WITHDRAWALS, PAGE 31. TRANSFERS There is a $10 fee to cover our costs for each transfer over twelve free transfers per policy year. If you include multiple transfers in one transfer request, it counts as one transfer. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 28. ILLUSTRATIONS The first policy illustration you request in a policy year is free. After that, we may charge a fee of up to $25 for each additional illustration. PREMIUM ALLOCATION CHANGE You may make twelve free premium allocation changes per policy year. After the twelve free changes, we charge $25 for each additional premium allocation change in that policy year. If you change your designated deduction investment option, we consider it a premium allocation change. SEE MONTHLY DEDUCTIONS FROM ACCOUNT VALUE, PAGE 41. CONTINUATION OF COVERAGE ADMINISTRATIVE FEE At the policy anniversary nearest the insured person's 100th birthday, if your policy has not been surrendered, the continuation of coverage period begins. We will charge a one-time administrative fee of $200. This charge compensates us for maintaining and servicing your policy until the death of the insured person. We then no longer charge your policy a monthly administrative fee or cost of insurance charge. - -------------------------------------------------------------------------------- Corporate Benefits 42 DIVISIONS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS
MONTHLY CHARGES: COST OF INSURANCE CHARGES, ADMINISTRATIVE FEES AND ANNUAL DEDUCTION OF POLICY LOANS AND DEFERRED SALES CHARGE TRANSACTION FEES PARTIAL WITHDRAWALS - -------------- ------------------------------------- ------------------------------------- --------------------------------- CHOICE May choose a designated Proportionally among variable May choose any investment deduction investment option, and guaranteed interest divisions option or combination of including guaranteed interest investment options - -------------- ------------------------------------- ------------------------------------- ---------------------------------- DEFAULT Proportionally among variable Proportionally among variable Proportionally among variable and guaranteed interest divisions and guaranteed interest divisions and guaranteed interest divisions
GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS Groups of individuals, corporations or other institutions may purchase this policy. For group or sponsored arrangements we may reduce or waive the: o administrative charge; o minimum target death benefit; o target premium; o initial sales charge; o deferred sales charge; o cost of insurance charges; or o other charges normally assessed. These arrangements include sales to employees and certain family members of employees of Security Life of Denver, its affiliates and appointed sales agents and special exchange programs we may offer. We can reduce or waive these items based on expected economies. Group arrangements include those in which there is a trustee, an employer or an association. The group may purchase multiple policies covering a group of individuals. Sponsored arrangements include those in which an employer or association allows us to offer policies to its employees or members on an individual basis. Our sales, administration and mortality costs generally vary with the size and stability of the group, among other factors. We take all these factors into account when we reduce charges. A group or sponsored arrangement must meet certain requirements to qualify for reduced charges. We make reductions to charges based on our rules in effect when we approve a policy application. We may change these rules from time to time. Each sponsored arrangement or corporation may have different group premium payments and premium requirements. We will not be unfairly discriminatory in any variation in the administrative charge, or other charges, fees and privileges. These variations are based on differences in costs or services. TAX CONSIDERATIONS The following summary provides a general description of the federal income tax considerations associated with the policy and does not purport to be complete or to cover all tax situations. This discussion is not intended as tax advice. Counsel or other competent tax advisers should be consulted for more complete information. This discussion is based upon our understanding of the present federal income tax laws. No representation is made as to the likelihood of continuation of the present federal income tax laws or as to how they may be interpreted by the Internal Revenue Service. - -------------------------------------------------------------------------------- Corporate Benefits 43 TAX STATUS OF THE POLICY This policy is designed to qualify as a life insurance contract under the Internal Revenue Code. All terms and provisions of the policy shall be construed in a manner which is consistent with that design. In order to qualify as a life insurance contract for federal income tax purposes and to receive the tax treatment normally accorded life insurance contracts under federal tax law, a policy must satisfy certain requirements which are set forth in the Internal Revenue Code Section 7702. However, there is very little guidance, as to how these requirements are to be applied. Nevertheless, we believe it is reasonable to conclude that our policies satisfy the applicable requirements. If it is subsequently determined that a policy does not satisfy the applicable requirements, we will take appropriate and reasonable steps to bring the policy into compliance with such requirements and we reserve the right to restrict policy transactions or modify your policy in order to do so. Specifically this policy must meet the requirements of the "cash value accumulation test" as specified in Code Section 7702. Under the cash value accumulation test, there is no limit to the amount that may be paid in premiums as long as there is enough death benefit in relation to account value at all times. The death benefit at all times must be at least equal to an actuarially determined factor, depending on the insured person's age and sex at any point in time, multiplied by the account value. SEE APPENDIX A, PAGE 67, FOR A TABLE OF THE CASH VALUE ACCUMULATION TEST FACTORS. We will at all times assure that the policy meets the statutory definition which qualifies the policy as life insurance for federal income tax purposes. In addition, as long as the policy remains in force, increases in account value as a result of interest or investment experience will not be subject to federal income tax unless and until there is a distribution from the policy, such as a partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE 44. DIVERSIFICATION REQUIREMENTS In addition to meeting the Code Section 7702 tests, Code Section 817(h) requires separate account investments, such as our separate account, to be adequately diversified. The Treasury has issued regulations which set the standards for measuring the adequacy of any diversification. To be adequately diversified, each variable investment option must meet certain tests. If your variable life policy is not adequately diversified under these regulations, it is not treated as life insurance under Code Section 7702. You would then be subject to federal income tax on your policy income as you earn it. Our variable investment options' investment portfolios have promised they will meet the diversification standards that apply to your policy. In certain circumstances, you, as owner of a variable life insurance contract, may be considered the owner for federal income tax purposes of the separate account assets used to support your contract. Any income and gains from the separate account assets are includable in the gross income from your policy under these circumstances. The IRS has stated in published rulings that a variable contract owner is considered the owner of separate account assets if the contract owner has "indicia of ownership" in those assets. "Indicia of ownership" includes the ability to exercise investment control over the assets. Your ownership rights under your policy are similar to, but different in some ways from those described by the IRS in rulings in which it determined that policy owners are not owners of separate account assets. For example, you have flexibility in allocating your premium payments and in your policy values. These differences could result in the IRS treating you as the owner of a pro rata share of the separate account assets. We do not know what standards will be set forth in the future, if any, in Treasury regulations or rulings. We reserve the right to modify your policy, as necessary, to try to prevent you from being considered the owner of a pro rata share of the separate account assets, or to otherwise qualify your policy for favorable tax treatment. The following discussion assumes that the policy will qualify as a life insurance contract for federal income tax purposes. TAX TREATMENT OF POLICY DEATH BENEFITS We believe that the death benefit under a policy is generally excludable from the gross income of the beneficiary(ies) under section 101(a)(1) of the Code. However, there are exceptions to this general rule. - -------------------------------------------------------------------------------- Corporate Benefits 44 Additionally, federal and local transfer, estate inheritance, and other tax consequences of ownership or receipt of policy proceeds depend on the circumstances of each policy owner or beneficiary(ies). A tax adviser should be consulted about these consequences. Generally, the policy owner will not be taxed on any of the policy account value until there is a distribution. When distributions from a policy occur, or when loan amounts are taken from or secured by a policy, the tax consequences depend on whether or not the policy is a "modified endowment contract." Special rules also apply if you are subject to the alternative minimum tax. You should consult a tax adviser if you are subject to the alternative minimum tax. MODIFIED ENDOWMENT CONTRACTS Under the Internal Revenue Code, certain life insurance contracts are classified as "modified endowment contracts" and are given less favorable tax treatment than other life insurance contracts. Due to the flexibility of the policies as to premiums and benefits, the individual circumstances of each policy will determine whether or not it is classified as a modified endowment contract. The rules are too complex to be summarized here, but generally depend on the amount of premiums we receive during the first seven policy years. Certain changes in a policy after it is issued could also cause it to be classified as a modified endowment contract. A current or prospective policy owner should consult with a competent adviser to determine whether or not a policy transaction will cause the policy to be classified as a modified endowment contract. MULTIPLE POLICIES All modified endowment contracts that are issued by us (or our affiliates) to the same policy owner during any calendar year are treated as one modified endowment contract for purposes of determining the amount includable in the policy owner's income when a taxable distribution occurs. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS Once a policy is classified as a modified endowment contract, the following tax rules apply both prospectively and to any distributions made in the prior two years: 1. All distributions other than death benefits, including distributions upon surrender and withdrawals, from a modified endowment contact will be treated first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. 2. Loan amounts taken from or secured by a policy classified as a modified endowment contract are treated as distributions and taxed first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. 3. A 10% additional income tax penalty may be imposed on the distribution amount subject to income tax. Consult a tax adviser to determine whether or not you may be subject to this penalty tax. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS Distributions other than death benefits from a policy that is not classified as a modified endowment contract are generally treated first as a recovery of the policy owner's investment in the policy. Only after the recovery of all investment in the policy, is there taxable income. However, certain distributions which must be made in order to enable the policy to continue to qualify as a life insurance contract for federal income tax purposes, if policy benefits are reduced during the first fifteen policy years, may be treated in whole or in part as ordinary income subject to tax. Loan amounts from or secured by a policy that is not a modified endowment contract are generally not treated as distributions. Finally, neither distributions from, nor loan amounts from or secured by, a policy that is not a modified endowment contract are subject to the 10% additional income tax. - -------------------------------------------------------------------------------- Corporate Benefits 45 INVESTMENT IN THE POLICY Your investment in the policy is generally the total of your aggregate premiums. When a distribution is taken from the policy other than a policy loan, your investment in the policy is reduced by the amount of the distribution that is tax free. POLICY LOANS In general, interest on a policy loan will not be deductible. Moreover, the tax consequences associated with a low cost loan such as the loan available in the policy are uncertain. Before taking out a policy loan, you should consult a tax adviser as to the tax consequences. SECTION 1035 EXCHANGES Code Section 1035 generally provides that no gain or loss shall be recognized on the exchange of one life insurance policy for another life insurance policy, or for an endowment or annuity contract. We accept 1035 exchanges with outstanding loans. Special rules and procedures apply to Section 1035 exchanges. If you wish to take advantage of Section 1035, you should consult your tax adviser. TAX-EXEMPT POLICY OWNERS Special rules may apply to a policy that is owned by a tax-exempt entity. Tax-exempt entities should consult their tax adviser regarding the consequences of purchasing and owning a policy. These consequences could include an effect on the tax-exempt status of the entity and the possibility of the unrelated business income tax. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative action is uncertain, there is always the possibility that the tax treatment of the policy could be changed by legislation or otherwise. You should consult a tax adviser with respect to legislative developments and their effect on the policy. CHANGES TO COMPLY WITH THE LAW So that your policy continues to qualify as life insurance under the Code, we reserve the right to refuse to accept all or part of your premium payments, or to change your death benefit. We may refuse to allow you to make partial withdrawals that would cause your policy to fail to qualify as life insurance. We also may: o make changes to your policy or its riders; or o take distributions from your policy to the degree that we deem necessary to qualify your policy as life insurance for tax purposes. If we make any change of this type, it applies the same way to all affected policies. The tax law limits the amount we can charge for mortality costs and other expenses used to calculate whether your policy qualifies as life insurance for federal income tax purposes. We must base these calculations on reasonable mortality charges and other charges reasonably expected to be paid. The Treasury issued proposed regulations on what it considers reasonable mortality charges. We believe that the charges used for your policy should meet the Treasury's current requirement for "reasonableness." We reserve the right to make changes to the mortality charges if future regulations have standards which make changes necessary in order to continue to qualify your policy as life insurance for federal income tax purposes. Additionally, assuming that you do not want your policy to be or to become a modified endowment contract, we include a policy endorsement under which we have the right to amend your policy, including riders. We do this to attempt to enable your policy to continue to meet the seven-pay test for federal income tax purposes. If the policy premium you pay is more than the seven-pay limit, we have the right to remove any excess premium or to make any appropriate adjustments to your policy's account value and death benefit. It is not clear, however, whether we can take effective action pursuant to this endorsement under all possible circumstances to prevent a policy that has exceeded the premium limitation from being classified as a modified endowment contract. Any increase in your death benefit will cause an increase in your cost of insurance charges. - -------------------------------------------------------------------------------- Corporate Benefits 46 OTHER Policy owners may use our policies in various arrangements, including: o qualified plans; o non-qualified deferred compensation or salary continuance plans; o split dollar insurance plans; o executive bonus plans; o retiree medical benefit plans; and o other plans. The tax consequences of these plans may vary depending on the particular facts and circumstances of each arrangement. If you want to use any of your policies in this type of arrangement, you should consult a qualified tax adviser regarding the tax issues of your particular arrangement. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new policy or a change in an existing policy should consult a tax adviser. The IRS requires us to withhold income taxes from any portion of the amounts individuals receive in a taxable transaction. We do not withhold income taxes if you elect in writing not to have withholding apply. If the amount withheld for you is insufficient to cover income taxes, you may have to pay income taxes and possibly penalties later. The transfer of the policy or designation of a beneficiary may have federal, state and/or local transfer and inheritance tax consequences, including the imposition of gift, estate and generation-skipping transfer taxes. For example, the transfer of the policy to, or the designation as a beneficiary of, or the payment of proceeds to a person who is assigned to a generation which is two or more generations below the generation assignment of the policy owner may have generation skipping transfer tax consequences under federal tax law. The individual situation of each policy owner or beneficiary will determine the extent, if any, to which federal, state and local transfer and inheritance taxes may be imposed and how ownership or receipt of policy proceeds will be treated for purposes of federal, state and local estate, inheritance, generation skipping and other taxes. YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON FEDERAL, STATE, LOCAL, AND OTHER TAX CONSIDERATIONS. - -------------------------------------------------------------------------------- Corporate Benefits 47 ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES, AND ACCUMULATED PREMIUMS The following tables are intended to show how the policy works including how benefits and values can vary over time. Each table compares these values with total premiums we receive with interest. The policies illustrated use the following assumptions: Definition Death of Life Stated Target Smoker* Benefit Insurance Death Death Gender Age Status Option Test Benefit Premium Benefit - ------ --- ------ ------ ---- ------- ------- ------- Male 35 Non-smoker 1 CVAT $251,206 $10,000 $251,206 Male 35 Non-smoker 1 CVAT $125,603 $10,000 $251,206 Male 45 Non-smoker 1 CVAT $180,526 $10,000 $180,526 Male 45 Non-smoker 1 CVAT $90,263 $10,000 $180,526 Male 55 Non-smoker 1 CVAT $131,692 $10,000 $131,692 Male 55 Non-smoker 1 CVAT $65,846 $10,000 $131,692 - ---------------------------- * "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco, nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based product. The tables show how death benefits, account values, and net cash surrender values of a hypothetical policy could vary over an extended period of time, assuming the variable division had constant hypothetical gross annual investment returns of 0%, 6%, or 12% over the periods indicated in each table. Values would differ from those shown in the tables if the annual investment returns were not constant. The amounts shown would differ if we had used female, unisex or smoker rates. These illustrations assume there is no policy loan. We illustrate premium payments as if they were made at the beginning of the year. The third column of each table shows what would happen if an amount equal to the assumed premiums earned interest, after taxes, of 5% compounded annually. The net investment return on your policy is lower than the gross investment return on the variable investment options as a result of the mortality and expense risk charge, the portfolio management fees and portfolio expenses. We show the effect of the net investment return in the amounts for death benefits, account values and cash surrender values. The tables reflect annual investment management fees of X.XX% of the portfolios' aggregate average daily net assets. This hypothetical rate is a simple average of the investment advisory fees applying to the investment portfolios for the year ending December 31, 1999. We assume other portfolio expenses at the rate of X.XX% of the portfolios' average daily net assets. This is an average of all the portfolios' other expenses for the year ending December 31, 1999 after any expense reimbursements or waivers by investment portfolio managers has been made. The average of all portfolios' total expenses is X.XX%. - -------------------------------------------------------------------------------- Corporate Benefits 48 Actual fees vary by portfolio. The portfolio fees and expenses used in the illustrations are the net amounts shown after absorption of fees and expenses by the portfolio's investment manager. Absent such expense reimbursements or waivers, the total average investment management fees, average other portfolio expenses and the average of all portfolios' total expenses used in the illustrations would have been higher (X.XX%, X.XX% and X.XX%, respectively). The tables assume that the current expense reimbursement arrangements will continue. However, they may not continue through 2000. The effect of these portfolio charges and expenses, and mortality and expense risk charges result in a net rate of return of: o X.XX% on a 0% gross rate of return; o X.XX% on a 6% gross rate of return; and o XX..X% on a 12% gross rate of return. The tables assume that charges have been deducted including deductions for premiums, cost of insurance rider charges, monthly deductions and annual deferred sales charge, mortality and expense risk charge, administrative and sales charges. The tables show charges at our current rates. The tables also show charges at the maximum rates we guarantee in our policies. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 41. The tables reflect that we do not currently charge against the separate account for state or federal taxes. If we charge for the taxes in the future, it will take a higher gross rate of return than the rates shown to produce the same death benefits, account values, and surrender values. If we are asked to do so, we will give you a comparable personal illustration based on: o each insured person's age and gender; o standard premium class assumptions; o initial stated death benefit; o the chosen death benefit option; o scheduled premiums consistent with your policy form; and o special features elected on your policy. For individual policies, at issue we deliver an individualized illustration showing the scheduled premium you chose and the insured person's actual risk class. This Corporate Benefits policy is issued only to groups. For this policy, we deliver an illustration similar to the individualized illustration. However, this illustration shows a single life scheduled premium and premium or risk class that is representative of the particular group covered by this policy. After we issue the policy, if you ask us to, we will give you an illustration of future policy benefits. We base these hypothetical future benefits on both guaranteed and current cost factor assumptions and actual account value. - -------------------------------------------------------------------------------- Corporate Benefits 49 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $251,206 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 8646 8646 251206 9731 9731 251206 9188 9188 251206 2 10000 21525 17206 17206 251206 20531 20531 251206 18836 18836 251206 3 10000 33101 25481 25481 251206 32300 32300 251206 28756 28756 251206 4 10000 45256 33472 33472 251206 45145 45145 251206 38962 38962 251206 5 10000 58019 41177 41177 251206 59186 59186 251206 49466 49466 251206 6 10000 71420 48722 48722 251206 74695 74695 256876 60416 60416 251206 7 10000 85491 56105 56105 251206 91706 91706 305380 71832 71832 251206 8 - 89766 53853 53853 251206 99834 99834 322063 73694 73694 251206 9 - 94254 51754 51754 251206 108962 108962 340505 75807 75807 251206 10 - 98967 49781 49781 251206 119159 119159 360813 78160 78160 251206 15 - 126309 40779 40779 251206 189104 189104 491480 93044 93044 251206 20 - 161206 29770 29770 251206 299375 299375 672396 110947 110947 251206 25 - 205744 13798 13798 251206 468796 468796 919778 131192 131192 257399 30 - 262588 - - - 725522 725522 1256604 153523 153523 265901 AGE 65 - 275717 - - - 790314 790314 1337212 158143 158143 267577
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 50 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $251,206 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 9040 9040 251206 10149 10149 251206 9594 9594 251206 2 10000 21525 18002 18002 251206 21424 21424 251206 19680 19680 251206 3 10000 33101 26691 26691 251206 33731 33731 251206 30074 30074 251206 4 10000 45256 35110 35110 251206 47182 47182 251206 40791 40791 251206 5 10000 58019 43261 43261 251206 61903 61903 251206 51848 51848 251206 6 10000 71420 51271 51271 251206 78170 78170 268826 63392 63392 251206 7 10000 85491 59138 59138 251206 96120 96120 320079 75447 75447 251238 8 - 89766 57413 57413 251206 105357 105357 339883 78013 78013 251669 9 - 94254 55890 55890 251206 115795 115795 361860 80903 80903 252822 10 - 98967 54540 54540 251206 127530 127530 386162 84106 84106 254672 15 - 126309 49471 49471 251206 209968 209968 545708 104455 104455 271479 20 - 161206 44363 44363 251206 346271 346271 777724 130277 130277 292602 25 - 205744 37995 37995 251206 568847 568847 1116078 161866 161866 317581 30 - 262588 28827 28827 251206 928214 928214 1607666 199796 199796 346047 AGE 65 - 275717 26466 26466 251206 1022742 1022742 1730480 208195 208195 352266
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investments returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 51 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $125,603 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $125,603 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 8876 8876 251206 9993 9993 251206 9434 9434 251206 2 10000 21525 17413 17413 251206 20803 20803 251206 19074 19074 251206 3 10000 33101 25747 25747 251206 32674 32674 251206 29073 29073 251206 4 10000 45256 33877 33877 251206 45748 45748 251206 39459 39459 251206 5 10000 58019 41818 41818 251206 60167 60167 251206 50262 50262 251206 6 10000 71420 49634 49634 251206 76153 76153 261891 61574 61574 251206 7 10000 85491 57321 57321 251206 93709 93709 312051 73422 73422 251206 8 - 89766 55381 55381 251206 102464 102464 330547 75764 75764 251206 9 - 94254 53528 53528 251206 112225 112225 350702 78331 78331 251206 10 - 98967 51693 51693 251206 123021 123021 372507 81069 81069 251206 15 - 126309 42152 42152 251206 195743 195743 508736 97174 97174 252556 20 - 161206 29851 29851 251206 309902 309902 696039 116285 116285 261176 25 - 205744 11874 11874 251206 485297 485297 952152 137692 137692 270152 30 - 262588 - - 251206 751075 751075 1300861 161149 161149 279110 AGE 65 - 275717 - - 251206 818152 818152 1384313 166002 166002 280875
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 52 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $125,603 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $125,603 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 9340 9340 251206 10486 10486 251206 9913 9913 251206 2 10000 21525 18353 18353 251206 21857 21857 251206 20070 20070 251206 3 10000 33101 27178 27178 251206 34367 34367 251206 30631 30631 251206 4 10000 45256 35817 35817 251206 48140 48140 251206 41615 41615 251206 5 10000 58019 44273 44273 251206 63314 63314 251206 53043 53043 251206 6 10000 71420 52608 52608 251206 80106 80106 275485 65002 65002 251206 7 10000 85491 60821 60821 251206 98665 98665 328553 77515 77515 258125 8 - 89766 59464 59464 251206 108603 108603 350355 80588 80588 259977 9 - 94254 58255 58255 251206 119762 119762 374255 83957 83957 262364 10 - 98967 57130 57130 251206 132197 132197 400293 87567 87567 265154 15 - 126309 52249 52249 251206 218184 218184 567061 109183 109183 283768 20 - 161206 47033 47033 251206 359839 359839 808198 136192 136192 305888 25 - 205744 40578 40578 251206 591155 591155 1159845 169234 169234 332037 30 - 262588 31359 31359 251206 964632 964632 1670743 208909 208909 361830 AGE 65 - 275717 28994 28994 251206 1062873 1062873 1798380 217694 217694 368338
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investments returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 53 PROSPECT: INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $180,526 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 8378 8378 180526 9447 9447 180526 8912 8912 180526 2 10000 21525 16663 16663 180526 19926 19926 180526 18262 18262 180526 3 10000 33101 24661 24661 180526 31343 31343 180526 27869 27869 180526 4 10000 45256 32377 32377 180526 43812 43812 180526 37753 37753 180526 5 10000 58019 39812 39812 180526 57457 57457 180526 47929 47929 180526 6 10000 71420 47095 47095 180526 72564 72564 183006 58553 58553 180526 7 10000 85491 54222 54222 180526 89102 89102 218211 69649 69649 180526 8 - 89766 51674 51674 180526 96676 96676 229896 71155 71155 180526 9 - 94254 49237 49237 180526 105154 105154 243011 72874 72874 180526 10 - 98967 46868 46868 180526 114583 114583 257352 74784 74784 180526 15 - 126309 34840 34840 180526 178231 178231 349689 86705 86705 180526 20 - 161206 18061 18061 180526 275554 275554 477260 100180 100180 180526 25 - 205744 - - - 419906 419906 650854 114168 114168 180526 30 - 262588 - - - 629963 629963 885728 128550 128550 180741 AGE 65 - 169267 13634 13634 180526 300116 300116 507796 102937 102937 180526
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 54 PROSPECT: INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $180,526 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 9009 9009 180526 10116 10116 180526 9562 9562 180526 2 10000 21525 17925 17925 180526 21339 21339 180526 19599 19599 180526 3 10000 33101 26557 26557 180526 33578 33578 180526 29930 29930 180526 4 10000 45256 34908 34908 180526 46946 46946 180526 40572 40572 180526 5 10000 58019 42983 42983 180526 61573 61573 180526 51544 51544 180526 6 10000 71420 50910 50910 180526 77729 77729 196032 62996 62996 180526 7 10000 85491 58689 58689 180526 95528 95528 233949 74951 74951 183555 8 - 89766 56860 56860 180526 104579 104579 248690 77403 77403 184065 9 - 94254 55221 55221 180526 114792 114792 265285 80168 80168 185267 10 - 98967 53740 53740 180526 126257 126257 283574 83230 83230 186935 15 - 126309 47695 47695 180526 206255 206255 404673 102560 102560 201223 20 - 161206 40527 40527 180526 336259 336259 582400 126446 126446 219004 25 - 205744 30022 30022 180526 543840 543840 842952 154662 154662 239726 30 - 262588 12712 12712 180526 870627 870627 1224101 187277 187277 263312 AGE 65 - 169267 38766 38766 180526 370455 370455 626810 131734 131734 222894
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investments returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 55 PROSPECT: INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $90,263 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $90,263 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 8573 8573 180526 9671 9671 180526 9122 9122 180526 2 10000 21525 16794 16794 180526 20113 20113 180526 18420 18420 180526 3 10000 33101 24807 24807 180526 31575 31575 180526 28056 28056 180526 4 10000 45256 32616 32616 180526 44217 44217 180526 38067 38067 180526 5 10000 58019 40245 40245 180526 58198 58198 180526 48500 48500 180526 6 10000 71420 47764 47764 180526 73756 73756 186012 59453 59453 180526 7 10000 85491 55170 55170 180526 90808 90808 222388 70965 70965 180526 8 - 89766 52900 52900 180526 98971 98971 235354 72934 72934 180526 9 - 94254 50662 50662 180526 108040 108040 249680 75090 75090 180526 10 - 98967 48372 48372 180526 118018 118018 265068 77371 77371 180526 15 - 126309 35278 35278 180526 184073 184073 361151 90460 90460 180526 20 - 161206 16248 16248 180526 284601 284601 492930 105333 105333 182437 25 - 205744 - - - 433707 433707 672246 121314 121314 188037 30 - 262588 - - - 650683 650683 914860 137595 137595 193459 AGE 65 - 169267 11210 11210 180526 309972 309972 524472 108459 108459 183513
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 56 PROSPECT: INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $90,263 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $90,263 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 9308 9308 180526 10452 10452 180526 9880 9880 180526 2 10000 21525 18274 18274 180526 21770 21770 180526 19987 19987 180526 3 10000 33101 27040 27040 180526 34211 34211 180526 30485 30485 180526 4 10000 45256 35612 35612 180526 47901 47901 180526 41393 41393 180526 5 10000 58019 43991 43991 180526 62980 62980 180526 52736 52736 180526 6 10000 71420 52244 52244 180526 79659 79659 200900 64602 64602 180526 7 10000 85491 60371 60371 180526 98064 98064 240158 77014 77014 188608 8 - 89766 58912 58912 180526 107811 107811 256375 79970 79970 190168 9 - 94254 57590 57590 180526 118738 118738 274404 83207 83207 192290 10 - 98967 56337 56337 180526 130895 130895 293991 86670 86670 194661 15 - 126309 50505 50505 180526 214361 214361 420577 107223 107223 210371 20 - 161206 43276 43276 180526 349493 349493 605321 132213 132213 228992 25 - 205744 32774 32774 180526 565262 565262 876156 161734 161734 250687 30 - 262588 15578 15578 180526 904939 904939 1272344 195859 195859 275377 AGE 65 - 169267 41510 41510 180526 385038 385038 651484 137746 137746 233065
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investments returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 57 PROSPECT: INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $131,692 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 7875 7875 131692 8914 8914 131692 8394 8394 131692 2 10000 21525 15652 15652 131692 18803 18803 131692 17195 17195 131692 3 10000 33101 23146 23146 131692 29584 29584 131692 26235 26235 131692 4 10000 45256 30365 30365 131692 41383 41383 131692 35540 35540 131692 5 10000 58019 37316 37316 131692 54346 54346 131692 45140 45140 131692 6 10000 71420 44129 44129 131692 68784 68784 131692 55201 55201 131692 7 10000 85491 50809 50809 131692 84569 84569 157637 65771 65771 131692 8 - 89766 47734 47734 131692 91274 91274 165936 66693 66693 131692 9 - 94254 44674 44674 131692 98751 98751 175184 67767 67767 131692 10 - 98967 41576 41576 131692 107029 107029 185375 68968 68968 131692 15 - 126309 23590 23590 131692 161929 161929 250990 76207 76207 131692 20 - 161206 - - - 242661 242661 341181 82212 82212 131692 25 - 205744 - - - 356652 356652 463291 82847 82847 131692 30 - 262588 - - - 516089 516089 628596 68762 68762 131692 AGE 65 - 103915 38406 38406 131692 116169 116169 196558 70297 70297 131692
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 58 PROSPECT: INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $131,692 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 8854 8854 131692 9953 9953 131692 9403 9403 131692 2 10000 21525 17619 17619 131692 20998 20998 131692 19275 19275 131692 3 10000 33101 26100 26100 131692 33047 33047 131692 29437 29437 131692 4 10000 45256 34299 34299 131692 46211 46211 131692 39902 39902 131692 5 10000 58019 42218 42218 131692 60625 60625 131692 50692 50692 131692 6 10000 71420 49986 49986 131692 76546 76546 146356 61960 61960 131692 7 10000 85491 57608 57608 131692 94038 94038 175288 73729 73729 137430 8 - 89766 55591 55591 131692 102716 102716 186738 75968 75968 138110 9 - 94254 53725 53725 131692 112476 112476 199532 78489 78489 139240 10 - 98967 51977 51977 131692 123393 123393 213717 81276 81276 140770 15 - 126309 43763 43763 131692 198571 198571 307785 98646 98646 152902 20 - 161206 32004 32004 131692 317597 317597 446542 119305 119305 167743 25 - 205744 12724 12724 131692 503646 503646 654237 143066 143066 185842 30 - 262588 - - - 791826 791826 964444 170105 170105 207188 AGE 65 - 103915 50334 50334 131692 135578 135578 229398 84337 84337 142697
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investments returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 59 PROSPECT: INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $65,846 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $65,846 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 8000 8000 131692 9065 9065 131692 8532 8532 131692 2 10000 21525 15637 15637 131692 18824 18824 131692 17197 17197 131692 3 10000 33101 23061 23061 131692 29541 29541 131692 26168 26168 131692 4 10000 45256 30278 30278 131692 41399 41399 131692 35494 35494 131692 5 10000 58019 37332 37332 131692 54601 54601 131692 45255 45255 131692 6 10000 71420 44302 44302 131692 69429 69429 132749 55571 55571 131692 7 10000 85491 51196 51196 131692 85669 85669 159687 66508 66508 131692 8 - 89766 48311 48311 131692 92897 92897 168888 67844 67844 131692 9 - 94254 45337 45337 131692 100890 100890 178979 69303 69303 131692 10 - 98967 42170 42170 131692 109634 109634 189886 70820 70820 131692 15 - 126309 21915 21915 131692 166349 166349 257842 78870 78870 131692 20 - 161206 - - - 249297 249297 350511 85621 85621 131692 25 - 205744 - - - 366418 366418 475976 87160 87160 131692 30 - 262588 - - - 530231 530231 645822 72050 72050 131692 AGE 65 - 103915 38764 38764 131692 119184 119184 201659 72392 72392 131692
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 60 PROSPECT: INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $65,846 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $65,846 ANNUAL PREMIUM: $10,000 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 10000 10500 9153 9153 131692 10288 10288 131692 9720 9720 131692 2 10000 21525 17966 17966 131692 21428 21428 131692 19663 19663 131692 3 10000 33101 26583 26583 131692 33679 33679 131692 29991 29991 131692 4 10000 45256 35002 35002 131692 47166 47166 131692 40723 40723 131692 5 10000 58019 43227 43227 131692 62037 62037 131692 51886 51886 131692 6 10000 71420 51325 51325 131692 78477 78477 150048 63575 63575 131692 7 10000 85491 59301 59301 131692 96569 96569 180005 75793 75793 141277 8 - 89766 57660 57660 131692 105937 105937 192593 78527 78527 142762 9 - 94254 56122 56122 131692 116400 116400 206494 81512 81512 144601 10 - 98967 54614 54614 131692 127996 127996 221689 84689 84689 146682 15 - 126309 46710 46710 131692 206501 206501 320077 103208 103208 159973 20 - 161206 35076 35076 131692 330299 330299 464401 124841 124841 175526 25 - 205744 16123 16123 131692 523808 523808 680426 149722 149722 194489 30 - 262588 - - - 823542 823542 1003074 178038 178038 216851 AGE 65 - 103915 53127 53127 131692 140831 140831 238285 88065 88065 149006
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investments returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Corporate Benefits 61 ADDITIONAL INFORMATION DIRECTORS AND OFFICERS Set forth below is information regarding the directors and principal officers of Security Life of Denver Insurance Company. Security Life's address, and the business address of each person named, except as noted with one or two asterisks (*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The business address of each person denoted with one asterisk (*) is ING North America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of each person denoted with two asterisks (**) is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273. Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- Stephen M. Christopher Chairman, President and Chief Executive Officer Thomas F. Conroy President, ING Reinsurance International Michael W. Cunningham* Director, Executive Vice President Mark A. Tullis* Director P. Randall Lowery* Director Jess A. Skriletz Director, Chief Executive Officer and General Manager, ING Reinsurance and ING Institutional Markets Gregory G. McGreevey President, ING Institutional Markets Jerome J. Cwiok* Executive Vice President and Chief Operating Officer James L. Livingston, Jr. Executive Vice President and Chief Actuary Jeffrey R. Messner Executive Vice President and Chief Marketing Officer John R. Barmeyer* Senior Vice President, Chief Legal Officer Wayne D. Bidelman Senior Vice President, CCRC Arnold A. Dicke Senior Vice President, Chief Actuary, ING Reinsurance Charles LeDoyen** Senior Vice President, Structured Settlements Terry L. Morrison Senior Vice President, New Business Operations Jeffery W. Seel* Senior Vice President, Chief Investment Officer Mark A. Smith Senior Vice President, Insurance Services Lawrence D. Taylor Senior Vice President, Product Management William D. Tyler* Senior Vice President, Chief Information Officer Gary W. Waggoner Vice President, General Counsel and Corporate Secretary - -------------------------------------------------------------------------------- Corporate Benefits 62 REGULATION We are regulated and supervised by the Division of Insurance of the Department of Regulatory Agencies of the State of Colorado which periodically examines our financial condition and operations. In addition, we are subject to the insurance laws and regulations in every jurisdiction in which we do business. As a result, the provisions of this policy may vary somewhat from jurisdiction to jurisdiction. We are required to submit annual statements, including financial statements, of our operations and finances to the insurance departments of the various jurisdictions in which we do business to determine solvency and compliance with state insurance laws and regulations. We are also subject to various federal securities laws and regulations. LEGAL MATTERS The legal matters in connection with the policy described in this prospectus have been passed on by the General Counsel of Security Life. Sutherland Asbill & Brennan LLP has provided advice on certain matters relating to the federal securities laws. LEGAL PROCEEDINGS Security Life, as an insurance company, is ordinarily involved in litigation. We do not believe that any current litigation is material to Security Life's ability to meet its obligations under the policy or to the separate account, and we do not expect to incur significant losses from such actions. ING America Equities, Inc., the principal underwriter and distributor of the policy, is not engaged in any litigation of any material nature. EXPERTS The consolidated financial statements of Security Life of Denver Insurance Company and Subsidiaries at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and the financial statements of the Security Life Separate Account L1 at December 31, 1999, and for each of the three years in the period ended December 31, 1999, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. Actuarial matters in this prospectus have been examined by James L. Livingston, Jr., F.S.A., M.A.A.A., who is Executive Vice President and Chief Actuary of Security Life. His opinion on actuarial matters is filed as an exhibit to the Registration Statement we filed with the SEC. REGISTRATION STATEMENT We have filed a Registration Statement relating to the separate account and the variable life insurance policy described in this prospectus with the SEC. The Registration Statement, which is required by the Securities Act of 1933, includes additional information that is not required in this prospectus under the rules and regulations of the SEC. The additional information may be obtained from the SEC's principal office in Washington, DC. There is a charge for this material. - -------------------------------------------------------------------------------- Corporate Benefits 63 INDEX OF SPECIAL TERMS The following special terms are used in this prospectus. We explain each term on the page(s) listed in the body of this prospectus and in the summary, if applicable: Account value..................................................................7 Accumulation unit.............................................................27 Accumulation unit value.......................................................27 Adjustable term insurance rider...............................................20 Age...........................................................................34 Base death benefit............................................................21 Beneficiary(ies)...............................................................8 Customer service center........................................................2 Death proceeds................................................................21 Free look period..............................................................33 General account...............................................................11 Guaranteed interest division..................................................15 Initial premium...............................................................18 Insured person................................................................16 Investment date...............................................................18 Investment options............................................................11 Loan division..................................................................7 Net account value.............................................................26 Net amount at risk............................................................41 Net premium...................................................................18 Owner.........................................................................34 Partial withdrawal............................................................31 Policy........................................................................16 Policy date...................................................................17 Policy loan...................................................................30 Portfolios....................................................................11 Rider.........................................................................24 Scheduled premium.............................................................18 Segment.......................................................................23 Separate account..............................................................11 Smoker........................................................................48 Stated death benefit..........................................................16 Target death benefit..........................................................24 Target premium................................................................18 Total death benefit...........................................................24 Transaction date..............................................................27 Valuation date.................................................................7 Valuation period..............................................................27 Variable division.............................................................11 - -------------------------------------------------------------------------------- Corporate Benefits 64 FINANCIAL STATEMENTS The consolidated financial statements of Security Life of Denver Insurance Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, are prepared in accordance with generally accepted accounting principles and start on page 66. The financial statements included for the Security Life Separate Account L1 at December 31, 1999 and for each of the three years in the period ended December 31, 1999, are prepared in accordance with generally accepted accounting principles and represent those divisions that had commenced operations by that date. The consolidated financial statements of Security Life and Subsidiaries, as well as the financial statements included for the Security Life Separate Account L1 referred to above have been audited by Ernst & Young LLP. The consolidated financial statements of Security Life and Subsidiaries should be distinguished from the financial statements of the Security Life Separate Account L1 and should be considered only as bearing upon the ability of Security Life and Subsidiaries to meet its obligations under the policies. They should not be considered as bearing upon the investment experience of the divisions of Security Life Separate Account L1. [TO BE FILED BY AMENDMENT.] - -------------------------------------------------------------------------------- Corporate Benefits 65 Consolidated Financial Statements Security Life of Denver Insurance Company and Subsidiaries Years ended December 31, 1999, 1998 and 1997 with Report of Independent Auditors - -------------------------------------------------------------------------------- Corporate Benefits 66 APPENDIX A FACTORS FOR THE CASH VALUE ACCUMULATION TEST FOR A LIFE INSURANCE POLICY
Male | Male | Male Attained or Unisex Unisex |Attained or Unisex Unisex | Attained or Unisex Unisex Age 100/0 Female 80/20 | Age 100/0 Female 80/20 | Age 100/0 Female 80/20 --- ----- ------ ----- | --- ----- ------ ----- | --- ----- ------ ----- 0 11.727 14.234 12.149 | 1 11.785 14.209 12.194 | 34 4.188 4.902 4.314 | 67 1.617 1.815 1.657 2 11.458 13.815 11.857 | 35 4.052 4.742 4.173 | 68 1.583 1.769 1.620 3 11.128 13.417 11.515 | 36 3.920 4.586 4.037 | 69 1.550 1.724 1.585 4 10.803 13.023 11.178 | 37 3.793 4.437 3.906 | 70 1.518 1.681 1.552 5 10.481 12.635 10.845 | 38 3.670 4.293 3.780 | 71 1.488 1.639 1.520 6 10.161 12.253 10.514 | 39 3.553 4.154 3.658 | 72 1.459 1.599 1.489 7 9.844 11.875 10.187 | 40 3.439 4.021 3.541 | 73 1.432 1.560 1.460 8 9.530 11.505 9.863 | 41 3.330 3.894 3.429 | 74 1.406 1.524 1.433 9 9.221 11.141 9.545 | 42 3.226 3.771 3.322 | 75 1.382 1.490 1.407 10 8.918 10.784 9.233 | 43 3.125 3.654 3.218 | 76 1.359 1.457 1.383 11 8.623 10.436 8.928 | 44 3.028 3.541 3.119 | 77 1.338 1.427 1.360 12 8.338 10.098 8.634 | 45 2.936 3.432 3.023 | 78 1.318 1.398 1.338 13 8.066 9.771 8.353 | 46 2.846 3.328 2.931 | 79 1.299 1.371 1.318 14 7.808 9.455 8.085 | 47 2.761 3.227 2.843 | 80 1.281 1.345 1.298 15 7.564 9.150 7.831 | 48 2.678 3.129 2.758 | 81 1.264 1.321 1.280 16 7.335 8.857 7.592 | 49 2.599 3.035 2.676 | 82 1.248 1.298 1.262 17 7.118 8.575 7.364 | 50 2.522 2.945 2.597 | 83 1.233 1.277 1.245 18 6.911 8.302 7.148 | 51 2.449 2.858 2.522 | 84 1.218 1.257 1.230 19 6.713 8.038 6.939 | 52 2.378 2.774 2.449 | 85 1.205 1.238 1.215 20 6.521 7.782 6.737 | 53 2.311 2.693 2.379 | 86 1.193 1.221 1.202 21 6.334 7.534 6.540 | 54 2.246 2.615 2.312 | 87 1.181 1.205 1.189 22 6.150 7.293 6.347 | 55 2.184 2.540 2.248 | 88 1.171 1.190 1.177 23 5.969 7.059 6.158 | 56 2.125 2.468 2.187 | 89 1.160 1.176 1.166 24 5.791 6.831 5.971 | 57 2.068 2.398 2.128 | 90 1.151 1.163 1.155 25 5.615 6.611 5.788 | 58 2.014 2.330 2.071 | 91 1.141 1.150 1.144 26 5.441 6.396 5.608 | 59 1.962 2.265 2.017 | 92 1.131 1.137 1.133 27 5.271 6.188 5.431 | 60 1.912 2.201 1.965 | 93 1.120 1.125 1.122 28 5.104 5.986 5.258 | 61 1.864 2.139 1.915 | 94 1.109 1.112 1.110 29 4.940 5.791 5.089 | 62 1.818 2.079 1.867 | 95 1.097 1.098 1.097 30 4.781 5.601 4.925 | 63 1.774 2.022 1.821 | 96 1.083 1.084 1.084 31 4.626 5.418 4.765 | 64 1.732 1.967 1.777 | 97 1.069 1.069 1.069 32 4.476 5.241 4.610 | 65 1.692 1.914 1.735 | 98 1.054 1.054 1.054 33 4.330 5.069 4.459 | 66 1.654 1.863 1.695 | 99 1.040 1.040 1.040 | | 100 1.000 1.000 1.000
- -------------------------------------------------------------------------------- Corporate Benefits 67 APPENDIX B PERFORMANCE INFORMATION POLICY PERFORMANCE The following hypothetical illustrations demonstrate how the actual investment experience of each variable investment option of the separate account affects the cash surrender value, account value and death benefit of a policy. These hypothetical illustrations are based on the actual historical return of each portfolio as if a policy had been issued on the date indicated. Each portfolio's annual total return is based on the total return calculated for each fiscal year. These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions, which if reflected, would result in lower total return figures than those shown. The illustrations are based on the payment of a $5,750 annual premium, received at the beginning of each year, for a hypothetical policy with a $300,000 face amount death benefit Option 1, issued on a nonsmoker male, Age 45. It is assumed that all premiums are allocated to the variable investment option illustrated for the period shown. The benefits are calculated for a specific date. The amount and timing of premium payments and the use of other policy features, such as policy loans, would affect individual policy benefits. The amounts shown for the cash surrender values, account values and death benefits take into account the charges against premiums, current cost of insurance and monthly deductions, the daily charge against the separate account for mortality and expense risks, and each portfolio's charges and expenses. SEE CHARGES, PAGE 40. This prospectus also contains illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 48. Past performance is not an indication of future results. Actual investment results may be more or less than those shown in the hypothetical illustrations. [TO BE UPDATED BY AMENDMENT] - -------------------------------------------------------------------------------- Corporate Benefits 68 HYPOTHETICAL ILLUSTRATIONS Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $300,000 Annual Premium $5,750 - -------------------------------------------------------------------------------- AIM VI CAPITAL APPRECIATION FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1994 1995 1996 1997 1998 AIM VI GOVERNMENT SECURITIES FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1994 1995 1996 1997 1998 ALGER AMERICAN GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1990 1991 1992 1993 1994 1995 1996 1997 1998 ALGER AMERICAN MIDCAP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1994 1995 1996 1997 1998 The assumptions underlying these values are described in Performance Information, page 68. *These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Corporate Benefits 69 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $300,000 Annual Premium $5,750 ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 FIDELITY VIP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 FIDELITY VIP OVERSEAS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 The assumptions underlying these values are described in Performance Information, page 68. *These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Corporate Benefits 70 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $300,000 Annual Premium $5,750 FIDELITY VIP II INDEX 500 PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 1993 1994 1995 1996 1997 1998 GCG TRUST EQUITY INCOME PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 1990 1991 1992 1993 1994 1995 1996 1997 1998 GCG TRUST GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1997 1998 GCG TRUST HARD ASSETS PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 1990 1991 1992 1993 1994 1995 1996 1997 1998 The assumptions underlying these values are described in Performance Information, page 68. *These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Corporate Benefits 71 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $300,000 Annual Premium $5,750 GCG TRUST LIMITED MATURITY BOND PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1990 1991 1992 1993 1994 1995 1996 1997 1998 GCG TRUST LIQUID ASSET PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1990 1991 1992 1993 1994 1995 1996 1997 1998 GCG TRUST MID-CAP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1995 1996 1997 1998 GCG TRUST RESEARCH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1995 1996 1997 1998 The assumptions underlying these values are described in Performance Information, page 68. *These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Corporate Benefits 72 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $300,000 Annual Premium $5,750 GCG TRUST TOTAL RETURN PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1995 1996 1997 1998 INVESCO VIF EQUITY INCOME FUND Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 1995 1996 1997 1998 INVESCO VIF HIGH YIELD FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1995 1996 1997 1998 INVESCO VIF SMALL COMPANY GROWTH FUND Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 1998 NEUBERGER BERMAN AMT PARTNERS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1995 1996 1997 1998 The assumptions underlying these values are described in Performance Information, page 68. *These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Corporate Benefits 73 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $300,000 Annual Premium $5,750 VAN ECK WORLDWIDE BOND FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1990 1991 1992 1993 1994 1995 1996 1997 1998 VAN ECK WORLDWIDE EMERGING MARKETS FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1996 1997 1998 VAN ECK WORLDWIDE REAL ESTATE FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 1998 The assumptions underlying these values are described in Performance Information, page 68. *These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Corporate Benefits 74 This information is subject to completion or change. An amended registration statement for these securities has been filed with the Securities and Exchange Commission. These securities may not be sold and offers to buy may not be accepted prior to the amended registration statement becoming effective. This prospectus is not an offer to sell and is not a solicitation of an offer to buy. There will be no sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the laws of the state. Prospectus STRATEGIC BENEFIT LIFE INSURANCE A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY issued by SECURITY LIFE OF DENVER INSURANCE COMPANY AND SECURITY LIFE SEPARATE ACCOUNT L1 Consider carefully the policy charges and deductions beginning on page 37 in this prospectus. You should read this prospectus and keep it for future reference. A prospectus for each underlying fund portfolio must accompany and should be read together with this prospectus. This policy is not available in all jurisdictions. This policy is not offered in any jurisdiction where this type of offering is not legal. Depending on the state where it is issued, policy features may vary. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. Replacing your existing life insurance policy(ies) with this policy may not be beneficial to you. YOUR POLICY o is a flexible premium variable universal life insurance policy; o is issued by Security Life of Denver Insurance Company; o is designed primarily for use on a multi-life basis when the insured people share a common employment or business relationship; and o is returnable by you during the free look period or right to examine policy period if you are not satisfied. YOUR POLICY PREMIUM PAYMENTS o are flexible, so the premium amount and frequency may vary; o are allocated to variable investment options and the guaranteed interest division based on your instructions; o are invested in shares of the underlying investment portfolios under each variable investment option; and o can be invested in up to eighteen investment options over the policy's lifetime. YOUR ACCOUNT VALUE o is the sum of your holdings in the variable division, the guaranteed interest division and the loan division; o has no guaranteed minimum cash value under the variable division. The value varies with the value of the underlying investment portfolio; o has a minimum guaranteed rate of return if you have an amount in the guaranteed interest division; and o is subject to various expenses and charges. DEATH PROCEEDS o are paid if the policy is in force when the insured person dies; o are equal to the death benefit minus an outstanding policy loan, accrued loan interest and unpaid charges incurred before the insured person dies; o are calculated under your choice of options; * Option 1- a fixed minimum death benefit * Option 2- a stated death benefit plus your account value * Option 3- a stated death benefit plus the sum of the premiums we receive minus partial withdrawals; and o are generally not federally income taxed if your policy continues to meet the federal income tax definition of life insurance. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY INSURED, OR BACKED BY ANY BANK OR GOVERNMENTAL AGENCY. DATE OF PRELIMINARY PROSPECTUS: MARCH 2, 2000 Form V-122-00 Number ______ ISSUED BY: Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc. Insurance Company 1290 Broadway Security Life Center Denver, CO 80203-5699 1290 Broadway (303) 860-2000 Denver, CO 80203-5699 (800) 525-9852 THROUGH ITS: Security Life Separate Account L1 ADMINISTERED BY: Customer Service Center P.O. Box 173888 Denver, CO 80217-3888 (800) 848-6362 - -------------------------------------------------------------------------------- Strategic Benefit 2 TABLE OF CONTENTS POLICY SUMMARY.................................................................4 Your Policy...............................................................4 Free Look Period..........................................................4 Your Premium Payments.....................................................4 Charges and Deductions....................................................5 Guaranteed Interest Division..............................................6 Policy Values.............................................................8 Transfers of Account Value................................................8 Special Policy Features...................................................8 Policy Modification, Termination and Continuation Features..............................................................8 Death Benefits............................................................9 Tax Considerations........................................................9 INFORMATION ABOUT SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS.......................................................11 Security Life of Denver Insurance Company................................11 Security Life Separate Account L1........................................11 Investment Portfolio Objectives..........................................12 Guaranteed Interest Division.............................................15 Maximum Number of Investment Options.....................................16 DETAILED INFORMATION ABOUT THE POLICY...................................................................16 Applying for a Policy....................................................16 Temporary Insurance......................................................16 Policy Issuance..........................................................17 Premiums.................................................................17 Premium Payments Affect Your Coverage....................................18 Death Benefits...........................................................19 Adjustable Term Insurance Rider..........................................23 Special Features.........................................................24 Policy Values............................................................25 Transfers of Account Value...............................................26 Dollar Cost Averaging....................................................27 Automatic Rebalancing....................................................28 Policy Loans.............................................................28 Partial Withdrawals......................................................29 Lapse....................................................................31 Reinstatement............................................................31 Surrender................................................................31 General Policy Provisions................................................31 Free Look Period.....................................................32 Your Policy..........................................................32 Age ................................................................32 Ownership............................................................32 Beneficiary(ies).....................................................32 Collateral Assignment................................................33 Incontestability.....................................................33 Misstatements of Age or Gender.......................................33 Suicide..............................................................33 Transaction Processing...............................................33 Notification and Claims Procedures...................................34 Telephone Privileges.................................................34 Non-participation....................................................34 Distribution of the Policies.........................................34 Advertising Practices and Sales Literature ...............................................................35 Settlement Provisions................................................35 Administrative Information About the Policy..............................35 CHARGES AND DEDUCTIONS........................................................37 Deductions from Premiums.................................................37 Monthly Deductions from Account Value....................................38 Policy Transaction Fees..................................................39 Other Charges............................................................40 Group or Sponsored Arrangements or Corporate Purchasers...........................................................40 TAX CONSIDERATIONS............................................................40 Tax Status of the Policy.................................................40 Diversification Requirements.............................................41 Tax Treatment of Policy Death Benefits...................................41 Modified Endowment Contracts.............................................42 Multiple Policies........................................................42 Distributions Other than Death Benefits from Modified Endowment Contracts.........................................42 Distributions Other than Death Benefits from Policies That Are Not Modified Endowment Contracts............................................................42 Investment in the Policy.................................................42 Policy Loans.............................................................43 Section 1035 Exchanges...................................................43 Tax-exempt Policy Owners.................................................43 Possible Tax Law Changes.................................................43 Changes to Comply with the Law...........................................43 Other....................................................................43 ILLUSTRATIONS.................................................................45 ADDITIONAL INFORMATION........................................................59 Directors and Officers...................................................59 Regulation...............................................................60 Legal Matters............................................................60 Legal Proceedings........................................................60 Experts..................................................................60 Registration Statement...................................................60 APPENDIX A....................................................................62 APPENDIX B....................................................................63 - -------------------------------------------------------------------------------- Strategic Benefit 3 POLICY SUMMARY YOUR POLICY This policy is available only to groups of ten or more insured people. This policy is for use on a multi-life basis where the insured people share common employment or a business relationship. The policy may be owned individually or by a corporation, trust, association or similar entity. SEE POLICY ISSUANCE, PAGE 17. Your policy provides life insurance protection on the insured person. The policy includes the basic policy, applications, and riders or endorsements. As long as the policy remains in force, we pay a death benefit at the death of the insured person. While your policy is in force, you may access your policy value by taking loans or partial withdrawals. You may also surrender your policy for its surrender value. When the insured person reaches age 100, the policy can be surrendered or continued under the continuation of coverage option. SEE CONTINUATION OF COVERAGE, PAGE 24. Life insurance is not a short-term investment. You should evaluate your need for life insurance coverage and this policy's long-term investment potential and risks before purchasing a policy. FREE LOOK PERIOD Within limits specified by state law, you have the right to examine your policy and return it for a refund of all premiums we have received or the account value if you are not satisfied for any reason. The policy is then void. SEE FREE LOOK PERIOD, PAGE 32. YOUR PREMIUM PAYMENTS The policy is a flexible premium policy because the amount and frequency of the premium payments you make may vary within limits. You must make premium payments: o for us to issue your policy; and o sufficient to keep your policy in force. The amount of premium you pay affects the length of time your policy stays in force. SEE PREMIUMS, PAGE 17. ALLOCATION OF NET PREMIUMS This policy has premium-based charges which are subtracted from your payments. We add the balance, or the net premium, to your policy based on your investment instructions. You may allocate the net premium among one or more variable investment options and the guaranteed interest division. SEE ALLOCATION OF NET PREMIUMS, PAGE 18. The following table summarizes the policy charges and fees. For details on these charges, SEE CHARGES AND DEDUCTIONS, PAGE 37. - -------- This summary highlights some important points about your policy. The policy is more fully described in the attached, complete prospectus. Please read it carefully. "We," "us," "our" and the "company" refer to Security Life of Denver Insurance Company. "You" and "your" refer to the policy owner. The owner is the individual, entity, partnership, representative or party who may exercise all rights over the policy and receive the policy benefits during the insured people's lifetimes. State variations are covered in a special policy form used in that state. This prospectus provides a general description of the policy. Your actual policy and any riders are the controlling documents. If you would like to review a copy of the policy and riders, contact our customer service center, your agent or registered representative. - -------------------------------------------------------------------------------- Strategic Benefit 4 CHARGES AND DEDUCTIONS CHARGE WHEN DEDUCTED AMOUNT DEDUCTED Initial Sales Charge From each premium 0.5% of premium received in policy or payment received after the segment years 2 and later end of policy year one Tax Charges From each premium o 2.5% of premium up to target premium in o State and local taxes payment received the first policy or segment year. 2.5% of all premium payments in years 2 and later o Estimated federal tax treatment of deferred o 1.5% of premium up to target premium in acquisition costs the first policy or segment year.1.5% of all premium payments in years 2 and later These charges are not guaranteed maximum rates. Mortality & Expense Risk Monthly from account o 0.07083% of the variable division account Charge value value during policy years 1 through 10 (equivalent annual rate of 0.85%) o 0.05000% of the variable division account value during policy years 11 through 20 (equivalent annual rate of 0.60%) o 0.00417% of the variable division account value during policy year 21 and later (equivalent annual rate of 0.15%) Monthly Administrative Monthly from account $12 per month for first policy year and $6 per Charge value month thereafter Cost of Insurance Charge Monthly from account Varies based on net amount at risk. Sse your value policy schedule pages Partial Withdrawal Fee On Transaction date from Up to $25 account value Transfer Fee On Transaction date from Twelve free transfers per policy year, then $10 account value per transfer Illustrations On Transaction date from One free illustration per policy year, then $25 account value per illustration Premium Allocation Change On Transaction date from Twelve free premium allocation changes per account value policy year, then $25 per change Deferred Sales Charge From account value at the o 1.75% of premium received in the first beginning of each policy or policy or segment year up to target segment year in years 2 premium through 8 o 1.60% of premium received in the first policy or segment year, in excess of target premium
- -------------------------------------------------------------------------------- Strategic Benefit 5 Continuation of Coverage Policy anniversary nearest One-time $200 administrative fee. younger insured person's 100th birthday from account value Investment Portfolio Expenses From portfolio assets, See detailed list on page 12. included in daily unit value
GUARANTEED INTEREST DIVISION The guaranteed interest division guarantees principal and is part of our general account. Any amount you direct into the guaranteed interest division is credited with interest at a fixed rate. SEE GUARANTEED INTEREST DIVISION, PAGE 15. VARIABLE DIVISION If you invest in the variable investment options, you may make or lose money depending on market conditions. The variable investment options are described in the prospectuses for the underlying investment portfolios. Each investment portfolio has its own investment objective. SEE OBJECTIVES OF THE INVESTMENT PORTFOLIOS, PAGE 12. The separate account purchases shares of the investment portfolios at net asset value. This price reflects investment management fees and other direct expenses that are deducted from the portfolio assets as described in the following table. The fees and expenses are shown in both gross amounts and net amounts shown after any expenses or fees have been voluntarily absorbed by the investment portfolio advisers. The information in this table was provided to us by the portfolios, and we have not independently verified it. These expenses are not direct charges against variable division assets or reductions from contract values; rather these expenses are included in computing each underlying portfolio's net asset value, which is the share price used to calculate the unit values of the variable investment options. For a more complete description of the portfolios' costs and expenses, see the prospectuses for the portfolios. - -------------------------------------------------------------------------------- Strategic Benefit 6 INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS) Fees and Investment Total Expenses Total Net Management Other Portfolio Waived or Portfolio Portfolio Fees Expenses Expenses Reimbursed Expenses AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund AIM V.I. Government Securities Fund THE ALGER AMERICAN FUND Alger American Small Capitalization Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND VIP Growth Portfolio VIP Overseas Portfolio GCG TRUST 2 [TO BE UPDATED BY AMENDMENT] Equity/Income Portfolio Growth Portfolio Hard Assets Portfolio Limited Maturity Bond Portfolio Liquid Assets Money Market Mid-Cap Growth Portfolio Research Portfolio Total Return Portfolio ING FUNDS Global Brand Names Global Information Technology INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO VIF-Equity Income Fund INVESCO VIF-High Yield Fund INVESCO VIF-Small Company Growth Fund MERRILL LYNCH Basic Value Focus Capital Focus Global Growth Focus Index 500 Special Value Focus VAN ECK WORLDWIDE INSURANCE TRUST Worldwide Bond Fund Worldwide Emerging Markets Fund Worldwide Real Estate Fund SECURITY LIFE OF DENVER INSURANCE COMPANY Guaranteed Interest Division [FOOTNOTES TO BE UPDATED BY AMENDMENT] - -------------------------------------------------------------------------------- Strategic Benefit 7 POLICY VALUES Your account value is the amount you have in the guaranteed interest division, plus the amount you have in each variable investment option. If you have an outstanding policy loan, your account value includes the amount in the loan division. SEE POLICY VALUES, PAGE 8. YOUR ACCOUNT VALUE IN THE VARIABLE DIVISION Accumulation units are the way we measure value in the variable division. Accumulation unit value is the value of a unit of a variable investment option on the valuation date. Each variable investment option has a different accumulation unit value. SEE DETERMINING THE VALUE IN THE VARIABLE DIVISION, PAGE 25. The accumulation unit value for each variable investment option reflects the investment performance of the underlying investment portfolio during the valuation period. Each accumulation unit value reflects asset-based charges under the policy and the expenses of the investment portfolios. SEE DETERMINING THE VALUE IN THE VARIABLE DIVISION, PAGE 25 AND HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 26. TRANSFERS OF ACCOUNT VALUE You may make twelve free transfers among the variable investment options or to the guaranteed interest division each policy year. We charge $10 for each transfer over twelve you make in a policy year. There are restrictions on transfers from the guaranteed interest division. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 26. SPECIAL POLICY FEATURES DESIGNATED DEDUCTION OPTION You may designate one investment option from which we will deduct all your monthly and deferred sales charges. SEE DESIGNATED DEDUCTION OPTION, PAGE 24. DOLLAR COST AVERAGING Dollar cost averaging is a systematic plan of transferring account values to selected investment options. It is intended to protect your policy's value from short-term price fluctuations. However, dollar cost averaging does not assure a profit, nor does it protect against a loss in a declining market. Dollar cost averaging is free. SEE DOLLAR COST AVERAGING, PAGE 27. AUTOMATIC REBALANCING Automatic rebalancing periodically reallocates your net account value among your selected investment options to maintain your specified distribution of account value among those investment options. Automatic rebalancing is free. SEE AUTOMATIC REBALANCING, PAGE 28. LOANS You may take loans against your policy's net account value. We charge an annual loan interest rate of 3.25%. We credit an annual interest rate of 3% on amounts held in the loan division as collateral for your loan. SEE POLICY LOANS, PAGE 28. PARTIAL WITHDRAWALS You may withdraw part of your net account value any time after your first policy year. You may make only one partial withdrawal per policy year. Partial withdrawals may reduce your policy's death benefit and will reduce your account value. SEE PARTIAL WITHDRAWALS, PAGE 29. POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES RIGHT TO EXCHANGE POLICY For 24 months after the policy date you may exchange your policy for a guaranteed policy, unless state law requires differently. There is no charge for this exchange. SEE RIGHT TO EXCHANGE POLICY, PAGE 24. SURRENDER You may surrender your policy for its surrender value at any time while the insured person is living. All insurance coverage ends on the date we receive your request. SEE SURRENDER, PAGE 31. - -------------------------------------------------------------------------------- Strategic Benefit 8 LAPSE In general, insurance coverage continues as long as your policy's net account value is enough to pay the monthly deductions. SEE LAPSE, PAGE 31. REINSTATEMENT You may reinstate your policy and rider within five years of its lapse if you still own the policy and the insured person is still insurable. You will need to pay required reinstatement premiums. If you had a policy loan when coverage ended, we will reinstate it with accrued loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 31. POLICY MATURITY If the insured person is living on the policy anniversary nearest the date when the insured person reaches age 100 (the maturity date) and you do not choose continuation of coverage, you must surrender your policy and we will pay the net account value. Your policy then ends. SEE POLICY MATURITY, PAGE 24. CONTINUATION OF COVERAGE If the insured person is living at age 100 and the policy is in force, you may choose the continuation of coverage feature. If this feature becomes effective, we will deduct a one-time administrative fee of $200 and keep your policy in force. SEE CONTINUATION OF COVERAGE, PAGE 24. DEATH BENEFITS At the insured person's death, we pay death proceeds to the beneficiary(ies) if your policy is still in force. Depending on the death benefit option you have chosen and whether or not you have coverage under an adjustable term insurance rider, your policy's death benefit may vary. Generally, we require a minimum target death benefit of $50,000 per policy.SEE DEATH BENEFITS, PAGE 19. TAX CONSIDERATIONS Under current federal income tax law, death benefits of life insurance policies generally are not subject to income tax. In order for this treatment to apply, the policy must qualify as a life insurance contract. We believe it is reasonable to conclude that the policy will qualify as a life insurance contract. SEE TAX STATUS OF THE POLICY, PAGE 40. Assuming the policy qualifies as a life insurance contract, under current federal income tax law, your account value earnings are generally not subject to income tax as long as they remain within your policy. However depending on circumstances, the following events may cause taxable consequences for you: o partial withdrawals; o surrender; or o lapse. In addition to the events listed above, if your policy is a modified endowment contract, a loan against or secured by the policy may cause income taxation. A penalty tax may be imposed on a distribution from a modified endowment contract as well. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 42. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new policy or a change in an existing policy should consult a tax adviser. You should consult a qualified legal or tax adviser before you purchase your policy. - -------------------------------------------------------------------------------- Strategic Benefit 9 How the Policy Works YOUR PREMIUM Premium Deductions You make a premium ----------------------------> payment o initial sales charge o tax charges <---------------------------- NET PREMIUM We allocate the net premium to the investment options you choose | | ----------------------------------------- | | \/ \/ GUARANTEED VARIABLE INVESTMENT INVESTMENT PORTFOLIOS The investment INTEREST DIVISION OPTIONS The variable investment manager deducts Amounts you allocate Amounts you allocate are <-- options invest in investment are heald in our general account held in our separate account --> investment portfolios --> management fees | | and other ----------------------------------------- portfolio expenses | | | LOAN DIVISION | Amount set aside to <------------| Monthly Deductions o cost of insurance secure a policy loan | ---------------------> charge | | o monthly administrative | | charge \/ | o mortality and expense ACCUMULATED VALUE | risk charge The total value of your --| policy | | o partial withdrawal fee | Transaction Fees o transfer fee |---------------------> o illustration fee | o premium allocation | change charge | o continuation of | coverage fee | | Annual Fee ---------------------> o deferred sales charge Years 2 - 8
- -------------------------------------------------------------------------------- Strategic Benefit 10 INFORMATION ABOUT SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS SECURITY LIFE OF DENVER INSURANCE COMPANY [TO BE UPDATED BY AMENDMENT] Security Life of Denver Insurance Company ("Security Life") is a stock life insurance company organized under the laws of the State of Colorado in 1929. Our headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699. We are admitted to do business in the District of Columbia and all states except New York. At the close of 1998, the company and its consolidated subsidiaries had over $174.3 billion of life insurance in force. As of December 31, 1998, our total assets were over $10.0 billion, and our shareholder's equity was over $926 million. We have a complete line of life insurance products, including: o annuities; o individual life; o group life; o pension products; and o market life reinsurance. Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING"). ING is one of the world's three largest diversified financial services organizations. ING is headquartered in Amsterdam, The Netherlands. It has consolidated assets over $461.8 billion on a Dutch (modified U.S.) generally accepted accounting principles basis, as of December 31, 1998. The principal underwriter and distributor for our policies is ING America Equities, Inc. ING America Equities is a stock corporation organized under the laws of the State of Colorado in 1993. It is a wholly owned subsidiary of Security Life and is a registered broker-dealer with the SEC and the NASD. ING America Equities, Inc. is located at 1290 Broadway, Denver, Colorado 80203-5699. SECURITY LIFE SEPARATE ACCOUNT L1 SEPARATE ACCOUNT STRUCTURE We established Security Life Separate Account L1 (the "separate account") on November 3, 1993, under Colorado's insurance law. It is a unit investment trust, registered with the SEC under the Investment Company Act of 1940. The SEC does not supervise our management of the separate account or Security Life. The separate account is used to support our variable life insurance policies and for other purposes allowed by law and regulation. We may offer other variable life insurance contracts with different benefits and charges that invest in the separate account. We do not discuss these contracts in this prospectus. The separate account may invest in other securities not available for the policy described in this prospectus. The company owns all the assets in the separate account. We credit gains to and charge losses against the separate account without regard to performance of other investment accounts. ORDER OF SEPARATE ACCOUNT LIABILITIES State law provides that we may not charge general account liabilities against the separate account's assets equal to its reserves and other liabilities. This means that if we ever became insolvent, the separate account assets will be used first to pay separate account policy claims. Only if separate account assets remain after these claims have been satisfied can these assets be used to pay other policy owners and creditors. The separate account may have liabilities from assets credited to other variable life policies offered by the separate account. If the assets of the separate account are greater than required reserves and policy liabilities, we may transfer the excess to our general account. INVESTMENT OPTIONS Investment options include the variable and the guaranteed interest divisions, but not the loan division. The separate account has several variable investment options which invest in shares of underlying investment portfolios. This means the investment performance of a policy depends on the performance of the investment portfolios you choose. - -------------------------------------------------------------------------------- Strategic Benefit 11 Each investment portfolio has its own investment objective. These investment portfolios are not available directly to individual investors. They are available only as the underlying investments for variable annuity and variable life insurance contracts and certain pension accounts. INVESTMENT PORTFOLIOS Each of the investment portfolios is a separate series of an open-end management investment company. The investment company receives investment advice from a registered investment adviser who, other than the GCG Trust and the ING Funds, is not associated with us. Currently, some variable investment options invest in a portfolio of the GCG Trust. Directed Services, Inc. ("DSI") serves as the manager to each portfolio of the GCG Trust. The GCG Trust and DSI have retained several portfolio managers to manage the assets of each portfolio of the GCG Trust. The investment portfolios sell shares to separate accounts of insurance companies. These insurance companies may or may not be affiliated with us. This is known as "shared funding." Investment portfolios may sell shares as the underlying investment for both variable annuity and variable life insurance contracts. This process is known as "mixed funding." The investment portfolios may sell shares to certain qualified pension and retirement plans that qualify under Section 401 of the Internal Revenue Code ("IRC"). As a result, a material conflict of interest may arise between insurance companies, owners of different types of contracts and retirement plans, or their participants. If there is a material conflict, we will consider what should be done, including removing the investment portfolio from the separate account. There are certain risks with mixed and shared funding, and with selling shares to qualified pension and retirement plans. See the investment portfolios' prospectuses. INVESTMENT PORTFOLIO OBJECTIVES Each investment portfolio has a different investment objective that it tries to achieve by following its own investment strategy. The objectives and policies of each investment portfolio affect its return and its risks. With this prospectus, you must receive the current prospectus for each investment portfolio. We summarize the investment objectives for each investment portfolio here. You should read each investment portfolio prospectus. Certain investment portfolios offered under this policy have investment objectives and policies similar to other funds managed by the portfolio's investment adviser. The investment results of a portfolio may be higher or lower than those of other funds managed by the same adviser. There is no assurance, and no representation is made, that the investment results of any investment portfolio will be comparable to those of another fund managed by the same investment adviser. Some investment portfolio advisers (or their affiliates) may pay us compensation for servicing, administration or other expenses.These advisers include AIM Advisors, Inc.; Fidelity Management & Research Company; Fred Alger Management, Inc.; Directed Services, Inc.; INVESCO Funds Group, Inc. Merrill Lynch Asset Management, L.P. and Van Eck Associates Corporation.The amount of compensation is usually based on the aggregate assets of the investment portfolio from contracts that we issue or administer.Some advisers may pay us more than others. Merrill Lynch Asset Management, L.P. ("MLAM") is the investment adviser to the Merrill Variable Funds. MLAM, together with its affiliates, Fund Asset Management, L.P., Mercury Asset Management International Ltd., and Hotchkis and Wiley, is a worldwide mutual fund leader, and has a total of $501.68 billion in investment company and other portfolio assets under management as of the end of February 1999. It is registered as an investment adviser under the Investment Advisers Act of 1940. MLAM is an indirect subsidiary of Merrill Lynch & Co., Inc. MLAM's principal business address is 800 Scudders Mill Road, Plainsboro, New Jersey 08536. As the investment adviser, it is paid fees by these Funds for its services. The fees charged to each of these Funds are set forth in the table on page 7. INVESTMENT PORTFOLIOS' OBJECTIVES VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB- ADVISER V.I. Capital Appreciation Fund AIM Variable Insurance Seeks growth of capital through investment in common Funds, Inc./ AIM Advisors, stocks, with emphasis on medium- and small-sized Inc. growth companies.
- -------------------------------------------------------------------------------- Strategic Benefit 12 IINVESTMENT PORTFOLIOS' OBJECTIVES VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB- ADVISER V.I. Government Securities AIM Variable Insurance Seeks to achieve high current income consistent with Fund Funds, Inc./ AIM Advisors, reasonable concern for safety of principal by investing in Inc. debt securities issued, guaranteed or otherwise backed by the United States Government. American Small Capitalization The Alger American Fund Seeks long-term capital appreciation by focusing on Portfolio small, fast-growing companies that offer innovative products, services or technologies to a rapidly expanding marketplace. VIP Growth Portfolio Fidelity Variable Insurance Seeks capital appreciation by investing in common Products Fund and Variable stocks of companies that it believes have above-average Insurance Products Fund II/ growth potential, either domestic or foreign issuers. Fidelity Management & Research Company VIP Overseas Portfolio Fidelity Variable Insurance Seeks long-term growth of capital by investing at least Products Fund and Variable 65% of total assets in foreign securities. Insurance Products Fund II/ Fidelity Management & Research Company Equity/Income Portfolio GCG Trust/ Directed Seeks substantial dividend income as well as long-term Services, Inc./ T. Rowe Price growth of capital.Invests primarily in common stocks Associates, Inc. of well-established companies paying above-average dividends. Growth Portfolio GCG Trust/ Directed Seeks capital appreciation. Invests primarily in common Services, Inc./ Janus Capital stocks of growth companies that have favorable Corporation relationships between price/earnings ratios and growth rates in sectors offering the potential for above-average returns. Hard Assets Portfolio GCG Trust/ Directed Seeks long-term capital appreciation. Invests primarily Services, Inc./ Baring in hard asset securities.Hard asset companies produce a International Investment commodity which the portfolio manager is able to price Limited (an affiliate) on a daily or weekly basis. Limited Maturity Bond GCG Trust/ Directed Seeks highest current income consistent with low risk to Portfolio Services, Inc./ ING principal and liquidity. Also seeks to enhance its total Investment Management, return through capital appreciation when market factors, L.L.C. (an affiliate) such as falling interest rates and rising bond prices, indicate that capital appreciation may be available without significant risk to principal. Invests primarily in diversified limited maturity debt securities with average maturity dates of five years or shorter and in no cases more than seven years.
- -------------------------------------------------------------------------------- Strategic Benefit 13 INVESTMENT PORTFOLIOS' OBJECTIVES VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB- ADVISER Liquid Asset Portfolio GCG Trust/Directed Seeks high level of current income consistent with the Services, Inc./ING preservation of capital and liquidity. Invests primarily in Investment Management, obligations of the U.S. Government and its agencies and LLC (an affiliate) instrumentalities, bank obligations, commercial paper and short-term corporate debt securities. All securities will mature in less than one year. Sub-advised by ING Investment Management, LLC (an affiliate). Mid-Cap Growth Portfolio GCG Trust/ Directed Seeks long-term growth of capital.Invests primarily in Services, Inc./ Massachusetts equity securities of companies with medium market Financial Services Company capitalization which the portfolio manager believes have above-average growth potential. Research Portfolio GCG Trust/ Directed Seeks long-term growth of capital and future income. Services, Inc./ Massachusetts Invests primarily in common stocks or securities Financial Services Company convertible into common stocks of companies believed to have better than average prospects for long-term growth. Total Return Portfolio GCG Trust/ Directed Seeks above-average income (compared to a portfolio Services, Inc./ Massachusetts entirely invested in equity securities) consistent with the Financial Services Company prudent employment of capital. Invests primarily in a combination of equity and fixed income securities. Global Brand Names ING Investment [TO BE UPDATED BY AMENDMENT] Management, L.L.C./ [TO BE UPDATED BY AMENDMENT] Global Information ING Investment [TO BE UPDATED BY AMENDMENT] TechnologyManagement, L.L.C./ [TO BE UPDATED BY AMENDMENT] VIF-Equity Income Fund INVESCO Variable Seeks high current income, with growth of capital as a Investment Funds, Inc./ secondary objective by investing at least 65% of its INVESCO Funds Group, assets in dividend-paying common and preferred stocks. Inc. The rest of the fund's assets are invested in debt securities, and lower-grade debt securities. VIF-High Yield Fund INVESCO Variable Seeks to provide a high level of current income by Investment Funds, Inc./ investing substantially all of its assets in lower-rated INVESCO Funds Group, debt securities and preferred stock, including securities Inc. issued by foreign companies.
- -------------------------------------------------------------------------------- Strategic Benefit 14 INVESTMENT PORTFOLIOS' OBJECTIVES VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB- ADVISER VIF-Small Company Growth INVESCO Variable Seeks investment growth over the long term by investing Fund Investment Funds, Inc./ at least 80% of its assets in equity securities of INVESCO Funds Group, companies with market capitalizations of $1 billion or Inc. less. The remainder of the fund's assets can be invested in a wide range of securities that may or may not be issued by small companies. Basic Value Focus Merrill Lynch/ Seeks capital appreciation and, secondarily, income by Management, L.P./Merrill management of the Fund believes are undervalued and Lynch Variable Series therefore represent basic investment value. The Fund seeks Funds, Inc. special opportunities in securities that are selling at a discount either from book value or historical price-earnings ratios, or seem capable of recovering from temporarily out-of-favor considerations. Particular emphasis is placed on securities which provide an above-average dividend return and sell at a below-average price/earnings ratio. Capital Focus Merrill Lynch Asset Seeks to achieve the highest total investment return Management, L.P./ Merrill consistent with prudent risk. To do this, management of Lynch Variable Series Funds, the Fund uses a flexible "fully managed" investment Inc. policy that shifts the emphasis among equity, debt (including money market), and convertible securities. Global Growth Focus Merrill Lynch Asset Seeks long-term growth of capital. The Fund invests in a Management, L.P./ Merrill diversified portfolio of equity securities of issuers Lynch Variable Series Funds, located in various countries and the United States, Inc. placing particular emphasis on companies that have exhibited above-average growth rates in earnings. Because a substantial portion of the Fund's assets may be invested on an international basis, contract owners should be aware of certain risks, such as fluctuations in foreign exchange rates, future political and economic developments, different legal systems, and the possible imposition of exchange controls or other foreign government laws or restrictions. An investment in the Fund may be appropriate only for long-term investors who can assume the risk of loss of principal, and do not seek current income. Index 500 Merrill Lynch Asset Seeks investment results that, before expenses, Management, L.P./ Merrill correspond to the aggregate price and yield performance Lynch Variable Series Funds, of the Standard & Poor's 500 Composite Stock Price Index Inc. (the "S&P 500 Index").
- -------------------------------------------------------------------------------- Strategic Benefit 15 VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB- ADVISER Special Value Focus Merrill Lynch Asset Seeks long term growth of capital by investing in a Management, L.P./ Merrill diversified portfolio of securities, primarily common Lynch Variable Series stocks, of relatively small companies that management of Funds, Inc. the Merrill Variable Funds believes have special investment value, and of emerging growth companies regardless of size. Companies are selected by management on the basis of their long-term potential for expanding their size and profitability or for gaining increased market recognition for their securities. Current income is not a factor in the selection of securities. Worldwide Bond Fund Van Eck Worldwide Seeks high total return--income plus capital Insurance Trust/ Van Eck appreciation--by investing globally, primarily in a Associates Corporation variety of debt securities. Worldwide Emerging Markets Van Eck Worldwide Seeks long term capital appreciation by investing in Fund Insurance Trust/ Van Eck equity securities in emerging markets around the world. Associates Corporation Worldwide Real Estate Fund Van Eck Worldwide Seeks high total return by investing in equity Insurance Trust/ Van securities of companies that own significant Eck Associates real estate or do business principally in real Corporation estate.
GUARANTEED INTEREST DIVISION You may allocate all or a part of the net premium and transfers of your net account value into the guaranteed interest division. The guaranteed interest division guarantees principal and is part of our general account. It pays interest at a fixed rate that we declare. The general account contains all of our assets other than those held in the separate account (variable investment options) or other separate accounts. The general account supports our non-variable insurance and annuity obligations. We have not registered interests in the guaranteed interest division under the Securities Act of 1933. Also, we have not registered the guaranteed interest division or the general account as an investment company under the Investment Company Act of 1940 (because of exemptive and exclusionary provisions). This means that the general account, the guaranteed interest division and its interests are generally not subject to regulation under these Acts. The SEC staff has not reviewed the disclosures in this prospectus relating to the general account and the guaranteed interest division. These disclosures, however, may be subject to certain requirements of the federal securities law regarding accuracy and completeness of statements made. The amount you have in the guaranteed interest division is all of the net premium you allocate to that division, plus transfers you make to the guaranteed interest division, plus interest earned. Amounts you transfer out of or withdraw from the guaranteed interest division reduce this amount. It is also reduced by deductions for charges from your account value allocated to the guaranteed interest division. We declare the interest rate that applies to all amounts in the guaranteed interest division. This interest rate is never less than the minimum guaranteed interest rate of 3% and will be in effect for at least twelve months. Interest compounds daily at an effective annual rate that equals the declared rate. We credit interest to the guaranteed interest division on a daily basis. We pay interest regardless of the actual investment performance of our account. We bear all of the investment risk for the guaranteed interest division. - -------------------------------------------------------------------------------- Strategic Benefit 16 MAXIMUM NUMBER OF INVESTMENT OPTIONS You may invest in a total of eighteen investment options over the life of your policy. Investment options include the guaranteed interest divisions, all of the variable investment options but not the loan division. As an example, if you have had funds in seventeen variable investment options and the guaranteed interest division, these are the only investment options to which you may later add or transfer funds. However, you could still take a policy loan and access the loan division. You may want to use fewer investment options in the early years of your policy, so that you can invest in other investment options in the future. If you invest in eighteen variable investment options, you will not be able to invest in the guaranteed interest division. DETAILED INFORMATION ABOUT THE POLICY This prospectus describes our standard Strategic Benefit variable universal life insurance policy. There may be differences in the policy because of state requirements where we issue your policy. We will describe any such differences in your policy. The illustrations beginning on page 47 show how the policies work. APPLYING FOR A POLICY You purchase this variable universal life policy by submitting an application. The insured person is the person on whose life we issue a policy and upon whose death we pay death proceeds. On the policy date, the insured person must be at least 15 years of age and no older than age 85. We may back-date the policy up to six months to allow the insured person to give proof of a younger age for the purposes of your policy. SEE AGE, PAGE 32. TEMPORARY INSURANCE If you apply and qualify, we may issue temporary insurance in an amount equal to the face amount of insurance for which you applied. The maximum amount of temporary insurance for binding limited life insurance coverage is $3 million, which includes any in-force coverage you have with us. Temporary coverage begins when: o you have completed and signed our binding limited life insurance coverage form; o we receive and accept a premium payment of at least your scheduled premium (selected on your application); and o part I of the application is completed. Temporary coverage ends on the earliest of: o the date we return your premium payments; o five days after we mail notice of termination to the address on your application; o the date your policy coverage starts; o the date we refuse to issue you a policy based on your application; or o 90 days after you sign our binding limited life insurance coverage form. There is no death benefit under the temporary insurance agreement if: o there is a material misrepresentation in your answers on the binding limited life insurance coverage form; o there is a material misrepresentation in statements on your application; o the person or persons intended to be the insured people die by suicide or self-inflicted injury; or o the bank does not honor your premium check. POLICY ISSUANCE Before we issue a policy we require satisfactory evidence of insurability of the insured person and payment of your initial premium. This evidence may include completion of underwriting and issue requirements. The policy date as shown on your policy schedule determines: o monthly processing dates; o policy months; o policy years; and o policy anniversaries. - -------------------------------------------------------------------------------- Strategic Benefit 17 It is not affected by the date you receive the policy. The policy date may be different from the date we receive your first premium payment. If the policy date is earlier, we charge monthly deductions from when we receive your initial premium. The policy date is determined one of three ways: 1. the date you designate on your application, subject to our approval; or 2. the back-date of the policy to save age, subject to our approval and state law. 3. if there is no designated date or back-date, the policy date is: o the date all underwriting and administrative requirements have been met if we receive your initial premium before we issue your policy; or o the date we receive your initial premium if it is after we approve your policy for issue. DEFINITION OF LIFE INSURANCE The federal income tax definition of life insurance is the cash value accumulation test. SEE TAX STATUS OF THE POLICY, PAGE 40. PREMIUMS You may choose the amount and frequency of premium payments, within limits. We consider payments we receive to be premium payments if you do not have an outstanding policy loan and your policy is not in the continuation of coverage period. After we deduct certain charges from your premium payment, we add the remaining net premium to your policy. SCHEDULED PREMIUMS Your premiums are flexible. You may select your scheduled (planned) premium (within our limits) when you apply for your policy. The scheduled premium, shown in your policy and schedule, is the amount you choose to pay over a stated time period. THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You may receive premium reminder notices for the scheduled premium on a quarterly, semiannual or annual basis. You are not required to pay the scheduled premium. You may choose to pay your premium by electronic funds transfer each month. This method is not available for your initial premium. Your financial institution may charge for this service. You can change the amount of your scheduled premium within our minimum and maximum limits at any time. If you fail to pay your scheduled premium or if you change the amount of your scheduled premium, your policy performance will be affected. UNSCHEDULED PREMIUM PAYMENTS Generally speaking, you may make unscheduled premium payments at any time, however: o we may limit the amount of your unscheduled premium payments that would result in an increase in the base death benefit amount required by the federal income tax law definition of life insurance. We may require satisfactory evidence that the insured person is insurable at the time of your unscheduled payment if the death benefit is increased as a result of it; o we may require proof that the insured person is insurable if your unscheduled premium payment will cause the net amount at risk to increase; and o we will return premium payments which are greater than the "seven-pay" limit for your policy if they would cause your policy to become a modified endowment contract, unless you have acknowledged in writing the new modified endowment contract status for your policy. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 42 AND CHANGES TO COMPLY WITH THE LAW, PAGE 43. If you have an outstanding policy loan and you make an unscheduled payment, we will consider it a loan repayment, unless you tell us otherwise. If your payment is a loan repayment, we do not deduct tax or sales charges. TARGET PREMIUM Target premium is not based on your scheduled premium. Target premium is actuarially determined based on the age, gender and premium class of the insured person. The target premium is used in determining your initial sales charge, deferred sales charge and the sales compensation we pay. It may or may not be - -------------------------------------------------------------------------------- Strategic Benefit 18 enough to keep your policy in force. You are not required to pay the target premium and there is no penalty for paying more or less. The target premium for your policy and additional segments are listed in the policy schedule we provide to you. SEE PREMIUMS, PAGE 17. INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS The net premium is the balance remaining after we deduct tax and sales charges from your premium payment. Insurance coverage does not begin until we receive your initial premium. Your initial premium is the first premium we receive and apply to your policy. It must be at least the amount of your scheduled premiums from your policy date through your investment date. The investment date is the first date we apply net premium to your policy. We apply the initial net premium to your policy after: a) we have received the required amount of premium; b) all issue requirements have been received by our customer service center; and c) we have approved your policy for issue. Amounts you designate for the guaranteed interest division will be allocated to that division on the investment date. If your state requires return of your premium during the free look period, we initially invest amounts you have designated for the variable division in the GCG Trust Liquid Asset Portfolio. We later transfer these amounts from the Liquid asset Portfolio to your selected variable investment options, based on your most recent premium allocation instructions, at the earlier of the following dates: o five days after we mailed your policy plus your state free look period has ended; or o we have received your policy delivery receipt and your state free look period has ended. If your state provides for return of account value during the free look period (or no free look period), we invest amounts you designated for the variable division directly into your selected variable investment options. We allocate all later premium payments to your policy on the valuation date of receipt. We use your most recent premium allocation instructions. Your instructions must specify percentages that are whole numbers totaling 100% and which use no more than eighteen investment options over the life of your policy. SEE MAXIMUM NUMBER OF INVESTMENT DIVISIONS, PAGE 16. You may make five free premium allocation changes per year. After the five free premium allocation changes, we charge you $25 for each additional allocation change per policy year. If you change your designated deduction option, we consider this a premium allocation change for which there may be a charge. SEE DESIGNATED DEDUCTION OPTION, PAGE 24 AND POLICY TRANSACTION FEES, PAGE 39. PREMIUM PAYMENTS AFFECT YOUR COVERAGE Your coverage lasts only as long as your net account value is enough to pay the monthly and annual charges and your account value is more than your outstanding policy loan plus accrued loan interest. If these conditions are not met, your policy will enter the 61-day grace period and you must make a premium payment to avoid lapse. SEE LAPSE, PAGE 31, AND GRACE PERIOD, PAGE 31. MODIFIED ENDOWMENT CONTRACTS There are special federal income tax rules for distributions from life insurance policies which are "modified endowment contracts." These rules apply to policy loans, surrenders, and partial withdrawals. Whether or not these rules apply depends upon whether or not the premiums we receive are greater than the "seven-pay" limit. If we find that your scheduled premium causes your policy to be a modified endowment contract on your policy date, we will require you to acknowledge that you know the policy is a modified endowment contract. We will issue your policy based on the scheduled premium you selected. If you do not want your policy to be issued as a modified endowment contract, you may reduce your scheduled premium to a level which does not cause your policy to be a modified endowment contract. We will then issue your policy based on the revised scheduled premium. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 42. - -------------------------------------------------------------------------------- Strategic Benefit 19 DEATH BENEFITS You decide the amount of insurance you need, now and in the future. You can combine the long-term advantages of permanent life insurance base coverage with the flexibility and short-term advantages of term life insurance. Both permanent and term life insurance are available with one policy. Generally we require a minimum group first year premium of at least $250,000. However, depending on underwriting circumstances, we may reduce the minimum group first year premium in some cases. We do not require a minimum base death benefit amount, however we generally require a minimum target death benefit of $50,000 per policy. We may reduce this minimum if the average initial target death benefit for the group is at least $50,000. It may be to your economic advantage to include part of your insurance coverage under the adjustable term insurance rider. Both the cost of insurance under the adjustable term insurance rider and the cost of insurance for the base death benefit are deducted monthly from your account value and generally increase with the age of the insured person. Use of the adjustable term insurance rider may reduce sales compensation but may increase the monthly cost of insurance. SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 23. Death benefits are valued as of the date of death of the insured person. DEATH BENEFIT SUMMARY THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES, INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL WITHDRAWALS ARE LESS THAN PREMIUM RECEIVED. OPTION 1 OPTION 2 OPTION 3 STATED DEATH The amount of policy death The amount of policy death The amount of policy death BENEFIT benefit at issue, not including benefit at issue, not including benefit at issue, not including rider coverage. This amount rider coverage. This amount rider coverage. This amount stays level throughout the life stays level throughout the life stays level throughout the life of the policy. of the policy. of the policy. BASE DEATH The greater of the stated The greater of the stated The greater of the stated BENEFIT death benefit or the account death benefit plus the death benefit plus the sum of value multiplied by the account value, or the account all premiums we receive appropriate factor from the value multiplied by the minus partial withdrawals definition of life insurance appropriate factor from the you have taken, or the factors. definition of life insurance account value multiplied by factors. the appropriate factor from the definition of life insurance factors. TARGET DEATH Stated death benefit plus Stated death benefit plus Stated death benefit plus BENEFIT adjustable term insurance adjustable term insurance adjustable term insurance rider benefit. This amount rider benefit. This amount rider benefit. This amount remains level throughout the remains level throughout the remains level throughout the life of the policy. life of the policy. life of the policy. TOTAL DEATH The greater of the target The greater of the target The greater of the target BENEFIT death benefit or the base death benefit plus the death benefit plus the sum of death benefit. account value, or the base all premiums we receive death benefit. minus partial withdrawals you have taken, or the base death benefit.
- -------------------------------------------------------------------------------- Strategic Benefit 20 OPTION 1 OPTION 2 OPTION 3 ADJUSTABLE The adjustable term The adjustable term The adjustable term TERM insurance rider benefit is the insurance rider benefit is the insurance rider benefit is the INSURANCE total death benefit minus base total death benefit minus the total death benefit minus the RIDER BENEFIT death benefit, but not less base death benefit, but not base death benefit, but not than zero. If the account less than zero. If the account less than zero. If the account value multiplied by the death value multiplied by the death value multiplied by the death benefit corridor factor is benefit corridor factor is benefit corridor factor is greater than the stated death greater than the stated death greater than the stated death benefit, the adjustable term benefit plus the account benefit plus the sum of all insurance benefit will value, the adjustable term premiums we receive minus decrease. It will decrease so insurance rider benefit will partial withdrawals you have that the base death benefit decrease. It will decrease so taken, the adjustable term plus the adjustable term that the base death benefit insurance rider benefit will insurance rider benefit is not plus the adjustable term decrease.It will decrease so greater than the target death insurance rider benefit is not that the sum of the base death benefit. If the base death greater than the target death benefit plus the adjustable benefit becomes greater than benefit plus the account term insurance rider benefit the target death benefit, the value. If the base death is not greater than the target adjustable term insurance benefit becomes greater than death benefit plus the sum of rider benefit is zero. the target death benefit plus all premiums we receive the account value, the minus partial withdrawals adjustable term insurance you have taken.If the base rider benefit is zero. death benefit becomes greater than the target death benefit plus the sum of all premiums we receive minus partial withdrawals you have taken, the adjustable term insurance rider benefit is zero.
BASE DEATH BENEFIT Your base death benefit can be different from your stated death benefit as a result of: o your choice of death benefit option; o a change in your death benefit option; o increases or decreases to the stated death benefit. As long as your policy is in force, we will pay the death proceeds to your beneficiary(ies) when the insured person dies. The beneficiary(ies) is(are) the person (people) you name to receive the death proceeds from your policy. The death proceeds are: o your base death benefit; plus o rider benefits; minus o your outstanding policy loan with accrued loan interest; minus o outstanding policy charges incurred before the insured person's death. There could be outstanding policy charges if the insured dies while your policy is in the grace period. DEATH BENEFIT OPTIONS You have a choice of three death benefit options: option 1, option 2 or option 3 (described below). You may choose death benefit option 3 only prior to the issue of your policy. Your choice may result in your base death benefit being greater than your stated death benefit. You may change your death benefit option after the first policy anniversary and before the continuation of coverage feature begins. SEE CHANGES IN DEATH BENEFIT OPTIONS, PAGE 21 AND CONTINUATION OF COVERAGE, PAGE 24. Federal income tax law requires that your death benefit be at least as much as your account value multiplied by a factor defined by law. This factor is based on the insured person's age and gender. SEE APPENDIX A, PAGE 62. - -------------------------------------------------------------------------------- Strategic Benefit 21 Under death benefit option 1, your base death benefit is the greater of: o your stated death benefit on the date of the insured person's death; or o your account value on the date of the insured person's death multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 1 positive investment performance is generally reflected in a reduced net amount at risk. This lowers your policy's total cost of insurance charges. Option 1 offers insurance coverage that is a set amount with potentially lower cost of insurance charges over time. Under death benefit option 2, your base death benefit is the greater of: o your stated death benefit plus your account value on the date of the insured person's death; or o your account value on the date of the insured person's death multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 2, investment performance is reflected in your insurance coverage. Under death benefit option 3, the base death benefit is the greater of: o your stated death benefit plus the sum of all premiums we receive minus partial withdrawals you have taken under your policy; or o your account value on the date of the insured person's death multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 3, the base death benefit generally will increase as you pay premiums, and decrease if you take partial withdrawals. In no event will your base death benefit be less than your stated death benefit. Death benefit options 2 and 3 are not available during the continuation of coverage period. If you select option 2 or 3 on your policy, it automatically converts to death benefit option 1 when the continuation of coverage period begins. SEE CONTINUATION OF COVERAGE, PAGE 24. CHANGES IN DEATH BENEFIT OPTIONS You may request a change in your death benefit option at any time before the continuation of coverage period. A death benefit option change applies to your entire stated or base death benefit. Changing your death benefit option may reduce or increase your target death benefit, as well as your stated death benefit. Your death benefit option change is effective on your next monthly processing date after we approve it, so long as at least one day remains before your monthly processing date. If less than one day remains before your monthly processing date, your death benefit option change is effective on your second following monthly processing date. After we approve your request, we send a new policy schedule page to you. You should attach it to your policy. Or, we may ask you to return your policy to our customer service center so that we can make this change for you. We may not allow a change to your death benefit option if it reduces the target death benefit below the minimum we require to issue your policy. You may change from death benefit option 1 to option 2, from option 2 to option 1, or from option 3 to option 1. YOU MAY NOT CHANGE FROM DEATH BENEFIT OPTION 1 OR 2 TO OPTION 3, OR FROM OPTION 3 TO OPTION 2. For you to change from death benefit option 1 to option 2, we may require proof that the insured person is insurable under our normal rules of underwriting. On the effective date of your option change, your stated death benefit is changed as follows: Change Change Stated Death Benefit From To Following Change: ---- -- ----------------- Option 1 Option 2 your stated death benefit before the change minus your account value as of the effective date of the change. Option 2 Option 1 your stated death benefit before the change plus your account value as of the effective date of the change. Option 3 Option 1 your stated death benefit before the change plus the sum of the premiums we receive, minus partial withdrawals you have taken as of the effective date of the change. - -------------------------------------------------------------------------------- Strategic Benefit 22 We increase or decrease your stated death benefit to keep the net amount at risk the same on the date of your death benefit option change. There is no change to the amount of coverage under your adjustable term insurance rider. SEE COST OF INSURANCE CHARGE, PAGE 38. If you change your death benefit option, we adjust the stated death benefit for each of your segments by allocating your account value to each benefit segment. For example, if you change from death benefit option 1 to option 2, your stated death benefit is decreased by the amount of your account value allocation to that segment. If you change from death benefit option 2 to option 1, your stated death benefit is increased by the amount allocated to that segment. CHANGES IN DEATH BENEFIT AMOUNTS You may increase your target or stated death benefit while your policy is in force and before the policy anniversary when the insured person turns age 85. You may request a decrease in the stated death benefit only after your first policy anniversary. Contact your agent/registered representative or our customer service center to request an increase or decrease in death benefit. The change is effective as of the next monthly processing date after we approve your request. Your requested change must be for at least $1,000. After we make your requested change, we will send you a new schedule page. Keep it with your policy. Or we may ask you to send your policy to us so that we can make the change for you. We may not approve a requested change if it will disqualify your policy as life insurance under federal income tax law. If we disapprove a change for any reason, we provide you with a notice of our decision. SEE TAX CONSIDERATIONS, PAGE 40. If you decrease your death benefit, you may not decrease your target death benefit below the minimum we require to issue your policy. There may be tax consequences as a result of a decrease in your death benefit. SEE TAX STATUS OF THE POLICY, PAGE 40 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 42. Requested reductions in the death benefit amount will first decrease the target death benefit. We decrease your stated death benefit only after your adjustable term insurance rider coverage is reduced to zero. If you have more than one segment, we divide decreases in stated death benefit among your benefit segments pro rata unless state law requires differently. You must provide satisfactory evidence that the insured person is still insurable in order to increase your death benefit. Unless you tell us differently, we assume a request to increase your target death benefit is also a request for an increase to the stated death benefit. Thus, the amount of your adjustable term insurance rider will not change. You may change your target death benefit once in a policy year. The initial death benefit segment, or first segment, is the stated death benefit on the effective date of your policy. An increase in the stated death benefit (other than one caused by an option change) will create a new segment. The segment year begins on the segment effective date and ends one year later. Once we create a new segment, it is permanent unless state law requires differently. Each new segment may have: o a new sales charge; o a new deferred sales charge; o new cost of insurance charges, guaranteed and current; o a new incontestability period; o a new suicide exclusion period; and o a new target premium. Premiums you pay after an increase are applied to your policy segments in the same proportion as the target premium for each segment bears to the sum of the target premium for all segments. For each coverage segment, your schedule shows your target premium which is used to determine your initial sales charge and deferred sales charge. ADJUSTABLE TERM INSURANCE RIDER You may increase your death proceeds by adding an adjustable term insurance rider to your policy. This rider enables you to schedule the death benefit based - -------------------------------------------------------------------------------- Strategic Benefit 23 on anticipated needs. As the name suggests, the adjustable term insurance rider adjusts over time to maintain your desired level of coverage. You specify a target death benefit when you apply for this rider. The target death benefit can be level for the life of your policy or scheduled to change at the beginning of a policy year(s). SEE DEATH BENEFITS, PAGE 19. The adjustable term insurance rider death benefit is the difference between your target death benefit and your base death benefit. The death benefit automatically adjusts daily as your base death benefit changes. Total death benefit depends on which death benefit option is in effect: OPTION 1: If option 1 is in effect, the total death benefit is the greater of: a. the target death benefit; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. OPTION 2: If option 2 is in effect, the total death benefit is the greater of: a. the target death benefit plus the account value; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. OPTION 3: If option 3 is in effect, the total death benefit is the greater of: a. the target death benefit plus the sum of the premiums we receive minus partial withdrawals you have taken; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. For example, under option 1, assume your base death benefit changes as a result of changes in your account value. The adjustable term insurance rider adjusts to provide death proceeds equal to your target death benefit in each year: Base Death Target Death Adjustable Term Benefit Benefit Insurance Rider Amount ------- ------- ---------------------- $201,500 $250,000 $48,500 202,500 250,000 47,500 202,250 250,000 47,750 It is possible that the amount of your adjustable term insurance may be zero if your base death benefit increases enough. Using the same example, if the base death benefit under your policy grew to $250,000 or more, the adjustable term insurance coverage would be zero. Even when the adjustable term insurance is reduced to zero, your rider remains in effect until you remove it from your policy. Therefore, if later the base death benefit drops below your target death benefit, the adjustable term insurance rider coverage reappears to maintain your target death benefit. You may change the target death benefit schedule after it is issued, based on our rules. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 22. We may deny future, scheduled increases to your target death benefit if you cancel a scheduled change, or if you ask for an unscheduled decrease in your target death benefit. Partial withdrawals, changes from death benefit option 1 to option 2 and base decreases may reduce the amount of your target death benefit. SEE PARTIAL WITHDRAWALS, PAGE 29, AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 21. There is no defined premium for a given amount of adjustable term insurance coverage. Instead, we deduct a monthly cost of insurance charge from your account value. The cost of insurance for this rider is calculated as the monthly cost of insurance rate for the rider coverage multiplied by the adjustable term death benefit in effect that month. The cost of insurance rates will be determined by us from time to time. They are based on the issue age, gender, and rating of the person insured, as well as the length of time since your policy date. The monthly guaranteed maximum cost of insurance rates for this rider will be in your policy. SEE COST OF INSURANCE CHARGE, PAGE 38. The only charge for this coverage is the cost of insurance charge. The total charges that you pay may be less if you have greater coverage under an adjustable term insurance rider rather than base death benefit. If the target death benefit is increased by you after the rider is issued, we use the same - -------------------------------------------------------------------------------- Strategic Benefit 24 cost of insurance rate schedule for the entire coverage for this rider. These rates are based on the original rating even though new evidence of insurability is given to us for the increased schedule. Not all policy features apply to the adjustable term insurance rider. Under this rider, there is no surrender value and a policy loan is not available. The adjustable term insurance rider does not contribute to the policy account value nor to investment performance under your policy. The adjustable term insurance rider provides benefits only at the insured person's death. SPECIAL FEATURES DESIGNATED DEDUCTION OPTION You may designate an investment option from which we will take your monthly charges and deferred sales charge. You may make this designation at any time. You may not use the loan division as your designated deduction option. If you do not choose a designated deduction option, or if the amount in your designated deduction option is not enough to cover deductions and charges, the charges will be taken from the variable and guaranteed interest divisions in the same proportion that your account value in each has to your total net account value as of the monthly processing date. If you change your designated deduction option, we consider it a premium allocation change for which there may be a charge. SEE POLICY TRANSACTION FEES, PAGE 39. RIGHT TO EXCHANGE POLICY During the first 24 months after your policy date, you have the right to exchange your policy for a guaranteed policy, unless state law requires differently. We transfer the amount you have in the variable division to the guaranteed interest division. We allocate all future net premiums to the guaranteed interest division. We do not allow future payments or transfers to the variable division after you exercise this right. We will not charge you for this exchange. SEE GUARANTEED INTEREST DIVISION, PAGE 15. POLICY MATURITY If the insured person reaches age 100 and you do not want the continuation of coverage feature, you may surrender your policy for the net account value. Your policy then ends. Some part of this payment may be taxable. You should consult your tax adviser. CONTINUATION OF COVERAGE The continuation of coverage feature allows your insurance coverage to continue beyond policy maturity. If you allow the continuation of coverage feature to become effective, we: o transfer your net account value (excluding the amount in the loan division) into the guaranteed interest division; o charge a one-time $200 administrative fee to your policy to cover future expenses; o terminate the adjustable term insurance rider and the target death benefit becomes the stated death benefit; o convert death benefit option 2 or option 3 to death benefit option 1, if applicable; and o terminate investment features. Your insurance coverage continues until the insured person's death, unless your policy lapses or is surrendered. However, we deduct no further charges and your monthly deductions cease. SEE CONTINUATION OF COVERAGE ADMINISTRATIVE FEE, PAGE 39. Your net account value may not be transferred into the variable division during the continuation of coverage period, but you may take policy loans or partial withdrawals. If you have an outstanding policy loan, interest continues to accrue. If you fail to make sufficient loan or loan interest payments, it is possible that the loan balance plus accrued interest may become greater than your account value and cause your policy to lapse. To avoid this, you may repay loans and make loan interest payments during the continuation of coverage period. If you wish to stop coverage after the continuation of coverage feature begins, you may surrender your policy and receive the net account value. All other consequences of surrender apply. SEE SURRENDER, PAGE 31. The continuation of coverage feature may not be available in all states. If a state has approved this feature, it is automatic and you do not need to take any action to activate it. The tax consequences of coverage continuing beyond when the insured person reaches age 100 are uncertain. You should consult a tax adviser as to those consequences. - -------------------------------------------------------------------------------- Strategic Benefit 25 POLICY VALUES ACCOUNT VALUE Your account value is the total amount you have in the guaranteed interest division, the variable division, and the loan division. Your account value reflects: o net premiums applied; o charges deducted; o withdrawals taken; o investment performance of the variable investment options; o interest earned on the guaranteed interest division; and o interest earned on the loan division. NET ACCOUNT VALUE Your policy's net account value is your account value minus the amount of your outstanding policy loan and accrued loan interest, if any. Your surrender value is the same as your net account value. DETERMINING THE VALUE IN THE VARIABLE DIVISION The amounts in the variable division are measured by accumulation units and accumulation unit values. The value of a variable investment option is the accumulation unit value for that option multiplied by the number of accumulation units you own in that option. The accumulation unit value is the value determined on each valuation date. The accumulation unit value of each variable investment option varies with the investment performance of the underlying portfolio. It reflects: o investment income; o realized and unrealized gains and losses; and o investment portfolio expenses. Each variable investment option has a different accumulation unit value. A valuation date is one on which the net asset value of the investment portfolio shares and unit values of the variable investment options are determined. Valuation dates are each day the New York Stock Exchange and the company's customer service center are open for business, except for days on which a corresponding investment portfolio does not value its shares, or any other day as required by law. Each valuation date ends at 4 p.m. Eastern Time. Our customer service center may not be open for business on: New Year's Day, Martin Luther King, Jr.'s birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving, Christmas Day and the day before or after Christmas. You purchase accumulation units when you allocate premium or make transfers to a variable investment option.This includes transfers from the loan division. We redeem accumulation units: o when you take a partial withdrawal; o when amounts are transferred from a variable investment option (including transfers to the loan division); o for the monthly deductions from your account value; o for policy transaction charges; o when you surrender your policy; and o to pay the death proceeds. To calculate the number of accumulation units purchased or redeemed we: o divide the dollar amount of your transaction by: o the accumulation unit value calculated at the close of business on the valuation date of the transaction. SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 26. The date of a transaction is the date we receive your premium or transaction request at our customer service center, so long as the date of receipt is a valuation date. We use the accumulation unit value which is next calculated after we receive your premium or transaction request and we use the number of accumulation units attributable to your policy on the date of receipt. We take monthly deductions from your account value as of the monthly processing date. If your monthly processing date is not a valuation date, the monthly deduction is processed on the next valuation date. The value of amounts allocated to the variable investment option goes up or down depending on investment performance. - -------------------------------------------------------------------------------- Strategic Benefit 26 FOR AMOUNTS IN THE VARIABLE INVESTMENT OPTIONS, THERE IS NO GUARANTEED MINIMUM CASH VALUE. HOW WE CALCULATE ACCUMULATION UNIT VALUES We determine accumulation unit values on each valuation date. We generally set the accumulation unit value for a variable investment option at $10 when the investment option is first opened. After that, the accumulation unit value on any valuation date is: o the accumulation unit value for the preceding valuation date multiplied by o the accumulation experience factor for that variable investment option for the valuation period. Every valuation period begins at 4:00 p.m. Eastern time on a valuation date and ends at 4:00 p.m. Eastern time on the next valuation date. We calculate an accumulation experience factor for each variable investment option every valuation date as follows: o We take the share value of the underlying portfolio shares in the variable investment option as reported to us by the investment portfolio managers as of the close of business on that valuation date. o We add dividends or capital gain distributions declared per share and reinvested by the investment portfolio on the date that the share value is affected. If applicable, we subtract a charge for taxes from this amount. o We divide the remaining amount by the value of the shares in the underlying investment portfolio for the variable investment option at the close of business on the previous valuation date. TRANSFERS OF ACCOUNT VALUE You may make twelve free transfers among the variable investment options, or the guaranteed interest division, in each policy year. You may not make transfers until after your free look period ends if your state requires a refund of premium during the free look period. We do not limit your number of transfers, but we charge a $10 fee for each transfer after the first twelve in a policy year. We do not include transfers for automatic rebalancing or dollar cost averaging toward your twelve free transfers. You may not make transfers during the continuation of coverage period. SEE POLICY TRANSACTION FEES, PAGE 39 AND CONTINUATION OF COVERAGE, PAGE 24. You may make transfer requests in writing, or by telephone if you have telephone privileges, to our customer service center. Your transfer takes effect on the valuation date we receive your request.The minimum amount you may transfer is $100. This minimum does not need to come from one investment option or be transferred to one investment option as long as the total amount you transfer is at least $100. However, if the amount remaining in a variable investment option is less than $100 when you make a transfer request, we transfer the entire amount out of that variable investment option. EXCESSIVE TRADING Excessive trading activity can disrupt investment portfolio management strategies and increase portfolio expenses by causing: o increased trading and transaction costs; o disruption of planned investment strategies; o forced and unplanned portfolio turnover; o lost opportunity costs; and o large asset swings that decrease the portfolio's ability to provide maximum investment return to all policyowners. In response to excessive trading, we may place restrictions or refuse transfers made by third-party agents acting on behalf of owners such as a market timing service. We will refuse or place restrictions on transfers when we determine, in our sole discretion, that transfers are harmful to the investment portfolios, or to policyowners as a whole. GUARANTEED INTEREST DIVISION TRANSFERS Transfers into the guaranteed interest division are not restricted. You may transfer from the guaranteed interest division only in the first 30 days of each policy year. Transfer requests received within 30 days before your policy anniversary will occur on your policy anniversary. A request received by us within 30 days after your policy anniversary is effective as of the valuation date we receive it. Transfer requests made at any other time will not be processed. - -------------------------------------------------------------------------------- Strategic Benefit 27 Transfers from the guaranteed interest division are limited to the largest of: o 25% of your guaranteed interest division balance at the time of your first transfer or withdrawal out of it in that policy year; o the sum of the amounts you have transferred and withdrawn from the guaranteed interest division in the prior policy year; or o $100. DOLLAR COST AVERAGING You can elect dollar cost averaging if your policy has at least $10,000 invested in a qualifying source portfolio, either the Liquid Asset Portfolio or the Limited Maturity Bond Portfolio. The main goal of dollar cost averaging is to protect your policy values from short-term price changes. DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A LOSS IN A DECLINING MARKET. This systematic plan of transferring account values is intended to reduce the risk of investing too much when the price of a portfolio's shares is high. It also reduces the risk of investing too little when the price of an investment portfolio's shares is low. Since you transfer the same dollar amount to these investment options each period, you purchase more units when the unit value is low, and you purchase fewer units when the unit value is high. You may add dollar cost averaging to your policy at any time. The first dollar cost averaging date must be at least one day after we receive your dollar cost averaging request. Dollar cost averaging begins after the end of your free look period if your state requires a refund of all premium during the free look period. With dollar cost averaging, you designate either a dollar amount, or a percentage of your account value, for automatic transfer from qualifying source portfolios. Each period, we automatically transfer the amount you select from your chosen source portfolio to one or more other variable investment options. You may not make transfers to or from the guaranteed interest division or the loan division under dollar cost averaging. The minimum percentage you may transfer to one investment option is 1% of the total amount you transfer. You must transfer at least $100 on each dollar cost averaging transfer date. Dollar cost averaging may occur on the same day of the month on a monthly, quarterly, semi-annual or annual basis. Unless you tell us otherwise, dollar cost averaging automatically takes place monthly, on your monthly processing date. We do not count dollar cost averaging transfers toward your twelve free transfers per policy year. There is no charge for this feature. You may have both dollar cost averaging and automatic rebalancing at the same time. However, your dollar cost averaging source portfolios cannot be included in your automatic rebalancing allocation program. CHANGING DOLLAR COST AVERAGING You may change your dollar cost averaging program once per policy year. If you have telephone privileges, you may change the program by telephoning our customer service center. SEE TELEPHONE PRIVILEGES, PAGE 34. TERMINATING DOLLAR COST AVERAGING You may cancel dollar cost averaging by sending satisfactory notice to our customer service center. We must receive it at least one day before the next dollar cost averaging date. Dollar cost averaging will terminate if: o you specify a termination date; or o your balance in the source portfolio reaches a dollar amount you set; or o the amount in the source portfolio is equal to or less than the amount to be transferred. We will transfer the remaining amount and end dollar cost averaging. AUTOMATIC REBALANCING Automatic rebalancing is a method of maintaining a consistent approach to investing account value over time, and simplifying the process of asset allocation among your chosen investment options. - -------------------------------------------------------------------------------- Strategic Benefit 28 Transfers made for automatic rebalancing do not count toward your twelve free transfers per policy year. There is no charge for this feature. If you choose this feature, on each rebalancing date we transfer amounts among the investment options to match your pre-set automatic rebalancing allocation. After the transfer, the ratio of your account value in each investment option to your total account value for all investment options included in automatic rebalancing matches the automatic rebalancing allocation percentage you set for that investment option. This action rebalances the amounts in the investment options that do not match your set allocation. This mismatch can happen if an investment option outperforms other investment options for that time period. You may choose automatic rebalancing on your application or later by completing our customer service form. Automatic rebalancing may occur on the same day of the month on a monthly, quarterly, semi-annual or annual basis. If you do not specify a frequency, automatic rebalancing will occur quarterly. The first transfer occurs on the date you select (after your free look period ends if your state requires return of premium during the free look period). If you do not request a date, processing is on the last valuation date of the calendar quarter in which we receive your request. You may have both automatic rebalancing and dollar cost averaging at the same time. However, the source portfolios for your dollar cost averaging cannot be included in your automatic rebalancing program. You may not include the loan division. CHANGING AUTOMATIC REBALANCING You may change your allocation percentages for automatic rebalancing at any time. Your allocation change is effective on the valuation date that we receive it at our customer service center. If you reduce the amount allocated to the guaranteed interest division, it is considered a transfer from that division. You must meet the requirements for the maximum transfer amount and time limitations on transfers from the guaranteed interest division. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 26. TERMINATING AUTOMATIC REBALANCING You may terminate automatic rebalancing at any time, as long as we receive your notice of termination at least one day before the next automatic rebalancing date. POLICY LOANS You may borrow from your policy at any time after the first monthly processing date by using your policy as security for a loan, or as otherwise required by law. The amount you borrow (policy loan) is: o the total amount you borrow; plus o loan interest that is capitalized when due; minus o loan repayments you make. Unless state law requires differently, a new policy loan must be at least $100. The maximum amount you can borrow on any valuation date, unless required differently by state law, is your net account value minus the monthly deductions to your next policy anniversary or 13 monthly deductions if you take a loan within thirty days before your next policy anniversary. Your request for a policy loan must be directed to our customer service center. If you have telephone privileges, you may request a policy loan for less than $25,000 by telephone. SEE TELEPHONE PRIVILEGES, PAGE 34. When you request a loan you may specify one investment option from which the loan will be taken. If you do not specify one, the loan will be taken proportionately from each active investment option you have, including the guaranteed interest division. When you take a policy loan, we transfer an amount equal to your policy loan from the specified investment option or proportionately from the variable and the guaranteed interest divisions to the loan division. We follow this same process for loan interest due at your policy anniversary. The loan division is part of our general account, specifically designed to hold collateral for policy loans and interest. We credit the loan division with interest at an annual rate of 3%. Loan interest charges on your policy loan accrue daily at an annual interest rate of 3.25%. Interest is due in arrears on each policy anniversary. If you do not pay it when it is due, we add it to your policy loan balance. If you request an additional loan, we add the new loan amount to your existing policy loan. This way, there is only one loan outstanding on your policy at any time. - -------------------------------------------------------------------------------- Strategic Benefit 29 LOAN REPAYMENT You may repay your policy loan at any time. We assume that payments you make, other than scheduled premiums, are policy loan repayments. You must tell us if you want additional payments to be premium payments. When you make a loan repayment, we transfer an amount equal to your repayment from the loan division to the variable investment options and the guaranteed interest division in the same proportion as your current premium allocation, unless you tell us otherwise. EFFECTS OF A POLICY LOAN Taking a loan decreases the amount you have in the investment options. Accruing loan interest will change your net account value as compared to what it would have been if you did not take a loan. Even if you repay your loan, it has a permanent effect on your account value. The benefits under your policy may be affected. The loan is a first lien on your policy. If you do not repay your policy loan, we deduct your outstanding policy loan and accrued loan interest from the death proceeds or the surrender value payable. A policy loan may cause your policy to lapse if your account value minus your policy loan balance and accrued loan interest is not enough to cover your monthly deductions. Policy loans may have tax consequences. If your policy lapses with a loan outstanding, you may have further tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 42, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 42. If you use the continuation of coverage feature and you have a policy loan, loan interest continues to accrue. PARTIAL WITHDRAWALS You may request a partial withdrawal to be processed on any valuation date after your first policy anniversary by contacting our customer service center. You make a partial withdrawal when you withdraw part of your net account value. If your request is by telephone, the partial withdrawal must be for an amount less than $25,000 and may not cause a decrease in your death benefit. Otherwise, your request must be in writing. SEE TELEPHONE PRIVILEGES, PAGE 34. You may take only one partial withdrawal per policy year. The minimum partial withdrawal amount is $100. The maximum partial withdrawal you may take is the amount which leaves $500 as your net account value. If you request a withdrawal of more than this maximum, we require you to surrender your policy or reduce the withdrawal. When you take a partial withdrawal, we deduct your withdrawal amount plus a service fee from your account value. SEE CHARGES, PAGE 37. Partial withdrawals do not reduce the stated death benefit if your base death benefit has been increased to qualify your policy as life insurance under the federal income tax laws and if you withdraw an amount that is no greater than the amount that reduces your account value to a level which no longer requires your base death benefit to be increased to qualify as life insurance for federal income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE 40. We require a minimum target death benefit to issue your policy. You are not allowed to take a partial withdrawal if it reduces your target death benefit below this minimum. SEE GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS, PAGE 40. PARTIAL WITHDRAWAL MECHANICS We will make a partial withdrawal from the guaranteed interest division and the variable investment options in the same proportion that each has to your net account value immediately before your withdrawal or, you may select one investment option from which your partial withdrawal will be taken. If you select the guaranteed interest division, however, the amount withdrawn from it may not be more than your total withdrawal multiplied by the ratio of your account value in the guaranteed interest division to your total net account value immediately before the partial withdrawal transaction. Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 42, AND - -------------------------------------------------------------------------------- Strategic Benefit 30 DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 42. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 1 If you selected death benefit option 1, no more than fifteen years have passed since your policy date and the insured person is not yet age 81, you may make a partial withdrawal of up to the greater of 10% of your account value, or 5% of your stated death benefit without decreasing your stated death benefit. Otherwise amounts you withdraw will reduce your stated death benefit by the amount of the withdrawal unless your policy death benefit has been increased to satisfy the federal income tax definition of life insurance. If your policy death benefit has been increased to satisfy the federal income tax definition of life insurance then at least part of your partial withdrawal may be made without reducing your stated death benefit. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 2 If you have selected death benefit option 2, a partial withdrawal does not reduce your stated death benefit or target death benefit. However, we reduce the total death benefit by at least the partial withdrawal amount. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 3 If you have selected death benefit option 3 and your partial withdrawal is less than the total of premiums we received minus the total of your prior partial withdrawals, then your stated death benefit will not be reduced. However, your total death benefit will be reduced by at least the amount of your partial withdrawal. If your partial withdrawal is more than the amount of premiums we received minus the total of your prior partial withdrawals, then a two step process is used: 1. Your withdrawal of the amount that makes premiums paid minus all partial withdrawals equal to zero is taken; then 2. The excess withdrawal amount you requested will reduce your stated death benefit if: o the excess amount is greater than 10% of your account value after step 1 above; or o the excess amount is greater than 5% of your stated death benefit; or o more than 15 years have passed since your policy date; or o the insured person is 81 years of age or older. STATED DEATH BENEFIT AND TARGET DEATH BENEFIT REDUCTIONS Generally, we reduce the stated death benefit by the amount of the partial withdrawal. A partial withdrawal may reduce your target death benefit. LAPSE Your insurance coverage continues as long as your net account value is enough to pay your deductions each month. If you have an outstanding policy loan, your policy will lapse if the loan plus accrued interest is more than your account value. Thus, during the continuation of coverage period, the policy could lapse if there is an outstanding policy loan even though there are no further monthly deductions. GRACE PERIOD Your policy enters a 61-day grace period if, on a monthly processing date your net account value is zero (or less). We notify you that the policy is in a grace period at least 30 days before it ends. We send this notice to you (or a person to whom you have assigned your policy) at your last known address in our records. We notify you of the premium payment necessary to prevent your policy from lapsing. This amount generally is the past due charges, plus the amount that covers your estimated monthly policy and rider deductions for the next two months. If the insured person dies during the grace period, we do pay death proceeds to your beneficiary(ies) with reductions for your policy loan balance, accrued loan interest, and monthly deductions owed. If we receive payment of the required amount before the end of the grace period, we apply it to your account value in the same manner as your other premium payments. We then deduct the overdue amounts from your account balance. If you do not pay the full amount within the 61-day grace period, your policy (and rider) lapse without value. We withdraw your remaining account balance from the variable and guaranteed interest divisions. We deduct amounts you owe us and inform you that your policy has ended. - -------------------------------------------------------------------------------- Strategic Benefit 31 REINSTATEMENT If you do not pay enough premium before the end of the grace period, your policy lapses. You may still reinstate your policy and rider within five years of the end of the grace period. Unless state law requires differently, we will reinstate your policy and rider if: o you are the owner and you have not surrendered your policy; o you provide satisfactory evidence that the insured person is still insurable according to our normal rules of underwriting; and o we receive enough premium to keep your policy and rider in force from the beginning to the end of the grace period and for two months after the reinstatement date. Reinstatement is effective as of the monthly processing date following our approval of your reinstatement application. If you had a policy loan when coverage ended, we reinstate it with accrued loan interest to the date of lapse. The cost of insurance charges at the time of reinstatement are adjusted to reflect the time since the lapse. We apply net premiums received after reinstatement according to your most recent premium allocation instructions which may be those in effect at the start of the grace period. SURRENDER You may surrender your policy for its surrender value any time while the insured person is living. You will need to send a written request and your policy or a lost policy form to our customer service center. We compute your surrender value as of the valuation date we receive your surrender request and policy. All insurance coverage ends on the date we receive your surrender request and policy. SEE POLICY VALUES, PAGE 8 AND SETTLEMENT PROVISIONS, PAGE 35. We do not pro-rate or add back charges or expenses which we deducted before your surrender to your account value. You may elect to have your surrender value paid as other than one payment. SEE SETTLEMENT PROVISIONS, PAGE 35. A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 42, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 42. GENERAL POLICY PROVISIONS FREE LOOK PERIOD You have the right to examine your policy and return it (for any reason) to us within the period shown in the policy. The right to examine your policy (also called free look period) starts on the date you receive it. If you return your policy to us within your state's specified time limit, we cancel it as of your policy date. If you cancel your policy during this free look period, you will receive a refund as determined by state law. Generally, there are two types of free look refunds: o some states require a return of all premiums received; and o others require payment of account value plus a refund of all charges deducted. Your policy will specify what type of free look refund applies in your state. The type of free look refund will affect when premium we receive before the end of the free look period is invested into the variable investment options. SEE ALLOCATION OF NET PREMIUMS, PAGE 18. YOUR POLICY Some groups under this policy may choose to use a master policy with policy certificates, rather than a series of individual policies. The contract between you and us is the combination of: othe policy (or certificate); o a copy of your original application and any applications for benefit increases or decreases; o the adjustable term insurance rider; - -------------------------------------------------------------------------------- Strategic Benefit 32 o endorsements; o schedule pages; and o reinstatement applications. If you make a change to your coverage, we give you a copy of your changed application and new schedules. If you send your policy to us, we attach these items to your policy and return it to you. Otherwise, you need to attach them to your policy. Unless there is fraud, we consider all statements made in an application to be representations and not guarantees. We use no statement to deny a claim, unless it is in an application. A president or another officer of our company and our secretary or assistant secretary must sign all changes or amendments to your policy. No other person may change its terms or conditions. GUARANTEED ISSUE We offer this policy only on a guaranteed issue basis, up to a preset face amount with evidence of insurability. AGE We issue your policy at the insured person's age (stated in your policy schedule) based on the nearest birth date to the policy date. We determine the insured person's age at any given time by adding the number of completed policy years to the age calculated at issue. At issue, the insured person must be no less than age 15 and no more than age 85. OWNERSHIP The original owner is the person named as the owner in the policy application. The owner can exercise all rights and receive benefits during the life of the insured person. This includes the right to change the owner, beneficiaries, or method designated to pay proceeds. As a matter of law, all rights of ownership are limited by the rights of any person who has been assigned rights under the policy, and any irrevocable beneficiary(ies). You may name a new owner by giving us written notice. The effective date of the change to the new owner is the date the prior owner signs the notice. However, we will not be liable for any action we take before a change is recorded at our customer service center. A change in ownership may cause the prior owner to recognize taxable income on gain under the policy. BENEFICIARY(IES) You, as owner, name the beneficiary(ies) when you apply for your policy. The primary beneficiary(ies) who survives the insured person receives the death proceeds. Other surviving beneficiaries receive death proceeds only if there is no surviving primary beneficiary(ies). If more than one beneficiary(ies) survives the insured person, they share the death proceeds equally, unless you specify otherwise. If none of your policy beneficiaries has survived the insured person, we pay the death proceeds to you or to your estate, as owner. You may name a new beneficiary(ies) during the insured person's lifetime. We pay death proceeds to the beneficiary(ies) whom you have most recently named and whom we have on record. We do not make payments to multiple sets of beneficiaries. COLLATERAL ASSIGNMENT You may assign your policy by sending written notice to us. After we record the assignment, your rights as owner and the beneficiary's(ies') rights (unless the beneficiary(ies) was made an irrevocable beneficiary(ies) under an earlier assignment) are subject to the assignment. It is your responsibility to make sure the assignment is valid. INCONTESTABILITY After your policy has been in force and the insured person is alive for two years from your policy date, and from the effective date of any new segment or an increase in any other benefit, we will not question the validity of statements in your applicable application. MISSTATEMENTS OF AGE OR GENDER If the insured person's age or gender has been misstated, we adjust the death benefit. We adjust it to the amount which would have been purchased for the insured person's correct age and gender. We base the adjusted death benefit on the cost of insurance charges deducted from your account value on the last monthly processing date before the insured person's death, or as required by state law. If unisex cost of insurance rates apply, we do not make adjustments for a misstatement of gender. - -------------------------------------------------------------------------------- Strategic Benefit 33 SUICIDE If the insured person commits suicide, while sane or insane within two years of your policy date, unless otherwise required by state law, we limit the death benefit to: 1. the total of all premium payments we receive to the time of death; minus 2. the outstanding policy loan balance and accrued loan interest; minus 3. partial withdrawals taken. If the person insured under the policy changed, and the new insured person dies by suicide within two years of the change date, we limit the death benefit to: 1. your net account value as of the change date; plus 2. the premiums we received since the change; minus 3. increases in the policy loan balance, accrued loan interest, and partial withdrawals since the change date. We make a limited payment to the beneficiary(ies) for a new segment or other increase if the insured person commits suicide, while sane or insane within two years of the effective date of a new segment, or within two years of an increase in any other benefit, unless otherwise required by state law. The limited payment is equal to the cost of insurance and monthly expense charges which were deducted for the increase. TRANSACTION PROCESSING Generally, within seven days of when we receive all information required to process a payment, we pay: o death proceeds; o surrender value; o partial withdrawals; and o loan proceeds. We may delay processing these transactions if: o the NYSE is closed for trading; o trading on the NYSE is restricted by the SEC; o there is an emergency so that it is not reasonably possible to sell securities in the variable investment options or to determine the value of a variable investment option's assets; or o a governmental body with jurisdiction over the separate account allows suspension by its order. SEC rules and regulations determine whether or not these conditions exist. We execute transfers among the variable investment options as of the valuation date of our receipt of your request at our customer service center. We determine death proceeds as of the date of the insured person's death.The death proceeds are not affected by subsequent changes in the value of the variable investment options. We pay interest at our stated rate (or at a higher rate if required by law) from the insured person's date of death to the date of payment. We may delay payment from our guaranteed interest division for up to six months, unless state law requires otherwise, of: o surrender proceeds; o withdrawal amounts; or o loan amounts. If we delay payment more than 30 days, we pay interest at our declared rate (or at a higher rate if required by law) from the date we receive your request. NOTIFICATION AND CLAIMS PROCEDURES Except for certain authorized telephone requests, we must receive any election, designation, change, assignment or request in writing from the owner. You must use a form acceptable to us. We are not liable for actions taken before we receive and record your notice. We may require you to return your policy for certain policy changes or if you surrender it. If the insured person dies while your policy is in force, please let us know as soon as possible. We will send you instructions on how to make a claim. As proof of the deceased insured person's death, we may require proof of the deceased insured person's age, and a certified copy of the death certificate. - -------------------------------------------------------------------------------- Strategic Benefit 34 The beneficiary(ies) and the deceased insured person's next of kin may need to sign authorization forms. These forms allow us to get information such as medical records from doctors and hospitals used by the deceased insured person. TELEPHONE PRIVILEGES Telephone privileges are automatically provided to you and your agent/registered representative unless you decline it on the application or contact our customer service center. Telephone privileges allow you or your agent/registered representative to call our customer service center to: o make transfers; o change premium allocations; o change your dollar cost averaging and automatic rebalancing programs; o request partial withdrawals; or o request a policy loan. Our customer service center uses reasonable procedures to make sure that instructions received by telephone are genuine. These procedures may include: o requiring personal identification; o providing written confirmation of transactions; and o tape recording telephone calls. By accepting telephone privileges, you authorize us to record your telephone calls with us. If we use reasonable procedures to confirm instructions, we are not liable for losses from unauthorized or fraudulent instructions. We may discontinue this privilege at any time. NON-PARTICIPATION Your policy does not participate in the surplus earnings of Security Life. DISTRIBUTION OF THE POLICIES The principal underwriter (distributor) for our policies is ING America Equities, Inc.ING America Equities, Inc. is a wholly owned subsidiary of Security Life.It is registered as a broker-dealer with the SEC and the NASD.We pay ING America Equities, Inc. under a distribution agreement. We sell this policy exclusively through insurance licensed registered representatives of certain unaffiliated broker-dealers including Merrill Lynch, Pierce Fenner & Smith Incorporated. These broker-dealers have entered into selling agreements with us. Under the selling agreement, we pay a distribution allowance to the broker-dealer, who pays commissions to the agent/registered representative who sells the policy. During the first policy or segment year, the distribution allowance is 5% of the premium we receive up to the target premium. There is no distribution allowance paid on premium received above target in the first policy or segment year or on any premium received after the first policy or segment year. In addition, we make annual renewal payments to the broker-dealer based on a percentage of each policy's net account value. These payments are 1.00% in policy years one through ten, 0.75% in policy years eleven through twenty, and 0.20% in all later years. We also pay wholesaler fees and training allowances. We pay all distribution and other allowances from our resources which includes sales charges deducted from premiums. ADVERTISING PRACTICES AND SALES LITERATURE We may use advertisements and sales literature to promote this product, including: o articles on variable life insurance and other information published in business or financial publications; o indices or rankings of investment securities; and o comparisons with other investment vehicles, including tax considerations. We may use information regarding the past performance of the variable investment options. Past performance is not indicative of future performance of the investment options or the policies and is not reflective of the actual investment experience of policyowners. We may feature certain investment options and their managers, as well as describe asset levels and sales volumes. We may refer to past, current, or prospective economic trends and investment performance or other information we believe may be of interest to our customers. SETTLEMENT PROVISIONS You may take your surrender value in other than one payment. Likewise, you may elect to have the beneficiary(ies) receive the death proceeds other than in one - -------------------------------------------------------------------------------- Strategic Benefit 35 payment, if you make this election during the insured person's lifetime. If you have not made this election, the beneficiary(ies) may do so within 60 days after we receive proof of the insured person's death. The investment performance of the variable investment options does not affect payments under these settlement options. Instead, interest accrues at a fixed rate based on the option you choose. Payment options are subject to our rules at the time you make your selection. Currently periodic payment must be at least $20 and the total proceeds must be $2,000 or more. Option I: Payouts for a Designated Period Option II: Life Income with Payouts Guaranteed for a Designated Period Option III: Hold at Interest Option IV: Payouts of a Designated Amount Option V: Other:options we offer at the time we pay the benefit. ADMINISTRATIVE INFORMATION ABOUT THE POLICY VOTING PRIVILEGES We invest the variable investment option's assets in shares of investment portfolios. We are the legal owner of the shares held in the separate account and we have the right to vote on certain issues. Among other things, we may vote on issues described in the fund's current prospectus, or issues requiring a vote by shareholders under the Investment Company Act of 1940. Even though we own the shares, we give you the opportunity to tell us how to vote the number of shares attributable to your policy. We count fractional shares. If you have a voting interest, we send you proxy material and a form on which to give us your instructions. Each investment portfolio share has the right to one vote. The votes of all investment portfolio shares are cast together on a collective basis, except on issues for which the interests of the portfolios differ. In these cases, voting is done on a portfolio-by-portfolio basis. Examples of issues that require a portfolio-by- portfolio vote are changes in the fundamental investment policy of a particular investment portfolio or approval of an investment advisory agreement. We vote the shares in accordance with your instructions at meetings of investment portfolio shareholders. We vote any investment portfolio shares that are not attributable to policies and any investment portfolio shares for which the owner does not give us instructions in the same way we vote as if we did receive owner instructions. We reserve the right to vote investment portfolio shares without getting instructions from policy owners if the federal securities laws, regulations, or their interpretations change to allow this. You may instruct us only on matters relating to the investment portfolios corresponding to those in which you have invested assets as of the record date set by the investment portfolio's Board for the meeting. We determine the number of investment portfolio shares in each variable investment option for your policy by dividing your account value in that option by the net asset value of one share of the matching investment portfolio. MATERIAL CONFLICTS We are required to track events to identify material conflicts arising from using investment portfolios for both variable life and variable annuity separate accounts. The boards of the investment portfolios, Security Life, and other insurance companies participating in the investment portfolios, have this same duty. There may be a material conflict if: o state insurance law or federal income tax law changes; o investment management of an investment portfolio changes; or o voting instructions given by owners of variable life insurance policies and variable annuity contracts differ. The investment portfolios may sell shares to certain qualified pension and retirement plans qualifying under Code Section 401. These include cash or deferred arrangements under Code Section 401(k). Therefore, there is a possibility that a material conflict may arise between the interests of owners in general, or between certain classes of owners, and these retirement plans or participants in these retirement plans. - -------------------------------------------------------------------------------- Strategic Benefit 36 If there is a material conflict, we have the duty to determine appropriate action, including removing the portfolios involved from our variable investment options. We may take other action to protect policy owners. This could mean delays or interruptions of the variable operations. When state insurance regulatory authorities require it, we may ignore voting instructions relating to changes in an investment portfolio's adviser or its investment policies. If we do ignore voting instructions, we give you a summary of our actions in our next semi-annual report to owners. Under the Investment Company Act of 1940, we must get your approval for certain actions involving our separate account. In this case, you have one vote for every $100 of value you have in the variable division. We cast votes credited to amounts in the variable division, but not credited to policies, in the same proportion as votes cast by owners. RIGHT TO CHANGE OPERATIONS Subject to state limitations, we may from time to time make any of the following changes to our separate account: o change the investment objective; o offer additional variable investment options which will invest in portfolios we find appropriate; o eliminate variable investment options; o combine two or more variable investment options; o substitute a new investment portfolio for an existing portfolio.A substitution may become necessary if, in our judgment: a) a portfolio no longer suits the purposes of this policy; b) there is a change in laws or regulations; c) there is a change in a portfolio's investment objectives or restrictions; d) the portfolio is no longer available for investment; or e) there is another reason we deem a substitution is appropriate; o transfer assets related to your policy to another separate account; o withdraw the separate account from registration under the 1940 Act; o operate the separate account as a management investment company under the 1940 Act; o cause one or more variable investment options to invest in a mutual fund other than, or in addition to, the investment portfolios; o stop selling these policies; o end an employer or plan trustee agreement with us under the agreement's terms; o limit or eliminate voting rights for the separate account; or o make changes required by the 1940 Act, or its rules or regulations. We will not make a change until it is effective with the SEC and approved by the appropriate state insurance departments, if necessary. We will notify you of changes. If you wish to transfer the amount you have in the affected investment option to another variable investment option, or to the guaranteed interest division, you may do so free of charge. Just notify us at our customer service center. REPORTS TO OWNERS At the end of each policy year we send a report to you that shows: o your total net policy death benefit (your stated death benefit plus adjustable term insurance rider death benefit, if any); o your account value; o your policy loan, if any, plus accrued interest; o your surrender value; o information about the variable investment options; and o your account transactions during the policy year showing net premiums, transfers, deductions, loan amounts and withdrawals. We also send semi-annual reports with financial information on the investment portfolios, including a list of the investment holdings of each portfolio, to you. We send confirmation notices to you throughout the year for certain policy transactions. CHARGES AND DEDUCTIONS The amount of a charge may not correspond to the cost incurred by us to provide the service or benefit. For example, the sales charges may not cover all of our sales and distribution expenses. Some proceeds from other charges, including the mortality and expense risk charge or cost of insurance charges, may be used to cover such expenses. - -------------------------------------------------------------------------------- Strategic Benefit 37 DEDUCTIONS FROM PREMIUMS We treat payments we receive as premium payments if the insured person is not yet age 100 and you do not have an outstanding policy loan. After we deduct certain expenses from your payment, we add the remaining net premium to your policy. INITIAL SALES CHARGE AND DEFERRED SALES CHARGE We deduct charges based on the amount of premium we receive each year your policy or segment is in effect. The sales charge (and deferred sales charge) helps cover our costs of distribution, preparing sales literature, promotion expenses and other direct and indirect expenses to sell the policy. During the first policy or segment year, we do not deduct an initial sales charge from your premium payments. However, these payments will be used to calculate the deferred sales charge which is deducted at the beginning of policy or segment years two through eight. The amount of this annual deduction is 1.75% of premium paid during policy or segment year one, up to your policy's target premium (in your policy schedule pages), plus 1.60% of premium paid during policy or segment year one in excess of target. This deferred sales charge deduction ends after policy or segment year eight. Thus, first policy or segment year premiums, up to target, are subject to the highest rate of sales charge, equivalent to 12.25% over seven years (1.75% per year times 7 years). During your second policy or segment year, and in each year thereafter, we deduct 0.5% of all premium payments we receive before we apply the premium to your policy. This deduction is the policy initial sales charge. Premium payments from which we deduct a sales charge are not subject to the deferred sales charge. SALES CHARGES AS A PREMIUM PERCENTAGE OF PAID PREMIUM WHEN DEDUCTED policy/segment 1.75%* beginning of year 1 up to policy/segment target years 2 - 8 policy/segment 1.6%* beginning of year 1 in policy/segment excess of years 2 - 8 target policy/segment 0.5% upon receipt of years 2+ payment * THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS. SALES CHARGE EXAMPLE (BASED ON TWO YEARS OF PREMIUM PAYMENTS) Assume a policy has a target premium of $8,000. Premium payments of $10,000 are made in each of the first two years and there has been no change in death benefit. The $10,000 premium payment for the first year incurs an annual deferred sales charge of $172 deducted in years two through eight: 1.75% of premium up to target plus 1.6% of premium payments over target [.0175 x $8,000 + (.016 x $2,000) = $172]. The deferred sales charge deduction is made on the monthly processing date at the policy (or segment) anniversary. The $10,000 premium payment for the second year incurs a sales charge of $50 when it is received: 0.5% of all premium [.005 x $10,000 = $50]. Deducted Deferred Sales Sales Charge During Policy Charge on First on Second Year or Segment Year Premium Premium Year Of $10,000 Of $10,000 1 $0 $0 2 $172 $50 3 $172 $0 4 $172 $0 5 $172 $0 6 $172 $0 7 $172 $0 8 $172 $0 9 $0 $0 TAX CHARGES We pay state and local taxes in almost all states. These taxes vary in amount from state to state and may vary from jurisdiction to jurisdiction within a state. Currently, state and local taxes range from 0% to 5%. In the first policy - -------------------------------------------------------------------------------- Strategic Benefit 38 or segment year, we deduct 2.5% of each premium payment up to target premium to cover these taxes. In subsequent years, we deduct 2.5% of all premium payments. This charge approximates the average tax rate we expect to pay. To cover our estimated costs for the federal income tax treatment of deferred acquisition costs, we deduct 1.5% of each premium payment up to target premium in the first policy or segment year. In subsequent years, we deduct 1.5% of all premiums. This cost is determined solely by a portion of the amount of life insurance premiums we receive. We reserve the right to increase or decrease this charge for state and local taxes if there are changes in the tax law, within limits set by state law. We also reserve the right to increase or decrease the charge for the federal income tax treatment of deferred acquisition costs based on any change in that cost to us. MONTHLY DEDUCTIONS FROM ACCOUNT VALUE We deduct charges from your account value on each monthly processing date. MORTALITY AND EXPENSE RISK CHARGE We deduct a charge each month for the mortality and expense risks we assume. The mortality risk we assume is that insured people, as a group, may live less time than we estimated. We assume risk that expenses we incur in issuing and administering the policies and in operating the variable investment options are greater than the amount we estimated when we set these charges. This charge is based on the length of time your policy has been in effect and the amount you have in the variable investment options on the monthly processing date. PERCENT OF VARIABLE DIVISION ACCOUNT VALUE MONTHLY EQUIVALENT POLICY YEAR CHARGE ANNUAL RATE 1 - 10 0.07083% 0.85% 11 - 20 0.05000% 0.60% 21+ 0.00417% 0.05% MONTHLY ADMINISTRATIVE CHARGE We deduct an administrative charge of $12 per month for the first policy year and $6 per month for each policy year beyond that. The monthly administrative charge is designed to compensate us for ongoing costs such as: o premium billing and collections; o claim processing; o policy transactions; o record keeping; o reporting and communications with policy owners; and o other expenses and overhead. COST OF INSURANCE CHARGE The cost of insurance charge compensates us for the ongoing costs of providing insurance coverage, including the expected cost of paying death proceeds that could be more than your account value. The cost of insurance rates may depend on the characteristics of the group of insured people, such as ages, risk class, size of the group and the total premium the group pays. The cost of insurance charge is our current monthly cost of insurance rate times the net amount at risk for each portion of your death benefit. We calculate the net amount at risk monthly, at the beginning of each policy month. For the base death benefit, the net amount at risk is calculated using the difference between the current base death benefit and your account value. We determine your account value after we deduct your policy charges due on that date, other than cost of insurance charges. If your base death benefit at the beginning of a month increases (as a requirement of the federal income tax law definition of life insurance), the net amount at risk for your base death benefit for that month also increases. Because your target death benefit did not change, the net amount at risk for your adjustable term insurance rider decreases. The amount of your cost of insurance charge varies from month to month as a result of changes in your net amount at risk, changes in the death benefit and the increasing age of the insured person. We allocate the net amount at risk to all segments in the same proportion that each segment has to the total stated death benefit for all coverage as of the monthly processing date. We apply unisex rates where appropriate under the law. This currently includes the State of Montana and policies purchased by employers and employee organizations in connection with employment-related insurance or benefit programs. - -------------------------------------------------------------------------------- Strategic Benefit 39 Separate cost of insurance rates apply to each segment of the base death benefit and your adjustable term insurance rider. Your cost of insurance rates may change from time to time however, they are never more than the guaranteed maximum rates shown in your policy. The guaranteed maximum rates for base coverage are based on the 1980 Commissioner's Standard Ordinary Sex Distinct Mortality Table. The maximum rates for the initial and each new segment will be printed in your schedule pages. This type of group policy may result in higher cost of insurance charges than those that would apply if the policy were on an individual basis. POLICY TRANSACTION FEES We charge fees for certain transactions you may make under your policy. We deduct these fees from the variable and the guaranteed interest divisions in the same proportion that your account value in each division has to your net account value immediately after the transaction. PARTIAL WITHDRAWALS To cover our costs, we deduct a service fee of up to $25 from your account value for each partial withdrawal you take. SEE PARTIAL WITHDRAWALS, PAGE 29. TRANSFERS There is a $10 fee for each additional transfer over twelve per policy year to cover our costs. If you include multiple transfers in one request, it counts as one transfer. There is no transfer fee if you are exercising the right to exchange in your policy. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 26, AND RIGHT TO EXCHANGE POLICY, PAGE 24. ILLUSTRATIONS The first policy illustration you request in a policy year is free. After that, we charge a fee of up to $25 for each additional policy illustration. PREMIUM ALLOCATION CHANGE You may make five free premium allocation changes per policy year. After five, we charge you $25 for each additional premium allocation change. If you change your designated withdrawal investment option, we consider it a premium allocation charge for which there may be a charge. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 38. CONTINUATION OF COVERAGE ADMINISTRATIVE FEE When the insured person reaches age 100, if your policy has not been surrendered, the continuation of coverage period begins. We charge a one-time administrative fee of $200. We then no longer charge you monthly charges. This charge compensates us for maintaining and servicing your policy until the death of the insured person. DIVISIONS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS MONTHLY CHARGES: COST OF INSURANCE CHARGES, ADMINISTRATIVE FEES AND ANNUAL DEDUCTION OF POLICY LOANS AND DEFERRED SALES CHARGE TRANSACTION FEES PARTIAL WITHDRAWALS CHOICE May choose designated Proportionally among variable May choose any investment deduction option, including and guaranteed interest divisions option or combination of guaranteed interest division investment options, subject to requirements DEFAULT Proportionally among variable Proportionally among variable Proportionally among variable and guaranteed interest and guaranteed interest divisions and guaranteed interest divisions divisions
- -------------------------------------------------------------------------------- Strategic Benefit 40 OTHER CHARGES Under current law, we pay no tax on investment income and capital gains included in variable life insurance policy reserves. So, no charge is made to any variable investment option for our federal income taxes. If the tax law changes and we have federal income tax chargeable to the variable investment options, we may make such a charge in the future. GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS Only groups of individuals, corporations or other institutions may purchase this policy. These group arrangements include those in which there is a trustee, an employer or an association. The group may either purchase policies covering a group of individuals or endorse a policy to a group of individuals. Sponsored arrangements include those in which an employer or association allows us to offer policies to its employees or members on an individual basis. Based on the group underwriting, we may reduce or waive the: o administrative charge; o minimum target death benefit; o target premium; o sales charges; o cost of insurance charges; or o other charges normally assessed. We can reduce or waive these items due to expected economies based on the characteristics of the group. Our sales, administration and mortality costs generally vary with the size and stability of the group, among other factors which we take into account when we reduce charges. We make reductions to charges based on our rules in effect when we approve a policy application. We may change these rules from time to time. We will not be unfairly discriminatory in the variation in the administrative charge, or other charges, fees and privileges. These variations are based on differences in costs or services. TAX CONSIDERATIONS The following summary provides a general description of the federal income tax considerations associated with the policy and does not purport to be complete or to cover all tax situations. This discussion is not intended as tax advice. Counsel or other competent tax advisers should be consulted for more complete information. This discussion is based upon our understanding of the present federal income tax laws. No representation is made as to the likelihood of continuation of the present federal income tax laws or as to how they may be interpreted by the Internal Revenue Service. TAX STATUS OF THE POLICY This policy is designed to qualify as a life insurance contract under the Internal Revenue Code. All terms and provisions of the policy shall be construed in a manner which is consistent with that design. In order to qualify as a life insurance contract for federal income tax purposes and to receive the tax treatment normally accorded life insurance contracts under federal tax law, a policy must satisfy certain requirements which are set forth in Internal Revenue Code Section 7702. However, there is very little guidance, as to how these requirements are to be applied. Nevertheless, we believe it is reasonable to conclude that our policies satisfy the applicable requirements. If it is subsequently determined that a policy does not satisfy the applicable requirements, we will take appropriate and reasonable steps to bring the policy into compliance with such requirements and we reserve the right to restrict policy transactions or modify your policy in order to do so. Specifically this policy must meet the requirements of the "cash value accumulation test" as specified in Code Section 7702. Under the cash value accumulation test, there is no limit to the amount that may be paid in premiums as long as there is enough death benefit in relation to account value at all times. The death benefit at all times must be at least equal to an actuarially determined factor, depending on the insured person's age and sex at any point in time, multiplied by the account value. SEE APPENDIX A, PAGE 62, FOR A TABLE OF THE CASH VALUE ACCUMULATION TEST FACTORS. We will at all times assure that the policy meets the statutory definition which qualifies the policy as life insurance for federal income tax purposes. In addition, as long as the policy remains in force, increases in account value as - -------------------------------------------------------------------------------- Strategic Benefit 41 a result of interest or investment experience will not be subject to federal income tax unless and until there is a distribution from the policy, such as a partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE 41. DIVERSIFICATION REQUIREMENTS In addition to meeting the Code Section 7702 tests, Code Section 817(h) requires separate account investments, such as our separate account, to be adequately diversified. The Treasury has issued regulations which set the standards for measuring the adequacy of any diversification. To be adequately diversified, each variable investment option must meet certain tests. If your variable life policy is not adequately diversified under these regulations, it is not treated as life insurance under Code Section 7702. You would then be subject to federal income tax on your policy income as you earn it. Our variable investment options' investment portfolios have promised they will meet the diversification standards that apply to your policy. In certain circumstances, you, as owner of a variable life insurance contract, may be considered the owner for federal income tax purposes of the separate account assets used to support your contract. Any income and gains from the separate account assets are includable in the gross income from your policy under these circumstances. The IRS has stated in published rulings that a variable contract owner is considered the owner of separate account assets if the contract owner has "indicia of ownership" in those assets. "Indicia of ownership" includes the ability to exercise investment control over the assets. Your ownership rights under your policy are similar to, but different in some ways from, those described by the IRS in rulings in which it determined that policy owners are not owners of separate account assets. For example, you have flexibility in allocating your premium payments and in your policy values. These differences could result in the IRS treating you as the owner of a pro rata share of the separate account assets. We do not know what standards will be set forth in the future, if any, in Treasury regulations or rulings. We reserve the right to modify your policy, as necessary, to try to prevent you from being considered the owner of a pro rata share of the separate account assets, or to otherwise qualify your policy for favorable tax treatment. The following discussion assumes that the policy will qualify as a life insurance contract for federal income tax purposes. TAX TREATMENT OF POLICY DEATH BENEFITS We believe that the death benefit under a policy is generally excludable from the gross income of the beneficiary(ies) under section 101(a)(1) of the Code. However, there are exceptions to this general rule. Additionally, federal and local transfer, estate inheritance, and other tax consequences of ownership or receipt of policy proceeds depend on the circumstances of each policy owner or beneficiary(ies). A tax adviser should be consulted about these consequences. Generally, the policy owner will not be taxed on any of the policy cash value until there is a distribution. When distributions from a policy occur, or when a loan is taken from or secured by a policy, the tax consequences depend on whether or not the policy is a "modified endowment contract." Special rules also apply if you are subject to the alternative minimum tax. You should consult a tax adviser if you are subject to the alternative minimum tax. MODIFIED ENDOWMENT CONTRACTS Under the Internal Revenue Code, certain life insurance contracts are classified as "modified endowment contracts," and are given less favorable tax treatment than other life insurance contracts. Due to the flexibility of the policies as to premiums and benefits, the individual circumstances of each policy will determine whether or not it is classified as a modified endowment contract. The rules are too complex to be summarized here, but generally depend on the amount of premiums we receive during the first seven policy years. Certain changes in a policy after it is issued could also cause it to be classified as a modified endowment contract. A current or prospective policy owner should consult with a competent adviser to determine whether or not a policy transaction will cause the policy to be classified as a modified endowment contract. - -------------------------------------------------------------------------------- Strategic Benefit 42 MULTIPLE POLICIES All modified endowment contracts that are issued by us (or our affiliates) to the same policy owner during any calendar year are treated as one modified endowment contract for purposes of determining the amount includable in the policy owner's income when a taxable distribution occurs. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS Once a policy is classified as a modified endowment contract, the following tax rules apply both prospectively and to any distributions made in the prior two years: o All distributions other than death benefits, including distributions upon surrender and withdrawals, from a modified endowment contact will be treated first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. o Loan amounts taken from or secured by a policy classified as a modified endowment contract are treated as distributions and taxed first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. o A 10% additional income tax penalty may be imposed on the distribution amount subject to income tax. Consult a tax adviser to determine whether or not you may be subject to this penalty tax. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS Distributions other than death benefits from a policy that is not classified as a modified endowment contract are generally treated first as a recovery of the policy owner's investment in the policy. Only after the recovery of all investment in the policy, is there taxable income. However, certain distributions which must be made in order to enable the policy to continue to qualify as a life insurance contract for federal income tax purposes, if policy benefits are reduced during the first fifteen policy years, may be treated in whole or in part as ordinary income subject to tax. Loan amounts from or secured by a policy that is not a modified endowment contract are generally not treated as distributions. Finally, neither distributions from, nor loan amounts from or secured by, a policy that is not a modified endowment contract are subject to the 10% additional income tax. INVESTMENT IN THE POLICY Your investment in the policy is generally the total of your aggregate premiums. When a distribution is taken from the policy other than a policy loan, your investment in the policy is reduced by the amount of the distribution that is tax free. POLICY LOANS In general, interest on a policy loan will not be deductible. Moreover, the tax consequences associated with a low cost loan such as the loan available in the policy are uncertain. Before taking out a policy loan, you should consult a tax adviser as to the tax consequences. SECTION 1035 EXCHANGES Code Section 1035 generally provides that no gain or loss shall be recognized on the exchange of one life insurance policy for another life insurance policy, or for an endowment or annuity contract. We accept 1035 exchanges with outstanding loans. Special rules and procedures apply to Section 1035 exchanges. If you wish to take advantage of Section 1035, you should consult your tax adviser. TAX-EXEMPT POLICY OWNERS Special rules may apply to a policy that is owned by a tax-exempt entity. Tax-exempt entities should consult their tax adviser regarding the consequences of purchasing and owning a policy. These consequences could include an effect on the tax-exempt status of the entity and the possibility of the unrelated business income tax. - -------------------------------------------------------------------------------- Strategic Benefit 43 POSSIBLE TAX LAW CHANGES Although the likelihood of legislative action is uncertain, there is always the possibility that the tax treatment of the policy could be changed by legislation or otherwise. You should consult a tax adviser with respect to legislative developments and their effect on the policy. CHANGES TO COMPLY WITH THE LAW So that your policy continues to qualify as life insurance under the Code, we reserve the right to refuse to accept all or part of your premium payments, or to change your death benefit. We may refuse to allow you to make partial withdrawals that would cause your policy to fail to qualify as life insurance. We also may: o make changes to your policy or its riders; or o take distributions from your policy to the degree that we deem necessary to qualify your policy as life insurance for tax purposes. If we make any change of this type, it applies the same way to all affected policies. The tax law limits the mortality charge used to calculate whether your policy qualifies as life insurance for federal income tax purposes. We must base these calculations on reasonable mortality charges expected to be paid. The Treasury issued proposed regulations on what it considers reasonable mortality charges. We believe that the charges used for your policy should meet the Treasury's current requirement for "reasonableness." We reserve the right to make changes to the mortality charges used in the calculation if future regulations have standards which make changes necessary in order to continue to qualify your policy as life insurance for federal income tax purposes. Additionally, assuming that you do not want your policy to be or to become a modified endowment contract, we include a policy endorsement under which we have the right to amend your policy, including riders. We do this to attempt to enable your policy to continue to meet the seven-pay test for federal income tax purposes. If the policy premium you pay is more than the seven-pay limit, we have the right to remove any excess premium or to make any appropriate adjustments to your policy's account value and death benefit. It is not clear, however, whether we can take effective action pursuant to this endorsement under all possible circumstances to prevent a policy that has exceeded the premium limitation from being classified as a modified endowment contract. Any increase in your death benefit will cause an increase in your cost of insurance charges. OTHER Policy owners may use our policies in various arrangements, including: o qualified plans; o non-qualified deferred compensation or salary continuance plans; o split dollar insurance plans; o executive bonus plans; o retiree medical benefit plans; and o other plans. The tax consequences of these plans may vary depending on the particular facts and circumstances of each arrangement. If you want to use any of your policies in this type of arrangement, you should consult a qualified tax adviser regarding the tax issues of your particular arrangement. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new policy or a change in an existing policy should consult a tax adviser. The IRS requires us to withhold income taxes from any portion of the amounts individuals receive in a taxable transaction. We do not withhold income taxes if you elect in writing not to have withholding apply. If the amount withheld for you is insufficient to cover income taxes, you may have to pay income taxes and possibly penalties later. The transfer of the policy or designation of a beneficiary may have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate, and generation-skipping transfer taxes. For example, the transfer of the policy to, or the designation as a beneficiary of, or the payment of proceeds to a person who is assigned to a generation which is two or more generations below the generation assignment of the policy owner may have generation skipping transfer tax consequences under federal tax law. The individual situation of each policy owner or beneficiary will determine the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how ownership or receipt of policy proceeds will be treated for purposes of federal, state and local estate, inheritance, generation skipping and other taxes. YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON FEDERAL, STATE, LOCAL, AND OTHER TAX CONSIDERATIONS. - -------------------------------------------------------------------------------- Strategic Benefit 44 ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES, AND ACCUMULATED PREMIUMS [TO BE UPDATED BY AMENDMENT] The following tables are intended to show how the policy works including how benefits and values can vary over time. Each table compares these values with total premiums we receive with interest. The policies illustrated use the following assumptions: Death Stated Scheduled Target Smoker* Benefit Death Annual Death Gender Age Status Option Benefit Premium Benefit Male 35 Non-smoker 1 $________ $________ $________ Male 35 Non-smoker 1 $________ $________ $________ Male 45 Non-smoker 1 $________ $________ $________ Male 45 Non-smoker 1 $________ $________ $________ Male 55 Non-smoker 1 $________ $________ $________ Male 55 Non-smoker 1 $________ $________ $________ * "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco, nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based product. The tables show how death benefits, account values, and surrender values of a hypothetical policy could vary over an extended period of time, assuming the variable divisions had constant hypothetical gross annual investment returns of 0%, 6%, or 12% over the periods indicated in each table. Values would differ from those shown in the tables if the annual investment returns were not constant. The amounts shown would differ if we had used female, unisex or smoker rates. We illustrate premium payments as if they were made at the beginning of the year. The third column of each table shows what would happen if an amount equal to the assumed premiums earned interest, after taxes, of 5% compounded annually. These illustrations assume there are no policy loans. The net investment return on your policy is lower than the gross investment return on the variable division as a result of the portfolio charge for management fees and portfolio expenses. We show the effect of the net investment return in the amounts for death benefits, account values and surrender values. The tables reflect annual investment management fees of X.XX% of the portfolios' aggregate average daily net assets. This hypothetical rate is a simple average of the investment advisory fees applying to the investment portfolios for the year ending December 31, 1999. We assume other portfolio expenses at the rate of X.XX% of the portfolios' average daily net assets. This is an average of all the portfolios' other expenses for the year ending December 31, 1999, after expense reimbursements or waivers by investment portfolio managers have been made. The average of all portfolios' total expenses is X.XX%. Actual fees vary by portfolio. The portfolio fees and expenses used in the illustrations are the net amounts shown after expense reimbursements or waivers by the portfolio's investment manager. Absent such expense reimbursements or waivers, the total average investment management fees, average other portfolio expenses and the average of all portfolios' total expenses used in the illustrations would have been higher (X.XX%, X.XX% and X.XX%, respectively). The tables assume that the current expense reimbursement arrangements will continue. - -------------------------------------------------------------------------------- Strategic Benefit 45 However, they may not continue through 2000. The effect of these portfolio charges and expenses results in a net rate of return of: o X.XX% on a 0% gross rate of return; o X.XX% on a 6% gross rate of return; and o X.XX% on a 12% gross rate of return. The tables assume that charges have been deducted including deductions from premiums, cost of insurance rider charges, monthly deductions and annual deferred sales charge, mortality and expense risk charge, administrative and sales charges. The tables show charges at our current rates. The tables also show charges at the maximum rates we guarantee in our policies. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 38. The tables reflect that we do not currently charge against the separate account for state or federal taxes. If we charge for the taxes in the future, it will take a higher gross rate of return than the rates shown to produce the same death benefits, account values, and surrender values. This Strategic Benefit policy is issued only to groups. For this policy, we generally deliver an illustration which shows a single life scheduled premium and risk class representative of the particular group covered by this policy. We base these hypothetical future benefits on both guaranteed and current cost factor assumptions and actual account value. However, if we are asked to do so, we will provide personal illustrations based on: o each insured person's age and gender; o standard premium class assumptions; o initial stated death benefit; o the chosen death benefit option; o scheduled premiums consistent with the policy form; and o special features elected on each policy. - -------------------------------------------------------------------------------- Strategic Benefit 46 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1 ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 47 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1 ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 48 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER:$XXX,XXX ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 49 PROSPECT: INSURED PERSON'S NAME MALE 35 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $XXX,XXX ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 50 PROSPECT: INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1 ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 51 PROSPECT:INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1 ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 52 PROSPECT: INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 53 PROSPECT:INSURED PERSON'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 54 PROSPECT:INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1 ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 55 PROSPECT: INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1 ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 56 PROSPECT:INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above values. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 57 PROSPECT: INSURED PERSON'S NAME MALE 55 NON-SMOKER PRESENTED BY: SECURITY LIFE STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of: -----0.00%----- -----12.00%----- -----6.00%----- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 2 3 4 5 6 7 8 9 10 15 20 25 30 AGE 65
The current cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charge rates are based on current mortality experience and are not dependent upon future improvements in underlying mortality. The hypothetical gross rates of return shown are illustrative only and should not be deemed as a representation of past or future investment results. Actual investment results and policy charges may be more or less than those shown and will depend on a number of factors, including the investment allocations made to the variable investment options of the separate account and the guaranteed interest division and the investment experience of the investment options. No representation can be made that these hypothetical gross investment returns can be achieved for any one year or sustained over any period of time. The death benefit, account value and cash surrender value for a policy would be different from those shown if the actual gross annual rates of return averaged 0.00%, 12.00% and 6.00% over a period of years but varied above or below that average during the period. They would also be different if premiums were paid in a different frequency than shown. - -------------------------------------------------------------------------------- Strategic Benefit 58 ADDITIONAL INFORMATION DIRECTORS AND OFFICERS Security Life's address and the business address of each director and principal officer named, except as noted with one or two asterisks (*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The business address of each person with one asterisk (*) is ING North America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of each person with two asterisks (**) is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273. Name and Principal Position and Offices with Security Life of Business and Address Denver Stephen M. Christopher Chairman, President and Chief Executive Officer Jess A. Skriletz Chief Executive Officer and General Manager, ING Reinsurance and ING Institutional Markets Michael W. Cunningham* Director, Executive Vice President Mark A. Tullis* Director P. Randall Lowery* Director Thomas F. Conroy President, ING Reinsurance International Gregory G. McGreevey President, ING Institutional Markets Jerome J. Cwiok* Executive Vice President and Chief Operating Officer James L. Livingston, Jr. Executive Vice President and Chief Actuary Jeffrey R. Messner Executive Vice President and Chief Marketing Officer John R. Barmeyer* Senior Vice President, Chief Legal Officer Wayne D. Bidelman Senior Vice President, CCRC Arnold A. Dicke Senior Vice President, Chief Actuary, ING Reinsurance Charles LeDoyen** Senior Vice President, Structured Settlements Terry L. Morrison Senior Vice President, New Business Operations Jeffery W. Seel* Senior Vice President, Chief Investment Officer Mark A. Smith Senior Vice President, Insurance Services Lawrence D. Taylor Senior Vice President, Product Management William D. Tyler* Senior Vice President, Chief Information Officer Gary W. Waggoner Vice President, General Counsel and Corporate Secretary - -------------------------------------------------------------------------------- Strategic Benefit 59 REGULATION We are regulated and supervised by the Division of Insurance of the Department of Regulatory Agencies of the State of Colorado which periodically examines our financial condition and operations. In addition, we are subject to the insurance laws and regulations in every jurisdiction in which we do business. As a result, the provisions of this policy may vary somewhat from jurisdiction to jurisdiction. We are required to submit annual statements, including financial statements, of our operations and finances to the insurance departments of the various jurisdictions in which we do business to determine solvency and compliance with state insurance laws and regulations. We are also subject to various federal securities laws and regulations. LEGAL MATTERS The legal matters in connection with the policy described in this prospectus have been passed on by the General Counsel of Security Life. Sutherland Asbill & Brennan LLP has provided advice on certain matters relating to the federal securities laws. LEGAL PROCEEDINGS Security Life, as an insurance company, is ordinarily involved in litigation. We do not believe that any current litigation is material to Security Life's ability to meet its obligations under the policy or to the separate account, and we do not expect to incur significant losses from such actions. ING America Equities, Inc., the principal underwriter and distributor of the policy, is not engaged in any litigation of any material nature. EXPERTS [TO BE UPDATED BY AMENDMENT] Actuarial matters in this prospectus have been examined by James L. Livingston, Jr., F.S.A., M.A.A.A., who is Executive Vice President and Chief Actuary of Security Life.His opinion on actuarial matters is filed as an exhibit to the Registration Statement we filed with the SEC. REGISTRATION STATEMENT We have filed a Registration Statement relating to the separate account and the variable life insurance policy described in this prospectus with the SEC. The Registration Statement, which is required by the Securities Act of 1933, includes additional information that is not required in this prospectus under the rules and regulations of the SEC. The additional information may be obtained from the SEC's principal office in Washington, DC. There is a charge for this material. - -------------------------------------------------------------------------------- Strategic Benefit 60 [FINANCIAL STATEMENTS TO BE FILED BY SUBSEQUENT AMENDMENT] - -------------------------------------------------------------------------------- Strategic Benefit 61 APPENDIX A FACTORS FOR THE CASH VALUE ACCUMULATION TEST FOR A LIFE INSURANCE POLICY Male Male Male Attained or Unisex Unisex Attained or Unisex Unisex Attained or Unisex Unisex Age 100/0 Female 80/20 Age 100/0 Female 80/20 Age 100/0 Female 80/20 0 11.727 14.234 12.149 1 11.785 14.209 12.194 34 4.188 4.902 4.314 67 1.617 1.815 1.657 2 11.458 13.815 11.857 35 4.052 4.742 4.173 68 1.583 1.769 1.620 3 11.128 13.417 11.515 36 3.920 4.586 4.037 69 1.550 1.724 1.585 4 10.803 13.023 11.178 37 3.793 4.437 3.906 70 1.518 1.681 1.552 5 10.481 12.635 10.845 38 3.670 4.293 3.780 71 1.488 1.639 1.520 6 10.161 12.253 10.514 39 3.553 4.154 3.658 72 1.459 1.599 1.489 7 9.8441 1.875 10.187 40 3.439 4.021 3.541 73 1.432 1.560 1.460 8 9.5301 1.505 9.863 41 3.330 3.894 3.429 74 1.406 1.524 1.433 9 9.2211 1.141 9.545 42 3.226 3.771 3.322 75 1.382 1.490 1.407 10 8.9181 0.784 9.233 43 3.125 3.654 3.218 76 1.359 1.457 1.383 11 8.6231 0.436 8.928 44 3.028 3.541 3.119 77 1.338 1.427 1.360 12 8.3381 0.098 8.634 45 2.936 3.432 3.023 78 1.318 1.398 1.338 13 8.066 9.771 8.353 46 2.846 3.328 2.931 79 1.299 1.371 1.318 14 7.808 9.455 8.085 47 2.761 3.227 2.843 80 1.281 1.345 1.298 15 7.564 9.150 7.831 48 2.678 3.129 2.758 81 1.264 1.321 1.280 16 7.335 8.857 7.592 49 2.599 3.035 2.676 82 1.248 1.298 1.262 17 7.118 8.575 7.364 50 2.522 2.945 2.597 83 1.233 1.277 1.245 18 6.911 8.302 7.148 51 2.449 2.858 2.522 84 1.218 1.257 1.230 19 6.713 8.038 6.939 52 2.378 2.774 2.449 85 1.205 1.238 1.215 20 6.521 7.782 6.737 53 2.311 2.693 2.379 86 1.193 1.221 1.202 21 6.334 7.534 6.540 54 2.246 2.615 2.312 87 1.181 1.205 1.189 22 6.150 7.293 6.347 55 2.184 2.540 2.248 88 1.171 1.190 1.177 23 5.969 7.059 6.158 56 2.125 2.468 2.187 89 1.160 1.176 1.166 24 5.791 6.831 5.971 57 2.068 2.398 2.128 90 1.151 1.163 1.155 25 5.615 6.611 5.788 58 2.014 2.330 2.071 91 1.141 1.150 1.144 26 5.441 6.396 5.608 59 1.962 2.265 2.017 92 1.131 1.137 1.133 27 5.271 6.188 5.431 60 1.912 2.201 1.965 93 1.120 1.125 1.122 28 5.104 5.986 5.258 61 1.864 2.139 1.915 94 1.109 1.112 1.110 29 4.940 5.791 5.089 62 1.818 2.079 1.867 95 1.097 1.098 1.097 30 4.781 5.601 4.925 63 1.774 2.022 1.821 96 1.083 1.084 1.084 31 4.626 5.418 4.765 64 1.732 1.967 1.777 97 1.069 1.069 1.069 32 4.476 5.241 4.610 65 1.692 1.914 1.735 98 1.054 1.054 1.054 33 4.330 5.069 4.459 66 1.654 1.863 1.695 99 1.040 1.040 1.040 100 1.000 1.000 1.000
- -------------------------------------------------------------------------------- Strategic Benefit 62 APPENDIX B PERFORMANCE INFORMATION POLICY PERFORMANCE The following hypothetical illustrations demonstrate how the actual investment experience of each variable investment option of the separate account affects the cash surrender value, account value and death benefit of a policy. These hypothetical illustrations are based on the actual historical return of each portfolio as if a policy had been issued on the date indicated. Each portfolio's annual total return is based on the total return calculated for each fiscal year. These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions, which if reflected, would result in lower total return figures than those shown. The illustrations are based on the payment of a $X,XXX annual premium, received at the beginning of each year, for a hypothetical policy with a $XXX,XXX face amount death benefit Option 1, issued on a nonsmoker male, age 45. It is assumed that all premiums are allocated to the variable investment option illustrated for the period shown. The benefits are calculated for a specific date. The amount and timing of premium payments and the use of other policy features, such as policy loans, would affect individual policy benefits. The amounts shown for the cash surrender values, account values and death benefits take into account the charges against premiums, current cost of insurance and monthly deductions, the daily charge against the separate account for mortality and expense risks, and each portfolio's charges and expenses. SEE CHARGES, PAGE 37. This prospectus also contains illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 45. Past performance is not an indication of future results. Actual investment results may be more or less than those shown in the hypothetical illustrations. [TO BE UPDATED BY SUBSEQUENT AMENDMENT] - -------------------------------------------------------------------------------- Strategic Benefit 63 PART II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING REGARDING INDEMNIFICATION Please refer to the Articles of Incorporation listed as Exhibits 1.A(6)(a) and 1.A(6)(b-g) and the By-Laws listed as Exhibits 1.A(6)(h) and 1.A(6)(h)(i). Security Life of Denver's (the "corporation") Certificate of Incorporation and bylaws provide that the corporation shall have every power and duty of indemnification of directors, officers, employees and agents, without limitation, provided by the laws of the state of Colorado. Under Colorado law, the corporation has the power to indemnify such persons against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed action, suit or proceeding, if such person acted in good faith and in a manner which that person reasonably believed to be in or not opposed to the best interest of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In the case of actions by or in the right of the corporation, such indemnification cannot be made where such person is adjudged liable to the corporation, except pursuant to a court order. The corporation is required to indemnify directors, officers, employees and agents against expense actually and reasonably incurred in connection with actions where such persons have been successful on the merits or otherwise in defense of such actions. Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the securities and Exchange commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling preceding, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. UNDERTAKING REQUIRED BY SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED Security Life of Denver Insurance Company represents that the fees and charges deducted under the Policy, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred and the risks assumed by the Company. Contents of Registration Statement This Registration Statement comprises the following papers and documents: The facing sheet. Cross-Reference table. - -------------------------------------------------------------------------------- Corporate Benefits II - 1 The prospectuses. Corporate Benefits Strategic Benefit The undertaking to file reports. The undertaking regarding indemnification. The undertaking required by Section 26(e)2(A) of the Investment Company Act of 1940, as amended. The signatures. Written consents of the following persons: James L. Livingston, Jr. (See Exhibit 6B). [To be Filed by Amendment.] Ernst & Young, L.L.P. (See Exhibit 7A). [To be Filed by Amendment.] Sutherland Asbill & Brennan LLP (See Exhibit 7B). [To be Filed by Amendment.] The following exhibits: 1.A (1) Resolution of the Executive Committee of the Board of Directors of Security Life of Denver Insurance Company ("Security Life of Denver") authorizing the establishment of the Registrant./1/ (2) Not Applicable. (3) (a) Security Life of Denver Distribution Agreement./1/ (i) Amendment to Security Life of Denver Insurance Company Distribution Agreement./6/ (ii) Amendment to Security Life of Denver Insurance Company Distribution Agreement./9/ (b) Amendment to Broker/Dealer Supervisory and Selling Agreement for Variable Contracts with Compensation Schedule. (i) Compensation Schedule to Selling Agreement with Merrill Lynch (Strategic Benefit). (c) Commission Schedule for Policies (Corporate Benefits) (i) Commission Schedule for Policies (Strategic Benefit). (4) Not Applicable. (5) (a) Specimen Corporate Benefits Variable Universal Life Insurance Policy (Form No. 2505(VUL)-3/00)./7/ (i) Strategic Benefit Variable Universal Life Insurance Policy (Form No. 2507(VUL)-5/00). (b) Adjustable Term Insurance Rider (Form No. R2006-3/00)./5/ (c) Certificate of Insurance./5/ (6) (a) Security Life of Denver's Restated Articles of Incorporation./1/ (b-g) Amendments to Articles of Incorporation through June 12, 1987./1/ (h) Security Life of Denver's By-Laws./1/ (i) Bylaws of Security Life of Denver Insurance Company (Restated with Amendments through September 30, 1997)./2/ (7) Not Applicable. (8) (a) Participation Agreements (i) Participation Agreement by and among AIM Variable Insurance Funds, Inc., Life Insurance Company, on Behalf of Itself and its Separate Accounts and Name of Underwriter of Variable Contracts and Policies./3/ - -------------------------------------------------------------------------------- Corporate Benefits II - 2 (ii) Sales Agreement by and among The Alger American Fund, Fred Alger Management, Inc., and Security Life of Denver Insurance Company./1/ (iii) Sales Agreement by and among Neuberger & Berman Advisers Management Trust, Neuberger & Berman Management Incorporated, and Security Life of Denver Insurance Company./1/ (iv) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (v) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (vi) Participation Agreement among INVESCO Variable Investment Funds, Inc., INVESCO Funds Group, Inc., and Security Life of Denver Insurance Company./1/ (vii) Participation Agreement between Van Eck Investment Trust and the Trust's investment adviser, Van Eck Associates Corporation, and Security Life of Denver Insurance Company./1/ (viii) Specimen Participation Agreement among Security Life of Denver Insurance Company, The GCG Trust and Directed Services, Inc./7/ (ix) Specimen Fund Participation Agreement between Merrill Lynch Variable Series Funds, Inc. and Security Life of Denver Insurance Company. (b) (i) First Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Investment Trust and Van Eck Associates Corporation. /3/ (ii) Second Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Worldwide Insurance Trust and Van Eck Associates Corporation. /3/ (iii) Assignment and Modification Agreement between Neuberger & Berman Advisers Management Trust, Neuberger & Berman Management Incorporated, Neuberger & Berman Advisers Management Trust, Advisers Managers Trust and Security Life of Denver Insurance Company. /3/ (iv) First Amendment to Participation Agreement by and among The Alger American Fund, Fred Alger Management, Inc., Security Life of Denver Insurance Company./1/ (v) First Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (vi) Second Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (vii) First Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (viii) Second Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (ix) First Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc./1/ (x) Third Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc./4/ (xi) Fourth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./4/ (xii) Fourth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./4/ (xiii) Amendment No. 2 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc./4/ - -------------------------------------------------------------------------------- Corporate Benefits II - 3 (xiv) Fourth Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc./6/ (xv) Amendment No. 3 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc./6/ (xvi) Fifth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./6/ (xvii) Fifth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./6/ (c) (i) Service Agreement between Fred Alger Management, Inc. and Security Life of Denver Insurance Company./1/ (ii) Expense Allocation Agreement between A I M Advisors, Inc., AIM Distributors, Inc. and Security Life of Denver./9/ (iii) Service Agreement between INVESCO Funds Group, Inc. and Security Life of Denver Insurance Company./9/ (iv) Service Agreement between Neuberger & Berman Management Incorporated and Security Life of Denver Insurance Company./9/ (v) Service Agreement between Fidelity Investments Institutional Operations Company, Inc. and Security Life of Denver Insurance Company./9/ (vi) Side Letter between Van Eck Worldwide Insurance Trust and Security Life of Denver./9/ (vii) Specimen Administrative Services Agreement among Security Life of Denver Insurance Company and Merrill Lynch Asset Management, L.P. (9) Not Applicable. (10) Specimen Guaranteed Issue Variable Life Insurance Application with Guaranteed Issue Binding Limited Life Insurance Coverage Form (Form Nos. Q2009-11/97 and Q-1112 B-6/98). 2. Included as Exhibit 1.A(5) above. 3.A Opinion and consent of Gary W. Waggoner as to securities being registered./5/ 4. Not Applicable. 5. Not Applicable. 6.A Opinion and consent of James L. Livingston, Jr. [To be Filed by Amendment.] 7.A Consent of Ernst & Young L.L.P. [To be Filed by Amendment.] B Consent of Sutherland Asbill & Brennan LLP. [To be Filed by Amendment.] 8. Not Applicable. 11. Issuance, Transfer and Redemption Procedures Memorandum. - -------------------------------------------------------------------------------- Corporate Benefits II - 4 _______________ 1 Incorporated herein by reference to Post-Effective Amendment No. 7 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 27, 1998 (File No. 33-74190). 2 Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on October 29, 1998 (File No. 33-74190). 3 Incorporated herein by reference to Post-Effective Amendment No. 6 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on March 2, 1998 (File No. 33-74190). 4 Incorporated herein by reference to the Pre-Effective Amendment No. 2 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on May 10, 1999 (File No. 333-72753). 5 Incorporated herein by reference to the Initial Registration to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on November 8, 1999 (File No. 333-90577). 6 Incorporated herein by reference to the Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on December 3, 1999 (File No. 333-90577). 7 Incorporated herein by reference to the Pre-Effective Amendment No. 2 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on February 2, 2000 (File No. 333-90577). 8 Incorporated herein by reference to the Post-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on February 29, 2000 (File No. 333-72753). 9 Incorporated herein by reference to the Post-Effective Amendment No. 10 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 23, 1999 (File No. 33-74190). - -------------------------------------------------------------------------------- Corporate Benefits II - 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Security Life of Denver Insurance Company and the Registrant, Security Life Separate Account L1, have duly caused this Registration Statement to be signed on their behalf by the undersigned, hereunto duly authorized, and their seal to be hereunto fixed and attested, all in the City and County of Denver and the State of Colorado on the 2nd day of March, 2000. SECURITY LIFE OF DENVER INSURANCE COMPANY (Depositor) BY: /s/ Stephen M. Christopher ---------------------------------- Stephen M. Christopher President (Seal) ATTEST: /s/ Gary W. Waggoner - -------------------------- Gary W. Waggoner SECURITY LIFE SEPARATE ACCOUNT L1 (Registrant) BY: SECURITY LIFE OF DENVER INSURANCE COMPANY (Depositor) BY: /s/ Stephen M. Christopher ---------------------------------- Stephen M. Christopher President (Seal) ATTEST: /s/ Gary W. Waggoner - ------------------------- Gary W. Waggoner - -------------------------------------------------------------------------------- Corporate Benefits II - 6 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities with Security Life of Denver Insurance Company and on the date indicated. PRINCIPAL EXECUTIVE OFFICERS: /s/ Stephen M. Christopher - ----------------------------------------------- Stephen M. Christopher President, Chief Executive Officer and Director /s/ James L .Livingston, Jr. - ----------------------------------------------- James L. Livingston, Jr. Executive Vice President and Chief Financial Officer PRINCIPAL ACCOUNTING OFFICER: /s/ Shari A. Enger - ----------------------------------------------- Shari A. Enger Vice President and Controller DIRECTORS: /s/ P. Randall. Lowery - ----------------------------------------------- P. Randall Lowery /s/ Michael W. Cunningham - ----------------------------------------------- Michael W. Cunningham - -------------------------------------------------------------------------------- Corporate Benefits II - 7 EXHIBIT INDEX Exhibit No. Description of Exhibit 1.A(3)(b) Amendment to Broker/Dealer Supervisory and Selling Agreement for Variable Contracts with Compensation Schedule (Corporate Benefits). 1.A(3)(b)(i) Compensation Schedule to Selling Agreement with Merrill Lynch (Strategic Benefit). 1.A(3)(c) Commission Schedule for Policies (Corporate Benefits). 1.A(3)(c)(i) Commission Schedule for Policies (Strategic Benefit). 1.A(5)(a)(i) Strategic Benefit Variable Universal Life Insurance Policy (Form No. 2507(VUL)-5/00). 1.A(8)(a)(ix) Specimen Fund Participation Agreement between Merrill Lynch Variable Series Funds, Inc. and Security Life of Denver Insurance Company. 1.A(8)(c)(vi) Specimen Administrative Services Agreement among Security Life of Denver Insurance Company and Merrill Lynch Asset Management, L.P. 1.A(10) Specimen Guaranteed Issue Variable Life Insurance Application with Guaranteed Issue Binding Limited Life Insurance Coverage Form and Inserts (Form Nos. Q2009-11/97 and Q- 1112 B-6/98). 11. Issuance, Transfer and Redemption Procedures Memorandum. - -------------------------------------------------------------------------------- Corporate Benefits II - 8 EX-1 2 1.A(3)(B) EXHIBIT 1.a(3)(b) AMENDMENT TO THE BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT FOR VARIABLE CONTRACTS This Amendment is made by and among ING Security Life of Denver Insurance Company ("ING Security Life"), ING America Equities, Inc. ("INGAE") and Selling Broker-Dealer and Agency, collectively known as the Parties. WHEREAS, the Parties have executed a Broker-Dealer Supervisory and Selling Agreement for Variable Contracts ("the Agreement") which provides that Selling Broker-Dealer and Agency will enable and supervise its registered representatives to solicit and sell the Contracts issued by ING Security Life and distributed by INGAE. WHEREAS, the Agreement also provides for certain compensation to be paid to Selling Broker-Dealer or Agency for the sales of such Contracts, the Agreement is modified as follows: 1. The Schedule I, "Compensation Schedule to Selling Agreement for ING Security Life Corporate Benefits Variable Universal Life" is hereby added. This Amendment is effective ________________, and shall be deemed to be accepted by Broker-Dealer and Agency by ING Security Life and INGAE by submission of an application for the Corporate Benefits Variable Universal Life product by Selling Broker-Dealer or Agency on or after that date. SCHEDULE I COMPENSATION SCHEDULE TO SELLING AGREEMENT FOR SECURITY LIFE CORPORATE BENEFITS VARIABLE UNIVERSAL LIFE This Schedule is an attachment to the ING America Equities, Inc. ("ING America Equities") Selling Agreement by and among the parties pursuant to paragraph 17 of that Selling Agreement, effective as of ________, 2000, or the date that Selling Broker-Dealer submits an application for this product, whichever is later. The provisions of this Schedule shall apply only to ING Security Life Corporate Benefits Variable Universal Life policies solicited and issued while this Schedule is in effect. All compensation payable under this Schedule shall be subject to the terms and conditions contained herein at the time of issue of the policy by ING Security Life of Denver Insurance Company ("ING Security Life"). 1. Commission Structure: Commissions are payable on premiums paid in each year up to the target premium only. No commissions are paid on premium in excess of the target premium. Any time a new coverage segment is created, premiums allocated to that segment will be commissionable up to that segment's target premium. The commission rates as a percent of target premium are given in a table below. Policy Year of Coverage Commission Rate Segment 1 10% 2 - 4 8% 5 - 10 2% 11+ 0 Premiums received within 15 days prior to policy anniversary will result in the agent receiving commissions at the same rate as if the premium was paid on the anniversary date. If this product is sold with a maximum ATR coverage, the target premium could be zero which would result in no commissions payable other than the annual trail commission described in section 2, below. 2. Trail Commissions: as a percent of the net account value are paid. The trail commission is calculated monthly based on the net account value at the end of the prior month. It is paid at the end of the policy year, provided the policy remains in force at that time and is not subject to the grace period provisions. The trail commissions will continue when the insured lives past age 100 and the continuation of coverage feature is in force. The annual trail commission rates are given below. Annual trail commission rates as a percent of the net account value: Policy Year Trail Commission Rate 1 - 20 0.20% 21+ 0.10% 3. Riders: The Adjustable Term Insurance Rider has no target premium associated with it. 4. Commission Calculation: Commissions shall be calculated only on premium actually received and accepted by ING Security Life. Commissions shall be paid only on an earned basis. Outstanding loan amounts carried over are not considered commissionable premium. 5. Premium Allocation: If the Stated Death Benefit has been increased since the policy date, premiums received are allocated to the coverage segments in the same proportion that the commission target premium for each segment bears to the total commission target premium of the policy. 6. Death Benefit Increases: If a premium payment accompanies a request for a Stated Death Benefit increase or is received while a request is pending, the payment will be applied to the policy but commissions shall not be payable until the increase is effective. The commission shall then be payable based on the premium being allocated among all segments as it would normally and the new target premium after the increase. 7. Compensation Payments: Compensation on initial premium shall be due to the Selling Broker-Dealer at the time of the issuance of the policy and for all other premium payments at the time of the receipt and acceptance of premium by ING Security Life, except that the amount, if any, and the time of payment of compensation on stated death benefit increases, replacements, reissues, changes, conversions, exchanges, term renewals, term conversions, premiums paid in advance, policies issued on a "guaranteed issue" basis, policies requiring facultative reinsurance arrangements, and other special cases and programs shall be governed by ING Security Life's underwriting and administrative rules then in effect. The Compensation shall be payable to the Selling Broker-Dealer in accordance with the Schedule I in effect at the time of issue of the policy. 8. Commission Chargeback: In the event that a policy for which a commission has been paid is lapsed or surrendered by the Policy Owner or has a reduction of stated death benefit during the first three policy years, or is returned to ING Security Life for refund of premium during the Free Look Period as described in the policy, ING Security Life and ING America Equities shall require reimbursement from Selling Broker-Dealer as shown below. Policy Year Commission Chargeback 1 10% of first year premium up to target 2 6% of second year premium up to target 3 3% of third year premium up to target 4+ 0% If a premium payment for which a commission has been paid is refunded by ING Security Life, a reimbursement of the commission paid on the amount refunded will be due from the Selling Broker-Dealer. The reimbursement may be deducted by ING America Equities from the next, or any subsequent, commission payment to Selling Broker-Dealer. If the amount to be reimbursed exceeds compensation otherwise due, Selling Broker-Dealer shall promptly reimburse ING America Equities before the next commission cycle. 9. Internal Exchanges: Commissions on the exchange of any ING Security Life policy for Corporate Benefits Variable Universal Life, if any, will be paid in accordance with the exchange procedures in effect at ING Security Life on the date the exchange is completed. The commission rates and/or target premiums may be adjusted in accordance with the rules in effect at the time of the exchange. If the Representative responsible for the exchange is not the producer of the original policy, and the original producer is still active with ING Security Life, no commission will be payable to the Representative or the Selling Broker-Dealer. EX-2 3 1.A(3)(B)(I) Exhibit 1.A(3)(b)(i) SCHEDULE SB-1 COMPENSATION SCHEDULE TO SELLING AGREEMENT FOR MERRILL LYNCH STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE This Schedule is an attachment to the ING America Equities, Inc. ("ING America Equities") Selling Agreement by and among the parties pursuant to paragraph 17 of that Selling Agreement, effective as of May 1, 2000. The provisions of this Schedule shall apply only to ING Security Life's Strategic Benefit Variable Universal Life policies solicited and issued while this Schedule is in effect. All compensation payable under this Schedule shall be subject to the terms and conditions contained herein at the time of issue of the policy by ING Security Life of Denver Insurance Company ("ING Security Life"). 1. Commission Structure: Commissions are payable on premiums paid in the first year up to the target premium only. No commissions are paid on premium in excess of the target premium. Any time a new coverage segment is created, premiums allocated to that segment in its first year will be commissionable up to that segment's target premium. The commission rates as a percent of target premium are: POLICY YEAR OF COVERAGE SEGMENT COMMISSION RATE 1 5% 2+ 0% Premiums received within 15 days prior to policy anniversary will result in the agent receiving commissions at the same rate as if the premium was paid on the anniversary date. If this product is sold with a maximum ATR coverage, the target premium could be zero which would result in no commissions payable other than the annual trail commission described in section 2 below. 2. Trail Commissions: are paid as a percent of the net account value. The trail commission is calculated monthly based on the net account value at the end of the prior month. It is paid at the end of the policy year, provided the policy remains in force at that time and is not subject to the grace period provisions. The trail commissions will continue when the insured lives past age 100 and the continuation of coverage feature is in force. The annual trail commission rates are given below. Schedule SB-1 (ver 2-25-00) Page 1 of 3 Annual trail commission rates as a percent of the net account value: POLICY YEAR TRAIL COMMISSION RATE 1 - 10 1.00% 11 - 20 0.75% 21+ 0.20% 3. Riders: The Adjustable Term Insurance Rider coverage is not commissionable. 4. Commission Calculation: Commissions shall be calculated only on premium actually received and accepted by ING Security Life. Commissions shall be paid only on an earned basis. Outstanding loan amounts carried over are not considered commissionable premium. 5. Premium Allocation: If the Stated Death Benefit has been increased since the policy date, premiums received are allocated to the coverage segments in the same proportion that the commission target premium for each segment bears to the total commission target premium of the policy. 6. Death Benefit Increases: If a premium payment accompanies a request for a Stated Death Benefit increase or is received while a request is pending, the payment will be applied to the policy but commissions shall not be payable until the increase is effective. The commission shall then be payable based on the premium being allocated among all segments as it would normally and the new target premium after the increase. 7. Compensation Payments: Compensation on initial premium shall be due to the Selling Broker-Dealer at the time of the issuance of the policy and for all other premium payments at the time of the receipt and acceptance of premium by ING Security Life, except that the amount, if any, and the time of payment of compensation on stated death benefit increases, replacements, reissues, changes, conversions, exchanges, term renewals, term conversions, premiums paid in advance, policies issued on a "guaranteed issue" basis, policies requiring facultative reinsurance arrangements, and other special cases and programs shall be governed by ING Security Life's underwriting and administrative rules then in effect. The Compensation shall be payable to the Selling Broker-Dealer in accordance with the Schedule I in effect at the time of issue of the policy. 8. Commission Chargeback: In the event that a policy for which a commission has been paid is lapsed or surrendered by the Policy Owner or has a reduction in the Stated Death Benefit during the first three years or is returned to ING Security Life for refund of premium during the Free Look Period as described in the policy, ING Security Life and ING America Equities shall require reimbursement of from Selling Broker-Dealer as shown below. Schedule SB-1 (ver 2-25-00) Page 2 of 3 POLICY YEAR COMMISSION CHARGEBACK 1 5% of first year premiums up to target 2 2.5% of first year premiums up to target 3 1.25% of first year premiums up to target 4+ 0% If a premium payment for which a commission has been paid is refunded by ING Security Life, a reimbursement of the commission paid on the amount refunded will be due from the Selling Broker-Dealer. The reimbursement may be deducted by ING America Equities from the next, or any subsequent, commission payment to Selling Broker-Dealer. If the amount to be reimbursed exceeds compensation otherwise due, Selling Broker-Dealer shall promptly reimburse ING America Equities before the next commission cycle. 9. Internal Exchanges: No Commissions shall be payable on the exchange of any policy issued by Security Life or any other ING affiliate for a Merrill Lynch Corporate Benefits Variable Universal Life policy. Schedule SB-1 (ver 2-25-00) Page 3 of 3 EX-3 4 1.A(3)(C) EXHIBIT 1.a(3)(c) Commission Structure: Commissions are payable on premiums paid up to the target premium only. No commissions are paid on premium in excess of the target premium. Any time a new coverage segment is created, premiums allocated to that segment will be commissionable up to that segment's target premium. The commission rates as a percent of target premium are given in a table below. Policy Year of Coverage Commission Rate Over-Ride Allowance Segment 1 10% 2% 2 - 4 8% 2% 5 - 10 2% 0 11+ 0 0 Annual trail commission rates as a percent of the net account value: Policy Year Trail Commission Rate 1 - 20 0.20% 21+ 0.10% Commission Chargeback: In the event that a policy for which a commission has been paid is lapsed or surrendered by the Policy Owner or has a reduction of stated death benefit during the first three policy years, or is returned for refund of premium during the Free Look Period as described in the policy, reimbursement is required from Selling Broker-Dealer as shown below. Policy Year Commission Chargeback Override Chargeback 1 10% of first year premium up to target 2% 2 6% of second year premium up to target 0% 3 3% of third year premium up to target 0% 4+ 0% 0% EX-4 5 1.A(3)(C)(I) Exhibit 1.A(3)(c)(i) Commission Structure: Commissions are payable on premiums paid up to the target premium only. No commissions are paid on premium in excess of the target premium. Any time a new coverage segment is created, premiums allocated to that segment will be commissionable up to that segment's target premium. The commission rates as a percent of target premium are given below. POLICY YEAR OF COVERAGE SEGMENT COMMISSION RATE 1 5% 2+ 0% Annual trail commission rates as a percent of the net account value: POLICY YEAR TRAIL COMMISSION RATE 1 - 10 1.00% 11 - 20 0.75% 21+ 0.20% Commission Chargeback: In the event that a policy for which a commission has been paid is lapsed or surrendered by the Policy Owner or has a reduction in the Stated Death Benefit during the first three policy years or is returned for refund of premium during the Free Look Period as described in the policy, reimbursement is required from Selling Broker-Dealer as shown below. POLICY YEAR COMMISSION CHARGEBACK 1 5% of first year premiums up to target 2 2.5% of first year premiums up to target 3 1.25% of first year premiums up to target 4+ 0% Page 1 of 1 EX-5 6 1.A(5)(A)(I) Security Life of Denver EXHIBIT 1.A(5)(a) Insurance Company INSURED: JOHN DOE POLICY DATE: February 1, 2000 POLICY NUMBER: 67000001 WE AGREE TO PAY the death benefit to the beneficiary upon the death of the insured while this policy is in force. WE ALSO AGREE to provide the other rights and benefits of the policy. These agreements are subject to the provisions of the policy. RIGHT TO EXAMINE PERIOD. You have the right to examine and return this policy within 10 days after receipt. The policy may be returned by delivering or mailing it to us at our Customer Service Center or to your registered representative. Immediately upon return it will be deemed void as of the policy date. Upon return of the policy to us, we will refund all premiums paid. If this policy is a replacement policy as defined by state law where this policy is delivered, you have the right to examine and return this policy within 10 days after receipt. /s/ Gary W. Waggoner /s/ Stephen M. Christopher Secretary President In this policy "you" and "your" refer to the owner of the policy. "We", "us" and "our" refer to Security Life of Denver Insurance Company. This policy is a FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY. This is a NON-PARTICIPATING policy. Death benefits and other values provided by this contract, when based on the investment experience of a separate account, are variable. These values may increase or decrease based on investment experience and are not guaranteed as to fixed dollar amount. Death benefits are payable by us upon the death of the insured. There is no maturity date. Flexible premiums are payable by you during the lifetime of the insured until the policy anniversary nearest the insured's 100th birth date. SECURITY LIFE OF DENVER INSURANCE COMPANY A Stock Company Customer Service Center, P.O. Box 173888, Denver, Colorado 80217 Toll Free Number: 1(800) 848-6362 Form 2505 (VUL)-2/00 TABLE OF CONTENTS SCHEDULE.......................................................................5 DEFINITION OF TERMS............................................................6 INSURANCE COVERAGE PROVISIONS..................................................7 EFFECTIVE DATE OF COVERAGE..............................................7 BASE DEATH BENEFIT......................................................7 CHANGE IN REQUESTED INSURANCE COVERAGE..................................8 Requested Increases in Coverage..................................8 Requested Decreases in Coverage..................................8 Death Benefit Option Changes.....................................8 CONTINUATION OF COVERAGE AFTER AGE 100..................................9 PAYOUT OF PROCEEDS.....................................................10 PREMIUM PROVISIONS............................................................10 INITIAL PREMIUM ALLOCATION.............................................10 SUBSEQUENT PREMIUM ALLOCATION..........................................11 CHANGES TO PREMIUM ALLOCATION..........................................11 SCHEDULED PREMIUMS.....................................................11 UNSCHEDULED PREMIUMS...................................................11 NET PREMIUM............................................................11 PREMIUM LIMITATION.....................................................12 FAILURE TO PAY PREMIUM.................................................12 SEPARATE ACCOUNT PROVISIONS...................................................12 THE SEPARATE ACCOUNT...................................................12 SEPARATE ACCOUNT INVESTMENT OPTIONS....................................12 CHANGES WITHIN THE SEPARATE ACCOUNT....................................13 GENERAL ACCOUNT PROVISIONS....................................................14 THE GENERAL ACCOUNT....................................................14 GUARANTEED INTEREST DIVISION...........................................14 LOAN DIVISION..........................................................14 Form 2505 (VUL)-2/00 Page 2 TRANSFER PROVISIONS...........................................................14 ACCOUNT VALUE PROVISIONS......................................................14 ACCOUNT VALUES ON THE INVESTMENT DATE..................................15 ACCUMULATION UNIT VALUE................................................15 ACCUMULATION EXPERIENCE FACTOR.........................................15 ACCOUNT VALUE OF THE INVESTMENT OPTIONS OF THE SEPARATE ACCOUNT........16 ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION......................16 ACCOUNT VALUE OF THE LOAN DIVISION.....................................17 DEDUCTIONS....................................................................17 MONTHLY DEDUCTION......................................................17 ANNUAL DEDUCTION (Deferred Sales Charge)...............................17 COST OF INSURANCE......................................................18 LOAN PROVISIONS...............................................................18 POLICY LOANS...........................................................18 LOAN INTEREST..........................................................19 LOAN DIVISION..........................................................19 PARTIAL WITHDRAWAL PROVISIONS.................................................19 SURRENDER PROVISIONS..........................................................21 SURRENDER VALUE........................................................21 BASIS OF COMPUTATIONS..................................................21 FULL SURRENDERS........................................................21 GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS........................21 GRACE PERIOD...........................................................21 TERMINATION............................................................22 REINSTATEMENT..........................................................22 DEFERRAL OF PAYMENT....................................................22 Form 2505 (VUL)-2/00 Page 3 GENERAL POLICY PROVISIONS.....................................................23 THE POLICY.............................................................23 CONTRACT CHANGES.......................................................23 PROCEDURES.............................................................23 OWNERSHIP..............................................................23 BENEFICIARIES..........................................................24 EXCHANGE RIGHT.........................................................24 COLLATERAL ASSIGNMENT..................................................24 INCONTESTABILITY.......................................................24 MISSTATEMENT OF AGE OR GENDER..........................................24 SUICIDE EXCLUSION......................................................25 PERIODIC REPORTS.......................................................25 ILLUSTRATION OF BENEFITS AND VALUES....................................25 NONPARTICIPATING.......................................................25 CUSTOMER SERVICE CENTER................................................25 PAYOUTS OTHER THAN AS ONE SUM.................................................25 ELECTION...............................................................25 PAYOUT OPTIONS.........................................................26 CHANGE AND WITHDRAWAL..................................................26 EXCESS INTEREST........................................................27 MINIMUM AMOUNTS........................................................27 SUPPLEMENTARY POLICY...................................................27 INCOME PROTECTION......................................................27 DEATH OF PRIMARY PAYEE.................................................27 PAYMENTS OTHER THAN MONTHLY............................................27 SETTLEMENT OPTION TABLES......................................................28 Additional benefits or riders, if any, will be listed in the Schedule. The additional provisions will be inserted in the policy. Form 2505 (VUL)-2/00 Page 4 SCHEDULE (Schedule Effective Date: February 1, 2000) POLICY INFORMATION Policy Number 67000001 Initial Stated Death Benefit $100,000.00 Adjustable Term Insurance Death Benefit $ 50,000.00* Policy Date February 1, 2000 Target Death Benefit $150,000.00** Insured JOHN DOE Additional Benefits: Issue Age and Gender 35, Male Adjustable Term Insurance Rider Death Benefit Option OPTION 1 Scheduled Premium $2,000.00 Annually
Definition of Life Insurance Test: Cash Value Accumulation Test Coverage will expire if premiums are insufficient to continue coverage. Coverage will also be affected by partial withdrawals, policy loans, changes in the current cost of insurance rates, the actual credited interest rates for the Guaranteed Interest Division and the investment experience of the Separate Account. *This amount is the amount of adjustable term death benefit on the policy date. This death benefit will vary from time to time, and may depend on your account value. See the rider and policy for details. **This amount is the target death benefit on the policy date. It may change at the beginning of each policy year. See the schedule and rider for details. CUSTOMER SERVICE CENTER: P.O. Box 173888, Denver, Colorado 80217 Toll Free Number 1(800) 848-6362 Form 2505 (VUL)-2/00 Page 5 SCHEDULE (Continued) SEGMENT Benefit Profile (Schedule Effective Date: February 1, 2000) Description Segment Stated Death Segment Effective Segment Target Segment Premium Class Benefit Amount Date Premium Segment #1 $100,000 February 1, 2000 $3,981.00 Select Guaranteed Issue Non Smoker
ADDITIONAL BENEFITS: Adjustable Term Insurance Rider premium class or rating is the same as Segment #1 A segment is a block of death benefit coverage. The stated death benefit shown on the schedule page at issue is Segment #1. Additional segments may be added to the policy after issue to increase the death benefit. Each individual segment added to the policy has its own cost of insurance charges and expense charges as shown in the schedule. This is further defined in the Definition of Terms section of your policy. Form 2505 (VUL)-2/00 Page 5A EXPENSE CHARGES A. Premium Expense Charge. This charge will equal the sum of a sales charge plus a tax charge. See Net Premium provision for details. 1. Sales Charge:
Segment Year in Which Premium Segment Premium Received up to Segment Premium Received in Excess Received Segment Target Premium Of Segment Target Premium Segment Year 1 2.0% 0% Segment Years thereafter 0.5% 0.5%
2. Federal Deferred Acquisition Cost Tax Charge and Other Charges (Tax Charge):
Segment Year in Which Premium Segment Premium Received up to Segment Premium Received in Excess Received Segment Target Premium Of Segment Target Premium Segment Year 1 4.0% 0% Segment Years thereafter 4.0% 4.0%
We reserve the right to increase or decrease the tax charges due to any change in tax laws. We further reserve the right to increase or decrease the tax charge for federal deferred acquisition cost tax due to any change in cost to us. B. Monthly Expense Charge: The monthly expense charge will equal the following: Charge: $12 per month for the first 12 policy months; and $6 per month thereafter. Form 2505 (VUL)-2/00 Page 5B C. Annual Deduction:
Segment Year in Which Segment Percentage of Segment Premium Percentage of Segment Premium Segment Years of Premium Received Received up to Received in Excess Deduction Segment Target Premium* Of Segment Target Premium Segment Year 1 2.0% 1% 2 through 8 Segment Year 2 1.75% 0% 3 through 9 Segment Year 3 1.75% 0% 4 through 10 Segment Year 4 1.75% 0% 5 through 11 Segment Year 5 0.50% 0% 6 through 12 Segment Year 6 0.50% 0% 7 through 13 Segment Year 7 0.50% 0% 8 through 14 Segment Year 8 0.50% 0% 9 through 15 Segment Year 9 0.50% 0% 10 through 16 Segment Year 10 0.50% 0% 11 through 17 Segment Years 11+ 0% 0% N/A
*These are the percentages used to determine the segment annual deduction. This deduction will be made once each year for 7 years. ANNUAL MORTALITY AND EXPENSE RISK CHARGE Annual Mortality and Expense Risk Charge 0.20% per year (0.01667% per month) Form 2505 (VUL)-2/00 Page 5C POLICYHOLDER TRANSACTION CHARGES Requests for Sales Illustrations: We reserve the right to charge a $25 fee for each policy illustration over one illustration per policy year. Partial Withdrawal Service Fee: See below. Other Policy Transaction Charges: The charges for transfers between investment options of the Separate Account or between the Guaranteed Interest Division and the Separate Account investment options; charges for allocation changes; and charges for other Separate Account management functions are governed by the prospectus in effect at the time of the transaction. POLICY LOANS Policy Loan Interest Rate: 3.25% per year Guaranteed Interest Rate Credited To Loan Division: 3.00% per year Minimum Loan Amount: $100 Maximum Loan Amount: See the Loan Provisions section. PARTIAL WITHDRAWALS Minimum Partial Withdrawal Amount: $100 Maximum Partial Withdrawal Amount: Amount which will leave $500 as the net account value Partial Withdrawal Service Fee: $25 Limit On Partial Withdrawals: One per policy year GUARANTEED INTEREST DIVISION Guaranteed Interest Rate For Guaranteed Interest Division: 3.00% per year Form 2505 (VUL)-2/00 Page 5D SCHEDULE (Continued) The policy's base death benefit at any time will be at least equal to the account value times the appropriate factor from this table. DEFINITION OF LIFE INSURANCE CASH VALUE ACCUMULATION TEST DEATH BENEFIT FACTORS
Insured's Attained Factor Insured's Factor Insured's Factor Insured's Factor Age Attained Age Attained Age Attained Age 15 7.564 40 3.439 65 1.692 90 1.151 16 7.335 41 3.330 66 1.654 91 1.141 17 7.118 42 3.226 67 1.617 92 1.131 18 6.911 43 3.125 68 1.583 93 1.120 19 6.713 44 3.028 69 1.550 94 1.109 20 6.521 45 2.936 70 1.518 95 1.097 21 6.334 46 2.846 71 1.488 96 1.083 22 6.150 47 2.761 72 1.459 97 1.069 23 5.969 48 2.678 73 1.432 98 1.054 24 5.791 49 2.599 74 1.406 99 1.040 25 5.615 50 2.522 75 1.382 100 and older 1.000 26 5.441 51 2.449 76 1.359 27 5.271 52 2.378 77 1.338 28 5.104 53 2.311 78 1.318 29 4.940 54 2.246 79 1.299 30 4.781 55 2.184 80 1.281 31 4.626 56 2.125 81 1.264 32 4.476 57 2.068 82 1.248 33 4.330 58 2.014 83 1.233 34 4.188 59 1.962 84 1.218 35 4.052 60 1.912 85 1.205 36 3.920 61 1.864 86 1.193 37 3.793 62 1.818 87 1.181 38 3.670 63 1.774 88 1.171 39 3.553 64 1.732 89 1.160
Form 2505 (VUL)-2/00 Page 5E SCHEDULE (Continued) TABLE OF GUARANTEED RATES-Segment #1 Guaranteed Maximum Cost of Insurance Rates Per $1000 of Net Amount at Risk (These rates apply to the Base Policy.)
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate 0 0.34845 26 0.14419 51 0.60870 76 5.91225 1 0.08917 27 0.14252 52 0.66377 77 6.46824 2 0.08251 28 0.14169 53 0.72636 78 7.04089 3 0.08167 29 0.14252 54 0.79730 79 7.64551 4 0.07917 30 0.14419 55 0.87326 80 8.30507 5 0.07501 31 0.14836 56 0.95591 81 9.03761 6 0.07167 32 0.15252 57 1.04192 82 9.86724 7 0.06667 33 0.15919 58 1.13378 83 10.80381 8 0.06334 34 0.16669 59 1.23235 84 11.82571 9 0.06167 35 0.17586 60 1.34180 85 12.91039 10 0.06084 36 0.18670 61 1.46381 86 14.03509 11 0.06417 37 0.20004 62 1.60173 87 15.18978 12 0.07084 38 0.21505 63 1.75809 88 16.36948 13 0.08251 39 0.23255 64 1.93206 89 17.57781 14 0.09584 40 0.25173 65 2.12283 90 18.82881 15 0.11085 41 0.27424 66 2.32623 91 20.14619 16 0.12585 42 0.29675 67 2.54312 92 21.57655 17 0.13919 43 0.32260 68 2.77350 93 23.20196 18 0.14836 44 0.34929 69 3.02328 94 25.28174 19 0.15502 45 0.37931 70 3.30338 95 28.27411 20 0.15836 46 0.41017 71 3.62140 96 33.10677 21 0.15919 47 0.44353 72 3.98666 97 41.68475 22 0.15752 48 0.47856 73 4.40599 98 58.01259 23 0.15502 49 0.51777 74 4.87280 99 83.33333 24 0.15169 50 0.55948 75 5.37793 25 0.14752
The rates shown are for a guaranteed issue premium class with no substandard rating. If the policy has a substandard rating, the maximum cost of insurance rates will be adjusted using the rating factor shown in the Segment Benefit Profile of the Schedule. For a rating that is a stated percentage increase, the maximum cost of insurance rates will be determined by multiplying the rates for a guaranteed issue premium class shown above by the rating factor shown in the Segment Benefit Profile of the Schedule. For a rating that is a flat amount per $1,000, the maximum cost of insurance rates will be determined by adding the flat amount per $1,000 shown in the Segment Benefit Profile of the Schedule to the rate per $1,000 for the guaranteed issue premium class shown above. The rates shown above are based on the 1980 Commissioners' Standard Ordinary Ultimate Smoker Composite Mortality Table (Male), age nearest birth date. Form 2505 (VUL)-2/00 Page 5F TABLE OF GUARANTEED RATES-Segment #1 Guaranteed Maximum Cost of Insurance Rates Per $1000 of Net Amount at Risk (Adjustable Term Insurance Rider)
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate 0 0.43602 26 0.18003 51 0.76141 76 7.40104 1 0.11168 27 0.17837 52 0.82985 77 8.09839 2 0.10334 28 0.17753 53 0.90832 78 8.81706 3 0.10251 29 0.17837 54 0.99683 79 9.57498 4 0.09918 30 0.18003 55 1.09202 80 10.40294 5 0.09418 31 0.18587 56 1.19559 81 11.32260 6 0.09001 32 0.19087 57 1.30253 82 12.36434 7 0.08334 33 0.19921 58 1.41784 83 13.54176 8 0.07917 34 0.20838 59 1.54070 84 14.82576 9 0.07751 35 0.22005 60 1.67781 85 16.19045 10 0.07584 36 0.23339 61 1.83085 86 17.60542 11 0.08001 37 0.25006 62 2.00317 87 19.05982 12 0.08834 38 0.26924 63 2.19899 88 20.54615 13 0.10334 39 0.29092 64 2.41666 89 22.06903 14 0.12001 40 0.31510 65 2.65537 90 23.64710 15 0.13835 41 0.34262 66 2.90927 91 25.31065 16 0.15752 42 0.37097 67 3.18092 92 27.11674 17 0.17420 43 0.40350 68 3.46950 93 29.17188 18 0.18587 44 0.43686 69 3.78175 94 31.80363 19 0.19420 45 0.47439 70 4.13284 95 35.59424 20 0.19837 46 0.51276 71 4.53127 96 41.72906 21 0.19921 47 0.55447 72 4.98809 97 52.65466 22 0.19671 48 0.59869 73 5.51357 98 73.58341 23 0.19420 49 0.64709 74 6.09863 99 83.33333 24 0.19004 50 0.69966 75 6.73168 25 0.18420
The rates shown are for a guaranteed issue premium class with no substandard rating. If the policy has a substandard rating, the maximum cost of insurance rates will be adjusted using the rating factor shown in the Segment Benefit Profile of the Schedule. For a rating that is a stated percentage increase, the maximum cost of insurance rates will be determined by multiplying the rates for a guaranteed issue premium class shown above by the rating factor shown in the Segment Benefit Profile of the Schedule. For a rating that is a flat amount per $1,000, the maximum cost of insurance rates will be determined by adding the flat amount per $1,000 shown in the Segment Benefit Profile of the Schedule to the rate per $1,000 for the guaranteed issue premium class shown above. The rates shown above are based on the 1980 Commissioners' Standard Ordinary Ultimate Smoker Composite Mortality Table (Male), age nearest birth date. Form 2505 (VUL)-2/00 Page 5G DEFINITION OF TERMS Account value - The sum of the amounts allocated to the investment options of the Separate Account and to the Guaranteed Interest Division, as well as any amount set aside in the Loan Division to secure a policy loan. Accumulation unit - A unit of measurement used to calculate the account value in each investment option of the Separate Account. Accumulation unit value - The value of an accumulation unit of each investment option of the Separate Account. The accumulation unit value is determined as of each valuation date. Age - The policy is issued at the age shown in the Schedule. Each issue age is the age nearest birthday on the policy date. Attained age - The insured's attained age is the issue age of the insured as shown in the Schedule, increased by the number of completed policy years. Base death benefit - The base death benefit is defined in the Base Death Benefit provision of the policy. Customer Service Center - Our administrative office whose address is P. O. Box 173888, Denver, CO 80217. General Account - The account that contains all of our assets other than those held in the Separate Account or our other separate accounts. Guaranteed Interest Division - Part of our General Account to which a portion of the account value may be allocated and which provides guarantees of principal and interest. Initial period - The initial period ends on the earlier of: a) the date this policy was delivered to you plus the Right to Examine Period, so long as we receive notice of the delivery date at our Customer Service Center before the date defined in (b), or (b) the date this policy is mailed from our Customer Service Center plus five days plus the Right to Examine Period. Form 2505 (VUL)-2/00 Page 6 Investment date -The first date we apply your net premium payment to your policy. We will allocate the initial net premium to your policy at the end of the valuation period during which the latest of the date on which the following requirements is satisfied for policy issuance: 1) we receive the amount of premium required for coverage to begin under the policy; 2) we have approved the policy for issue, and 3) all issue requirements have been met and received in our Customer Service Center. Investment options of the Separate Account - The investment options available, each of which invests in shares of one of the portfolios. Loan Division - Part of our General Account in which funds are set aside to secure any outstanding policy loan and accrued loan interest when due. Monthly processing date - The date each month on which the monthly deductions from the account value are due. The first monthly processing date will be the policy date or the investment date, if later. Subsequent monthly processing dates will be the same date as the policy date each month thereafter. If that date is not a valuation date, monthly processing date will be the next calculated accumulation unit value. Net account value - The amount of the account value minus any policy loan and accrued loan interest. This is the same as your surrender value. Net premium - The net premium equals the premium received minus the premium expense charges shown in the Schedule. These charges are deducted from the premium before the premium is applied to your account value. Partial withdrawal - The withdrawal of a portion of your net account value from the policy. The partial withdrawal may reduce the amount of base death benefit in force. Policy loan - The sum of amounts you have borrowed from your policy, increased by any policy loan interest capitalized when due, and reduced by any policy loan repayments. Right to Examine Period - The number of days after delivery during which you have a right to examine your policy. Scheduled premium - The premium amount that you specify on the application as the amount you intend to pay at fixed intervals over a specified period of time. Premiums may be paid on a monthly, quarterly, semiannual, or annual basis, as you determine. You need not pay the scheduled premium and you may change it at any time. Also, within limits, you may pay less or more than the scheduled premium. Segment - The stated death benefit shown on the Segment Benefit Profile of the Schedule is the initial segment, or Segment #1. Each increase in the stated death benefit (other than due to an option change) is a new segment. Each new segment will be shown separately on the Segment Benefit Profile of the Schedule. The first year for a segment begins on the effective date of the segment and ends one year later. Each subsequent year begins at the end of the prior segment year. Each new segment may be subject to a new sales charge, new annual deduction, if any, new cost of insurance charges and new incontestability and suicide exclusion periods. Segment premium - The actual premium received allocated to existing segments. Premium is allocated in the same proportion that the segment target premium bears to the sum of all segment target premium. If there is only one segment target premium, the entire premium is allocated to the segment. Segment target premium is shown in the Schedule. As each segment has unique segment years, each segment premium is associated with a segment year. Form 2505 (VUL)-2/00 Page 6a Stated death benefit -The sum of the segments under the policy. The stated death benefit changes when there is an increase or a decrease or when a transaction on the policy causes it to change (for example, a partial withdrawal under an Option 1 base death benefit may cause the stated death benefit to change). Surrender value - The amount of the account value minus any policy loan and accrued loan interest. This is the same amount as the net account value. Target death benefit - The target death benefit for your policy is defined in the Adjustable Term Insurance Rider, if any, attached to the policy. Valuation date - Each date as of which the net asset value of the shares of the portfolios and unit values of the variable investment options are determined. Except for days that a variable investment option's corresponding portfolio does not value its shares, a valuation date is any day: (a) The New York Stock Exchange ("NYSE") is open for trading and on which Security Life's Customer Service Center is open for business; or (b) as may be required by law. Valuation period - The period which begins at 4:00 p.m. Eastern Time on a valuation date and ends at 4:00 p.m. Eastern Time on the next succeeding valuation date. INSURANCE COVERAGE PROVISIONS EFFECTIVE DATE The policy date shown in the Schedule is the effective date for all coverage provided in the original application. The policy date is the date from which we measure policy years and determine the monthly processing date. The first monthly processing date is the investment date. Future monthly processing dates are the same calendar day of each month as the policy date unless this is not a valuation date in which case the monthly processing date occurs on the next valuation date. A policy anniversary occurs each year on the same month and day as the policy date unless this is not a valuation date in which case the policy anniversary occurs on the next valuation date. The effective date for new segments and additional benefits is shown in the Schedule. BASE DEATH BENEFIT The base death benefit will be, at any time, determined as follows: Option 1: Under Option 1, the base death benefit is the greater of: (a) The stated death benefit; or (b) The account value multiplied by the appropriate factor from the Death Benefit Factors shown in the Schedule. Option 2: Under Option 2, the base death benefit is the greater of: (a) The stated death benefit plus the account value, or (b) The account value multiplied by the appropriate factor from the Death Benefit Factors shown in the Schedule. Option 3: Under Option 3, the base death benefit is the greater of: (a) The stated death benefit plus premiums received less partial withdrawals, or (b) The account value multiplied by the appropriate factor from the Death Benefit Factors shown in the Schedule. The stated death benefit and the death benefit option are shown in the Schedule. This policy is designed to qualify as a life insurance contract under the Internal Revenue Code. All terms and provisions of the policy shall be construed in a manner consistent with that design. The base death benefit in force at any time shall not be less than the amount of insurance necessary to achieve such qualification under the applicable provisions of the Internal Revenue Code in existence at the time the policy is issued. We reserve the right to amend the policy or adjust the amount of insurance when required. We will send you a copy of any policy amendment. Form 2505 (VUL)-2/00 Page 7 CHANGE IN REQUESTED INSURANCE COVERAGE You may request that the insurance coverage be increased or decreased. Decreases are not allowed before the first policy anniversary. The change in coverage may not be for an amount less than $1,000. The effective date of the change will be the monthly processing date immediately following the date your written application is approved by us. After any change to the stated death benefit, you will receive an amended Schedule reflecting the change, the benefit under any riders, if applicable, the guaranteed cost of insurance rates, and the new target premium. Requested Increases in Coverage Subject to our limits, you may request an increase in the stated death benefit through attained age 75. An increase will become effective as of the monthly processing date immediately following the date your written application is approved by us. You must provide evidence satisfactory to us that the insured is insurable according to our normal rules of underwriting for the applicable premium class for this type of policy. This evidence will include an application and may include required medical information. An increase will consist of a new segment of stated death benefit . Each new segment will result in a new sales charge which will be deducted from the premium allocated to the new segment. The new segment may also be subject to new monthly expense charges, new annual deductions, new cost of insurance charges and new incontestability and suicide exclusion periods. Requested Decreases in Coverage After the first policy anniversary, you may request a decrease in the stated death benefit. We will limit the decrease such that, immediately after the requested decrease: (a) If there is no adjustable term insurance on the policy, the stated death benefit is at least $50,000. (b) If there is adjustable term insurance on the policy, the target death benefit is at least $50,000. A decrease will be effective as of the monthly processing date immediately following the date your written application is approved by us. A decrease will first reduce Adjustable Term Insurance Rider coverage, if attached to your policy, and will then reduce each of the stated death benefit segments in the same proportion as the stated death benefit is reduced. Death Benefit Option Changes Beginning with the first monthly processing date and ending with the policy anniversary nearest the insured's 100th birth date, you may request to change the death benefit option. This change will be effective as of the monthly processing date next following approval. A death benefit option change applies to the entire stated death benefit. We may not allow any change if it would reduce the target death benefit below the minimum we require to issue this policy at the time of reduction. Death benefit option changes from Option 1 to Option 3, from Option 2 to Option 3 and from Option 3 to Option 2 are not allowed. After the effective date of the change, the stated death benefit will be changed according to the following table: Form 2505 (VUL)-2/00 Page 8 OPTION CHANGE STATED DEATH BENEFIT FOLLOWING FROM TO THE OPTION CHANGE EQUALS: Option 1 Option 2 Stated death benefit prior to such change minus your account value as of the effective date of the change. Option 2 Option 1 Stated death benefit prior to such change plus your account value as of the effective date of the change. Option 3 Option 1 Stated death benefit prior to such change plus the sum of all the premiums paid minus all partial withdrawals taken prior to the effective date of the change. To determine the segment stated death benefit after an option change, your account value will be allocated to each segment in the same proportion that segment bears to the stated death benefit as of the effective date of the change. CONTINUATION OF COVERAGE AFTER AGE 100 If the policy is in force on the policy anniversary nearest the insured's 100th birth date, the policy will continue pursuant to the terms of the policy. On this date, the following will occur: (a) The target death benefit on the policy anniversary nearest the insured's 100th birth date will then become the stated death benefit for the policy and any remaining death benefit in force under the Adjustable Term Insurance Rider will terminate. (b) All other riders, if any, attached to the policy also will terminate. (c) The portion of your account value invested in the investment options of the Separate Account will be transferred into the Guaranteed Interest Division and no further investment in the Separate Account will be allowed. (d) If the death benefit option in force on the policy is Option 2 or Option 3, the policy will be converted to death benefit Option 1 in accordance with the procedures outlined in the Death Benefit Option Changes provision of the policy. No further changes will be allowed to the death benefit option. After the policy anniversary nearest the insured's 100th birth date, no further premiums will be accepted and no monthly or annual deductions will be made. However, a one-time administrative fee of $200 will be charged against the policy's account value. We will continue to credit interest to the account value in the Guaranteed Interest Division. Policy loans and withdrawals continue to be available. Any existing policy loan will continue. Policy loan interest will continue to accrue. Payments on policy loans and policy loan interest will be accepted. The policy will enter the 61-day grace period if the surrender value is zero or less. If you do not want coverage to continue past the policy anniversary nearest the insured's 100th birth date, the policy may be surrendered at that time, or earlier. Form 2505 (VUL)-2/00 Page 9 PAYOUT OF PROCEEDS Proceeds refer to the amount we will pay: a) upon surrender of the policy; or b) upon the death of the insured. The proceeds upon surrender of this policy will be the net account value. The amount of proceeds payable upon the death of the insured will be the base death benefit in effect on the date of death, plus any amounts payable from any additional benefits provided by rider, minus any outstanding policy loan including accrued but unpaid interest, minus any unpaid monthly deductions incurred prior to the date of death. The calculation of the death proceeds will be computed as of the date of the insured's death. We will determine the amount of proceeds payable upon the death of the insured when we have received due proof of death and any other information which is necessary to process the claim. Any proceeds we pay are subject to adjustments as provided in the Misstatement of Age, Suicide Exclusion and Incontestability provisions. We will pay proceeds in one sum unless you request an alternate form of payment. There are many possible methods of payment. The available payout options are described in the Payouts Other Than As One Sum provision. Contact us or your registered representative for additional information. Interest will be paid on the one sum death proceeds from the date of death to the date of payment, or until a payout option is selected. Interest will be at the rate we declare, or at any higher rate required by law. PREMIUM PROVISIONS INITIAL PREMIUM ALLOCATION If the initial period has not ended on the investment date, net premium amounts designated for allocation to investment option of the Separate Account will be allocated on the investment date to the Money Market Division and any net premium amount designated for allocation to the Guaranteed Interest Division will be allocated to that division. Any additional net premium amounts received after the investment date and before the end of the initial period will be allocated in the same manner as the initial net premium, at the end of the valuation period during which we receive the premium at our Customer Service Center. On the valuation date immediately following the end of the initial period, the balance of the amount in the Money Market Division will be transferred to other investment options of the Separate Account according to your allocations instructions. The amounts allocated to the Guaranteed Interest Division will remain in that division. If the initial period has ended on the investment date, initial net premium amounts will be allocated on the investment date to investment options of the Separate Account and/or to the Guaranteed Interest Division in accordance with your allocation instructions. Form 2505 (VUL)-2/00 Page 10 SUBSEQUENT PREMIUM ALLOCATIONS After the initial premium allocation, all future scheduled and unscheduled premiums will be allocated to the investment options of the Separate Account and to the Guaranteed Interest Division in accordance with your allocation instructions. This allocation will occur at the end of the valuation period during which we receive the premium at our Customer Service Center. CHANGES TO PREMIUM ALLOCATIONS You may change your premium allocation in accordance with instructions included in your annual policy prospectus. If the change causes a premium allocation charge to be incurred according to the schedule, we will deduct a charge from the investment options of the Separate Account and from the Guaranteed Interest Division as described in the prospectus in effect at the time of the transaction. SCHEDULED PREMIUMS The scheduled premium as shown in the Schedule may be paid while this policy is in force prior to the policy anniversary nearest the insured's 100th birth date. You may increase or decrease the amount of the scheduled premium, subject to limits we may set and provisions in the Premium Limitation section. Under conditions provided in the Grace Period provision, you may be required to make premium payments to keep the policy in force. You may pay premiums on a monthly basis through an automated payment facility. All payment modes are subject to our minimum requirements for the payment mode selected. UNSCHEDULED PREMIUMS You may make unscheduled premium payments at any time the policy is in force prior to the policy anniversary nearest the insured's 100th birth date, subject to the Premium Limitation section. Unless you tell us otherwise, these premium payments will first be applied to reduce or pay off any existing policy loan and, as such, premium expense charges will not be deducted. NET PREMIUM The net premium equals the premium paid minus the premium expense charge shown in the Schedule. The premium expense charge is the sales charge plus the tax charge. Each time we receive a premium we determine the sales charge by multiplying the applicable sales charge percentage times the segment premium. There is a different sales charge percentage for the segment year in which the premium is received, for segment premium above the segment target premium and for segment premium below the segment target premium. Each time we receive a premium we determine the tax charge by multiplying the applicable tax charge percentage times the segment premium. There is a different tax charge percentage for the segment year in which the premium is received, for segment premium above the segment target premium and for segment premium below the segment target premium. Form 2505 (VUL)-2/00 Page 11 The Schedule shows: (1) the target premium for each segment; (2) the percentage sales charges; and (3) the tax percentage. Segment premium is defined in the Definition of Terms section of your policy. PREMIUM LIMITATION We will refund any premium that causes your policy not to qualify as a life insurance policy under the Internal Revenue Code. No premium may be paid after the death of the insured. No premium may be paid after the policy anniversary nearest the insured's 100th birth date. FAILURE TO PAY PREMIUM If you stop paying premiums prior to the policy anniversary nearest the insured's 100th birth date, your coverage may lapse. See your Grace Period provision for details. SEPARATE ACCOUNT PROVISIONS THE SEPARATE ACCOUNT The Separate Account is an account established by us, pursuant to the laws of the State of Colorado, to separate the assets funding the benefits for the class of policies to which this policy belongs from other assets of Security Life of Denver Insurance Company. The Separate Account is registered as a unit investment trust under the Investment Company Act of 1940. All income, gains and losses, whether or not realized, from assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to income, gains or losses of our General Account. The assets of the Separate Account are our property but are separate from our General Account and our other Separate Accounts. That portion of the assets of the Separate Account which is equal to the reserves and other policy liabilities with respect to the Separate Account is not chargeable with liabilities arising out of any other business we may conduct or subject to creditor claims against us. SEPARATE ACCOUNT INVESTMENT OPTIONS The Separate Account is divided into investment options, each of which invests in a fund portfolio designed to meet the objectives of the investment option. The current eligible investment options are shown in your annual policy prospectus. We may, from time to time, add additional investment options. If we do, you may be permitted to select from these other investment options subject to the terms and conditions we may impose on those allocations. Form 2505 (VUL)-2/00 Page 12 We reserve the right to limit the number of options in which you may invest over the life of the policy. This limit, if any, will be listed in the updated policy prospectus provided to you each year. CHANGES WITHIN THE SEPARATE ACCOUNT When permitted by law, and subject to any required notice to you and approval of the Securities and Exchange Commission ("SEC"), state regulatory authorities or policy owners, we may from time to time make the following changes to the Separate Account: o Make additional investment options available. These investment options will invest in portfolios we find suitable for the policy. o Eliminate investment options from the Separate Account or combine 2 or more investment options. o Substitute a new portfolio for the portfolio in which an investment option invests. A substitution may become necessary if, in our judgment, a portfolio no longer suits the purposes of the policy. This may happen due to a change in laws or regulations, or a change in a portfolio's investment objectives or restrictions. This may also happen if the portfolio is no longer available for investment, or for some other reason, such as a declining asset base. o Transfer assets of the Separate Account, which we determine to be associated with the class of policies to which your policy belongs, to another Separate Account. o Withdraw the Separate Account from registration under the Investment Company Act of 1940. o Operate the Separate Account as a management investment company under the Investment Company Act of 1940. o Invest one or more investment options in a mutual fund other than, or in addition to, the portfolios. o Discontinue the sale of policies. o Terminate any employer or plan trustee agreement with us pursuant to its terms. o Restrict or eliminate any voting rights as to the Separate Account. o Make any changes required by the Investment Company Act of 1940 or the rules or regulations thereunder. Form 2505 (VUL)-2/00 Page 13 GENERAL ACCOUNT PROVISIONS THE GENERAL ACCOUNT The General Account holds all of our assets other than those held in the Separate Account or our other separate accounts. The Guaranteed Interest Division is a part of our General Account. GUARANTEED INTEREST DIVISION The Guaranteed Interest Division is another investment option to which you may allocate premiums or make transfers. The account value of the Guaranteed Interest Division is equal to amounts allocated to this division plus any earned interest minus deductions taken from this division. Interest is credited at the guaranteed rate shown in the schedule or may be credited at a higher rate. Any higher rate is guaranteed to be in effect for at least a 12-month period. LOAN DIVISION The Loan Division is the account that is set aside to secure the policy loan, if any. See the Loan Provisions section for information. TRANSFER PROVISIONS After the initial premium allocation and until the policy anniversary nearest the insured's 100th birth date, your account value in each division may be transferred to any other investment option of the Separate Account or to the Guaranteed Interest Division upon your request. One transfer from the Guaranteed Interest Division into the investment options of the Separate Account may be made during the first 30 days of each policy year. Additional limitations, requirements and charges for transfers will be listed in and governed by your annual policy prospectus in effect at the time of the transfer. We reserve the right to modify these limitations, requirements and charges from time to time. On the policy anniversary nearest the insured's 100th birth date, your account value in each investment option of the Separate Account will be transferred into the Guaranteed Interest Division and no further transfers will be allowed. ACCOUNT VALUE PROVISIONS The account value is the sum of the current amounts allocated to the investment options of the Separate Account and to the Guaranteed Interest Division plus your balance in the Loan Division. Form 2505 (VUL)-2/00 Page 14 The account value is based on the premiums paid, policy and rider charges assessed, loans and withdrawals taken, monthly deductions, premium expense charges, transaction charges, annual deductions, if any, and the investment experience or credited interest of the investment options or divisions to which your account value is allocated. Your net account value is equal to your account value minus any policy loan and accrued but unpaid loan interest. ACCOUNT VALUES ON THE INVESTMENT DATE The account value of each investment option of the Separate Account and the account value of the Guaranteed Interest Division as of the investment date is equal to: a) The allocation to each investment option of the Separate Account and to the Guaranteed Interest Division of the first net premium received; minus b) The portion of any monthly deductions allocated to each investment option of the Separate Account and to the Guaranteed Interest Division due on the investment date. ACCUMULATION UNIT VALUE The investment experience of an investment option of the Separate Account is determined as of each valuation date. We use an accumulation unit value to measure the experience of each of the Separate Account investment options during a valuation period. We generally set the accumulation unit value at $10 when each investment option is opened. The accumulation unit value for a valuation date equals the accumulation unit value for the preceding valuation date multiplied by the accumulation experience factor defined below for the valuation period ending on the valuation date. The number of units for a given transaction related to an investment option of the Separate Account as of a valuation date is determined by dividing the dollar value of that transaction by that division's accumulation unit value for that date. ACCUMULATION EXPERIENCE FACTOR For each investment option of the Separate Account, the accumulation experience factor reflects the investment experience of the portfolio in which that option invests and the charges assessed against that investment option for a valuation period. The accumulation experience factor is calculated as follows: a) The net asset value of the portfolio in which that investment option invests as of the end of the current valuation period; plus b) The amount of any dividend or capital gains distribution declared and reinvested in the portfolio in which that investment option invests during the current valuation period; minus c) A charge for taxes, if any. d) The result of (a), (b) and (c) is then divided by the net asset value of the portfolio in which that investment option invests as of the end of the preceding valuation period. Form 2505 (VUL)-2/00 Page 15 ACCOUNT VALUE OF THE INVESTMENT OPTIONS OF THE SEPARATE ACCOUNT On subsequent valuation dates after the investment date, your account value of each investment option of the Separate Account is calculated as follows: a) The number of accumulation units in an investment option as of the beginning of the current valuation period multiplied by that option's accumulation unit value for the current valuation period; plus b) Any additional net premiums allocated to that investment option during the current valuation period; plus c) Any account value transferred to or minus any account value transferred from the Separate Account during the current valuation period (including the applicable portion of any transfer fee); minus d) Any partial withdrawals allocated to the investment option and any applicable withdrawal service fees which are allocated to the Separate Account during the current valuation period; plus e) Any amounts released from the Loan Division as a result of a loan or loan interest payment, or minus amounts transferred to the Loan Division as a result of any loans which are allocated to the investment options of the Separate Account during the current valuation period; minus f) The portion of the monthly deduction allocated to the investment options of the Separate Account, if a monthly processing date occurs during the current valuation period; minus g) The portion of the annual deduction, if any, as of the first monthly processing date for a segment year allocated to that investment option during the current valuation period. ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION On valuation dates after the investment date, your account value of the Guaranteed Interest Division is calculated as follows: a) The account value of the Guaranteed Interest Division at the end of the preceding valuation period plus interest at the declared rate credited during the current valuation period; plus b) Any additional net premiums allocated to the Guaranteed Interest Division plus interest credited to these premiums during the current valuation period; plus c) Any account value transferred to or minus any account value transferred from the Guaranteed Interest Division during the current valuation period (including the applicable portion of any transfer fee); minus d) Any partial withdrawals taken and any applicable withdrawal service fees which are allocated to the Guaranteed Interest Division during the current valuation period; plus e) Any amounts released from the Loan Division as a result of a loan or loan interest payment, or minus amounts transferred to the Loan Division as a result of any loans which are allocated to the Guaranteed Interest Division during the current valuation period; minus f) The portion of the monthly deduction allocated to the Guaranteed Interest Division, if a monthly processing date occurs during the current valuation period; minus g) The portion of the annual deduction, if any, as of the first monthly processing date for a segment year allocated to the Guaranteed Interest Division during the valuation period. Form 2505 (VUL)-2/00 Page 16 ACCOUNT VALUE OF THE LOAN DIVISION On valuation dates after the investment date, your account value of the Loan Division is equal to: a) The account value of the Loan Division on the prior valuation date; plus b) Any interest credited to the Loan Division during the valuation period; plus c) An amount equal to any additional loans since the prior valuation date; minus d) Any loan repayments, including payment of loan interest; plus e) The amount of accrued loan interest if the valuation date is a policy anniversary; minus f) The amount of interest credited to the Loan Division during the year if the valuation date is a policy anniversary. On policy anniversaries, any amount of interest credited to the Loan Division during the year is transferred from the Loan Division to the Separate Account and Guaranteed Interest Division according to your premium allocation then in effect. DEDUCTIONS MONTHLY DEDUCTIONS The monthly deduction is equal to: a) The cost of insurance charges for this policy; plus b) The monthly charges for any other additional benefits provided by riders in force under the policy; plus c) The monthly expense charges shown in the Schedule; plus d) The monthly equivalent of the annual mortality and expense risk charge shown in the Schedule; plus e) The policyholder transaction charges as described in the Schedule as applicable; plus The monthly deductions are allocated to the divisions of the Separate Account and Guaranteed Interest Division as described in the prospectus in effect at the time of the transaction. The monthly deductions are taken from your account value as of the monthly processing date. These deductions will display in periodic reports that we send you at least once per policy year. After the policy anniversary nearest the insured's 100th birth date no further monthly deductions will be made, except policy transaction charges incurred after this date. ANNUAL DEDUCTION (Deferred Sales Charge) At the end of each of the first ten segment years, we calculate a segment annual deduction for each segment by multiplying the applicable percentage from the Schedule times the segment premium received in the segment year. There is a different annual percentage for the segment year in which the premium is received, for the segment premium below the segment target premium and for the segment premium above the segment target premium. The segment annual deduction is deducted from the account value at the beginning of each of the next seven segment years. The first deduction is in the policy month immediately following the calculation. As the calculation is performed for each segment year in which a premium is received, the total annual deduction for a segment is the sum of up to seven segment annual deductions. Segment premium is defined in the Definition of Terms section of your policy. Form 2505 (VUL)-2/00 Page 17 The annual deduction is allocated to the investment options of the Separate Account and to the Guaranteed Interest Division as described in the prospectus in effect at the time of the transaction. The annual deduction will display in periodic reports that we send you at least once per policy year. After the policy anniversary nearest the insured's 100th birth date no further annual deductions will be made. COST OF INSURANCE The cost of insurance for the policy is the sum of the cost of insurance for all segments. A segment's cost of insurance is the cost of insurance rate for the premium class for the segment multiplied by the net amount at risk allocated to the segment. It is determined on a monthly basis. The net amount at risk is (a) minus (b) where: a) Is the base death benefit for all segments as of the monthly processing date after the monthly deductions (other than cost of insurance charges for the base death benefit, and any Adjustable Term Insurance Rider), divided by the result of 1 plus the monthly equivalent of the guaranteed interest rate for the Guaranteed Interest Division as shown in the Schedule; and b) Is your account value as of the monthly processing date after the monthly deductions (other than the cost of insurance charges for the base death benefit and any Adjustable Term Insurance Rider). The net amount at risk will be allocated to a segment in the same proportion as that segment's stated death benefit bears to the sum of the stated death benefits for all segments. The cost of insurance rate for each segment will be determined by us from time to time. Different rates will apply to each segment. They will be based on the age and gender of the insured as of the effective date of segment coverage, the duration since the coverage began and the segment premium class. Any change in rates will apply to all individuals of the same premium class and whose policies have been in effect for the same length of time. The rates will never exceed those rates shown in the Table of Guaranteed Rates for the segment as adjusted for any rating. These tables are in the Schedule. LOAN PROVISIONS POLICY LOANS You may obtain a policy loan on or after the first monthly processing date. The maximum amount you may borrow at any time equals the net account value on the date of the loan request less all monthly deductions to the next policy anniversary, or 13 monthly deductions if you take a loan within the 30 day period before your next policy anniversary. The policy loan is a first lien on your policy. The minimum amount you may borrow is shown in the Schedule. The outstanding policy loan amount is equal to the loan amount as of the beginning of the policy year plus new loans and minus loan repayments, plus accrued interest. Form 2505 (VUL)-2/00 Page 18 LOAN INTEREST The annual policy loan interest rate is shown in the Schedule. If a loan is made, interest is due and payable at the end of the policy year. Thereafter, interest on the loan amount is due annually at the end of each policy year until the loan is repaid. If interest is not paid when due, it is added to the policy loan. If the policy loan amount and any accrued interest equals or exceeds the account value, a premium sufficient to keep this policy in force must be paid as provided in the Grace Period provision. LOAN DIVISION When a policy loan is taken or when interest is not paid in cash when due, an amount equal to the loan or unpaid loan interest respectively, is transferred from the investment options of the Separate Account and the Guaranteed Interest Division to the Loan Division to secure the loan. This amount will be deducted from the investment options of the Separate Account and the Guaranteed Interest Division in the same proportion that your account value in each investment option and in the Guaranteed Interest Division bears to your net account value as of the date the transfer is effective unless otherwise specified in your instructions to us. Your account value in the Loan Division will be credited with interest at the interest rate for the Loan Division shown in the Schedule. When a loan repayment is made, an amount equal to the repayment is transferred from the Loan Division to the Guaranteed Interest Division and the investment options of the Separate Account in the same proportion as your current premium allocation unless you request a different allocation in writing. PARTIAL WITHDRAWAL PROVISIONS You may apply for a partial withdrawal from your account value on any monthly processing date after the first policy anniversary by contacting us at our Customer Service Center. The minimum and maximum partial withdrawal amounts are shown in the Schedule. When a partial withdrawal is made, the amount of the withdrawal plus a service fee is deducted from your account value. The amount of the service fee is shown in the Schedule. We limit the number of partial withdrawals in a policy year. This number is shown in the Schedule. The stated death benefit is reduced by the amount of the partial withdrawal unless one of the following exceptions applies. The stated death benefit is not reduced by a partial withdrawal taken when the base death benefit has been increased to qualify your policy as life insurance under the Internal Revenue Code and the amount withdrawn is not greater than that which reduces your account value to the level which no longer requires the base death benefit to be increased for Internal Revenue Code purposes. Form 2505 (VUL)-2/00 Page 19 For a policy under an Option 1 death benefit, the stated death benefit is not reduced by a partial withdrawal: a) If no more than 15 years have elapsed since the policy date; b) If the insured is not yet age 81; and c) If the partial withdrawal taken is less than the greater of 10% of your account value or 5% of the stated death benefit, calculated immediately before the partial withdrawal. Any additional amount withdrawn reduces your stated death benefit by that additional amount. For a policy under an Option 2 death benefit, a partial withdrawal does not reduce your stated death benefit. For a policy under an Option 3 death benefit, a partial withdrawal reduces your stated death benefit by any amount of the partial withdrawal in excess of premiums paid, less prior withdrawals, to the date of the partial withdrawal. Any reduction in death benefit or account value will occur as of the date the partial withdrawal occurs. We will limit the amount of the partial withdrawal such that, immediately after the requested withdrawal: a) If there is no adjustable term insurance on the policy, the stated death benefit is at least $50,000. b) If there is adjustable term insurance on the policy, the target death benefit is at least $50,000. You may specify how much of the withdrawal you wish taken from each investment option of the Separate Account or from the Guaranteed Interest Division. You may not withdraw from the Guaranteed Interest Division more than the total withdrawal times the ratio of your account value in the Guaranteed Interest Division to your net account value immediately prior to the withdrawal. Unless you indicate otherwise, we will make the withdrawal from the amounts in the Guaranteed Interest Division and the investment options of the Separate Account in the same proportion that your account value in each investment option bears to your net account value immediately prior to the withdrawal. The withdrawal service fee deducted from your account value is deducted from each investment option and from the Guaranteed Interest Division as described in the prospectus in effect at the time of the transaction. We may send you a new Schedule to reflect the effect of the withdrawal if there is any change to the stated death benefit. We may ask you to return your policy to our Customer Service Center to make this change. The withdrawal and the reductions in death benefits will be effective as of the valuation date after we receive your request. Form 2505 (VUL)-2/00 Page 20 SURRENDER PROVISIONS SURRENDER VALUE The surrender value on any date will be your account value minus any policy loan including accrued but unpaid loan interest. BASIS OF COMPUTATIONS The surrender value under the policy is not less than the minimum required as of the policy date by the state in which your policy was delivered. A detailed statement of the method of computation of policy values under the policy has been filed with the insurance department of the state in which the policy was delivered, if required. FULL SURRENDERS You may surrender your policy after the Right to Examine Period or at any time during the lifetime of the insured and receive the surrender value. We will compute the surrender value as of the next valuation date after we receive both your request and the policy at our Customer Service Center. This policy will be canceled as of the date we receive your request, and there will be no further benefits under this policy. Once you surrender this policy, it cannot be reinstated. GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS GRACE PERIOD If the net account value is zero or less on a monthly processing date, the policy will enter a 61-day grace period: We will give you a 61-day grace period from this monthly processing date to make the required premium payment. The required premium payment then due must be paid to keep the policy in force. If this amount is not received in full by the end of the grace period, the policy will lapse without value. The required premium payment will be equal to past due charges plus an amount we expect to be sufficient to keep the policy and any riders in force for 2 months following receipt of the required premium payment. If we receive at least the required premium payment during the grace period, we will apply the net premium payment to the policy and make deductions for the past due amounts. Notice of the amount of the required premium payment will be mailed to you or any assignee at the last known address at least 30 days before the end of the grace period. If the insured dies during the grace period, we will deduct any overdue monthly charges from the death proceeds of the policy. Form 2505 (VUL)-2/00 Page 21 TERMINATION All coverage provided by this policy will end as of the earliest of: a) The date the policy is surrendered; b) The date of the death of the insured; or c) The date the grace period ends without payment of the required premium. REINSTATEMENT The policy and its riders may be reinstated within five years after the beginning of the grace period. The reinstatement will be effective as of the monthly processing date on or next following the date we approve your written application. We will reinstate the policy and any riders if the following conditions are met: a) You have not surrendered the policy for its surrender value; b) You submit evidence satisfactory to us that the insured and those insured under any riders are still insurable according to our normal rules of underwriting for the applicable underwriting class for this type of policy; and c) We receive payment of the amount of premium sufficient to keep the policy and any riders in force from the beginning of the grace period to the end of the expired grace period and for 2 months after the date of reinstatement. We will let you know, at the time you request reinstatement, the amount of premium needed for this purpose. We will reinstate any policy loan that existed when coverage ended, with accrued loan interest to the end of the grace period. Upon reinstatement, the net premium received minus past due amounts will be allocated to the investment options of the Separate Account and the Guaranteed Interest Division according to the premium allocation percentages in effect at the start of the grace period or as directed by you in writing at the time of reinstatement. DEFERRAL OF PAYMENT Requests for transfers, withdrawals, policy loans or payment of proceeds for a full surrender will be mailed within 7 days of receipt of the request in a form acceptable to us. However, we may postpone the processing of any such Separate Account transactions for any of the following reasons: a) The New York Stock Exchange (NYSE) is closed, other than customary weekend and holiday closings. b) Trading on the NYSE is restricted by the Securities and Exchange Commission (SEC). c) The SEC declares that an emergency exists as a result of which disposal of securities in the Separate Account is not reasonably practicable to determine your account value in the investment options. d) A governmental body having jurisdiction over the Separate Account by order permits such suspension. Form 2505 (VUL)-2/00 Page 22 Rules and regulations of the SEC, if any, are applicable and will govern as to whether conditions described in (b), (c), or (d) exist. Death proceeds will be paid within 7 days of determination of the proceeds and are not subject to deferment. We may defer for up to 6 months payment of any surrender proceeds, withdrawal or loan amounts from the Guaranteed Interest Division. GENERAL POLICY PROVISIONS THE POLICY The policy, including the original application and applications for any increases, decreases, riders, endorsements, any Schedule pages, and any reinstatement applications make up the entire contract between you and us. A copy of the original application will be attached to the policy at issue or at delivery. A copy of any application as well as a new Schedule will be attached or furnished to you for attachment to the policy at the time of any change in coverage. In the absence of fraud, all statements made in any application will be considered representations and not warranties. No statement will be used to deny a claim unless it is in an application. CONTRACT CHANGES All changes made by us must be signed by our president or an officer and by our secretary or assistant secretary. No other persons can change any of this policy's terms and conditions. PROCEDURES We must receive any election, designation, assignment or any other change request you make in writing, except those specified on the application. It must be in a form acceptable to us. We may require a return of the policy for any change or for a full surrender. We are not liable for any action we take before we receive and record the written request at our Customer Service Center. In the event of the death of the insured, please notify us, or our agent, as soon as possible. Upon notification to us, or our agent, instructions will be sent to you or the beneficiary immediately. We may require proof of age and a certified copy of the death certificate. We may require the beneficiary and next of kin to sign authorization forms as part of due proof. These authorization forms allow us to obtain information about the decedent, including, but not limited to, medical records of physicians and hospitals used by the decedent. Settlement will be made upon receipt of due proof of death. OWNERSHIP The original owner is the person or entity named as the owner in the application. You, as the owner, can exercise all rights and receive the benefits until the death of the insured. This includes the right to change the owner, beneficiaries, and methods for the payment of proceeds. All rights of the owner are subject to the rights of any assignee and any irrevocable beneficiary. You may name a new owner by sending written notice to us. The effective date of the change to the new owner will be the date you sign the notice. The change will not affect any payment made or action taken by us before recording the change at our Customer Service Center. Form 2505 (VUL)-2/00 Page 23 BENEFICIARIES The primary beneficiary surviving the insured will receive any death proceeds which become payable. Surviving contingent beneficiaries are paid death proceeds only if no primary beneficiary has survived the insured. If more than one beneficiary in a class survives the insured, they will share the death proceeds equally, unless your designation provides otherwise. If there is no designated beneficiary surviving, you or your estate will be paid the death proceeds. The beneficiary designation will be on file with us or at a location designated by us. Until the death of the insured, you may name a new beneficiary. The effective date of the change will be the date the request was signed. We will pay proceeds to the most recent beneficiary designation on file. We will not be subject to multiple payments. EXCHANGE RIGHT If, for any reason, within the first 2 policy years you want to exchange this policy for a policy in which values do not vary with the investment experience of the Separate Account, we will exchange this policy. The exchange will be implemented by transferring your account value in each Separate Account investment option into the Guaranteed Interest Division and removing your future right to choose to allocate funds to any investment option of the Separate Account. This transfer will not be subject to the excess transfer charge. We will require a return of this policy before this change will be processed. COLLATERAL ASSIGNMENT You may assign this policy as collateral security by 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. INCONTESTABILITY After this policy has been in force during the insured's life for 2 years from the policy date, we will not contest the statements in the application attached at issue. After this policy has been in force during the insured's life for 2 years from the effective date of any new segment or from the effective date of an increase in any other benefit, we will not contest the statements in the application for the new segment or other increase. After this policy has been in force during the insured's life for 2 years from the effective date of any reinstatement, we will not contest the statements in the application for such reinstatement. MISSTATEMENT OF AGE OR GENDER If the insured's age or gender has been misstated, the death benefit will be adjusted. The death benefit will be that which the cost of insurance, which was deducted from your Account Value on the last monthly processing date prior to the insured's death, would have purchased for the insured's correct age or gender. If the death benefit adjustment is made prior to death, the adjusted benefit will be to an equitable amount determined by us. This adjustment will reflect the death benefit for the correct age or gender. Form 2505 (VUL)-2/00 Page 24 SUICIDE EXCLUSION If the insured commits suicide, while sane or insane, within 2 years of the policy date, we will make a limited payment to the beneficiary. We will pay in one sum the amount of all premiums paid to us during that time, minus any outstanding policy loan (including accrued but unpaid interest) and partial withdrawals. Coverage under the policy and all riders will then terminate. If the insured commits suicide, while sane or insane, within 2 years of the effective date of a new segment or of an increase in any other benefit, we will make a limited payment to the beneficiary for the new segment or other increase. This payment will equal the cost of insurance and any applicable monthly expense charges deducted for such increase. Coverage under that segment will then terminate. PERIODIC REPORTS We will send you, without charge, at least once each year a report that shows the current account value, cash surrender value and premiums paid since the last report. The report will also show the allocation of your account value as of the date of the report and the amounts added to or deducted from your account value of each division since the last report. The report will include any other information that may be currently required by the insurance supervisory official of the jurisdiction in which this policy is delivered. ILLUSTRATION OF BENEFITS AND VALUES We will send you, upon written request, a hypothetical illustration of future death benefits and account values. This illustration will include the information as required by the laws or regulations where this policy is delivered. If you request more than one illustration during a policy year, we reserve the right to charge a reasonable fee for each additional illustration. The maximum amount of this fee is shown in the Schedule. NONPARTICIPATING The policy does not participate in our surplus earnings. CUSTOMER SERVICE CENTER Our Customer Service Center is at the address shown in the Schedule. Unless you are otherwise notified: a) All requests and payments should be sent to us at our Customer Service Center; and b) All transactions are effective as of the valuation date the required information is received at our Customer Service Center. PAYOUTS OTHER THAN AS ONE SUM ELECTION During the insured's lifetime, you may elect to have the beneficiary receive the proceeds other than in one sum. If you have not made an election, the beneficiary may do so within 60 days after we receive due proof satisfactory to us of the insured's death. You may also elect to take the net cash surrender value of the policy upon its surrender other than in one sum. Satisfactory written request must be received at our Customer Service Center Form 2505 (VUL)-2/00 Page 25 before payment can be made. A payee that is not a natural person may not be named without our consent. The various methods of settlement are described in the following Payout Options section. PAYOUT OPTIONS OPTION I. Payouts for a Designated Period. Payouts will be made in annual, semi-annual, quarterly or monthly installments per year as elected for a designated period, which may be 5 to 30 years. The installment dollar amounts will be equal except for any excess interest as described below. The amount of the first monthly payout for each $1,000 of account value applied is shown in Settlement Option Table I. OPTION II. Life Income With Payouts for a Designated Period. Payouts will be made in annual, semi-annual, quarterly or monthly installments per year throughout the payee's lifetime, or if longer, for a period of 5, 10, 15 or 20 years as elected. The installment dollar amounts will be equal except for any excess interest as described below. The amount of the first monthly payout for each $1,000 of account value applied is shown in Settlement Option Table II. This option is available only for ages shown in the table. Payouts for Payout Option II will be determined by using the 1983 Individual Annuity Mortality Table for the appropriate gender at 3 1/2% interest. OPTION III. Hold at Interest. Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4, or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. OPTION IV. Payouts of a Designated Amount. Payouts will be made until proceeds, together with interest which will be at the rate declared by us or at any higher rate required by law, are exhausted. Payouts will be made in annual, semi-annual, quarterly or monthly equal installments per year, as elected. OPTION V. Other. Settlement may be made in any other manner as agreed upon in writing between you (or the beneficiary) and us. CHANGE AND WITHDRAWAL You may change an election at any time before the death of the insured. If you have given the beneficiary the right to make changes or withdrawals, or if the beneficiary has elected the option, the beneficiary (as primary payee) may take the actions below. a) Changes may be made from Payout Options I, III, and IV to another option. b) Full withdrawals may be made under Payout Option III or IV. Partial withdrawals of not less than $300 may be made under Payout Option III. c) Remaining installments under Payout Option I may be commuted at 3 1/2% interest and received in one sum. d) Changes in any contingent payee designation may be made. A written request must be sent to our Customer Service Center in writing to make a change or withdrawal. We also may require that you send in the supplementary policy. We may defer payment of commuted and withdrawable amounts for a period up to 6 months. Form 2505 (VUL)-2/00 Page 26 EXCESS INTEREST If we declare that Payout Options are to be credited with an interest rate above that guaranteed, that rate will apply to Payout Options I, II, III, and IV. The crediting of excess interest for one period does not guarantee the higher rate for other periods. Any declared interest rate will be in effect for at least 12 months. MINIMUM AMOUNTS The minimum amount which may be applied under any option is $2,000. If the payments to the payee are ever less than $20, we may change the frequency of payments so as to result in payments of at least that amount. SUPPLEMENTARY POLICY When a payout option becomes effective, the policy will be surrendered in exchange for a supplementary policy. It will provide for the manner of settlement and rights of the payees. The supplementary policy's effective date will be the date of death or the date of other settlement. The first payment under Options I, II, and IV will be payable as of the effective date. The first interest payment under Option III will be made as of the end of the interest payment period elected. Subsequent payments will be made in accordance with the frequency of payment elected. The supplementary policy may not be assigned or payments made to another without our consent. INCOME PROTECTION Unless otherwise provided in the election, a payee does not have the right to commute, transfer or encumber amounts held or installments to become payable. To the extent provided by law, the proceeds, amount retained, and installments are not subject to any payee's debts, policies, or engagements. DEATH OF PRIMARY PAYEE Upon the primary payee's death, any payments certain under Option I or II, interest payments under Option III, or payments under Option IV will be continued to the contingent payee; or, amounts may be released in one sum if permitted by the policy. The final payee will be the estate of the last to die of the primary payee and any contingent payee. PAYMENTS OTHER THAN MONTHLY The tables that follow show monthly installments for Options I and II. To arrive at annual, semiannual, or quarterly payments, multiply the appropriate figures by 11.813, 5.957 or 2.991 respectively. Factors for other periods certain or for other options that may be provided by mutual agreement will be provided upon reasonable request. Form 2505 (VUL)-2/00 Page 27 SETTLEMENT OPTION TABLES SETTLEMENT OPTION TABLE I (Per $1,000 of Net Proceeds)
No. of Monthly No. of Monthly Years Payable Installments Years Payable Installments 1 $84.65 16 6.76 2 43.05 17 6.47 3 29.19 18 6.20 4 22.27 19 5.97 5 18.12 20 5.75 6 15.35 21 5.56 7 13.38 22 5.39 8 11.90 23 5.24 9 10.75 24 5.09 10 9.83 25 4.96 11 9.09 26 4.84 12 8.46 27 4.73 13 7.94 28 4.63 14 7.49 29 4.53 15 7.10 30 4.45
Form 2505 (VUL)-2/00 Page 28 SETTLEMENT OPTION TABLE II Female ( Per $1,000 of Net Proceeds)
Age of Payee Monthly Age of Payee Monthly Nearest Birth Installment Nearest Birth Installments date When First date When First Installment is Installment is Payable Payable 5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years Female Certain Certain Certain Certain Female Certain Certain Certain Certain 15 3.19 3.19 3.19 3.19 41 3.76 3.76 3.75 3.73 16 3.20 3.20 3.20 3.20 42 3.80 3.80 3.78 3.77 17 3.22 3.22 3.21 3.21 43 3.84 3.84 3.82 3.81 18 3.23 3.23 3.23 3.23 44 3.88 3.88 3.86 3.84 19 3.24 3.24 3.24 3.24 45 3.93 3.92 3.91 3.88 20 3.26 3.26 3.26 3.25 46 3.98 3.97 3.95 3.92 21 3.27 3.27 3.27 3.27 47 4.03 4.02 4.00 3.97 22 3.29 3.29 3.29 3.28 48 4.08 4.07 4.05 4.01 23 3.31 3.30 3.30 3.30 49 4.13 4.12 4.10 4.06 24 3.32 3.32 3.32 3.32 50 4.19 4.18 4.15 4.11 25 3.34 3.34 3.34 3.33 51 4.25 4.24 4.21 4.16 26 3.36 3.36 3.35 3.35 52 4.32 4.30 4.26 4.21 27 3.38 3.38 3.37 3.37 53 4.38 4.36 4.33 4.27 28 3.40 3.40 3.39 3.39 54 4.46 4.43 4.39 4.32 29 3.42 3.42 3.41 3.41 55 4.53 4.51 4.46 4.38 30 3.44 3.44 3.43 3.43 56 4.61 4.58 4.53 4.44 31 3.46 3.46 3.46 3.45 57 4.70 4.66 4.60 4.51 32 3.49 3.48 3.48 3.48 58 4.79 4.75 4.68 4.57 33 3.51 3.51 3.51 3.50 59 4.88 4.84 4.76 4.64 34 3.54 3.54 3.53 3.52 60 4.99 4.93 4.84 4.70 35 3.57 3.56 3.56 3.55 61 5.09 5.03 4.93 4.77 36 3.60 3.59 3.59 3.58 62 5.21 5.14 5.02 4.84 37 3.63 3.62 3.62 3.61 63 5.33 5.25 5.12 4.91 38 3.66 3.65 3.65 3.64 64 5.46 5.37 5.21 4.98 39 3.69 3.69 3.68 3.67 65 5.60 5.50 5.31 5.05 40 3.73 3.72 3.71 3.70 66 5.75 5.63 5.42 5.12
Form 2505 (VUL)-2/00 Page 29 SETTLEMENT OPTION TABLE II/Female (Continued) (Per $1,000 of Net Proceeds)
Age of Payee Monthly Age of Payee Monthly Nearest Birth Installment Nearest Birth Installments date When First date When First Installment is Installment is Payable Payable 5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years Female Certain Certain Certain Certain Female Certain Certain Certain Certain 67 5.91 5.77 5.53 5.19 92 14.45 9.61 7.09 5.75 68 6.08 5.91 5.63 5.25 93 14.81 9.66 7.10 5.75 69 6.26 6.07 5.74 5.32 94 15.16 9.70 7.10 5.75 70 6.46 6.23 5.86 5.37 95 15.49 9.73 7.10 5.75 71 6.67 6.40 5.97 5.43 96 15.80 9.76 7.10 72 6.89 6.58 6.08 5.48 97 16.11 9.79 7.10 73 7.13 6.76 6.18 5.52 98 16.40 9.80 7.10 74 7.39 6.95 6.29 5.57 99 16.68 9.82 7.10 75 7.67 7.14 6.39 5.60 100 16.95 9.82 7.10 76 7.96 7.34 6.48 5.63 101 17.20 9.83 77 8.28 7.54 6.57 5.66 102 17.43 9.83 78 8.61 7.74 6.65 5.68 103 17.62 9.83 79 8.97 7.94 6.72 5.70 104 17.78 9.83 80 9.34 8.13 6.79 5.71 105 17.91 9.83 81 9.73 8.32 6.84 5.72 106 18.00 82 10.14 8.50 6.89 5.73 107 18.06 83 10.57 8.67 6.94 5.74 108 18.09 84 11.01 8.83 6.97 5.74 109 18.11 85 11.46 8.97 7.00 5.75 110 18.11 86 11.91 9.10 7.02 5.75 87 12.36 9.22 7.04 5.75 88 12.81 9.32 7.06 5.75 89 13.25 9.41 7.07 5.75 90 13.67 9.48 7.08 5.75 91 14.07 9.55 7.09 5.75
Form 2505 (VUL)-2/00 Page 30 SETTLEMENT OPTION TABLE II Male ( Per $1,000 of Net Proceeds)
Age of Payee Age of Payee Nearest Birth Nearest Birth date When First date When First Installment is Monthly Installment Installment is Monthly Installment Payable Payable 5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years Male Certain Certain Certain Certain Male Certain Certain Certain Certain 15 3.28 3.28 3.27 3.27 41 4.01 4.00 3.97 3.94 16 3.29 3.29 3.29 3.28 42 4.06 4.04 4.01 3.98 17 3.31 3.31 3.30 3.30 43 4.11 4.09 4.06 4.02 18 3.32 3.32 3.32 3.32 44 4.16 4.14 4.11 4.06 19 3.34 3.34 3.34 3.33 45 4.22 4.20 4.16 4.11 20 3.36 3.36 3.35 3.35 46 4.28 4.25 4.21 4.16 21 3.38 3.38 3.37 3.37 47 4.34 4.31 4.27 4.21 22 3.40 3.40 3.39 3.39 48 4.41 4.38 4.33 4.26 23 3.42 3.42 3.41 3.41 49 4.48 4.44 4.39 4.31 24 3.44 3.44 3.43 3.43 50 4.55 4.51 4.45 4.36 25 3.46 3.46 3.45 3.45 51 4.62 4.58 4.52 4.42 26 3.49 3.48 3.48 3.47 52 4.70 4.66 4.58 4.48 27 3.51 3.51 3.50 3.49 53 4.79 4.74 4.65 4.54 28 3.54 3.53 3.53 3.52 54 4.88 4.82 4.73 4.60 29 3.56 3.56 3.55 3.54 55 4.97 4.91 4.80 4.66 30 3.59 3.59 3.58 3.57 56 5.07 5.00 4.88 4.72 31 3.62 3.62 3.61 3.60 57 5.17 5.10 4.97 4.78 32 3.65 3.65 3.64 3.62 58 5.29 5.20 5.05 4.85 33 3.68 3.68 3.67 3.65 59 5.41 5.31 5.14 4.91 34 3.72 3.71 3.70 3.68 60 5.53 5.42 5.23 4.97 35 3.75 3.75 3.73 3.72 61 5.67 5.54 5.33 5.04 36 3.79 3.78 3.77 3.75 62 5.81 5.67 5.42 5.10 37 3.83 3.82 3.81 3.78 63 5.97 5.80 5.52 5.16 38 3.87 3.86 3.85 3.82 64 6.13 5.94 5.62 5.22 39 3.92 3.90 3.89 3.86 65 6.31 6.08 5.72 5.28 40 3.96 3.95 3.93 3.90
Form 2505 (VUL)-2/00 Page 31 SETTLEMENT OPTION TABLE II/Male (Continued) (Per $1,000 of Net Proceeds)
Age of Payee Age of Payee Nearest Birth Nearest Birth date When First date When First Installment is Monthly Installment Installment is Monthly Installment Payable Payable 5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years Male Certain Certain Certain Certain Male Certain Certain Certain Certain 66 6.49 6.23 5.82 5.33 91 14.64 9.64 7.09 5.75 67 6.69 6.38 5.92 5.38 92 15.00 9.68 7.10 5.75 68 6.90 6.54 6.02 5.43 93 15.34 9.72 7.10 5.75 69 7.12 6.71 6.12 5.48 94 15.68 9.75 7.10 5.75 70 7.35 6.87 6.21 5.52 95 16.00 9.78 7.10 5.75 71 7.60 7.05 6.30 5.55 96 16.30 9.80 7.10 72 7.86 7.22 6.39 5.59 97 16.59 9.81 7.10 73 8.13 7.40 6.47 5.62 98 16.86 9.82 7.10 74 8.42 7.57 6.55 5.64 99 17.11 9.83 7.10 75 8.72 7.75 6.62 5.66 100 17.33 9.83 7.10 76 9.04 7.92 6.69 5.68 101 17.53 9.83 77 9.37 8.09 6.75 5.70 102 17.69 9.83 78 9.72 8.26 6.81 5.71 103 17.82 9.83 79 10.08 8.42 6.86 5.72 104 17.92 9.83 80 10.44 8.57 6.90 5.73 105 18.00 9.83 81 10.82 8.71 6.94 5.74 106 18.05 82 11.21 8.85 6.97 5.74 107 18.08 83 11.59 8.97 7.00 5.75 108 18.10 84 11.99 9.09 7.02 5.75 109 18.11 85 12.38 9.20 7.04 5.75 110 18.11 86 12.76 9.29 7.05 5.75 87 13.15 9.38 7.07 5.75 88 13.53 9.46 7.08 5.75 89 13.91 9.53 7.08 5.75 90 14.28 9.59 7.09 5.75
Form 2505 (VUL)-2/00 Page 32 This Policy is a FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY This is a Non-Participating Policy Death benefits and other values provided by this contract, when based on the investment experience of a separate account, are variable. These values may increase or decrease based on investment experience and are not guaranteed as to fixed dollar amount. Death benefits are payable by us upon the death of the insured. There is no maturity date. Flexible premiums are payable by you during the lifetime of the insured until the policy anniversary nearest the insured's 100th birth date. To obtain information or make a complaint, contact Security Life of Denver Insurance Company at: Customer Service Center P. O. Box 173888 Denver, Colorado 80217 Toll Free Number: 1(800)848-6362 SECURITY LIFE OF DENVER INSURANCE COMPANY A Stock Company Form 2505 (VUL)-2/00 EX-6 7 1.A(8)(A) Exhibit 1.A(8)(a)(ix) FUND PARTICIPATION AGREEMENT BETWEEN MERRILL LYNCH VARIABLE SERIES FUNDS, INC. AND SECURITY LIFE OF DENVER INSURANCE COMPANY THIS Fund Participation Agreement, by and between MERRILL LYNCH VARIABLE SERIES FUNDS, INC., an open-end management investment company organized as a Maryland corporation (the "Fund") and SECURITY LIFE OF DENVER INSURANCE COMPANY (the "Company"), a life insurance company organized under the laws of the state of [Colorado] on the Company's own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A as attached hereto, as such schedule may be amended from time to time (the "Accounts"), is made as of the __ day of ______, 2000. W I T N E S S E T H WHEREAS, the Fund has filed a registration statement with the Securities and Exchange Commission to register itself as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and to register the offer and sale of its shares under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Fund desires to act as an investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts to be offered by insurance companies that have entered into participation agreements with the Fund (the "Participating Insurance Companies"); and WHEREAS, the capital stock of the Fund is divided into several series of shares, each series representing an interest in a particular managed portfolio of securities and other assets; and WHEREAS, the several series of shares of the Fund offered by the Fund to the Company and the Accounts are set forth on Schedule B attached hereto (each, a "Portfolio," and, collectively, the "Portfolios"); and WHEREAS, the Fund has received an order from the SEC granting Participating Insurance Companies and their separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and rules 6e-2(b) (15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies and certain qualified pension and retirement plans (the "Shared Fund Exemptive Order"); WHEREAS, Merrill Lynch Asset Management, L.P. ("MLAM") is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities law, and acts as the Fund's investment adviser; and WHEREAS, Princeton Funds Distributor, Inc. (the "Underwriter") is registered as a broker-dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act"), is a member in good standing of The National Association of Securities Dealers, Inc. (the "NASD") and acts as principal underwriter of the shares of the Fund; and WHEREAS, the Company has registered or will register under the 1933 Act certain variable life insurance policies funded or to be funded through one or more of the Accounts (the "Contracts"); and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in one or more of the Portfolios (the "Shares") on behalf of the Accounts to fund the Contracts, and the Fund intends to sell such Shares to the relevant Accounts at such Shares' net asset value. NOW, THEREFORE, in consideration of their mutual promises, the parties agree as follows: ARTICLE 1 SALE OF THE FUND SHARES 1.1 Subject to Section 1.3 of this Agreement, the Fund shall cause the Underwriter to make Shares of the Portfolios available to the Accounts at such Shares' most recent net asset value provided to the Company prior to receipt of such purchase order by the Fund (or the Underwriter or its agent), in accordance with the operational procedures mutually agreed to by the Underwriter and the Company from time to time and the provisions of the then-current prospectus of the Fund. Shares of a particular Portfolio of the Fund shall be ordered in such quantities and at such times as determined by the Company to be necessary to meet the requirements of the Contracts. The Directors of the Fund (the "Directors") may refuse to sell Shares of any Portfolio to any person (including the Company and the Accounts), or suspend or terminate the offering of Shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the shareholders of such Portfolio. 1.2 Subject to Section 1.3 of this Agreement, the Fund will redeem any full or fractional Shares of any Portfolio when requested by the Company on behalf of an Account at such Shares' most recent net asset value provided to the Company PRIOR to receipt by the Fund (or the Underwriter or its agent) of the request for redemption, as 2 established in accordance with the operational procedures mutually agreed to by the Underwriter and the Company from time to time and the provisions of the then current-prospectus of the Fund. The Fund shall make payment for such Shares in the manner established from time to time by the Fund, but in no event shall payment be delayed for a greater period than is permitted by the 1940 Act (including any Rule or order of the SEC thereunder). 1.3 The Fund shall accept purchase and redemption orders resulting from investment in and payments under the Contracts on each Business Day, provided that such orders are received prior to 9:00 a.m. on such Business Day and reflect instructions received by the Company from Contract holders in good order prior to the time the net asset value of each Portfolio is priced in accordance with its prospectus (such Portfolio's "valuation time") on the prior Business Day. Any purchase or redemption order for Shares of any Portfolio received, on any Business Day, after such Portfolio's valuation time on such Business Day shall be deemed received prior to 9:00 a.m. on the next succeeding Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC. Purchase and redemption orders shall be provided by the Company to the Underwriter as agent for the Fund in such written or electronic form (including facsimile) as may be mutually acceptable to the Company and the Underwriter. The Underwriter may reject purchase and redemption orders that are not in proper form. In the event that the Company and the Underwriter agree to use a form of written or electronic communication which is not capable of recording the time, date and recipient of any communication and confirming good transmission, the Company agrees that it shall be responsible (i) for confirming with the Underwriter that any communication sent by the Company was in fact received by the Underwriter in proper form, and (ii) for the effect of any delay in the Underwriter's receipt of such communication in proper form. The Fund and its agents shall be entitled to rely, and shall be fully protected from all liability in acting, upon the instructions of the persons named in the list of authorized individuals attached hereto as SCHEDULE C, or any subsequent list of authorized individuals provided to the Fund or its agents by the Company in such form, without being required to determine the authenticity of the authorization or the authority of the persons named therein. 1.4 Purchase orders that are transmitted to the Fund in accordance with Section 1.3 of this Agreement shall be paid for no later than 12:00 noon on the same Business Day that the Fund receives notice of the order. Payments shall be made in federal funds transmitted by wire. In the event that the Company shall fail to pay in a timely manner for any purchase order validly received by the Underwriter on behalf of the Fund pursuant to Section 1.3 of this Agreement (whether or not such failure is the fault of the Company), the Company shall hold the Fund harmless from any losses reasonably sustained by the Fund as the result of acting in reliance on such purchase order. 1.5 Issuance and transfer of the Fund's Shares will be by book entry only. Stock certificates will not be issued to the Company or to any Account. Shares ordered from the Fund will be recorded in the appropriate title for each Account. 3 1.6 The Fund shall furnish prompt notice to the Company of any income, dividends or capital gain distribution payable on Shares of any Portfolio. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on a Portfolio's Shares in additional Shares of that Portfolio. The Fund shall notify the Company of the number of Shares so issued as payments of such dividends and distributions. 1.7 The Fund shall make the net asset value per share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after such net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 6:30 p.m., New York time. 1.8 The Company agrees that it will not take any action to operate any Account as a management investment company under the 1940 Act without the Fund's and the Underwriter's prior written consent. 1.9 The Fund agrees that its Shares will be sold only to Participating Insurance Companies and their separate accounts. No Shares of any Portfolio will be sold directly to the general public. The Company agrees that the Fund Shares will be used only for the purposes of funding the Contracts and Accounts listed in Schedule A, as such schedule may be amended from time to time. 1.10 The Fund agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding to those contained in Section 2.11 and Article 4 of this Agreement. 1.11 So long as it shall be the intention of the Fund to maintain the net asset value per share of any Portfolio at $1.00, on any day on which (a) the net asset value per share of the Shares is determined, (b) MLAM determines, in the manner described in the then-current prospectus of the Fund, that the net income of such Portfolio on such day is negative, and (c) MLAM delivers a certificate to the Companies setting forth the reduction in the number of outstanding Shares to be effected as described in the then-current prospectus of the Fund in connection with such determination, the Company, on behalf of itself and the Accounts, agrees to return to the Fund its pro rata share of the number of Shares to be reduced and agrees that, upon delivery by MLAM to the Company of such certificate, (a) the Company's ownership interest in the Shares so to be returned shall immediately cease, (b) such Shares shall be deemed to have been canceled and to be no longer outstanding, and (c) all rights in respect of such Shares shall cease. ARTICLE 2 OBLIGATION OF THE PARTIES 2.1 The Fund shall prepare and be responsible for filing with the SEC and any state securities regulators requiring such filing, all shareholder reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), 4 prospectuses and statements of additional information of the Fund. The Fund shall bear the costs or registration and qualification of its Shares, preparation and filing of the documents listed in this Section 2.1 and all taxes to which an issuer is subject on the issuance and transfer of its shares. 2.2 At least annually, the Fund or its designee shall provide the Company, free of charge, with as many copies of the current prospectus (describing only the Portfolios) for the Shares as the Company may reasonably request for distribution to EXISTING Contract owners whose Contracts are funded by such Shares. The Fund or its designee shall provide the Company, at the Companies' expense, with as many copies of the current prospectus for the Shares as the Company may reasonably request for distribution to PROSPECTIVE purchasers of Contracts. If requested by the Company in lieu thereof, the Fund or its designee shall provide such documentation (including a "camera ready" copy of the new prospectus as set in type) and other assistance as is reasonably necessary in order for the parties hereto once each year (or more frequently if the prospectus for the Shares is supplemented or amended) to have the prospectus for the Contracts and the prospectus for the Shares printed together in one document; the expenses of such printing to be borne by the Company. In the event that the Company requests that the Fund or its designee provide the Fund's prospectus in a "camera ready" format, the Fund shall be responsible solely for providing the prospectus in the format in which it is accustomed to formatting prospectuses and shall bear the expense of providing the prospectus in such format (e.g., typesetting expenses), and the Company shall bear the expense of adjusting or changing the format to conform with any of its prospectuses. 2.3 The prospectus for the Shares shall state that the statement of additional information for the Shares is available from the Fund or its designee. The Fund or its designee, at its expense, shall print and provide such statement of additional information to the Company (or a master of such statement suitable for duplication by the Company) for distribution to any owner of a Contract funded by the Shares. The Fund or its designee, at the Company's expense, shall print and provide such statement to the Company (or a master of such statement suitable for duplication by the Company) for distribution to a prospective purchaser who requests such statement. 2.4 The Fund or its designee shall provide the Company free of charge copies, if and to the extent applicable to the Shares, of the Fund's proxy materials, reports to Shareholders and other communications to Shareholders in such quantity as the Company shall reasonably require for distribution to Contract owners. 2.5 With respect to any prospectus, shareholder report or proxy solicitation materials that concern solely the Fund and no other investment vehicle funding the Accounts, the Fund shall pay for the Company's postage costs in connection with mailing such materials to existing Contract owners. With respect to any prospectus, shareholder report or proxy solicitation materials that concern the Fund together with other investment vehicles funding the Accounts, the Fund shall pay a proportionate amount of the Company's postage costs, based on the percentage of such Account's overall assets 5 that are invested in the Fund, in connection with mailing such materials to existing Contract owners. 2.6 The Company shall furnish, or cause to be furnished, to the Fund or its designee, a copy of each prospectus for the Contracts or statement of additional information for the Contracts in which the Fund or its investment adviser is named prior to the filing of such document with the SEC. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund or its investment adviser is named, at least five Business Days prior to is use. No such prospectus, statement of additional information or material shall be used if the Fund or its designee reasonably objects to such use within five Business Days after receipt of such material. 2.7 The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund or its investment adviser in connection with the sale of the Contracts other than information or representations contained in and accurately derived from the registration statement or prospectus for the Fund Shares (as such registration statement and prospectus may be amended or supplemented from time to time), reports of the Fund, Fund-sponsored proxy statement, or in sales literature or other promotional material approved by the Fund or its designee, except with the written permission of the Fund or its designee. 2.8 The Fund shall not give any information or make any representations or statements on behalf of the Company or concerning the Company, the Accounts or the Contracts other than information or representations contained in and accurately derived from the registration statement or prospectus for the Contracts (as such registration statement and prospectus may be amended or supplemented from time to time), or in materials approved by the Company for distribution including sales literature or other promotional materials, except with the written permission of the Company. 2.9 The Company shall amend the registration statement of the Contracts under the 1933 Act and registration statement for each Account under the 1940 Act from time to time as required in order to effect the continuous offering of the Contracts or as may otherwise be required by applicable law. The Company shall register and qualify the Contracts for sale to the extent required by applicable securities laws and insurance laws of the various states. 2.10 The Company shall be responsible for assuring that any prospectus offering a Contract that is a life insurance contract where it is reasonably probable that such Contract would be a "modified endowment contract," as that term is defined in Section 7702A of the Internal Revenue Code of 1986, as amended (the "Code"), will identify such Contract as a modified endowment contract (or policy). 2.11 Solely with respect to Contracts and Accounts that are subject to the 1940 Act, so long as, and the extent that, the SEC interprets the 1940 Act to require pass-through voting privileges for variable policyowners: (a) the Company will provide pass- 6 through voting privileges to owners of Contracts whose cash values are invested, through the Accounts, in Shares of the Fund; (b) the Fund shall require all Participating Insurance Companies to calculate voting privileges in the same manner and the Company shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by the Fund; (c) with respect to each Account, the Company will vote Shares of the Fund held by the Account and for which no timely voting instructions from Contract or policyowners are received, as well as Shares held by the Account that are owned by the Company for their general accounts, in the same proportion as the Company votes Shares held by the Account for which timely voting instructions are received from Contract owners; and (d) the Company and its agents will in no way recommend or oppose or interfere with the solicitation of proxies for Fund Shares held by Contract owners without the prior written consent of the Fund, which consent may be withheld in the Fund's sole discretion. ARTICLE 3 REPRESENTATIONS AND WARRANTIES 3.1 The Company represents and warrants that it is an insurance company duly organized and in good standing under the laws of the State of [Colorado] and has established each Account as a segregated asset account under such law on the date set forth in Schedule A. 3.2 The Company represents and warrants that it has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. 3.3 The Company represents and warrants that the Contracts will be registered under the 1933 Act prior to any issuance or sale of the Contracts; the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws; and the sale of the Contracts shall comply in all material respects with state insurance requirements. 3.4 The Company represents and warrants that the Contracts are currently and at the time of issuance will be treated as annuity contracts or life insurance policies, whichever is appropriate, under applicable provisions of the Code. The Company shall make every effort to maintain such treatment and shall notify the Fund and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 3.5 The Fund represents and warrants that it is duly organized and validly existing under the laws of the State of Maryland. 3.6 The Fund represents and warrants that the sale of the Fund Shares offered and sold pursuant to this Agreement will be registered under the 1933 Act and that the Fund is registered under the 1940 Act. The Fund shall use its best efforts to amend its 7 registration statement under the 1933 Act and the 1940 Act from time to time as required in order to affect the continuous offering of its shares. If the Fund determines registration is appropriate, the Fund shall use its best efforts to register and qualify its Shares for sale in accordance with the laws of all fifty states, the District of Columbia, Virgin Islands and Puerto Rico and such other jurisdictions reasonably requested by the Company. 3.7 The Fund represents and warrants that the investments of each Portfolio will comply with the diversification requirements set forth in section 817(h) of the Code and the rules and regulations thereunder. ARTICLE 4 POTENTIAL CONFLICTS 4.1 The parties acknowledge that the Fund's Shares may be made available for investment to other Participating Insurance Companies. In such event, the Directors will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all Participating Insurance Companies. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities decision in any relevant proceeding; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Directors shall promptly inform the Company if they determine that an irreconcilable material conflict exists and the implications thereof. 4.2 The Company agrees to promptly report any potential or existing conflicts of which they are aware to the Directors. The Company will assist the Directors in carrying out their responsibilities under the Shared Fund Exemptive Order by providing the Directors with all information reasonably necessary for the Directors to consider any issues raised including, but not limited to, information as to a decision by the Company to disregard Contract owner voting instructions. 4.3 If it is determined by a majority of the Directors, or a majority of the Fund's Directors who are not affiliated with the Adviser or the Underwriter (the "Disinterested Directors"), that a material irreconcilable conflict exists that affects the interests of Contract owners, the Company shall, in cooperation with other Participating Insurance Companies whose contract owners are also affected, at their expense and to the extent reasonably practicable (as determined by the Directors) take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (a) withdrawing the assets allocable to some or all of the Accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question of whether or not 8 such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected Contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 4.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the affected Account's or Accounts' investment in the Fund and terminate this Agreement with respect to such Account(s); provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Disinterested Directors. Any such withdrawal and termination must take place within 30 days after the Fund gives written notice that this provision is being implemented. Until the end of such 30-day period, the Fund shall continue to accept and implement orders by the Company for the purchase and redemption of Shares of the Fund. 4.5 If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's (or Accounts') investment in the Fund and terminate this Agreement with respect to such Account(s) within 30 days after the Fund informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Disinterested Directors. Until the end of such 30-day period, the Fund shall continue to accept and implement orders by the Company for the purchase and redemption of Shares of the Fund. 4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of the Disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Company be required to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Directors determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the affected Account's (or Accounts') investment in the Fund and terminate this Agreement with respect to such Account(s) within 30 days after the Directors inform the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the Disinterested Directors. 9 4.7 The Company shall at least annually submit to the Directors such reports, materials or data as the Directors may reasonably request so that the Directors may fully carry out the duties imposed upon them by the Shared Fund Exemptive Order, and said reports, materials and data shall be submitted more frequently if deemed appropriate by the Directors. 4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the application for the Shared Fund Exemptive Order) on terms and conditions materially different from those contained in the application for the Shared Fund Exemptive Order, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary (a) to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable. ARTICLE 5 INDEMNIFICATION 5.1 Indemnification by the Company. The Company agrees to indemnify and hold harmless the Fund and each of its Directors, officers, employees and agents and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively the "Indemnified Parties" for purposes of this Article 5) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which such Indemnified Parties may become subject under any statute or regulation, or common law or otherwise, insofar as such Losses: (a) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a registration statement or prospectus for the Contracts or in the Contracts themselves or in sales literature generated or approved by the Company on behalf of the Contracts or Accounts (or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the purposes of this Article 5), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to the Company by or on behalf of the Fund for use in Company Documents or otherwise for use in connection with the sale of the Contracts or Shares; or (b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Fund Documents (as defined in Section 5.2(a) below) or wrongful conduct of the 10 Company or persons under its control, with respect to the sale or acquisition of the Contracts or Shares; or (c) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Fund Documents (defined below) or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Fund by or on behalf of the Company; or (d) arise out of or result from any failure by the Company to provide the services or furnish the materials required under the terms of this Agreement; or (e) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company. 5.2 Indemnification by the Fund. The Fund agrees to indemnify and hold harmless the Company and each of its directors, officers, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Article 5) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or expenses (including the reasonable costs of investigating or defending any alleged loss, claim, damage liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, "Losses"), to which such Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses: (a) arise out of or are based upon any untrue statements or alleged untrue statement of any material fact contained in the registration statement or prospectus for the Fund (or any amendment or supplement thereto) or in sales literature approved by the Fund (but solely with respect to statements regarding the Fund), (collectively, "Fund Documents" for the purposes of this Article 5), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and was accurately derived from written information furnished to the Fund by or on behalf of the Company for use in Fund Documents or otherwise for use in connection with the sale of the Contracts or Shares; or (b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Company Documents) or wrongful conduct of the Fund or persons under its control, with respect to the sale or acquisition of the Contracts or Shares; or 11 (c) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Company Documents or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon and accurately derived from written information furnished to the Company by or on behalf of the Fund; or (d) arise out of or result from any failure by the Fund to provide the services or furnish the materials required under the terms of this Agreement; or (e) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund. 5.3 Neither the Company nor the Fund shall be liable under the indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to any Losses incurred or assessed against any Indemnified Party to the extent such Losses arise out of or result from such Indemnified Party's willful misfeasance, bad faith or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 5.4 Neither the Company nor the Fund shall be liable under the indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the party against whom indemnification is sought in writing within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim shall have been served upon or otherwise received by such Indemnified Party (or after such Indemnified Party shall have received notice of service upon or other notification to any designated agent), but failure to notify the party against whom indemnification is sought of any such claim shall not relieve that party from any liability that it may have to the Indemnified Party in the absence of Sections 5.1 and 5.2. 5.5 In case any such action is brought against the Indemnified Parties, the indemnifying party shall be entitled to participate, at its own expense, in the defense of such action. The indemnifying party also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from the indemnifying party to the Indemnified Party of an election to assume such defense, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the indemnifying party will not be liable to the Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof other than reasonable costs of investigation. 12 ARTICLE 6 TERMINATION 6.1 This Agreement may be terminated by either party for any reason by six (6) months' advance written notice to the other party, and may be terminated by the Fund pursuant to Sections 6.2 through 6.4 below upon sixty (60) days' advance written notice to the Company or by the Company pursuant to Section 6.5 below upon sixty (60) days' advance written notice to the Fund. 6.2 This Agreement may be terminated at the option of the Fund upon institution of formal proceedings against the Company by the NASD, the SEC, the insurance department of any state, or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of the Account, the administration of the Contracts or the purchase of the Shares, or an expected or anticipated ruling, judgment or outcome that would, in the Fund's reasonable judgment, materially impair the Company's ability to meet and perform the Company's obligations and duties hereunder. 6.3 This Agreement may be terminated at the option of the Fund if the Internal Revenue Service determines that the Contracts cease to qualify as annuity contracts or life insurance policies, as applicable, under the Code. 6.4 This Agreement may be terminated by the Fund, at its option, if the Fund shall determine, in its sole judgment exercised in good faith, that either (1) the Company shall have suffered a material adverse change in its business or financial condition, (2) the Company shall have been the subject of material adverse publicity that is likely to have a material adverse impact upon the business and operations of either the Fund, the Adviser or the Underwriter, or (3) the Company breaches any obligation under this Agreement in a material respect and such breach shall continue unremedied for thirty (30) days after receipt of notice from the Fund of such breach. Notwithstanding any other provision of this Agreement, in the event that the Fund exercises its right to terminate this Agreement pursuant to this Section 6.4, such termination shall not become effective until the earlier of (i) the time which the Company notifies the Fund it has made arrangements (including obtaining any necessary regulatory approvals) to substitute other funding vehicles for shares of the Portfolios under the Contracts, and (ii) one year following the date the Fund exercises its right to terminate. 6.5 This Agreement may be terminated at the option of the Company if (A) the Internal Revenue Serve determines that any Portfolio fails to qualify as a `Regulated Investment Company' under the Code or fails to comply with the diversification requirements of Section 817(h) of the Code, or (B) the Company shall determine, in its sole judgment exercised in good faith, that either (1) the Fund or the Underwriter shall have been the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of the Company, or (2) the Fund breaches any obligation under this Agreement in a material respect and such breach shall 13 continue unremedied for thirty (30) days after receipt of notice from the Company of such breach. 6.6 The provisions of Article 5 shall survive the termination of this Agreement, and the provisions of Article 4 and Sections 2.4 and 2.11 shall survive the termination of this Agreement as long as shares of the Fund are held on behalf of Contract owners in accordance with Section 6.5. ARTICLE 7 NOTICES Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Merrill Lynch Variable Series Fund, Inc. c/o Merrill Lynch Asset Management, L.P. 800 Scudders Mill Road Plainsboro, New Jersey 08536 Attention: General Counsel If to the Company: Security Life Insurance Company of Denver ARTICLE 8 MISCELLANEOUS 8.1 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 8.2 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together constitute one and the same instrument. 8.3 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 8.4 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York, shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the rules, regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the 14 SEC may grant and the terms hereof shall be interpreted and construed in accordance therewith. 8.5 The parties to this Agreement acknowledge and agree that all liabilities of the Fund arising, directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out of the assets of the Fund and that no Director, officer, agent, or holder of shares of beneficial interest of the Fund shall be personally liable for any such liabilities. 8.6 Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 8.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 8.8 The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect. 8.9 Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the prior written approval of the other party. 8.10 No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by both parties. 15 IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Fund Participation Agreement as of the date and year first above written. SECURITY LIFE INSURANCE COMPANY OF DENVER By: _______________________________ Name: _____________________________ Title: ____________________________ MERRILL LYNCH VARIABLE SERIES FUNDS, INC. By: _______________________________ Name: Terry K. Glenn Title: President 16 SCHEDULE A Segregated Accounts of Security Life Insurance Company of Denver Name of Separate Account Date Established - ------------------------ ---------------- SCHEDULE B Portfolios of Merrill Lynch Variable Series Funds, Inc. Offered to Segregated Accounts Class A Shares Merrill Lynch Global Growth Focus Fund Merrill Lynch Index 500 Fund Merrill Lynch Capital Focus Fund Class B Shares Merrill Lynch Basic Value Focus Fund Merrill Lynch Special Value Focus Fund SCHEDULE C Persons Authorized to Act on Behalf of Security Life Insurance Company of Denver - -------------------------------------------------------------------------------- The Fund, the Underwriter and their respective agents are authorized to rely on instructions from the following individuals on behalf of each Account: Name Signature - ---- --------- EX-7 8 1.A(8)(C) Exhibit 1.A(8)(c)(vi) ADMINISTRATIVE SERVICES AGREEMENT SECURITY LIFE OF DENVER INSURANCE COMPANY (the "Insurer") and MERRILL LYNCH ASSET MANAGEMENT, L.P. ("MLAM") mutually agree to the arrangements set forth in this Agreement (the "Agreement") dated as of _____, 2000. WHEREAS, MLAM is the investment adviser to the Merrill Lynch Variable Series Funds, Inc. (the "Fund"); and WHEREAS, the Insurer issues variable annuity contracts and variable life insurance policies (the "Policies"); and WHEREAS, the Insurer and the Fund have entered into a Fund Participation Agreement ("Participation Agreement") dated _______, 2000, providing for the sale of shares of the Fund to certain segregated separate accounts of the Insurer; and WHEREAS, amounts invested in the Policies by policy holders are deposited in separate accounts of the Insurer which will in turn purchase shares of certain portfolios of the Fund, each of which is an investment option offered by the Policies (the "Portfolios"); and WHEREAS, the Fund expects to derive substantial savings in administrative expenses by virtue of having separate accounts of the Insurer as shareholders of record of Fund shares and having the Insurer perform certain administrative services for the Fund (which are identified on Schedule A hereto); and WHEREAS, neither MLAM nor the Insurer has any contractual or other legal obligation to perform such administrative services for the Fund; and WHEREAS, the Insurer desires to be compensated for providing such administrative services to the Fund; and WHEREAS, MLAM desires that the Fund benefit from the lower administrative expenses expected to result from the administrative services performed by the Insurer; and WHEREAS, MLAM accordingly would prefer to compensate the Insurer for providing administrative services to the Fund from its own funds, derived from its own resources, including its bona fide profits, rather than request that the Fund bear the costs of such compensation: NOW, THEREFORE, the parties agree as follows: 1. ADMINISTRATION EXPENSE PAYMENTS. ------------------------------- (a) MLAM agrees to pay the Insurer an amount as identified and described on Schedule B hereto of that portion of the gross annual investment advisory fees paid by the Fund to MLAM attributable to certain investments in portfolios of the Fund by separate accounts of the Insurer. 1 (b) the Insurer shall calculate the payment contemplated by this Section 1 at the end of each fiscal quarter and will invoice such payment to MLAM, which shall remit payment reasonably promptly thereafter. 2. NATURE OF PAYMENTS. ------------------ The parties to this Agreement recognize and agree that MLAM's payments to the Insurer are for administrative services only and do not constitute payment in any manner for investment advisory services or for costs of distribution of Policies or of Fund shares and are not otherwise related to investment advisory or distribution services or expenses. The amount of administration expense payments made by MLAM to the Insurer pursuant to Section 1(a) of this Agreement are not intended to be, and shall not be deemed to be, indicative of MLAM's bona fide profits from serving as investment adviser to any Fund. 3. TERM AND TERMINATION. -------------------- (a) Any Party may terminate this Agreement, without penalty, on ninety day's advance written notice to the other Party. Unless so terminated, this Agreement shall continue in effect for so long as MLAM or its successor(s) in interest, or any affiliate thereof, continues to perform in a similar capacity for the Fund, and for so long as Insurer or its successors(s) in interest, or any affiliate thereof, provides the services contemplated hereunder with respect to Contracts under which values or monies are allocated to a Portfolio. (b) This Agreement shall automatically terminate upon (i) the termination of the Participation Agreement between the Insurer and the Fund, or (ii) the dissolution or bankruptcy of any party hereto, or in the event that any party hereto is placed in receivership or rehabilitation, or in the event that the management of its affairs is assumed by any governmental, regulatory or judicial authority. 4. AMENDMENT. --------- This Agreement may be amended only upon mutual agreement of the parties hereto in writing. 5. NOTICES. ------- All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered (a) to MLAM, at 800 Scudders Mill Road, Plainsboro, New Jersey 08536, attention: Michael Hennewinkel, General Counsel; and (b) to the Insurer, at . 2 6. MISCELLANEOUS. ------------- (a) Successors and Assigns. This Agreement shall be binding upon the parties hereto and their transferees, successors and assigns. The benefits of and the right to enforce this Agreement shall accrue to the parties and their transferees, successors and assigns. (b) Assignment. Neither this Agreement nor any of the rights, obligations or liabilities of either party hereto shall be assigned without the written consent of the other party. (c) Intended Beneficiaries. Nothing in this Agreement shall be construed to give any person or entity other than the parties hereto any legal or equitable claim, right or remedy. Rather, this Agreement is intended to be for the sole and exclusive benefit of the parties hereto. (d) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument. (e) Applicable Law. This Agreement shall be interpreted, construed, and enforced in accordance with the laws of the State of New York, without reference to the conflict of law thereof. (f) Severability. If any portion of this Agreement shall be found to be invalid or unenforceable by a court or tribunal or regulatory agency of competent jurisdiction, the remainder shall not be affected thereby, but shall have the same force and effect as of the invalid or unenforceable portion had not been inserted. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SECURITY LIFE INSURANCE COMPANY OF DENVER By: Name: Title: MERRILL LYNCH ASSET MANAGEMENT, L.P. By: Princeton Services, Inc. its General Partner ______________________________ Terry K. Glenn Executive Vice President 3 SCHEDULE A ADMINISTRATIVE SERVICES FOR THE FUND MAINTENANCE OF BOOKS AND RECORDS o Maintaining an inventory of share purchases to assist transfer agent in recording issuance of shares. o Performing miscellaneous accounting services to assist transfer agent in recording transfers of shares (via net purchase orders). o Reconciliation and balancing of the separate account at the Fund level in the general ledger and reconciliation of cash accounts at general account. PURCHASE ORDERS o Determination of net amount of cash flow into Fund. o Reconciliation and deposit of receipts at Fund and confirmation thereof. REDEMPTION ORDERS o Determination of net amount required for redemptions by Fund. o Notification to Fund of cash required to meet payments. o Cost of share redemptions. REPORTS o Periodic information reporting to the Fund. FUND-RELATED CONTRACT OWNER SERVICES o Telephonic support for contract owners with respect to inquiries about the Fund (not including information about performance or related to sales.) OTHER ADMINISTRATIVE SUPPORT o Sub-Accounting services. o Providing other administrative support to the Fund as mutually agreed between the Insurer and the Fund. o Relieving the Fund of other usual or incidental administrative services provided to individual policyholders. o Preparation of reports to certain third-party reporting services. SCHEDULE B PORTFOLIOS OF MERRILL APPLICABLE FEE RATE LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES) Merrill Lynch Global Growth Focus Fund Merrill Lynch Capital Focus Fund 0.15% Merrill Lynch Index 500 Portfolio 0.05% EX-8 9 1.A(10) Exhibit 1.A(10) [logo of ING Security Life] Security Life of Denver Insurance Company Variable Life Customer Service Center P.O. Box 173888 Denver, CO 80217-3885 1-800-848-6362 Fax: 303-860-2695 GUARANTEED ISSUE VARIABLE LIFE INSURANCE APPLICATION _ 1 |_| Check here if for PENSION or similar tax qualified plan. State plan type in Special Instructions. SECTION A - PROPOSED INSURED 2 Name (First Middle Last) Birthdate (Mo/Day/Yr) Birthstate Sex _ _ |_| M |_| F Home Address (Street, Apt. No.) City State Zip Code Social Security Number Home Phone ( ) Work Phone ( )
3a Occupation:________________________________ 3b Date of Hire:_____________ 4a Is Proposed Insured currently actively at work on a full time basis performing all duties of Proposed Insured's regular occupation, at Proposed Insured's customary place of employment for at least 30 hours per week? _ _ |_| Yes |_| No If "No" explain: ____________________________________________________________________________ 4b Has Proposed Insured: (1) been absent from work due to illness or medical treatment for a period of 5 business days or more within the last 90 days; or (2) been hospitalized for any reason during this same period? _ _ |_| Yes |_| No If "Yes" explain: ____________________________________________________________________________ 5 Has Proposed Insured used tobacco (cigarettes, cigars, chewing tobacco, pipe, nicotine substitutes, etc.) or any other substance containing nicotine within the last 12 months? _ _ |_| Yes |_| No If "Yes," what type and frequency? ____________________________________________________________________________ 6 Is this insurance to replace, or will it cause any change in, any existing life insurance or annuity on any person proposed for coverage? _ _ |_| Yes |_| No If "Yes" submit a completed replacement form with this application. SECTION B - OWNER (IF OTHER THAN PROPOSED INSURED) 7a Owner's Name and Address 7b Owner's Social Security Number (or Tax I.D. Number) 7c Owner's Relationship to Proposed Insured 1 Q2009-11/97 (Guaranteed Issue Application) SECTION C - BENEFICIARIES 8a Primary Beneficiary_______________________ Relationship to Insured_________ (or Trust information) Social Security Number (or Tax I.D. Number)________ 8b Contingent Beneficiary____________________ Relationship to Insured_________ (or Trust information) Social Security Number (or Tax I.D. Number)________ SECTION D - BILLING 9 Employer's Name and Address 10 Mailing address (for Premium Notices and Correspondence) 11 Payment Method: List bill 12 Premium Mode: SECTION E - PLAN INFORMATION - FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY 13 Product 14 Policy Issue Date (Mo/Day/Yr):________________________ 15 Guaranteed Issue Version 16 Unisex Version 17a Stated Death Benefit 17b Definition of Life Insurance Test: _ |_| Guideline Annual Premium Test _ |_| Cash Value Accumulation Test 17c Death Benefit Options: _ |_| Option 1 (Stated Death Benefit) _ |_| Option 2 (Stated Death Benefit plus account value) _ |_| Option 3 (Stated Death Benefit plus premiums paid minus withdrawals SECTION F - GUARANTEED MINIMUM DEATH BENEFIT OPTION 18 GUARANTEE PERIOD (SELECT ONE, IF OPTION DESIRED; OTHERWISE THERE WILL BE NO GUARANTEED PERIOD) _ _ |_| Later of ten years or proposed insured's age 65 |_| Lifetime of proposed insured Note: The Guarantee Period will terminate if: a. You fail to pay the required Guarantee Period Annual premium defined in your prospectus; or b. Your Account Value on any Monthly Processing date is not diversified according to the following rules: 1. No more than 35% of your Net Account Value may be invested in any one division; and 2. Your Net Account Value must be invested in at least FIVE divisions. You will satisfy these diversification requirements if: (i) you participate in the Automatic Rebalancing feature defined in and governed by the policy prospectus in effect at the time you elect the Guarantee Period and your Automatic Rebalancing allocations comply with the diversifications specified above; or (ii) you elect Dollar Cost Averaging and direct the resulting transfers into at least four other Divisions with no more than 35% of any transfer being to any one division. There may be other circumstances that will cause the Guarantee Period to terminate before its scheduled expiration date. See your prospectus for further information. 2 Q2009-11/97 (Guaranteed Issue Application) SECTION G - SUITABILITY 19 a. Have you, the Proposed Insured, and the Owner, if other than the Proposed Insured, received a current Prospectus dated ________________ for the Variable Life Insurance policy applied for and current prospectus _ _ for each of the Variable Account Divisions? |_| Yes |_| No b. DO YOU UNDERSTAND THAT UNDER THE POLICY APPLIED FOR THE AMOUNT OR DURATION OF THE DEATH BENEFIT MAY VARY UNDER SPECIFIED CONDITIONS; POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF INVESTMENT DIVISIONS IN A SEPARATE ACCOUNT, AND MAY INCREASE IN ACCORDANCE WITH THE INTEREST CREDITED IN THE GUARANTEED INTEREST DIVISION; AND THE AMOUNT PAYABLE AT THE FINAL POLICY DATE IS NOT GUARANTEED BUT IS DEPENDENT ON THE AMOUNT THEN IN THE ACCOUNT VALUE? _ _ |_| YES |_| NO c. Do you understand that any personalized illustrations received are based on hypothetical interest assumptions which may not be indicative of actual future investment experience of our Separate Account or of actual _ _ interest credited in our Guaranteed Interest Division? |_| Yes |_| No d. With this in mind, is the policy in accord with your insurance objectives _ _ and your anticipated financial needs? |_| Yes |_| No 20 Special Instructions HOME OFFICE CORRECTIONS (INSURANCE COMPANY USE ONLY) (NOT APPLICABLE IN NORTH DAKOTA, OREGON, PENNSYLVANIA, AND WEST VIRGINIA.) 3 Q2009-11/97 (Guaranteed Issue Application)
FRAUD WARNINGS (FOR ALL STATES EXCEPT OREGON) FOR APPLICANTS IN ALL STATES Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, EXCEPT COLORADO, CONNECTICUT, files an application, statement or claim containing any false, incomplete, or misleading information PENNSYLVANIA AND VIRGINIA: may be guilty of insurance fraud. FOR APPLICANTS IN COLORADO: IT IS UNLAWFUL TO KNOWINGLY PROVIDE FALSE, INCOMPLETE, OR MISLEADING FACTS OR INFORMATION TO AN INSURANCE COMPANY FOR THE PURPOSE OF DEFRAUDING OR ATTEMPTING TO DEFRAUD THE COMPANY. PENALTIES MAY INCLUDE IMPRISONMENT, FINES, DENIAL OF INSURANCE, AND CIVIL DAMAGES. ANY INSURANCE COMPANY OR AGENT OF AN INSURANCE COMPANY WHO KNOWINGLY PROVIDES FALSE, INCOMPLETE, OR MISLEADING FACTS OR INFORMATION TO A POLICYHOLDER OR CLAIMANT FOR THE PURPOSE OF DEFRAUDING OR ATTEMPTING TO DEFRAUD THE POLICYHOLDER OR CLAIMANT WITH REGARD TO A SETTLEMENT OF AWARD PAYABLE FROM INSURANCE PROCEEDS SHALL BE REPORTED TO THE COLORADO DIVISION OF INSURANCE WITHIN THE DEPARTMENT OF REGULATORY AGENCIES. FOR APPLICANTS IN CONNECTICUT: Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, files an application, statement or claim containing any false, incomplete, or misleading information may be guilty of insurance fraud as determined by a court of competent jurisdiction. FOR APPLICANTS IN PENNSYLVANIA: Any person who knowingly and with intent to defraud any insurance company or other person files an application for insurance or statement of claim containing any materially false information or conceals for the purpose of misleading, information concerning any fact material thereto commits a fraudulent insurance act, which is a crime and subjects such person to criminal and civil penalties. FOR APPLICANTS IN VIRGINIA: Any person who with intent to defraud, or knowing that he is facilitating a fraud against an insurer, submits an application, statement or files a claim containing false, or deceptive statement may have violated state law.
AGREEMENTS: All statements and answers in this application (which includes supplements and amendments) are true and complete to the best of my knowledge and belief. I also agree that: 1. The statements and answers in this application will be relied upon and form the basis of any insurance. 2. No information will be considered as having been given to Security Life unless it is written in this application. (THIS PARAGRAPH DOES NOT APPLY IN THE STATES OF ALASKA, MAINE, MISSOURI, OREGON, SOUTH CAROLINA, SOUTH DAKOTA AND WISCONSIN.) 3. No agent or any other unauthorized person can make or change any insurance contract or give up any of Security Life's rights or requirements. Any change must be in writing and signed by an officer of Security Life. 4. Security Life may amend this application by an appropriate notation in the space designated "Home Office Corrections" in order to correct errors or omissions or to conform the application with any policy that may be issued. The acceptance of the policy constitutes a ratification of such amendments. (THIS PARAGRAPH DOES NOT APPLY IN THE STATES OF NORTH DAKOTA, OREGON, PENNSYLVANIA, AND WEST VIRGINIA.) In those states, including Maryland, where change in amount, age at issue, classification, plan, premium, or benefit requires the written consent of the applicant, no change may be ratified except by a written acceptance. We reserve the right to make any changes required by law. 5. INSURANCE UNDER POLICY APPLIED FOR - EXCEPT AS MAY BE PRO- VIDED IN ANY COVERAGE PROVIDED BY A CONDITIONAL RECEIPT, NO POLICY OF INSURANCE WILL BE IN FORCE UNTIL (1) THE FIRST POLICY PREMIUM IS PAID AND (2) THE POLICY IS DELIVERED WHILE THE FACTS AND HEALTH CONDITION OF THE PROPOSED INSURED(S) ARE AS REPRESENTED IN THIS APPLICATION. WHEN THESE CONDITIONS ARE SATISFIED, THE POLICY AS DELIVERED WILL THEN TAKE EFFECT. 6. I certify, under penalty of perjury, that my social security/tax identification number(s) is shown and is correct and that I am not subject to back up withholding. 7. If the contract applied for is for a pension, profit-sharing, HR10, or other tax qualified plan, any policy issued shall not be transferable other than to the insurer, except as directed by the Plan Administrator. Other applicable provisions may be added to the contract. I know of nothing else affecting the risk. In addition to the Agreements above, I have read and agree to the information and agreements contained in Section 21, Special Instructions. - -> Signature of Proposed Insured________________________ -> Date______________ - -> Signature of Owner___________________________________ -> Date______________ (If other than Proposed Insured) - -> Name and Title of Owner______________________________________________________ (If owner is a business entity, print the business entity's name and the title of person signing.) - -> APPLICATION SIGNED BY PROPOSED INSURED OR OWNER (IF OTHER THAN PROPOSED INSURED) IN: -> STATE ____________ AGENT USE ONLY (Please print) Do you have knowledge or reason to believe that replacement of existing life _ _ insurance or annuity may be involved? |_| Yes |_| No If "Yes" please provide appropriate replacement forms. Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________ Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________ Signature of Agent/Registered Rep________________________________ Reg. Rep Number____________ % Split__________
________________________________________ _____________________________________ Name of Broker/Dealer/Branch/OSJ Name of Broker/Dealer/Branch/OSJ 4 Q2009-11/97 (Guaranteed Issue Application) [Logo of Security Life] Security Life of Denver Insurance Company 1290 Broadway Denver, CO 80203-5699 Guaranteed Issue Binding Limited Life Insurance Coverage For premium(s) received from the employer in connection with the following Guaranteed Issue Applications, Security Life provides a limited amount of life insurance coverage for a short time while it decides whether to issue and deliver the policy or certificate applied for. This coverage is subject to the terms and conditions set out below.
AMOUNT | AMOUNT PROPOSED PREMIUM OF LIMITED | PROPOSED PREMIUM OF LIMITED APP.# INSURED RECEIVED LIFE INS. | APP.# INSURED RECEIVED LIFE INS. - ----------------------------------------------------------------------------------------------------------------------------- ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________ ______ _________________________ ________ ___________ | ______ _________________________ ________ ___________
TERMS AND CONDITIONS AMOUNT OF COVERAGE If a Proposed Insured dies while this coverage is in effect, Security Life will pay the Amount of Limited Life Insurance on the Proposed Insured set out above. There is no premium waiver coverage. DATE COVERAGE BEGINS Coverage on the Proposed Insured under this agreement starts when a premium has been accepted while the Proposed Insured is currently engaged in active full-time work. Active full-time work is working at least 30 hours per week in a normal capacity with no hospitalizations and no absences from work due to illness or accident (except absences due to minor illnesses or accidents for no more than 5 total days during the 3-month period). DATE COVERAGE ENDS The coverage on the Proposed Insured will end automatically on the EARLIEST of the dates: o Security Life returns the premium(s) o Five days after Security Life mails a notice of termination to the owner's address on the Application; or o Coverage starts under any Security Life policy or certificate resulting from Application. Security Life may send the notice of return premium(s) at any time before delivery of the policy or certificate. There is no insurance coverage if: o The Proposed Insured dies by suicide, or self-inflicted injury; o The premium check is not honored; or o The Proposed Insured is not currently engaged in active full-time work at the time the premium is accepted. BENEFICIARY Any benefit will be paid to the beneficiary named in the application on the Proposed Insured. If death is before such an application is completed, it will be paid to (check one): _ |_| Proposed Insured's estate, or _ |_| Other __________________________________________________ Premiums for an application will be returned if: an application is not approved; or a benefit is paid under this coverage; or any condition of the Guaranteed Issue offer is not met. No agent can waive or modify this coverage in any way. - -------------------------------------------------------------------------------- No premium may be accepted if: o the Proposed Insured is not currently engaged in active full-time work; or o any condition of the Guaranteed Issue offer is not met. The amount of Limited Life Insurance shall be no more than the lesser of: the amount specified in the Guaranteed Issue offer; or $3 million. - -------------------------------------------------------------------------------- Agreed to on ______________________________, 19________ _____________________________________________(EMPLOYER) By ____________________________________________________ Print employer's name and have officer sign. Agent _________________________________________________ Q1112 B-6/98 HOME OFFICE COPY Initial Premium Allocation. Please allocate your Initial Premium to the Guaranteed Interest Division and/or among the Separate Account Divisions. Please use whole number percentages for each Division elected. You must allocate at least 1% of your Premium Allocation to each Division in which you elect to invest. The total must equal 100%. % GUARANTEED INTEREST DIVISION - -------- SEPARATE ACCOUNT INVESTMENT OPTIONS - -------------------------------------------------------------------------------- AIM INVESCO Van Eck % V.I. Government Securities % Equity Income % Worldwide Emerging Markets - --------- --------- --------- % V.I. Capital Appreciation % High Yield % Worldwide Bond - --------- --------- --------- % VIF Small Company Growth % Worldwide Real Estate --------- --------- Alger American % Small Capitalization Merrill Lynch GCG Trust - --------- % Basic Value Focus % Growth --------- --------- Fidelity Investments % Special Value Focus % Research --------- --------- % Growth Portfolio % Index 500 % Equity Income - --------- --------- --------- % Overseas % Global Growth Focus % MidCap Growth - --------- --------- --------- % Capital Focus % Hard Assets --------- --------- % Liquid Assets Money Market --------- % Limited Maturity Bond --------- % Total Return ---------
Automatic Telephone Privileges I acknowledge that my policy automatically will provide telephone transfer privileges and telephone allocation change privileges as described in the current prospectus to me as policy owner and to my agent/registered representative. I also agree that ING Security Life and its distributor will not be liable for any loss, damage, costs or expenses incurred in acting on telephone instructions reasonably believed to be authentic. ING Security Life may employ procedures which might include requiring forms of personal identification before accepting such telephone instructions. I understand that if I do not want myself or my agent/registered representative to have such telephone privileges, I must indicate so below. I also understand that once granted, such privilege can be revoked only upon receipt of signed, written instructions at ING Security Life. _ |_| I do not want telephone transfer or allocation privileges. _ |_| I do not want telephone transfer or allocation privileges granted to my agent/registered representative. (Guaranteed Issue Application) Insert Strategic Benefit Initial Premium Allocation. Please allocate your Initial Premium to the Guaranteed Interest Division and/or among the Separate Account Divisions. Please use whole number percentages for each Division elected. You must allocate at least 1% of your Premium Allocation to each Division in which you elect to invest. The total must equal 100%. % GUARANTEED INTEREST DIVISION - -------- SEPARATE ACCOUNT INVESTMENT OPTIONS - -------------------------------------------------------------------------------- AIM INVESCO Van Eck % V.I. Government Securities % Equity Income % Worldwide Emerging Markets - --------- --------- --------- % V.I. Capital Appreciation % High Yield % Worldwide Bond - --------- --------- --------- % Utilities % Worldwide Real Estate --------- --------- Alger American % Total Return --------- % Small Capitalization % VIF Small Company Growth GCG Trust - --------- --------- % MidCap Growth % Growth - --------- --------- % Growth Neuberger Berman % Research - --------- --------- % Limited Maturity Bond % Equity Income --------- --------- Fidelity Investments % Partners Portfolio % MidCap Growth --------- --------- % Growth Portfolio % Hard Assets - --------- --------- % Overseas % Liquid Assets Money Market - --------- --------- % Index 500 % Limited Maturity Bond - --------- ---------
Automatic Telephone Privileges I acknowledge that my policy automatically will provide telephone transfer privileges and telephone allocation change privileges as described in the current prospectus to me as policy owner and to my agent/registered representative. I also agree that ING Security Life and its distributor will not be liable for any loss, damage, costs or expenses incurred in acting on telephone instructions reasonably believed to be authentic. ING Security Life may employ procedures which might include requiring forms of personal identification before accepting such telephone instructions. I understand that if I do not want myself or my agent/registered representative to have such telephone privileges, I must indicate so below. I also understand that once granted, such privilege can be revoked only upon receipt of signed, written instructions at ING Security Life. _ |_| I do not want telephone transfer or allocation privileges. _ |_| I do not want telephone transfer or allocation privileges granted to my agent/registered representative. (Guaranteed Issue Application) Insert Corporate Benefits EX-9 10 11 EXHIBIT 11 CORPORATE BENEFITS VUL DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(12)(III) This document sets forth the administrative procedures that will be followed by Security Life of Denver ("Security Life") in connection with the issuance of its Corporate Benefits and Strategic Benefit flexible premium variable universal life insurance policies (the "policies") issued through Security Life Separate Account L1 (the "Separate Account"), the transfer of assets held under the policies, and the redemption of interests in policies for use on multi-life basis when the insured people share a common employment or business relationship. I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES A. Offering of the Policy The policy is offered only to corporate entities or qualifying groups of ten or more insured people who may be individual owners ("owners") who satisfy certain suitability standards. The policy may be purchased to insure the life of a person (an "insured") in whom the owner has an insurable interest. Security Life requires satisfactory evidence of insurability, which may include a medical examination of the insured. The issue ages are 15 through 85. Age is determined by the insured's age as of the birthday nearest the policy date. Generally, a minimum total group first year premium of at least $250,000 is required. However, depending on underwriting circumstances, the minimum total group first year premium may be reduced. There is no minimum required base death benefit, although a minimum target death benefit of $50,000 per policy is required. The minimum target death benefit on some policies may be less as long as the average target death benefit for the group at policy issuance is at least $50,000. Acceptance of an application depends on Security Life's underwriting rules. Security Life reserves the right to reject an application for any reason. If a policy has more than one owner (joint owners), then transactions under the policy except for telephone transfers of account value require the authorization of all owners. B. Cost of Insurance Charges Structure, Payments and Underwriting Standards Security Life places the insured in a premium class when the policy is issued, based on underwriting. This original premium class applies to the initial stated death benefit. 1 The cost of insurance charge for a policy is based on the age at issue, sex, premium class of the insured, and on the policy year. Therefore the charge varies from time to time. Security Life places insureds in the following premium classes, based on underwriting: Standard smoker (ages 0-85); and Standard Non-smoker (ages 20-85). Security Life's definition of "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco, nicotine chewing gun or patch, snuff or any other tobacco or nicotine-based product or, insureds may be placed in a substandard rate class, with a higher mortality risk than the standard smoker or standard non-smoker classes. Security Life guarantees that the cost of insurance rates used to calculate the monthly cost of insurance charge will not exceed the maximum cost of insurance set forth in the policies. The guaranteed cost of insurance rate for standard classes are based on the 1980 Commissioners' Standard ordinary mortality Tables, Male or Female, Smoker or Nonsmoker Mortality Premiums (1980 CSO Tables). The guaranteed cost of insurance rates for substandard classes are based on multiples of or additives to the 1980 CSO Tables. At any time, Security Life's current cost of insurance may be less than the guaranteed cost of insurance that is set forth in the policy. Current cost of insurance rates are determined based on expectations as to future mortality, investment earnings, expenses, taxes, and persistency experience. These rates may change from time to time. Cost of insurance rates (whether guaranteed or current) for an insured in a standard non-tobacco class are equal to or lower than guaranteed cost of insurance for an insured of the same age and sex in a standard tobacco class. Cost of insurance rates (whether guaranteed or current) for an insured in a standard non-tobacco or tobacco class are generally lower than guaranteed cost of insurance for an insured of the same age and sex and tobacco status in a substandard class. The cost of insurance will not be the same for all policies. Insurance is based on the principle of pooling and distribution of mortality risks which assumes that each owner is charged a cost of insurance commensurate with the insured's mortality risk as actuarially determined, reflecting factors such as age, sex, health, and underwriting method. A uniform cost of insurance charge for all insureds would discriminate unfairly in favor of those insureds representing higher risks. However, there will be a uniform cost of insurance charge for all insureds of the same issue age, sex, policy duration and underwriting classification. If the insured's age or sex has been misstated in the application for the policy or in any application for supplemental or rider benefits, and if the misstatement becomes known during the lifetime of the insured, then policy values will be adjusted to reflect the correct monthly deductions (based on the correct age or sex) since the policy date. If the policy's values are insufficient to cover the monthly deduction on the prior monthly date, the grace period will be deemed to have begun, and notification will be sent to the owner at least 61 days prior to the end of the grace period. See "Policy Termination and Grace Period," below. 2 C. Death Benefit The policy provides coverage on a named insured and a Death Benefit payable upon the death of the insured. The policy will remain in force as long as the policy's cash surrender value is sufficient to cover the charges due. On or after one year from the policy date, the owner may request a reduction in the stated death benefit, by written notice to Security Life, subject to the following rules. If a change in the stated death benefit would result in total premiums paid exceeding the premium limitations prescribed under current tax law to qualify the policy as a life insurance contract, Security Life will refund promptly to the owner the excess above the premium limitations. The minimum amount of a decrease in stated death benefit is $1,000, and any decrease in stated death benefit will become effective on the monthly processing date next following the date that notice requesting the decrease is received and approved by Security Life. Security Life reserves the right to decline a requested decrease in the stated death benefit if compliance with the guideline premium limitations under current tax law resulting from this decrease would result in immediate termination of the policy, or if to effect the requested decrease, payments to the owner would have to be made from the accumulated value for compliance with the guideline premium limitations, and the amount of such payments would exceed the cash surrender value under the policy. At any time the owner may request an increase in the stated death benefit; any increase in the stated death benefit must be at least $1,000 (unless the increase is effected pursuant to a rider providing for automatic increases in stated death benefit), and an application must be submitted. An increase that is not guaranteed by rider will require satisfactory evidence of insurability and must meet Security Life's underwriting rules. The increase in stated death benefit will become effective on the next monthly processing date after the request is approved. The account value will be adjusted to reflect a monthly deduction (as of the effective date) based on the increased stated death benefit. Security Life will determine a cost of insurance rate for each increase in coverage based on the age of the insured at the time of the increase. The following rules will apply to determine the risk amount for each rate. When an increase in stated death benefit is requested, Security Life conducts underwriting before approving the increase to determine whether a different premium class will apply to the increase. If the premium class for the increase has lower cost of insurance rates than the original premium class, then the premium class for the increase will also be applied to the initial stated death benefit. If the premium class for the increase has higher cost of insurance rates than the original premium class, the premium class for the increase will apply only to the increase in stated death benefit, and the original premium class will continue to apply to the initial stated death benefit. 3 For the purposes of determining the risk amount associated with a stated death benefit, Security Life will attribute the total net amount at risk for the total stated death benefit. If there is a decrease in stated death benefit after an increase, the decrease is applied first to decrease prior increases in stated death benefit starting with the most recent increase. The policy will be offered and sold pursuant to an established mortality structure and underwriting standards in accordance with state insurance laws. Where state insurance laws prohibit the use of actuarial tables that distinguish between men and women in determining premiums and policy benefits for their insured resident, Security Life will comply. D. Application and Payment Processing To purchase a policy, an application must be completed and submitted through an authorized Security Life agent. Temporary life insurance coverage may be provided prior to the policy date under the terms of a temporary insurance agreement. In accordance with Security Life's underwriting rules, temporary life insurance coverage may not exceed $3,000,000 and will not remain in effect for more than ninety (90) days. An owner's policy coverage will become effective on the policy date, which may be specified on the application. The Policy Date is used to determine the monthly processing date, coverage effective date and policy anniversaries. The policy date is: 1) the date specified on the application, 2) the back-date of the policy to save age; or if neither 1) or 2) apply, it is the date all underwriting and administrative requirements are met if the initial premium has been received. Otherwise, it is the date the initial premium is received by Security Life. The Investment Date is the date that Security Life first applies premium to the Policy. It is the first valuation date following Security Life's: 1) receipt of the initial premium, 2) approval of the policy for issue, and 3) receipt of all issue requirements. As provided under state insurance law, the owner may be permitted to backdate the policy to preserve insurance age. In no case may the policy date be more than six months prior to the application date. The monthly deductions for the backdated period are deducted on the policy date. The initial premium payment must be at least equal to the sum of the scheduled premiums from the policy date through the investment date. Planned periodic premiums and unscheduled premiums that are not underwritten will be credited to the policy and the net premium invested on the valuation date they are received by Security Life. If a premium payment is rejected, Security Life will return it promptly, without adjustment. 4 The policy date is the date from which policy months, years, and anniversaries are measured. A policy month is a one-month period beginning with a monthly processing date and ending with the day immediately preceding the next following monthly processing date (i.e. 8/15 - 9/14). The monthly processing date is the same as the policy date for each succeeding month. The monthly deductions are made on each monthly processing date. A policy year is twelve months commencing with the policy date and ending with the day immediately preceding the next annual date (i.e. 8/15/1999 - 8/14/2000). The issue date, if the same as the policy date, is the date from which the suicide and contestable periods start. It is shown in the policy. E. Allocation of Net Premiums On the investment date, the account value equals the initial premium payment minus premium expense charges, minus monthly deductions made as the policy date (up to six months for backdated policies). On each investment date thereafter, the account value is the sum of the amounts in the variable investment options, the guaranteed interest division, and the loan division. The account value will vary with the performance of the selected investment options, interest credited on amounts in the guaranteed interest division, interest credited on amounts in the loan division, charges, transfers, partial withdrawals, loans and loan repayments. The net account value is cash value minus outstanding policy debt. When applying for a policy, the owner selects a plan for paying premium payments at specified intervals, e.g., quarterly, semi-annually or annually, until the maturity date. If the owner elects, Security Life will arrange for payment of planned period premiums on a monthly basis under a pre-authorized, electronic funds transfer (bank draft) arrangement. The owner is not required to pay premium in accordance with the plan; but can pay more or less than planned or skip a planned premium entirely. Currently, there is no minimum amount for each premium payment. Security Life may establish a minimum amount effective 90 days after sending a written notice to the owner. Subject to certain limits (described below), the owner can change the amount and frequency of planned periodic premiums at any time by sending a notice to Security Life. However, Security Life reserves the right to limit the amount of a premium payment or the total premium paid. In the application, the owner specifies the percentage of net premium to be allocated to each investment option including the guaranteed interest division (G.I.D.). Net premiums generally will be invested on the valuation date that Security Life receives them and in accordance with the owner's most recent allocation instructions. The net premium allocation percentages specified in the application will apply to subsequent premium payments until the owner instructs otherwise. The minimum percentage that may be specified for an investment option is 1%, and all percentages must be whole numbers. The sum of allocations must equal 100%. Security Life limits the number of investment options (18) to which account value may be allocated over the life of the policy. An owner can change the allocation percentages 5 at any time by sending a notice to the home office or, if telephone privileges are in effect, the request can be received by phone. The change applies to all premium payments received with or after receipt of the owner's notice. F. Free Look Some states mandate that if an owner exercises his/her free look right he/she is entitled to a full premium refund. Other states mandate that if the owner exercises his/her free look option he/she is entitled to receive the value of the fund allocations plus a refund of the policy charges previously deducted. Amounts you designate for the guaranteed interest division will be invested into that division on the investment date. If the owner's state requires return of premium during the free look period, amounts designated for the variable division are initially invested into the Liquid Asset Portfolio. Later, these amounts are transferred from the Liquid Asset Portfolio to the selected variable investment options, at the earlier of: 1) five days after we mailed your policy and you state free look period has ended; or 2) you have actually received your policy, we have received your delivery receipt and your state free look period has ended. If the owner's state provides for return of account value during the free look period or no free look period, amounts designated for the variable division are invested directly into the selected variable investment options. G. Additional Payment Additional unscheduled premium payments can be made at any time while the policy is in force. Premium payments after the initial premium payment must be made to the home office. Security Life has the right to limit the number and amount of such premium payments. Total premium payments paid in a policy year may not exceed guideline premium payment limitations for life insurance set forth in the Internal Revenue Code. Security Life will promptly refund the portion of any premium payment that is determined to be in excess of the premium payment limit established by law to qualify a policy as a contract for life insurance. Security Life reserves the right to reject a requested increase in planned periodic premiums, or unscheduled premium. Security Life also reserves the right to require satisfactory evidence of insurability prior to accepting a premium which increases the risk amount of the policy. No premium payment will be accepted after the maturity date. The payment of premiums may cause a policy to be a Modified Endowment Contract (M.E.C.) under the Internal Revenue Code. If acceptance of a premium paid would, in Security Life's view, cause the policy to become a M.E.C., then to the extent feasible Security Life will not accept that portion of the premium that would cause the policy to become a M.E.C. unless the owner confirms in writing that it is his/her intent to convert the policy to a M.E.C.. Security Life may return the excess portion of the payment pending receipt of instructions from the owner. 6 The owner may specify that a specific unscheduled payment is to be a repayment of policy debt. H. Policy Termination and Grace Period The policy terminates at the earliest of: 1) the end of the grace period, 2) the surrender of the policy or, 3) the fulfillment of Security Life's obligations under the policy (i.e., payment of the death benefit proceeds). If the cash surrender value on a monthly processing date is less than the amount of the monthly deduction to be deducted, the policy will be in default. In addition, if on a monthly processing date the outstanding policy debt exceeds the account value, the policy will be in default. The owner, and any assignee of record, will be sent notice of the default. If a policy goes into default, the owner will be allowed a 61-day grace period to pay a premium payment sufficient to cover the monthly deductions due during the grace period and for two additional months, or a sufficient amount to avoid termination caused by a high outstanding loan balance. Security Life will send notice of the amount required ("grace period premium payment") to the owner's last known address and the address of the assignee of record. The grace period will begin when the notice is sent. The policy will remain in effect during the grace period. If the insured should die during the grace period, the death benefit proceeds will be payable to the beneficiary, but the amount paid will be reduced for the monthly deductions which were due as of the date of death and for outstanding policy debt. If the grace period premium payment is not paid by the end of the grace period, the policy will lapse. It will have no value and no benefits will be payable. I. Reinstatement of a Policy Terminated for Insufficient Values The policy may be reinstated within five years after lapse and before the maturity date, subject to compliance with certain conditions, including a necessary premium payment and submission of satisfactory evidence of insurability. J. Repayment of a Loan An owner may repay all or part of his/her policy debt at any time while the insured person is living and the policy is in force. Loan repayments must be sent to the home office and will be credited as of the date received. The owner may instruct Security Life that a specific unscheduled payment is to be applied as a loan repayment. When a loan repayment is made, account value in the loan division in an amount equal to the repayment, is transferred from the loan division to the investment options according to the owner's current net premium allocation instructions. 7 K. Policy Riders Rider benefits may be available to be added to the policy. Monthly charges for the rider will be deducted from the account value as part of the monthly deductions. The only rider available is the Adjustable Term Insurance Rider. Additional rules and limits apply to the rider benefits and are set forth in the rider. II. TRANSFERS AMONG INVESTMENT OPTIONS Several investment options of the Separate Account are available for allocation of net premiums paid under the policy, subject to certain limitations set forth in the policy. Each invests in shares or units of an underlying portfolio. Currently available investment options invest in portfolios of AIM Variable Insurance Funds, Inc., The Alger American Fund, Fidelity Variable Insurance Products Fund and Variable Insurance Products Fund II, the GCG Trust, INVESCO Variable Investment Funds, Inc., Neuberger Berman Advisors Management Trust, Van Eck Worldwide Insurance Trust. The Strategic Benefit policy also offers access to portfolios of Merrill Lynch Asset Management, L.P. All Funds are registered under the Investment Company Act of 1940 as open-end management investment companies. Additional funds may be made available in the future. After the free-look period and prior to the maturity date, the owner may transfer all or part of the account value from the investment options to other investment options or to the guaranteed interest division. An amount may be transferred from the guaranteed interest division to the variable investment options, subject to some restrictions. The minimum transfer amount is the lesser of $100 or the entire amount in that investment option. A transfer request that would reduce the amount in an investment option below $100 will be treated as a transfer request for the entire amount. Transfers from the guaranteed interest division are permitted only within the first 30 days of a policy year. Transfer requests received within 30 days prior to a policy anniversary will be processed on the policy anniversary. Such transfers are limited in amount to the greatest of: 25% of the balance in the guaranteed interest division on the policy anniversary; the total withdrawn in the prior policy year; or $100.00. With the exception of the Right to Exchange (described below), Security Life reserves the right to limit the number or frequency of transfers permitted in the future. Security Life will make the transfer as of the end of the valuation period during which such transfer is received by Security Life. Currently, there is a limit on the number (12) of free transfers that can be made between investment options in a policy year. Currently, Security Life assesses an excess transfer charge of $10 for each transfer in excess of the first twelve transfers during a policy year. The excess transfer charge will be deducted from the investment option from which the requested transfer is being made. Transfer requests will be accepted by telephone, provided the appropriate authorization has been provided to Security Life. Security Life reserves the right to suspend telephone transfer privileges at any time, for any reason, if Security Life deems such suspension to be in the best interests of owners. 8 During the first twenty-four policy months following the policy date, and within sixty days of the later of notification of a change in the investment policy of the separate account or the effective date of such change, the owner may exercise a one-time Right to Exchange the policy by requesting that all of the variable account value be transferred to the guaranteed interest division. Exercise of the Right to Exchange is not subject to the excess transfer charge. Following the exercise of the Right to Exchange, premium may not be allocated to the variable account, and transfers of account value to the variable account will not be permitted. The other terms and conditions of the policy will continue to apply. Transfers may also be effected pursuant to the dollar cost averaging or auto rebalancing feature if elected by the owner as described in the current prospectus. III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS A. Surrender for Cash Surrender Value An owner may surrender the policy at any time for its cash surrender value by submitting notice to the home office. Security Life may require return of the policy. A surrender request will be processed as of the valuation date the surrender notice and all required documents are received. Payment generally will be made within seven calendar days. An owner's policy will terminate and cease to be in force if it is surrendered. It cannot be reinstated later. B. Death Claims The death benefit proceeds are equal to the sum of the base death benefit for each coverage segment under the death benefit option selected, calculated on the date of the insured's death, plus rider benefits, minus outstanding policy debt, minus unpaid monthly deductions incurred prior to the date of death. If the insured's age or sex has been misstated in the application for the policy or in an application for supplemental or rider benefits, and if the misstatement becomes known after the death of the insured person, then the death benefit under the policy or such supplemental or rider benefits will be that which the cost of insurance charge which was deducted from the account value on the last monthly processing date prior to the death of the insured would have purchased for the correct sex and age. Security Life will pay interest at the rate declared by us or at a higher rate required by law. Security Life will usually pay the death benefit proceeds to the beneficiary within seven days after receipt at its Home Office of due proof of death of the insured and all other requirements necessary to make payment. If the payment of the death benefit of a policy is contested, payment of proceeds may be delayed. 9 The death benefit payable depends on the death benefit option in effect on the date of death. Subject to certain conditions, owners may change the death benefit option. Under Option 1, the base death benefit is the greater of the specified amount, which includes the account value or the applicable percentage of account value on the date of the insured's death. Under Option 2, the base death benefit is the greater of the specified amount plus the account value on the date of death, or the applicable percentage of the account value on the date of the insured's death. Under Option 3, the base death benefit is the greater of the stated death benefit plus the sum of all premiums received minus partial withdrawals, or the account value multiplied by the applicable percentage of the account value on the date of the insured's death. The "applicable percentage" is the appropriate factor from the Definition of Life Insurance factors shown in the policy's appendix A. A table showing the applicable percentages for attained ages 0 to 95 is set forth in the policy. On or after one year from the policy date, the owner may change the death benefit option on the policy, by notice to Security Life, subject to the following rules. A change in the Death Benefit Option may be requested at least one day prior to a policy anniversary. After the change, the specified death benefit amount must still comply with the minimum to issue a policy. The effective date of the change will be the next monthly processing date next following the day that Security life approves the request. Security Life may require satisfactory evidence of insurability for some changes. An owner may change from death benefit option 1 to option 2, from option 2 to option 1 or from option 3 to option 1. NO CHANGE FROM DEATH BENEFIT OPTION 1 OR 2 TO OPTION 3, OR OPTION 3 TO OPTION 2 IS PERMITTED. When a change from Option 1 to Option 2 is made, the specified death benefit amount after the change is effected will be the specified death benefit amount before the change minus the account value on the effective date of the change. When a change from Option 2 to Option 1 is made, the specified death benefit amount after the change will be the specified death benefit amount before the change plus the account value on the effective date of the change. When a change from Option 3 to Option 1 is made, the specified amount will be the stated death benefit before the change plus the sum of premiums received minus partial withdrawals taken as of the effective date of the change. C. Policy Loan After the first monthly processing date and while the insured is living, provided the policy is not in the grace period, the owner may borrow against the policy by submitting a request to the home office. The minimum amount of a loan is $100. The maximum loan amount is the cash surrender value less monthly deductions to the next policy anniversary or 13 monthly deductions if the loan request is received within 30 days prior to a policy anniversary. Maximum loan amounts may be different if required by state law. 10 An outstanding loan reduces the amount available for a new loan. A loan is processed as of the date the loan request is approved. Loan proceeds generally will be sent to the owner within seven calendar days. When a policy loan is made, an amount sufficient to secure the loan is transferred out of the investment options and into the policy's loan division. Thus, a loan will have no immediate effect on the account value, but other policy values, such as the cash surrender value and the death benefit proceeds, will be reduced immediately by the amount borrowed. This transfer is made from the account value in each investment option in proportion to the account value in each on the date of the loan, unless the owner specifies that transfers be made from a specific investment option. An amount equal to due and unpaid loan interest which exceeds interest credited to the loan division will be transferred to the loan division on each policy anniversary. Such interest will be transferred from each investment option in the same proportion that account value in each bears to the total unloaned account value. The loan account will be credited with interest at an effective annual rate of not less than the annual loan interest rate of 3%. Loan interest accrues daily at a compound annual interest rate of 3.25%. Interest is due in arrears on each policy anniversary. Outstanding loan amounts (including unpaid interest added to the loan) plus accrued interest not yet due equals the total policy debt. D. Partial Withdrawals An owner may make partial cash surrenders (known as partial withdrawals) under the policy at any time after the first policy anniversary. An owner must submit a request to the home office. Each partial withdrawal must be at least $100. The maximum partial withdrawal is the amount which will leave $500 as the net cash surrender value. When a partial withdrawal is taken, the amount of the withdrawal plus a service fee is deducted from the account value. This service fee is 2% of the amount of the withdrawal, up to a maximum fee of $25. As of the date Security Life processes the partial withdrawal, the cash value will be reduced by the partial withdrawal amount. Unless the owner requests that a partial cash surrender be deducted from specified investment options, it will be deducted from the investment options on a pro-rata basis in proportion to the account value in each. If death benefit Option 1 is in effect, Security life may reduce the specified death benefit amount. Security Life may reject a partial withdrawal request if it would reduce the specified death benefit amount below the minimum amount required to issue the policy, or if the partial withdrawal would cause the policy to fail to qualify as a life insurance contract under applicable tax laws, as interpreted by Security Life. Partial withdrawal requests will be processed as of the valuation date the request is received by Security Life, and generally will be paid within seven calendar days. 11 E. Monthly Charges On each monthly processing date, Security Life will deduct from the account value the monthly deductions due, commencing as of the policy date. An owner's policy date is the date used to determine the applicable monthly processing date. The monthly deduction consists of (1) cost of insurance charges, (2) the monthly administrative charge, (3) mortality and expense charge, and (4) charges for rider benefits. The monthly deduction is deducted from the investment options, including the guaranteed interest division pro rata based on the account value in each investment option, unless the owner has selected a designated deduction investment option for the policy. F. Continuation of Coverage The maturity date is generally the insured's 100th birthday, and is shown in the policy. At the policy's maturity date, the owner may surrender the policy for its net cash surrender value. Or, he/she may allow insurance coverage to continue under the continuation of coverage feature. If the policy is in effect and not surrendered, the target death benefit, which includes term rider coverage, becomes the specified death benefit amount. All riders are terminated. Policies with death benefit options 2 or 3 become policies with death benefit option 1. A one-time fee of $200 is deducted to cover all future costs of the policy and the account value is transferred into the Guaranteed Interest Division. No further premium payments can be made, however, loan and interest payments are accepted. All variable investment features terminate. Loans and partial withdrawals may be taken. The policy will continue until the death of the insured person, so long as it does not lapse. G. Settlement Options During the insured's lifetime, the owner may elect that the beneficiary receive the death proceeds other than in one sum. If this election has not been made, the beneficiary may do so within 60 days after the insured person's death. The Owner may also elect to take the net cash surrender value under one of these options. Option I: Payouts for a Designated Period: Payouts will be made in 1, 2, 4 or 12 installments per year as elected for a designated period, which may be 5 to 30 years. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of account value applied is shown in Settlement Option Table I in the policy. Option II: Life Income with Payouts Guaranteed for a Designated Period: payouts will be made in 1, 2, 4 or 12 installments per year throughout the payee's lifetime, or if longer, for a period of 5, 10, 15, or 20 years as elected. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of account value applied is shown in Settlement Option Table II in the policy. This option is not available for ages not shown in this Table. 12 Option III: Hold at Interest: Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4 or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. Option IV: Payouts of a Designated Amount: Payouts will be made until proceeds, together with interest, which will be at the rate declared by us or at any higher rate required by law, are exhausted. Payouts will be made in 1, 2, 4 or 12 equal installments per year, as elected. Option V: Other: The owner may ask us to apply the money under any other option that we make available at the time the benefit is paid. Payments under these options are not affected by the investment experience of any division of our variable account. Instead, interest accrues pursuant to the options chosen. Payment options will also be subject to our rules at the time of selection. These alternate payment options are only available if the proceeds applied are $2,000 or more and a periodic payment will be at least $20. The beneficiary or any other person who is entitled to receive payment may name a successor to receive any amount that we would otherwise pay to that person's estate if that person died. The person who is entitled to receive payment may change the successor at any time. We must approve an arrangements that involve a payee who is not a natural person (for example, a corporation), or a payee who is a fiduciary. Also, the details of all arrangements will be subject to our rules at the time the arrangements take effect. This includes rules on the minimum amount we will pay under an option, minimum amounts for installment payments, withdrawal or commutation rights (i.e., the rights to receive payments over time, for which we may offer a lump sum payment), the naming of people who are entitled to receive payment and their successors, and the ways of proving Age and survival. 13 -----END PRIVACY-ENHANCED MESSAGE-----