-----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, WHrXs9c8EAg9zSNB8sGIvqQnfWnOJ9PY5DrWUypoQjZypgk+VeWhC6MXJ1QDuYgN 8ygUAebvXMiuZQMlvlIzAg== 0000917677-00-000034.txt : 20000411 0000917677-00-000034.hdr.sgml : 20000411 ACCESSION NUMBER: 0000917677-00-000034 CONFORMED SUBMISSION TYPE: S-6 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000407 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: S-6 SEC ACT: SEC FILE NUMBER: 333-34402 FILM NUMBER: 596593 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 S-6 1 PROSPECTUS As filed with the Securities and Exchange Commission on April 7, 2000 Registration No. 333-_________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------- FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 Initial Registration ----------------- SECURITY LIFE SEPARATE ACCOUNT L1 (Exact Name of Trust) SECURITY LIFE OF DENVER INSURANCE COMPANY (Name of Depositor) 1290 Broadway Denver, Colorado 80203-5699 (Address of Depositor's Principal Executive Offices) Copy to: GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ. Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP 1290 Broadway 1275 Pennsylvania Avenue, NW Denver, Colorado 80203-5699 Washington, D.C. 20004-2415 (202) 383-0314 (Name and Address of Agent for Service) ---------------------------- Title of securities being registered: Estate Designer variable life insurance policies. Approximate date of proposed public offering: as soon as practicable after the effective date of this Registration Statement. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-_________) Cross-Reference Table Form N-8B-2 Item No. Caption in Prospectus - -------------------- --------------------- 1, 2 Cover; Security Life of Denver Insurance Company; Security Life Separate Account L1 3 Inapplicable 4 Security Life of Denver Insurance Company 5, 6 Security Life Separate Account L1 7 Inapplicable 8 Financial Statements 9 Inapplicable 10(a), (b), (c), (d), (e) Policy Summary; Policy Values, Determining the Value in the Variable Division; Charges, Deductions and Refunds; Surrender; Partial Withdrawals; Guaranteed Interest Division; Transfers of Account Value; Right to Exchange Policy; Lapse; Reinstatement; Premiums 10(f) Voting Privileges; Right to Change Operations 10(g), (h) Right to Change Operations 10(i) Tax Considerations; Detailed Information about the Estate Designer Policy; General Policy Provisions; Guaranteed Interest Division 11, 12 Security Life Separate Account L1 13 Policy Summary; Charges, Deductions and Refunds; and Group or Sponsored Arrangements, 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; Investment Date and Allocation of Net Premiums; How We Calculate Accumulation Unit Values 17 Premium Payments Affect Your Coverage; Surrender; Partial Withdrawal 18 Policy Summary; Tax Considerations; Detailed Information about the Variable Policy; Security Life Account L1; Persistency Refund 19 Reports to Owners; Notification and Claims Procedures; Performance Information (Appendix C) 20 See 10(g) & 10(a) 21 Policy Loans 22 Policy Summary; Premiums; Grace Period; Security Life Separate Account L1; Detailed Information about the Estate Designer 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 the Value in the Variable Division; How We Calculate Accumulation Unit Values 45 Inapplicable 46 Partial Withdrawals; Detailed Information about the Estate Designer Policy 47, 48, 49, 50 Inapplicable 51 Detailed Information about the Estate Designer Policy 52 Determining the Value 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 ESTATE DESIGNER A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY issued by SECURITY LIFE OF DENVER INSURANCE COMPANY AND SECURITY LIFE SEPARATE ACCOUNT L1 Consider carefully the policy charges, deductions, and refunds beginning on page 41 in this prospectus. You should read this prospectus and keep it for future reference. A prospectus for each underlying investment portfolio must accompany and should be read together with this prospectus. This policy is not available in all jurisdictions. This policy is not offered in any jurisdiction where this type of offering is not legal. Depending on the state where it is issued, policy features may vary. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. We offer other products to insure the lives of two people which may or may not better match your needs and interests. Replacing your existing life insurance policy(ies) with this policy may not be beneficial to you. YOUR POLICY o is a flexible premium variable joint and survivor universal life insurance policy; o is issued on two lives on whom insurance coverage may continue, in whole or in part, until both have died; o is issued by Security Life of Denver Insurance Company; o is guaranteed not to lapse during the first five policy years if you meet certain requirements; and o is returnable by you during the free look period if you are not satisfied. YOUR PREMIUM PAYMENTS o are flexible, so the premium amount and frequency may vary; o are allocated to variable investment options and the guaranteed interest division, based on your instructions; o are invested in shares of the underlying investment portfolios under each variable investment option; and o can be invested in as many as eighteen investment options over the policy's lifetime. YOUR ACCOUNT VALUE o is the sum of your holdings in the variable division, the guaranteed interest division and the loan division; o has no guaranteed minimum 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 at the second death of the two insured people; o are equal to the death benefit minus an outstanding policy loan, accrued loan interest and unpaid charges incurred before the second insured person dies; o are calculated under your choice of options; * Option 1- a fixed minimum death benefit * Option 2- a stated death benefit plus your account value; * Option 3- a stated death benefit plus the sum of the premiums we receive minus partial withdrawals; and o are generally not federally income taxed if your policy continues to meet the federal income tax definition of life insurance. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY INSURED OR BACKED BY ANY BANK OR GOVERNMENT AGENCY. DATE OF PROSPECTUS MAY 1, 2000 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 - -------------------------------------------------------------------------------- Estate Designer 2 TABLE OF CONTENTS POLICY SUMMARY.................................................................4 Your Policy..............................................................4 Free Look Period.........................................................4 Premium Payments.........................................................4 Charges and Deductions...................................................4 Guaranteed Interest Division.............................................6 Policy Values............................................................7 Transfers of Account Value...............................................7 Special Policy Features..................................................7 Policy Modification, Termination and Continuation Features...............8 Death Benefits...........................................................8 Tax Considerations.......................................................8 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....................................15 DETAILED INFORMATION ABOUT THE ESTATE DESIGNER POLICY..................................................16 Applying for a Policy...................................................16 Temporary Insurance.....................................................16 Premiums................................................................17 Premium Payments Affect Your Coverage...................................19 Death Benefits..........................................................20 Riders..................................................................24 Special Features........................................................26 Policy Values...........................................................28 Transfers of Account Value..............................................29 Dollar Cost Averaging...................................................30 Automatic Rebalancing...................................................31 Policy Loans............................................................32 Partial Withdrawals.....................................................33 Lapse...................................................................34 Reinstatement...........................................................35 Surrender...............................................................35 General Policy Provisions...............................................35 Free Look Period...................................................35 Your Policy........................................................36 Age ..............................................................36 Ownership..........................................................36 Beneficiary(ies)...................................................36 Collateral Assignment..............................................37 Incontestability...................................................37 Misstatements of Age or Gender.....................................37 Suicide............................................................37 Transaction Processing.............................................37 Notification and Claims Procedures.................................38 Telephone Privileges...............................................38 Non-participation..................................................38 Distribution of the Policies.......................................38 Advertising Practices and Sales Literature.........................39 Settlement Provisions..............................................39 Administrative Information About the Policy.............................40 CHARGES, DEDUCTIONS AND REFUNDS...............................................41 Deductions from Premiums................................................42 Other Charges...........................................................42 Daily Deductions from the Separate Account..............................42 Monthly Deductions from Account Value...................................43 Policy Transaction Fees.................................................44 Persistency Refund......................................................45 Group or Sponsored Arrangements or Corporate Purchasers.................45 TAX CONSIDERATIONS............................................................46 Tax Status of the Policy................................................46 Diversification Requirements............................................46 Tax Treatment of Policy Death Benefits..................................47 Modified Endowment Contracts............................................47 Multiple Policies.......................................................47 Distributions Other than Death Benefits from Modified Endowment Contracts.......................................47 Distributions Other than Death Benefits from Policies That Are Not Modified Endowment Contracts.......................................48 Investment in the Policy................................................48 Policy Loans............................................................48 Section 1035 Exchanges..................................................48 Tax-exempt Policy Owners................................................48 Possible Tax Law Changes................................................48 Changes to Comply with the Law..........................................48 Other...................................................................49 ILLUSTRATIONS.................................................................50 ADDITIONAL INFORMATION........................................................54 Directors and Officers..................................................54 Regulation..............................................................55 Legal Matters...........................................................55 Legal Proceedings.......................................................55 Experts.................................................................55 Registration Statement..................................................55 INDEX OF SPECIAL TERMS........................................................56 FINANCIAL STATEMENTS..........................................................57 APPENDIX A....................................................................58 APPENDIX B....................................................................59 APPENDIX C....................................................................60 - -------------------------------------------------------------------------------- Estate Designer 3 POLICY SUMMARY YOUR POLICY Your policy provides life insurance protection on the lives of two insured people and insurance coverage may continue until both have died. The policy includes the basic policy, applications, and any riders or endorsements. As long as the policy remains in force, we pay a death benefit after the second death of the insured people. While your policy is in force, you may access a portion of your policy value by taking loans or partial withdrawals. You may surrender your policy for its net cash surrender value. At the policy anniversary nearest the younger insured person's 100th birthday you may elect to continue the policy under the continuation of coverage option. SEE CONTINUATION OF COVERAGE, PAGE 27. 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 35. PREMIUM PAYMENTS The policy is a flexible premium policy because the amount and frequency of the premium payments you make may vary within limits. You must make premium payments: o for us to issue your policy; o sufficient to keep your policy in force; and o as necessary to continue certain benefits. 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 DEDUCTIONS FROM PREMIUMS SALES CHARGE -- We deduct a percentage of each premium to cover a portion of our expenses in selling your policy. This charge is based on the length of time since your policy or a segment became effective. Sales Charge Percentage Policy or Up To Policy or Above Policy or Segment Segment Segment Year Target Premium Target Premium ---- -------------- -------------- 1 8% 4% 2 - 7 8% 1.5% 8 + 1.5% 1.5% SEE DEDUCTIONS FROM PREMIUMS, PAGE 42. - -------- 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. - -------------------------------------------------------------------------------- Estate Designer 4 We take these deductions: CHARGES Other Than Investment Portfolio Annual Expenses and Sales Charge (SEE CHARGES, DEDUCTION AND REFUNDS, PAGE 41)
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 0.002055% daily (0.75% annually) Charge 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 $0.06-$0.15 per $1,000 death benefit for the first ten policy years, $0.01- $0.025 per $1,000 death benefit for each policy year thereafter. See your policy schedule pages. 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. Rider Charges Monthly from account value Varies depending on the rider benefit you choose, except the adjustable term insurance rider. Partial Withdrawal Fee Transaction date from account Up to $25 value Transfer Fee Transaction date from account Twelve free transfers per policy year, value then $25 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 One-time $400 administrative fee. younger insured 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 OBJECTIVES OF THE INVESTMENT PORTFOLIOS, PAGE 12. FEES AND EXPENSES OF THE INVESTMENT PORTFOLIOS [TO BE UPDATED BY AMENDMENT.] 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 - -------------------------------------------------------------------------------- Estate Designer 5 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 Leveraged AllCap Portfolio % % % NA % Alger American MidCap Growth Portfolio % % % NA % Alger American Small Capitalization Portfolio % % % NA % FIDELITY VARIABLE INSURANCE PRODUCTS FUND VIP Growth Portfolio % % % NA % VIP Money Market Portfolio % % % NA % VIP Overseas Portfolio % % % NA % FIDELITY VARIABLE INSURANCE PRODUCTS FUND II VIP II Asset Manager Portfolio % % % NA % VIP II Index 500 Portfolio % % % % % INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO VIF-Equity Income Fund (formerly VIF-Industrial Income Portfolio) % % % % % INVESCO VIF-High Yield Fund % % % NA % INVESCO VIF-Small Company Growth Fund % % % % % INVESCO VIF-Total Return Fund % % % % % INVESCO VIF-Utilities Fund % % % % % NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST Growth Portfolio % % % NA % Limited Maturity Bond Portfolio % % % NA % Partners Portfolio % % % NA % VAN ECK WORLDWIDE INSURANCE TRUST Worldwide Bond Fund % % % NA % Worldwide Emerging Markets Fund % % % % % Worldwide Hard Assets Fund % % % NA % 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. - -------------------------------------------------------------------------------- Estate Designer 6 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 28 AND PARTIAL WITHDRAWALS, PAGE 33. 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 THE VALUE IN THE VARIABLE DIVISION, PAGE 28. 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 28 AND HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 29. 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 29 AND POLICY TRANSACTION FEES, PAGE 44. SPECIAL POLICY FEATURES DESIGNATED DEDUCTION OPTION You may designate one investment option from which we will deduct all of your monthly deductions. SEE DESIGNATED DEDUCTION INVESTMENT OPTION, PAGE 26. RIDERS You may attach additional benefits to your policy by rider. In most cases, we deduct a monthly charge from your account value for these benefits. SEE RIDERS, PAGE 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 30. 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 31. LOANS You may take loans against your policy's net account value. We charge an annual loan interest rate of 3.75%. We credit an annual interest rate of 3% on amounts held in the loan division as collateral for your loan. Beginning in your eleventh policy year, where permitted by state law, we may include amounts in the loan division for calculation of your policy's persistency refund. SEE POLICY LOANS, PAGE 32. 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 33. PERSISTENCY REFUND After your tenth policy anniversary, where permitted by state law, we add a persistency refund to your account value. SEE PERSISTENCY REFUND, PAGE 45. REFUND OF SALES CHARGE We guarantee that if you surrender your policy within the first two policy years and it has not lapsed, we will refund some of the sales charge we - -------------------------------------------------------------------------------- Estate Designer 7 previously deducted from the premiums we received in your first policy year. SEE REFUND OF SALES CHARGE, PAGE 45. 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 27. POLICY SPLIT OPTION Under certain circumstances, you may split your policy into two separate life insurance policies each insuring the life of one insured person. This split may occur upon divorce between the two insured people, business dissolution, or a possible adverse future change in the tax law, unless state law requires otherwise. The policy split option is free. SEE POLICY SPLIT OPTION, PAGE 26. SURRENDER You may surrender your policy for its net cash surrender value at any time before the second death of the insured people. All insurance coverage ends on the date we receive your request. SEE SURRENDER, PAGE 35. LAPSE In general, insurance coverage continues as long as your net account value is enough to pay the monthly deductions. However, your policy and its riders are guaranteed not to lapse during the first five years of your policy if the conditions of the special continuation period have been met. SEE LAPSE, PAGE 34 AND SPECIAL CONTINUATION PERIOD, PAGE 18. REINSTATEMENT You may reinstate your policy and its riders within five years of its lapse if you still own the policy and the insured people meet our underwriting requirements. You will need to give proof of insurability as 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 35. POLICY MATURITY If at least one of the insured people is still living on the maturity date of the policy anniversary nearest the younger 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 27. CONTINUATION OF COVERAGE At the policy anniversary nearest the younger insured person's 100th birthday, you may choose to let the continuation of coverage feature become effective. If you do so, we will deduct a one-time administrative fee of $400 and keep your policy in force. SEE CONTINUATION OF COVERAGE, PAGE 27. DEATH BENEFITS After the second death of the two insured people, we pay death proceeds to the beneficiary(ies) if your policy is still in force. Based on the death benefit option you have chosen, the base death benefit varies. We generally require a minimum target death benefit of $500,000 to issue your policy. If you have an adjustable term insurance rider, the minimum base coverage required is $1,000 so long as the target death benefit is $500,000. SEE APPLYING FOR A POLICY, PAGE 16 AND DEATH BENEFITS, PAGE 20. 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 46. - -------------------------------------------------------------------------------- Estate Designer 8 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 47. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new policy or a change in an existing policy should consult a tax adviser. You should consult a qualified legal or tax adviser before you purchase your policy. - -------------------------------------------------------------------------------- Estate Designer 9 How the Policy Works YOUR PREMIUM Premium Deductions You make a premium ----------------------------> payment o sales charge o tax charges <---------------------------- NET PREMIUM We allocate the net premium to the investment options you choose | | ----------------------------------------- | | \/ \/ GUARANTEED VARIABLE INVESTMENT INVESTMENT PORTFOLIOS The investment INTEREST DIVISION OPTIONS The variable investment manager deducts Amounts you allocate Amounts you allocate are <-- options invest in investment are held in our general account held in our separate account --> investment portfolios ------> management fees | | and other ----------------------------------------- portfolio expenses | | o persistency refund | o refund of sales Refunds | charge (if ------------>| Monthly Deductions o policy charge surrendered in years | ---------------------> o cost of insurance 1 - 3) | | charge | | o monthly administrative \/ | charge ACCUMULATED VALUE | o rider charges The total value of your --| policy | | | Separate Account | | Deductions | |---------------------> o mortality and expense \/ | risk charge LOAN DIVISION | Amount set aside to | secure a policy loan | | | Transaction Fees o partial withdrawal fee ---------------------> o transfer fee o illustration fee o premium allocation change charge o continuation of coverage fee
- -------------------------------------------------------------------------------- Estate Designer 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 - -------------------------------------------------------------------------------- Estate Designer 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 is not associated with us. The investment portfolios sell shares to separate accounts of insurance companies. These insurance companies may or may not be affiliated with us. This is known as "shared funding." Investment portfolios may sell shares as the underlying investment for both variable annuity and variable life insurance contracts. This process is known as "mixed funding." The investment portfolios may sell shares to certain qualified pension and retirement plans that qualify under Section 401 of the Internal Revenue Code ("IRC"). As a result, a material conflict of interest may arise between insurance companies, owners of different types of contracts and retirement plans, or their participants. If there is a material conflict, we will consider what should be done, including removing the investment portfolio from the separate account. There are certain risks with mixed and shared funding, and with selling shares to qualified pension and retirement plans. See the investment portfolios' prospectuses. INVESTMENT PORTFOLIO OBJECTIVES Each investment portfolio has a different investment objective that it tries to achieve by following its own investment strategy. The objectives and policies of each investment portfolio affect its return and its risks. With this prospectus, you must receive the current prospectus for each investment portfolio. We summarize the investment objectives for each investment portfolio here. You should read each investment portfolio prospectus. Certain investment portfolios offered under this policy have investment objectives and policies similar to other funds managed by the portfolio's investment adviser. The investment results of a portfolio may be higher or lower than those of other funds managed by the same adviser. There is no assurance and no representation is made that the investment results of any investment portfolio will be comparable to those of another fund managed by the same investment adviser. Some investment portfolio advisers (or their affiliates) may pay us compensation for servicing, administration or other expenses. The amount of compensation is usually based on the aggregate assets of the investment portfolio from contracts that we issue or administer. Some advisers may pay us more or less than others. INVESTMENT PORTFOLIO 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. 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.
- -------------------------------------------------------------------------------- Estate Designer 12 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. American Leveraged AllCap The Alger American Fund Seeks long-term capital appreciation by investing in the Portfolio equity securities of companies of any size which demonstrate promising growth potential. American MidCap Growth The Alger American Fund Seeks long-term capital appreciation by focusing on Portfolio midsize companies with promising growth potential. 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 growth Insurance Products Fund II/ potential, either domestic or foreign issuers. Fidelity Management & Research Company VIP Money Market Portfolio Fidelity Variable Insurance Seeks as high a level of current income as is consistent Products Fund and Variable with the preservation of capital and liquidity by investing Insurance Products Fund II/ in U.S. dollar-denominated money market securities, Fidelity Management & including U.S. Government securities and repurchase Research Company agreements, and entering into reverse repurchase agreements. 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 VIP II Asset Manager Portfolio Fidelity Variable Insurance Seeks high total return with reduced risk over the long Products Fund and Variable term by allocating its assets among stocks, bonds, and Insurance Products Fund II/ short-term instruments. Fidelity Management & Research Company VIP II Index 500 Portfolio Fidelity Variable Insurance Seeks investment results that correspond to the total Products Fund and Variable return of common stocks publicly traded in the United Insurance Products Fund II/ States as represented by the S&P(R)500. Fidelity Management Research Company/ Bankers Trust Company
- -------------------------------------------------------------------------------- Estate Designer 13 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 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 debt INVESCO Funds Group, securities and preferred stock, including securities issued Inc. by foreign companies. 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. VIF-Total Return Fund INVESCO Variable Seeks to provide high total return through both growth Investment Funds, Inc./ and current income by investing at least 30% of its assets INVESCO Capital in common stocks of companies with a strong history of Management, Inc. paying regular dividends and 30% of its assets in debt securities. The remaining 40% of the fund is allocated among these and other investments at INVESCO's discretion, based upon current business, economic and market conditions. VIF-Utilities Fund INVESCO Variable Seeks capital appreciation and income by investing at Investment Funds, Inc./ least 80% of its assets in companies doing business in INVESCO Capital the utilities economic sector. The remainder of the Management, Inc. fund's assets are not required to be invested in the utilities economic sector. Growth Portfolio Neuberger Berman Advisers Seeks growth of capital by investing mainly in common Management Trust/ mid-capitalization companies. Neuberger Berman Management Inc./ Neuberger Berman, LLC Limited Maturity Bond Neuberger Berman Advisers Seeks the highest available current income consistent Portfolio Management Trust/ with liquidity and low risk to principal by investing Neuberger Berman mainly in investment-grade bonds and other debt Management Inc./ Neuberger securities from U.S. Government and corporate issuers. Berman, LLC Partners Portfolio Neuberger Berman Advisers Seeks growth of capital by investing mainly in common Management Trust/ stocks of mid- to large-capitalization companies. Neuberger Berman Management Inc./ Neuberger Berman, LLC
- -------------------------------------------------------------------------------- Estate Designer 14 INVESTMENT PORTFOLIO OBJECTIVES
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE ADVISER/ MANAGER/ SUB- ADVISER 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 Hard Assets Fund Van Eck Worldwide Seeks long term capital appreciation by investing Insurance Trust/ Van Eck primarily in "hard asset securities." Hard assets include Associates Corporation precious metals, natural resources, real estate and commodities. Income is a secondary consideration. Worldwide Real Estate Fund Van Eck Worldwide Seeks high total return by investing in equity securities Insurance Trust/Van Eck of companies that own significant real estate or that Associates Corporation 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 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 - -------------------------------------------------------------------------------- Estate Designer 15 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 ESTATE DESIGNER POLICY This prospectus describes our standard Estate Designer 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. We offer other products to insure the lives of two people which may or may not better match your needs and interests. APPLYING FOR A POLICY You purchase this variable universal life policy by submitting an application to us. On the policy date, the joint equivalent age of the two insured people must be no less than 15 and no more than age 85. The individual age of each insured person must be no more than 90 years of age on the policy date. There is no maximum age difference between the two insured people. The insured people are the two people on whose lives we issue the policy. The insured people share some relationship and commonly include, among others: husband and wife; business partners; parent and child; grandparent and grandchild; and siblings. Upon the second death of the insured people we pay the death proceeds. SEE AGE, PAGE 36. You may request that we back-date the policy up to six months to allow either or both of the insured people to give proof of a younger age for the purposes of your policy. We may reduce the minimum death benefit for group or sponsored arrangements or corporate purchasers. Our underwriting and reinsurance procedures in effect at the time you apply limit the maximum death benefit. TEMPORARY INSURANCE If you apply and qualify, we may issue temporary insurance in an amount equal to the face amount of the permanent insurance for which you applied. The maximum amount of temporary insurance for binding limited life insurance coverage is $3 million, which includes any other in-force coverage you have with us. Temporary coverage begins when: 1. you have completed and signed our binding limited life insurance coverage form; 2. we receive and accept a premium payment of at least your scheduled premium (selected on your application); and 3. part I of the application is complete. Temporary life insurance coverage ends on the earliest of: o the date we return your premium payments; o five days after we mail notice of termination to the address on your application; o the date your policy coverage starts; o the date we refuse to issue a policy based on your application; or o 90 days after you sign our binding limited life insurance coverage form. There is no death benefit under the temporary insurance agreement if: - -------------------------------------------------------------------------------- Estate Designer 16 o there is a material misrepresentation in your answers on the binding limited life insurance coverage form; o there is a material misrepresentation in statements on your application; o the person or persons intended to be the insured people die by suicide or self-inflicted injury; or o the bank does not honor your premium check. POLICY ISSUANCE Before we issue a policy, we require satisfactory evidence of insurability of both insured people and payment of your initial premium. This evidence may include a medical examination and completion of all underwriting and issue requirements. The policy date shown on your policy schedule determines: o monthly processing dates; o policy months; o policy years; and o policy anniversaries. 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 guideline premium/cash value corridor test applies to your policy. We may limit premium payments relative to your policy death benefit under this test. SEE TAX STATUS OF THE POLICY, PAGE 46. PREMIUMS You may choose the amount and frequency of premium payments, within limits. You cannot make premium payments after the second death of the insured people or after the continuation of coverage period begins. SEE CONTINUATION OF COVERAGE, PAGE 27. We consider any payment we receive to be a premium if you do not have an outstanding loan and your policy is not in the continuation of coverage period. After we deduct certain 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. During the special continuation period, your scheduled premium should not be less than the minimum annual premium shown in your policy. UNSCHEDULED PREMIUM PAYMENTS Generally speaking, you may make unscheduled - -------------------------------------------------------------------------------- Estate Designer 17 premium payments at any time, however: 1. We may limit the amount of your unscheduled premium payments that would result in an increase in the base death benefit amount required by the federal income tax law definition of life insurance. We may require satisfactory evidence that the insured people are insurable at the time that you make the unscheduled premium payment if the death benefit is increased due to your unscheduled premium payments; 2. We may require proof that at least one insured person is insurable if your unscheduled premium payment will cause the net amount at risk to increase; and 3. We will return premium payments which are greater than the "seven-pay" limit for your policy if your payment would cause your policy to become a modified endowment contract, unless you have acknowledged in writing the new modified endowment contract status for your policy. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 47 AND CHANGES TO COMPLY WITH THE LAW, PAGE 48. If you have an outstanding policy loan and you make an unscheduled payment, we will consider it a loan repayment, unless you tell us otherwise. If your payment is a loan repayment, we do not take tax or sales charges which apply to premium payments. TARGET PREMIUM Target premiums are not based on the scheduled premium. Target premiums are actuarially determined based on the age, gender, ratings and premium classes of the insured people. The target premium is used in determining your sales charge and the sales compensation 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. MINIMUM ANNUAL PREMIUM To qualify for the special continuation period, you must pay a minimum annual premium during each of your first five policy years. Your minimum annual premium is based on: o each insured person's age, gender, premium class and rating; o the stated death benefit of your policy; and o riders on your policy. Your minimum annual premium is shown in the schedule pages of your policy. We may reduce the minimum annual premium for group, or sponsored arrangements or for corporate purchasers. SPECIAL CONTINUATION PERIOD The special continuation period is the first five policy years. Under the special continuation period, we guarantee that your policy will not lapse, regardless of its net account value, if on a monthly processing date: o the sum of all premiums you have paid, minus partial withdrawals that you have taken, minus policy loans that you have taken, including accrued loan interest is greater than or equal to; o the minimum monthly premiums for each policy month, from the first month of your policy through the current policy monthly processing date. The minimum monthly premium is one-twelfth of the minimum annual premium. During the first five years of your policy if there is not enough net account value to pay the monthly deductions and you have satisfied our requirements, we do not allow your policy to lapse. We do not permanently waive policy charges. Instead, we continue to deduct these charges which may result in a negative net account value, unless you pay enough premium to prevent this. The negative balance is your unpaid monthly deductions owing. At the end of the special continuation period to avoid lapse of your policy you must pay enough premium to bring the net account value to zero plus the amount that covers your estimated monthly deductions for the following two months. SEE LAPSE, PAGE 34. 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 - -------------------------------------------------------------------------------- Estate Designer 18 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 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 Fidelity VIP Money Market Portfolio. We later transfer these amounts from the Money Market Portfolio to your selected variable investment options, based on your most recent premium allocation instructions, at the earlier of the following dates: o five days after we mailed your policy and your state free look period has ended; or o 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 15. 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 INVESTMENT OPTION, PAGE 26 AND POLICY TRANSACTION FEES, PAGE 44. PREMIUM PAYMENTS AFFECT YOUR COVERAGE Unless your policy is in the special continuation period, your coverage lasts only as long as your net account value is enough to pay the monthly charges and your account value is more than your outstanding policy loan plus accrued loan interest. If you do not meet these conditions, your policy will enter the 61- day grace period and you must make a premium payment to avoid lapse. SEE LAPSE, PAGE 34, AND GRACE PERIOD, PAGE 34. If you pay your minimum premium each year during the first five policy years and take no policy loan, we guarantee your policy and riders will not lapse during the special continuation period, regardless of your net account value. SEE SPECIAL CONTINUATION PERIOD, PAGE 18. 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 47. - -------------------------------------------------------------------------------- Estate Designer 19 DEATH BENEFITS As a joint and survivor universal life insurance policy, your policy has a joint nature to the death benefit. We do not pay death proceeds until the second death of the insured people. Your death benefit is calculated as of the date of the second death of the insured people. You can decide the amount of insurance you need, now and in the future. You can combine the long-term advantages of permanent life insurance (base coverage) with the flexibility and short-term advantages of term life insurance. Both permanent and term life insurance are available with your one policy. We generally require a minimum target death benefit of $500,000 to issue a policy. If you have an adjustable term insurance rider, the minimum base coverage to issue a policy is $1,000, as long as your target death benefit is at least $500,000. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 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 stated death benefit is the permanent element of your policy. The adjustable term insurance rider is the term insurance element of your policy. SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 24. It may be to your economic advantage to include part of your insurance coverage under the adjustable term insurance rider. Both the cost of insurance under the adjustable term insurance rider and the cost of insurance for the base death benefit are deducted monthly from your account value and generally increase with the age of the insured people. Use of the adjustable term insurance rider may reduce 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 AND NO REQUESTED OR SCHEDULED INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL WITHDRAWALS ARE LESS THAN THE PREMIUM WE RECEIVE.
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 stays level throughout the stays level throughout the life life of the contract. life of the contract. of the contract. BASE DEATH The greater of the stated The greater of the stated The greater of the stated death BENEFIT death benefit or the account death benefit plus the benefit plus the sum of all value multiplied by the account value or the account premiums we receive minus appropriate factor from the value multiplied by the partial withdrawals you have definition of life insurance appropriate factor from the taken, or the account value factors. definition of life insurance multiplied by the appropriate factors. factor from the definition of life insurance factors. TARGET DEATH Stated death benefit plus Stated death benefit plus Stated death benefit plus BENEFIT adjustable term insurance adjustable term insurance adjustable term insurance rider benefit. Assuming no rider benefit. Assuming no rider benefit. Assuming no schedule changes, this schedule changes, this schedule changes, this amount amount remains level amount remains level remains level throughout the throughout the life of the throughout the life of the life of the policy. policy. policy.
- -------------------------------------------------------------------------------- Estate Designer 20
OPTION 1 OPTION 2 OPTION 3 ===================== ===================================== =================================== =============================== TOTAL DEATH This is the total death This is the total death This is the total death BENEFIT proceeds. It is the greater of proceeds. It is the greater of proceeds. It is the greater of the target death benefit or the the target death benefit plus the target death benefit plus base death benefit. the account value or the base the sum of all premiums we death benefit. receive minus partial withdrawals you have taken, or the base death benefit. ADJUSTABLE The adjustable term The adjustable term The adjustable term insurance TERM insurance rider benefit is the insurance rider benefit is the rider benefit is the total death INSURANCE total death benefit minus total death benefit minus the benefit minus the base death RIDER BENEFIT base death benefit, but it will base death benefit, but it will benefit, but it will not be less not be less than zero. If the not be less than zero. If the than zero. If the account account value multiplied by account value multiplied by value multiplied by the death the death benefit corridor the death benefit corridor benefit corridor factor is factor is greater than the factor is greater than the greater than the stated death stated death benefit, the stated death benefit plus the benefit plus the sum of all adjustable term insurance account value, the adjustable premiums we receive minus benefit will be decreased. It term insurance rider benefit partial withdrawals you have will be decreased so that the will be decreased. It will be taken, the adjustable term sum of the base death benefit decreased so that the sum of insurance rider benefit will be and the adjustable term the base death benefit and decreased. It will be insurance rider benefit is not the adjustable term insurance decreased so that the sum of greater than the target death rider benefit is not greater the base death benefit and the benefit. If the base death than the target death benefit adjustable term insurance benefit becomes greater than plus the account value. If the rider benefit is not greater the target death benefit, then base death benefit becomes than the target death benefit the adjustable term insurance greater than the target death plus the sum of all premiums rider benefit is zero. benefit plus the account we receive minus partial value, then the adjustable withdrawals you have taken. term insurance rider benefit If the base death benefit is zero. becomes greater than the target death benefit plus the sum of all premiums we receive minus partial withdrawals you have taken, then the adjustable term insurance rider benefit is zero.
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 at the date of the second death of the insured people. The beneficiary(ies) is(are) the person (people) you name to receive the death proceeds from your policy. The death proceeds are: o your base death benefit; plus o rider benefits; minus o your outstanding policy loan with accrued loan interest; minus o outstanding policy charges incurred before the second death of the insured people. There could be outstanding policy charges if the date of the second death of the insured people happens while your policy is in the grace period or in the five- year special continuation period. - -------------------------------------------------------------------------------- Estate Designer 21 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 CONTINUATION OF COVERAGE, PAGE 27. 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 second death of the insured people; or 2. your account value on the date of the second death of the insured people multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 1, positive investment performance generally reduces your net amount at risk, which lowers your policy's cost of insurance charge. Option 1 offers insurance coverage that is a set amount with potentially lower cost of insurance charges over time. 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 second death of the insured people; or 2. your account value on the date of the second death of the insured people multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 2, investment performance is reflected in your insurance coverage. If you choose death benefit option 3, the base death benefit is the greater of: 1. your stated death benefit plus the sum of all premiums we have received minus partial withdrawals you have taken under your policy; or 2. your account value on the date of the second death of the insured people multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A. Under option 3, the base death benefit generally will increase as 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. 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 younger insured person's age; o the insured people's genders; and o the guideline premium/cash value corridor test for the federal income tax law definition of life insurance. SEE APPENDIX A, PAGE 58. 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 27. 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. 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. - -------------------------------------------------------------------------------- Estate Designer 22 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 the sum of the premiums we have received, minus partial withdrawals you have taken as of the effective date of the change. We increase or decrease your stated death benefit 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 43. 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 joint equivalent age of the insured people is 85. 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 46. 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 46 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 47. You cannot decrease the stated death benefit below $1,000. You must provide satisfactory evidence that the insured people are still insurable to increase your death benefit. Unless you tell us differently, we assume your request for an increase in your target death benefit is also a request for an increase to your - -------------------------------------------------------------------------------- Estate Designer 23 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 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 minimum annual premium during the special continuation period; o a new 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 segment has been effective. 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 46 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 47. 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. If applicable, we deduct a monthly charge from your account value for each rider you choose. You may cancel these rider benefits at any time. Periodically we may offer other riders than those listed here. You should contact your agent/registered representative for a complete list of the riders now available. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 47, FOR INFORMATION ON THE POSSIBLE TAX EFFECTS OF ADDING OR CANCELING THESE BENEFITS. ADJUSTABLE TERM INSURANCE RIDER We generally require a minimum target death benefit of $500,000 to issue a policy. If you have an adjustable term insurance rider, the minimum base coverage to issue a policy is $1,000, as long as your target death benefit is at least $500,000. 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 second death of the two people. As the name suggests, the adjustable term insurance rider adjusts over time to maintain your desired level of coverage. You specify a target death benefit when you apply for this rider. The target death benefit can be level for the life of your policy or can be scheduled to change at the beginning of a selected policy year(s). SEE DEATH BENEFITS, PAGE 20. The adjustable term insurance rider death benefit is the difference between your target death benefit and your base death benefit, but not less than zero. The rider's death benefit automatically adjusts daily as your base death benefit changes. Your death 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 - -------------------------------------------------------------------------------- Estate Designer 24 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 ------- ------- ---------------------- $501,500 $550,000 $48,500 502,500 550,000 47,500 502,250 550,000 47,750 It is possible that the amount of your adjustable term insurance may be zero if your base death benefit increases enough. Using the same example, if the base death benefit under your policy grew to $550,000 or more, the adjustable term insurance would be zero. Even when the adjustable term insurance is reduced to zero, your rider remains in effect until you remove it from your policy. Therefore, if later the base death benefit drops below your target death benefit, the adjustable term insurance rider 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 33 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 ages, genders, ratings and premium classes of the insured people, 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 classes even though satisfactory new evidence of insurability is required for the increased schedule. The monthly guaranteed maximum cost of insurance rates for this rider will be stated in the policy. SEE COST OF INSURANCE CHARGE, PAGE 43. 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 - -------------------------------------------------------------------------------- Estate Designer 25 rider provides benefits only at the second death of the insured people. SINGLE LIFE TERM INSURANCE RIDER This rider provides a benefit upon the death of one of the primary insured people under your policy. You may choose to add a single life term insurance rider for just one insured person. Alternatively, you may add two single life term insurance riders: one for each insured person. You may add this rider to your policy at any time if both insured people are alive and insurable according to our rules. We will issue the single life term insurance rider on an insured person who is between the ages of 15 and 85. Coverage may continue until the earlier of when: o the insured person covered by this rider reaches age 100; o the continuation of coverage provision becomes effective; or o the insured person covered by this rider dies; o the grace period expires; or o the policy is surrendered. SEE CONTINUATION OF COVERAGE, PAGE 27. The minimum amount of coverage for a single life term insurance rider is $1,000. The maximum coverage under this rider is subject to our underwriting determinations. At issue, you may schedule the rider's death benefit to increase or decrease. Your request for an increase or decrease in rider coverage is effective on the next monthly processing date after we approve your request. There may be underwriting or other requirements which must be met before we approve your request. A requested change in your coverage must be for at least $1,000. If you schedule or request an increase after issue, the person insured under this rider will be subject again to our underwriting requirements. The charge for this rider is based on the age, gender, premium class and underwriting characteristics of the insured person. The charge for this rider is deducted on each monthly processing date as a cost per each $1,000 of the net amount at risk under the rider. See the policy schedule pages for information on your actual cost. SPECIAL FEATURES DESIGNATED DEDUCTION INVESTMENT OPTION You may designate an investment option from which we will deduct your monthly charges. You may make this designation at any time. You may not use the loan division as your designated deduction option. You may elect not to choose a designated deduction investment option or the amount in your designated deduction investment option may not be enough to cover the monthly deductions. If so, these charges are taken from the variable and guaranteed interest divisions in the same proportion that your account value in each has to your total net account value on the monthly processing date. If you change your designated deduction investment option, we consider this a premium allocation change for which there may be a charge. SEE POLICY TRANSACTION FEES, PAGE 44. POLICY SPLIT OPTION Under certain circumstances, you may exchange your policy for two single life insurance policies: one on each of the two insured people. The policy split option has its own insurability requirements which may be met at or before the time your policy is split. Evidence of insurability is required for a new single life policy where coverage is greater than 50% of your original policy death benefit or for an insured person who is subject to certain underwriting ratings. On the effective date of the policy split, the available death benefit under your policy will be divided between the two new single life insurance policies. You may take less than the maximum death benefit amount available. Unless law requires otherwise, you may use the policy split option if: a) three months following the effective date of a final divorce decree regarding the marriage of the two insured people; b) there is a change to the federal estate tax law which results in either: i) removal of the unlimited marital deduction provision; or ii) a reduction in the current maximum federal estate tax of at least 50% after your policy date; or c) there is a dissolution of business conducted or owned by the two insured people. - -------------------------------------------------------------------------------- Estate Designer 26 You must send us written notice of your election to use the policy split option within 180 days of the occurrence of an eligible event. You must provide satisfactory evidence that the event has occurred. The effective date of the policy split is the first monthly processing date after we approve it. The insurance coverage under the two individual life insurance policies will start on the effective date of the policy split only if both insured people are alive on that date. If either insured person is not alive on that date, your exchange is void. All terms and conditions of the new policies apply once your policy is split and they may differ from those of this policy. Consult your new single life insurance policies. The premiums for each new policy will be based on each insured person's age, gender and premium class at the time of the split of your policy. Premiums will be due for each new policy under the terms of the new policy. The account value of the old policy will be allocated to the new policies on the effective date in the same proportion that the face amount was divided between the two single life insurance policies, unless we agree to a different allocation. If this allocation causes an increase in the face amount of either of the new single life policies, we may limit the account value you may apply to each new policy. Any remaining account value will be paid to you in cash and may be taxable. The refund of sales charge does not apply on a policy split. If you have an outstanding policy loan it will be divided and transferred to each new single life insurance policy in the same proportion as your account value is allocated. Any remaining loan balance must be paid before the effective date of the policy split. Any person or entity to which you have assigned your policy must agree to the policy split. An assignment of your policy generally will apply to each new single life insurance policy. If you have a single life term insurance rider on your policy at the date of the policy split, you may have a term insurance rider insuring the same insured person if that rider is available on the new policy. Other riders may or may not be available on the new policies and may be subject to new proof of insurability. Exercising the policy split option may be treated as a taxable transaction. Moreover, the two single life insurance policies could be treated as modified endowment contracts. SEE TAX CONSIDERATIONS, PAGE 46. You may not split your policy into two single life insurance policies if any of the following has happened: a) the continuation of coverage period has begun; b) one of the insured people has died; c) your policy grace period has ended; or d) your policy has been terminated or surrendered. You should consult a tax adviser before exercising the policy split option. RIGHT TO EXCHANGE POLICY During the first 24 months after your policy date, you have the right to exchange your policy for a guaranteed policy, unless 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. POLICY MATURITY You can surrender your policy at any time. At the policy anniversary nearest the younger 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 younger insured person's 100th birthday you allow the continuation of coverage feature to become effective, we: o convert target death benefit to stated death benefit; o terminate all riders; o convert death benefit option 2 or 3 to death benefit option 1, if applicable; - -------------------------------------------------------------------------------- Estate Designer 27 o deduct a one-time $400 administrative fee to cover future expenses; o transfer your net account value (excluding the amount in the loan division) into the guaranteed interest division; and o terminate dollar cost averaging and automatic rebalancing. Your insurance coverage continues in force until the second death of the insured people, 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 we pay a persistency refund on the guaranteed interest division, it will be credited to your policy. SEE PERSISTENCY REFUND, PAGE 45. If you have an outstanding policy loan, interest continues to accrue. If you fail to make sufficient loan or loan interest payments, it is possible that the loan balance plus accrued interest may become greater than your account value and cause your policy to lapse. To avoid this lapse, you may make loan and loan interest payments during the continuation of coverage period. If you wish to stop coverage during the continuation of coverage period, you may surrender your policy and receive the net account value. All normal consequences of surrender apply. SEE SURRENDER, PAGE 35. The continuation of coverage feature may not be available in all states. If a state has approved this feature, it is an automatic feature and you do not need to take any action to activate it. The tax consequences of coverage continuing beyond the younger insured's person's 100th birthday are uncertain. You should consult a tax adviser as to those consequences. POLICY VALUES ACCOUNT VALUE Your account value is the total amount you have in the guaranteed interest division, the variable division and the loan division. Your account value reflects: o net premiums applied; o charges deducted; o partial withdrawals taken; o investment performance of the variable investment options; o interest earned on the guaranteed interest division; and o interest earned on the loan division. NET ACCOUNT VALUE Your policy's net account value is your account value minus the amount of your outstanding policy loan and accrued loan interest, if any. CASH SURRENDER VALUE Your cash surrender value is your account value plus any refund of sales charge due. NET CASH SURRENDER VALUE Your net cash surrender value is your cash surrender value minus the amount of your outstanding policy loan and accrued loan interest, if any. DETERMINING VALUES IN THE VARIABLE DIVISION The amounts in the variable division are measured by accumulation units and accumulation unit values. The value of each variable investment option is the accumulation unit value for that option multiplied by the number of accumulation units you own in that option. Each variable investment option has a different accumulation unit value. We purchase accumulation units for you when you allocate premium or make transfers to a variable investment option, including transfers from the loan division. 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. - -------------------------------------------------------------------------------- Estate Designer 28 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; o investment portfolio expenses; and o daily mortality and expense risk charges we take from the separate account. SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 29. 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. 3. We divide the resulting amount by the value of the shares in the underlying investment portfolio at the close of business on the previous valuation date. 4. We then subtract the mortality and expense risk charge under your policy. The daily charge is .002055% (.75% annually) of the accumulation unit value. If the previous day was not a valuation date, the charge is multiplied by the number of days since the last valuation date. TRANSFERS OF ACCOUNT VALUE You may make twelve free transfers among the variable investment options or the guaranteed interest - -------------------------------------------------------------------------------- Estate Designer 29 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 44 AND CONTINUATION OF COVERAGE, PAGE 27. 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 Fidelity VIP Money Market Portfolio or the Neuberger Berman AMT Limited Maturity Bond Portfolio. The main goal of dollar cost averaging is to protect your policy values from short-term price changes. DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A LOSS IN A DECLINING MARKET. This systematic plan of transferring account values is intended to reduce the risk of investing too much when the price of an investment portfolio's shares is high. It is intended to reduce the risk of investing too little when the price of an investment portfolio's shares is low. Since you transfer the same dollar amount to other investment options each period, you purchase more units in an investment option when the unit value is low and you purchase fewer units if the unit value is high. We do not count dollar cost averaging transfers toward your twelve free transfers per policy year. There is no charge for this feature. You may add dollar cost averaging to your policy at any time. The first dollar cost averaging date must be at least one day after we receive your dollar cost averaging request. If your state requires refund of all premiums we receive during the free look period, - -------------------------------------------------------------------------------- Estate Designer 30 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 38. 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, 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 15. You may have both automatic rebalancing and dollar cost averaging at the same time. However, the source investment portfolio for your dollar cost averaging - -------------------------------------------------------------------------------- Estate Designer 31 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 29. 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 38. When you request a loan you may specify one investment option from which the loan will be taken. If you do not specify one, the loan will be taken proportionately from each active investment option you have, including the guaranteed interest division. Loan interest charges on your policy loan accrue daily at an annual interest rate of 3.75%. Interest is due in arrears on each policy anniversary. If you do not pay your interest when it is due, we add it to your policy loan. 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%. After your tenth policy year, the loan division is credited with a persistency refund. SEE PERSISTENCY REFUND, PAGE 45. 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. 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. - -------------------------------------------------------------------------------- Estate Designer 32 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 34. Policy loans may have tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 47, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 48. 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 38. You may take only one partial withdrawal per policy year. The minimum partial withdrawal you may take is $100. The maximum partial withdrawal you may take is the amount which leaves $500 as your net account value. If you request a withdrawal of more than this maximum, we require you to surrender your policy or reduce the withdrawal. When you take a partial withdrawal, we deduct your withdrawal amount plus a service fee from your account value. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 41. 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 47 AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 48. 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 joint equivalent age of the insured people is not yet age 81, you may make a partial withdrawal of up to the greater of 10% of your account value, or 5% of your stated death benefit without decreasing your stated death benefit. Otherwise, amounts you withdraw will reduce your stated death benefit by the amount of the withdrawal unless your policy death benefit has been increased due to the federal income tax definition of life insurance. If your policy death benefit has been increased due to the federal income tax definition of life insurance at the time of the partial withdrawal, then at least part of your partial withdrawal may be made without reducing your stated death benefit. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 2 If you have selected death benefit option 2, a partial withdrawal does not reduce your stated or target death benefit. However because your account value is reduced, we reduce the total death benefit by at least the partial withdrawal amount. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 3 If you have selected death benefit option 3 and your partial withdrawal is less than the total of premiums we have received minus the total of your partial withdrawals, then your stated death benefit will not be reduced. However because your account value is reduced, your total death benefit will be reduced. If your partial withdrawal is more than the amount of - -------------------------------------------------------------------------------- Estate Designer 33 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 46. 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 45. 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 47, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 48. LAPSE Your insurance coverage continues as long as your net account value is enough to pay your deductions each month. Lapse does not apply if the special continuation period is in effect and you have met all requirements. SEE SPECIAL CONTINUATION PERIOD, PAGE 18. If the continuation of coverage feature is active, your policy could still lapse if there is an outstanding policy loan even though there are no further monthly deductions. GRACE PERIOD Your policy enters a 61-day lapse grace period if, on a monthly processing date: 1. your net account value is zero (or less); and 2. the five-year special continuation period has expired, or you have not paid the required special continuation period premium. We notify you that your policy is in a grace period at least 30 days before it ends. We send this notice to you (or a person to whom you have assigned your policy) at your last known address in our records. We notify you of the premium payment necessary to prevent your policy from lapsing. This amount is generally the past due charges, plus your estimated monthly policy and rider deductions for the next two months. If the second death of the insured people occurs during the grace period we do pay death proceeds to your beneficiary(ies), but with reductions for your policy loan balance, accrued loan interest and monthly deductions owed. If we receive your payment of the required amount before the end of the grace period, we apply it to your account value in the same manner as your other premium payments, then we deduct the overdue amounts from your account balance. If you do not pay the full amount within the 61-day grace period, your policy and its riders lapse without value. We withdraw your remaining account balance from the variable and guaranteed interest divisions. We deduct amounts you owe us and inform you that your policy coverage has ended. LAPSE SUMMARY SPECIAL CONTINUATION PERIOD ================================================================ - -------------------------------------------------------------------------------- Estate Designer 34 IF YOU MEET THE IF YOU DO NOT MEET THE REQUIREMENTS REQUIREMENTS OR IT IS NO LONGER IN EFFECT ------------ --------------------- Your policy does not Your policy enters a lapse if you do not grace period if your net have enough net account value is not account value to pay enough to pay the the monthly charges. monthly charges, or if The charges are your loan plus accrued deducted and may loan interest is more cause a negative than your account account value until the value. If you do not earlier of: 1) the date pay enough premium to you have enough net cover the past due account value, or 2) monthly charges and until the end of the interest due, plus the special continuation monthly charges and period. interest due through the end of the grace period, your policy lapses. REINSTATEMENT If you do not pay enough premium before the end of the grace period, your policy lapses. You may still reinstate your policy and its riders within five years of the end of the grace period if you still own the policy and both of the insured people are still living. Unless state law requires differently, we will reinstate your policy and riders if: 1. you have not surrendered your policy; 2. you provide satisfactory evidence to us that both insured people are alive and that each is still insurable according to our normal rules of underwriting; and 3. we receive enough premium from you to keep your policy and its riders in force from the beginning to the end of the grace period and for two months after the reinstatement date. When your policy lapses, we will not reinstate your policy if one insured person has died or become uninsurable since your policy date. If one insured person was uninsurable at the issue of your policy and remains uninsurable, we will review the underwriting requirements applicable to each insured person at the time you request reinstatement to determine whether or not your policy may be reinstated. Reinstatement is effective on the monthly processing date following our approval of your reinstatement application. If you had a policy loan when coverage ended, we reinstate it with accrued loan interest to the date of lapse. The cost of insurance charges at the time of reinstatement are adjusted to reflect the time since the lapse. We apply net premiums received after reinstatement according to your most recent instructions which may be the premium allocation instructions in effect at the start of the grace period. SURRENDER You may surrender your policy for its net cash surrender value any time before the second death of the insured people. You may take your net cash surrender value in other than one payment. We compute your net cash surrender value as of the valuation date we receive your written surrender request and policy at our customer service center. All insurance coverage ends on the date we receive your surrender request and policy. SEE POLICY VALUES, PAGE 28 AND SETTLEMENT PROVISIONS, PAGE 39. We do not pro-rate or add back charges and expenses to your account value before the date your surrender is effective. A refund of sales charge may apply. SEE REFUND OF SALES CHARGE, PAGE 45. A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 47, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 48. 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 - -------------------------------------------------------------------------------- Estate Designer 35 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 The entire contract between you and us is the combination of: o your policy; o a copy of your original application and any applications for benefit increases or decreases; o all of your riders; o endorsements; o policy schedule pages; and o reinstatement applications. If you make a change to your coverage, we give you a copy of your changed application and new policy schedules. If you send your policy to us, we attach these items to your policy and return it to you. Otherwise, you need to attach them to your policy. Unless there is fraud, we consider all statements made in an application to be representations and not guarantees. We use no statement to deny a claim, unless it is in an application. A president or an officer of our company and our secretary or assistant secretary must sign all changes or amendments we make to your policy. No other person may change the terms or conditions of your policy. AGE The age stated in your policy schedule is the joint equivalent age of the insured people we use to issue your policy. The joint equivalent age is the sum of both insured people's ages adjusted for the difference in ages and gender, divided by two and rounded down. The insured people must each be no more than 90 years of age at policy issue. The minimum joint equivalent age must be no less than 15. The maximum joint equivalent age must be no more than 85. There is no limit on the difference in the insured people's ages. Age is measured as the age of the insured person on the birthday nearest the policy anniversary. Generally, we use the joint equivalent age to calculate rates, charges and values. We determine the joint equivalent age at any given time by adding the number of completed policy years to the age calculated at issue and shown in the schedule. The younger insured person's 100th birthday is the 100th anniversary of the younger insured person's birth regardless if he/she has survived. The policy anniversary nearest to this date is the date used for policy maturity and continuation of coverage. OWNERSHIP The original owner is the person named as the owner in the policy application. The owner can exercise all rights and receive benefits until the second death of the insured people. This includes the right to change the owner, beneficiary(ies) or the method designated to pay death proceeds. As a matter of law, all rights of ownership are limited by the rights of any person who has been assigned rights under the policy and any irrevocable beneficiary(ies). You may name a new owner by giving us written notice. The effective date of the change to the new owner is the date the prior owner signs the notice. However, we will not be liable for any action we take before a change is recorded at our customer service center. A change in ownership may cause the prior owner to recognize taxable income on gain under the policy. BENEFICIARY(IES) You, as owner, name the beneficiary(ies) when you apply for your policy. The primary beneficiary(ies) who survives both of the insured people receives the death proceeds. Other surviving beneficiary(ies) receive death proceeds only if there is no surviving primary beneficiary(ies). If more than one - -------------------------------------------------------------------------------- Estate Designer 36 beneficiary(ies) survives both insured people, they share the death proceeds equally, unless you have told us otherwise. If none of your policy beneficiaries has survived both insured people, we pay the death proceeds to you or to your estate, as owner. Once you tell us who the beneficiary(ies) is/are, we keep this information on file. You may name a new beneficiary(ies) any time before the second death of the insured people. We pay the death proceeds to the beneficiary(ies) whom you have most recently named according to our records. We do not make payments to multiple sets of beneficiaries. COLLATERAL ASSIGNMENT You may assign your policy by sending written notice to us. After we record the assignment, your rights as owner and the beneficiary's(ies') rights (unless the beneficiary(ies) was made an irrevocable beneficiary(ies) under an earlier assignment) are subject to the assignment. It is your responsibility to make sure the assignment is valid. INCONTESTABILITY If your policy has been in force and both insured people are alive for two years from your policy date, we will not question the validity of the statements in your application. If your policy has been in force and both insured people are alive for two years from the effective date of a new segment or from the effective date of an increase in any other benefit, with respect to the insured people (such as an increase in stated death benefit) we will not contest the statements in your application for the new segment or other increase. If this policy has been in force and both insured people are alive for two years from the effective date of reinstatement, we will not contest the statements in your application for reinstatement. MISSTATEMENTS OF AGE OR GENDER If an insured person's age or gender has been misstated, we adjust the death benefit to the amount which would have been purchased for each insured person's correct age and gender. We base the adjusted death benefit on the cost of insurance charges deducted from your account value on the last monthly processing date before the second death of the insured people, 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 either 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 second death of the insured people is due to suicide (while that insured person is sane or insane), within two years of the effective date of a new segment or within two years of an increase in any other benefit, unless otherwise required by 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 net cash surrender value upon surrender; o partial withdrawals; and o loan proceeds. We may delay processing these transactions if: o the NYSE is closed for trading; 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. - -------------------------------------------------------------------------------- Estate Designer 37 We determine the death benefit as of the date of the second death of the insured people. 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 date of the second death of the insured people 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 second death of the insured people or at either insured person's death if you have a single life term insurance rider. As proof of the insured person's death, we may require you to provide proof of the deceased insured person's age and a certified copy of the death certificate. The beneficiary(ies) and the deceased insured person's next of kin may need to sign authorization forms. These forms allow us to get information about the deceased insured person. This information may include medical records of doctors and hospitals used by the deceased insured person. TELEPHONE PRIVILEGES Telephone privileges are automatically provided to you and your agent/registered representative, unless you decline it on the application or contact our customer service center. Telephone privileges allow you or your agent/registered representative, if applicable, to call our customer service center to: o make transfers; o change premium allocations; o change features in your dollar cost averaging and automatic rebalancing programs; o request partial withdrawals; or o request a policy loan. Our customer service center uses reasonable procedures to make sure that instructions received by telephone are genuine. These procedures may include: 1. requiring some form of personal identification; 2. providing written confirmation of any transactions; and 3. tape recording telephone calls. By accepting automatic telephone privileges, you authorize us to record your telephone calls with us. If we use reasonable procedures to confirm instructions, we are not liable for losses due to unauthorized or fraudulent instructions. We may discontinue this privilege at any time. NON-PARTICIPATION Your policy does not participate in the surplus earnings of Security Life. DISTRIBUTION OF THE POLICIES The principal underwriter (distributor) for our policies is ING America Equities, Inc., a wholly owned subsidiary of Security Life. It is registered as a broker-dealer with the SEC and the NASD. We pay ING America Equities, Inc. for acting as the principal underwriter under a distribution agreement. We sell our policies through licensed insurance agents who are registered representatives of other broker-dealers including, but not limited to: 1. VESTAX Securities Corporation, an indirect affiliate of Security Life of Denver Insurance Company; 2. Locust Street Securities, Inc., an indirect affiliate of Security Life of Denver Insurance Company; - -------------------------------------------------------------------------------- Estate Designer 38 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. At the time of application for your policy, the selling agent/registered representative will select either a levelized or a modified compensation structure. If no selection is made, compensation will be on the levelized scale. Under the levelized structure, the distribution allowance in policy years one through seven is 12% of the premium we receive up to target premium and 4% of premium we receive in excess of target premium. In policy year eight and thereafter, the distribution allowance is 2% of all premium we receive. Under the modified structure, the distribution allowance in policy year one is 30% of premium we receive up to target premium and 2% of premium in excess of target premium. In policy years two through seven it is 7.5% of premium up to target premium and 4% of premium we receive in excess of target premium. In policy year eight and thereafter, it is 2% of all premium we receive. Broker-dealers may receive annual renewal payments of up to 0.2% of the average net account value for the first ten policy years; 0.15% of average net account value for policy years eleven through twenty and 0.10% of average net account value each policy year thereafter. If both insured people die before the seventh policy anniversary and your policy is in force, we make a one-time additional compensation payment for the initial sale of your policy. 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 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 second death of the insured people. If you have not made this election, the beneficiary(ies) may do so within 60 days after we receive proof of the second death of the insured people. You may take your net 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 - -------------------------------------------------------------------------------- Estate Designer 39 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 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, - -------------------------------------------------------------------------------- Estate Designer 40 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. 10. Stop selling these policies. 11. End any employer or plan trustee agreement with us under the agreement's terms. 12. Limit or eliminate any voting rights for the separate account. 13. Make any changes required by the 1940 Act or its rules or regulations. We will not make a change until it is effective with the SEC and approved by the appropriate state insurance departments, if necessary. We will notify you of changes. If you wish to transfer the amount you have in the affected investment option to another variable investment option or to the guaranteed interest division, you may do so free of charge. Just notify us at our customer service center. REPORTS TO OWNERS At the end of each policy year we send a report to you that shows: o your total net policy death benefit (your stated death benefit plus adjustable term insurance rider death benefit, if any); o your account value; o your policy loan, if any, plus accrued interest; o your net cash surrender value; o information about the variable investment options; and o your account transactions during the 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, DEDUCTIONS AND REFUNDS The amount of a charge may not correspond to the - -------------------------------------------------------------------------------- Estate Designer 41 cost incurred by us to provide the service or benefits associated with the particular policy. For example, the sales charge 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 We consider any payment we receive to be a premium if you do not have an outstanding loan and your policy is not in the continuation of coverage period. After we deduct certain expenses from your premium payment, we add the remaining net premium to your account value. SALES CHARGE We deduct a percentage from each premium payment to compensate us for the costs we incur in selling the policies. The sales charge helps cover the costs of distribution, preparing our sales literature, promotional expenses and other direct and indirect expenses. We base the percentage on the time expired since your policy date, or addition of a segment and on your premium payments up to and above a target premium. The sales charge deducted from your premium payments after an increase in stated death benefit is based on each segment's target premium and the length of time that the segment has been in effect. Your policy schedule page shows the target premium for your policy. Sales Charge Percentage Policy or Up to Policy or Above Policy or Segment Segment Segment Year Target Premium Target Premium ---- -------------- -------------- 1 8% 4% 2 - 7 8% 1.5% 8 + 1.5% 1.5% For example, if this policy is issued to insure a male, age 85 who is uninsurable, and a female, age 85 who is insurable but in a substandard underwriting rating class, the target premium for sales charge purposes is $590 for each $1,000 of stated death benefit. We believe this amount represents the maximum target premium and that most policies will have a much lower target premium. SEE TARGET PREMIUM, PAGE 18 AND ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 50. We may reduce or waive the sales charge for certain group or sponsored arrangements or for corporate purchasers. SEE GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS, PAGE 45. SEE REFUND OF SALES CHARGE, PAGE 45. 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. DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE We deduct 0.002055% per day (0.75% annually) of - -------------------------------------------------------------------------------- Estate Designer 42 the amount you have in the variable investment options for the mortality and expense risks we assume. This charge is deducted as part of the calculation of the daily unit values for the variable investment options and does not appear as a separate charge on your statement or confirmation. The mortality risk is that insured people, as a group, may live less time than we estimated. The expense risk is that the costs of issuing and administering the policies and in operating the variable division are greater than the amount we estimated. The mortality and expense risk charge does not apply to your account value in the guaranteed interest division or the loan division. MONTHLY DEDUCTIONS FROM ACCOUNT VALUE We deduct charges from your account value on each monthly processing date. POLICY CHARGE The initial policy charge is $15 per month for the first ten years of your policy. After the first ten years of your policy, the policy charge is $9 per month. This charge compensates us for such costs as: o application processing; o medical examinations; o establishment of policy records; and o insurance underwriting costs. MONTHLY ADMINISTRATIVE CHARGE For this policy, we charge a per month administrative charge of $0.06 to $0.15 per $1,000 for the first ten policy years for the lesser of target or $2,500,000 death benefit. We charge $0.01 to $0.025 per $1,000 for each policy year after the tenth for the lesser of target or $2,500,000 death benefit. Currently, we limit this charge to $150 per month for the first ten policy years and $25 per month for each policy year thereafter. 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 second death of the insured people. The cost of insurance charge is equal to our current monthly cost of insurance rate multiplied by the net amount at risk for each portion of your death benefit. We calculate the net amount at risk monthly, at the beginning of each policy month. For the base death benefit, the net amount at risk is calculated using the difference between the current base death benefit and your account value. We determine your account value after we deduct your policy and rider charges due on that date other than cost of insurance charges for the base death benefit and adjustable term insurance rider. If your base death benefit at the beginning of a month increases (due to requirements of the federal income tax law definition of life insurance), the net amount at risk for your base death benefit for that month also increases. Similarly, the net amount at risk for your adjustable term insurance rider decreases. This means that your cost of insurance charge varies from month to month with changes in your net amount at risk, changes in the death benefit and with the increasing age of the insured people. We allocate the net amount at risk to segments in the same proportion that each segment has to the total stated death benefit for all coverage segments as of the monthly processing date. We base your cost of insurance rates on the insured people's ages, genders, ratings and premium classes on the policy and each segment date. We apply unisex rates where appropriate under the law. This currently includes the state of Montana and policies purchased by employers and employee organizations in connection with employment-related insurance or benefit programs. Separate cost of insurance rates apply to: o each segment of the base death benefit; o your adjustable term insurance rider; and o single life term insurance riders. We may make changes in the cost of insurance or - -------------------------------------------------------------------------------- Estate Designer 43 rider charges for a class of insured persons. We base the new charge on changes in expectations about: o investment earnings; o mortality; o the time policies remain in effect; o expenses; and o taxes. These rates are never more than the guaranteed maximum rates shown in your policy. The guaranteed maximum rates are based on the 1980 Commissioner's Standard Ordinary Sex Distinct Mortality Table. The maximum rates for the initial and any new segment will be printed in the policy schedule pages which we will provide to you. There are no cost of insurance charges during the continuation of coverage period. RIDER CHARGES On each monthly processing date, we deduct the cost of benefits under your riders including the single life term insurance rider. Rider charges do not include the adjustable term insurance rider. SEE RIDERS, PAGE 24. 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 33. TRANSFERS There is a $25 fee to cover our costs for each transfer over twelve free transfers per policy year. If you include multiple transfers in one transfer request, it counts as one transfer. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 29. 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 43. CONTINUATION OF COVERAGE ADMINISTRATIVE FEE At the policy anniversary nearest the younger insured person's 100th birthday, if your policy has not been surrendered, the continuation of coverage period begins. We will charge a one-time administrative fee of $400. This charge compensates us for maintaining and servicing your policy until the second death of the insured people. We then no longer charge your policy a monthly administrative fee or cost of insurance charge. DIVISIONS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS
MONTHLY CHARGES: COST OF LOANS AND INSURANCE CHARGES, RIDER TRANSACTION FEES PARTIAL WITHDRAWALS CHARGES, ADMINISTRATIVE FEES - ------------- --------------------------------------------- -------------------------------- --------------------------------- Choice May choose a designated deduction Proportionally among May choose any investment investment option, including variable and guaranteed option or combination of guaranteed interest division interest divisions investment options Default Proportionally among variable and Proportionally among Proportionally among variable guaranteed interest divisions variable and guaranteed and guaranteed interest divisions interest divisions
- -------------------------------------------------------------------------------- Estate Designer 44 PERSISTENCY REFUND Where state law allows us, we pay long-term policy owners a persistency refund. Each month your policy remains in force after your tenth policy anniversary, we credit your account value with a refund of 0.05% of account value. This refund is 0.6% of your account value on an annual basis. We do not guarantee that we will pay a persistency refund on the guaranteed interest division. If we pay a persistency refund on the guaranteed interest division, we will pay it even if your policy is in the continuation of coverage period. If applicable, we add the persistency refund to the variable and guaranteed interest divisions, but not the loan division, in the same proportion that your account value in each investment option has to your net account value as of the monthly processing date. Here are two examples of how the persistency refund may affect your account value: EXAMPLE 1: YOUR POLICY HAS NO LOAN: o account value = $10,000 (all in the variable division) o monthly persistency refund rate = .0005 o persistency refund = 10,000 x .0005 = $5.00 Value Before Value After Persistency Persistency Refund Refund ------ ------ Variable Division $10,000.00 $10,005.00 EXAMPLE 2: YOUR POLICY DOES HAVE A LOAN: o account value = $10,000 o account value in the variable division = $6,000 o account value in the loan division = $4,000 o monthly persistency refund rate = .0005 o persistency refund = 10,000 x .0005 = $5.00 Value Before Value After Persistency Persistency Refund Refund ------ ------ Variable Division $6,000.00 $6,005.00 Loan $4,000.00 $4,000.00 REFUND OF SALES CHARGE If you surrender your policy within the first two policy years (guaranteed) and it has not lapsed, we will refund a portion of the sales charge previously deducted from your premium payments. We base the refund on premium payments we receive in your first policy year. The refund of sales charge is not available if your policy was purchased with the proceeds of a policy issued by us or one of our affiliates. REFUND OF SALES CHARGE AS A PERCENTAGE OF FIRST POLICY YEAR PREMIUM ----------------------------------------------------------------- We Currently Pay We Guarantee a -------------------------------------------- Policy Year Minimum of Up to Target Premium Above Target Premium - ------------ ----------------- ---------------------- -------------------- 1 5% 10% 8% 2 2.5% 10% 4% 3 N/A 10% N/A 4+ N/A N/A N/A GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS Individuals, corporations or other institutions may purchase this policy. For group or sponsored arrangements (including employees and certain family members of employees of Security Life, its - -------------------------------------------------------------------------------- Estate Designer 45 affiliates and appointed sales agents), corporate purchasers or special exchange programs which we may offer from time to time, we may reduce or waive the: o administrative charge; o minimum stated death benefit; o minimum target death benefit; o minimum annual premium; o target premium; o sales charge; o cost of insurance charges; or o other charges normally assessed. We can reduce or waive these items based on expected economies. Group arrangements include those in which there is a trustee, an employer or an association. The group may purchase multiple policies covering a group of individuals. Sponsored arrangements include those in which an employer or association allows us to offer policies to its employees or members on an individual basis. Our sales, administration and mortality costs generally vary with the size and stability of the group, among other factors. We take all these factors into account when we reduce charges. A group or sponsored arrangement must meet certain requirements to qualify for reduced charges. We make reductions to charges based on our rules in effect when we approve a policy application. We may change these rules from time to time. Each sponsored arrangement or corporation may have different group premium payments and premium requirements. We will not be unfairly discriminatory in any variation in the administrative charge, or other charges, fees and privileges. These variations are based on differences in costs or services. TAX CONSIDERATIONS The following summary provides a general description of the federal income tax considerations associated with the policy and does not purport to be complete or to cover all tax situations. This discussion is not intended as tax advice. Counsel or other competent tax advisers should be consulted for more complete information. This discussion is based upon our understanding of the present federal income tax laws. No representation is made as to the likelihood of continuation of the present federal income tax laws or as to how they may be interpreted by the Internal Revenue Service. TAX STATUS OF THE POLICY This policy is designed to qualify as a life insurance contract under the Internal Revenue Code. All terms and provisions of the policy shall be construed in a manner which is consistent with that design. In order to qualify as a life insurance contract for federal income tax purposes and to receive the tax treatment normally accorded life insurance contracts under federal tax law, a policy must satisfy certain requirements which are set forth in the Internal Revenue Code. Specifically, the policy must meet the requirements of the "guideline premium/cash value corridor test," as specified in Code section 7702. The guideline premium/cash value corridor test provides for a maximum premium in relation to the death benefit, and a minimum "corridor" of death benefit in relation to account value. SEE APPENDIX A, PAGE 59 FOR A TABLE OF THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST FACTORS. There is very little guidance with respect to policies issued on a last survivor basis as to how these requirements are 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. DIVERSIFICATION REQUIREMENTS In addition to meeting the Code Section 7702 guideline premium/cash corridor test, Code Section 817(h) requires separate account investments, such as our separate account, to be adequately diversified. The Treasury has issued regulations which set the standards for measuring the adequacy of any diversification. To be adequately diversified, each variable investment option must meet certain tests. If your variable life policy is not adequately diversified under these regulations, it is not treated as life insurance under Code Section 7702. You would then be subject to federal income tax on your policy income as you earn it. Our variable investment - -------------------------------------------------------------------------------- Estate Designer 46 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 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 - -------------------------------------------------------------------------------- Estate Designer 47 withdrawals, from a modified endowment contact will be treated first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. 2. Loan amounts taken from or secured by a policy classified as a modified endowment contract are treated as distributions and taxed first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. 3. A 10% additional income tax penalty may be imposed on the distribution amount subject to income tax. Consult a tax adviser to determine whether or not you may be subject to this penalty tax. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS Distributions other than death benefits from a policy that is not classified as a modified endowment contract are generally treated first as a recovery of the policy owner's investment in the policy. Only after the recovery of all investment in the policy, is there taxable income. However, certain distributions which must be made in order to enable the policy to continue to qualify as a life insurance contract for federal income tax purposes, if policy benefits are reduced during the first fifteen policy years, may be treated in whole or in part as ordinary income subject to tax. Loan amounts from or secured by a policy that is not a modified endowment contract are generally not treated as distributions. Finally, neither distributions from, nor loan amounts from or secured by, a policy that is not a modified endowment contract are subject to the 10% additional income tax. INVESTMENT IN THE POLICY Your investment in the policy is generally the total of your aggregate premiums. When a distribution is taken from the policy 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 - -------------------------------------------------------------------------------- Estate Designer 48 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. 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. - -------------------------------------------------------------------------------- Estate Designer 49 ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS The following tables are intended to show how the policy works including how benefits and values can vary over time. Each table compares these values with total premiums we receive with interest. The policy illustrated uses the following assumptions: Definition Death of Life Stated Target Smoker Benefit Insurance Death Death Gender Age Status* Option Test Benefit Premium Benefit - ------ --- ------ ------ ---- ------- ------- ------- Male 50 Non-smoker 1 GP 1,000,000 $13,000 1,000,000 Preferred Female 50 Non-smoker Preferred - ------------------- * "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco, nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based product. The target premium for the illustrated policy is $15,906.14 (approximately $16 per $1,000 of stated death benefit). The tables show how death benefits, account values and net cash surrender values of a hypothetical policy could vary over an extended period of time, assuming the variable division had constant hypothetical gross annual investment returns of 0%, 12%, or 6% over the periods indicated in each table. Values would differ from those shown in the tables if the annual investment returns were not constant. The amounts shown would differ if we had used two females, two males or smoker rates. These illustrations assume there is no policy loan. We illustrate premium payments as if they were made at the beginning of the year. The third column of each table shows what would happen if an amount equal to the assumed premiums earned interest, after taxes, of 5% compounded annually. The net investment return on your policy is lower than the gross investment return on the variable investment options as a result of the mortality and expense risk charge, the portfolio management fees and portfolio expenses. We show the effect of the net investment return in the amounts for death benefits, account values and cash surrender values. The tables reflect annual investment management fees of 0.66% of the portfolios' aggregate average daily net assets. This hypothetical rate is a simple average of the investment advisory fees applying to the investment portfolios for the year ending December 31, 1999. We assume other portfolio expenses at the rate of 0.31% of the portfolios' average daily net assets. This is an average of all the portfolios' other expenses for the year ending December 31, 1999 after any expense reimbursements or waivers by investment portfolio managers has been made. The average of all portfolios' total expenses is 0.97%. Actual fees vary by portfolio. The portfolio fees and expenses used in the illustrations are the net amounts shown after absorption of fees and expenses by the portfolio's investment manager. Absent such expense reimbursements or waivers, the total average investment management fees, average other portfolio expenses and the average of all - -------------------------------------------------------------------------------- Estate Designer 50 portfolios' total expenses used in the illustrations would have been higher. The tables assume that the current expense reimbursement arrangements will continue. However, they may not continue through 2000. The tables assume that charges have been deducted including deductions for premiums, cost of insurance rider charges, monthly deductions, mortality and expense risk charge, administrative and sales charges. The tables show charges at our current rates which includes a persistency refund. The tables also show charges at the maximum rates we guarantee in our policies. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 43. The tables reflect that we do not currently charge against the separate account for state or federal taxes. If we charge for the taxes in the future, it will take a higher gross rate of return than the rates shown to produce the same death benefits, account values and cash surrender values. If we are asked to do so, we will give you a comparable personal illustration based on: o the insured people's ages and genders; o standard premium class assumptions; o initial stated death benefit; o the chosen death benefit option; o scheduled premiums consistent with your policy form; and o special features elected on your policy. At issue, we deliver an individualized illustration showing the scheduled premium you chose and the insured people's actual risk classes. After we issue the policy, if you ask us to, we will give you an illustration of future policy benefits. We base these hypothetical future benefits on both guaranteed and current cost factor assumptions and actual account value. - -------------------------------------------------------------------------------- Estate Designer 51 PROSPECT: INSURED PERSON NO. 1'S NAME MALE 50 NON-SMOKER PREFERRED PRESENTED BY: INSURED PERSON NO. 2'S NAME FEMALE 50 NON-SMOKER PREFERRED SECURITY LIFE ESTATE DESIGNER VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $13,000.00 GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------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 13000 13650 10320 10970 1000000 11623 12273 1000000 10972 11622 1000000 2 13000 27983 20390 20715 1000000 24354 24679 1000000 22333 22658 1000000 3 13000 43032 30200 30200 1000000 38290 38290 1000000 34086 34086 1000000 4 13000 58833 39733 39733 1000000 53536 53536 1000000 46227 46227 1000000 5 13000 75425 48975 48975 1000000 70204 70204 1000000 58753 58753 1000000 6 13000 92846 57906 57906 1000000 88418 88418 1000000 71657 71657 1000000 7 13000 111138 66506 66506 1000000 108315 108315 1000000 84930 84930 1000000 8 13000 130345 75588 75588 1000000 130979 130979 1000000 99448 99448 1000000 9 13000 150513 84285 84285 1000000 155746 155746 1000000 114360 114360 1000000 10 13000 171688 92574 92574 1000000 182813 182813 1000000 129656 129656 1000000 15 13000 294547 132885 132885 1000000 375594 375594 1000000 220538 220538 1000000 20 13000 451350 152978 152978 1000000 689873 689873 1000000 319494 319494 1000000 25 13000 651475 133249 133249 1000000 1223815 1223815 1309483 416815 416815 1000000 30 13000 906890 16188 16188 1000000 2113789 2113789 2219478 485907 485907 1000000 AGE 65 13000 322925 138918 138918 1000000 426528 426528 1000000 239886 239886 1000000
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 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. - -------------------------------------------------------------------------------- Estate Designer 52 PROSPECT: INSURED PERSON NO. 1'S NAME MALE 50 NON-SMOKER PREFERRED PRESENTED BY: INSURED PERSON NO. 2'S NAME FEMALE 50 NON-SMOKER PREFERRED SECURITY LIFE ESTATE DESIGNER VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $13,000.00 GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------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 13000 13650 10320 11620 1000000 11623 12923 1000000 10972 12272 1000000 2 13000 27983 20390 21690 1000000 24354 25654 1000000 22333 23633 1000000 3 13000 43032 30200 31500 1000000 38290 39590 1000000 34086 35386 1000000 4 13000 58833 39733 39733 1000000 53536 53536 1000000 46227 46227 1000000 5 13000 75425 49080 49080 1000000 70314 70314 1000000 58861 58861 1000000 6 13000 92846 58263 58263 1000000 88801 88801 1000000 72027 72027 1000000 7 13000 111138 67279 67279 1000000 109170 109170 1000000 85745 85745 1000000 8 13000 130345 76960 76960 1000000 132540 132540 1000000 100916 100916 1000000 9 13000 150513 86456 86456 1000000 158281 158281 1000000 116714 116714 1000000 10 13000 171688 95765 95765 1000000 186632 186632 1000000 133162 133162 1000000 15 13000 294547 146381 146381 1000000 392994 392994 1000000 236032 236032 1000000 20 13000 451350 191700 191700 1000000 737872 737872 1000000 364403 364403 1000000 25 13000 651475 226808 226808 1000000 1316264 1316264 1442552 521899 521899 1000000 30 13000 906890 241640 241640 1000000 2282915 2282915 2457269 714510 714510 1000000 AGE 65 13000 322925 155992 155992 1000000 448575 448575 1000000 259565 259565 1000000
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. - -------------------------------------------------------------------------------- Estate Designer 53 ADDITIONAL INFORMATION DIRECTORS AND OFFICERS Set forth below is information regarding the directors and principal officers of Security Life of Denver Insurance Company. Security Life's address, and the business address of each person named, except as noted with one or two asterisks (*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The business address of each person denoted with one asterisk (*) is ING North America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of each person denoted with two asterisks (**) is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273. Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- Stephen M. Christopher Chairman, President and Chief Executive Officer Jess A. Skriletz Director, Chief Executive Officer and General Manager, ING Reinsurance and ING Institutional Markets Michael W. Cunningham* Director, Executive Vice President Mark A. Tullis* Director P. Randall Lowery* Director Thomas F. Conroy President, ING Reinsurance International Gregory G. McGreevey President, ING Institutional Markets Jerome J. Cwiok* Executive Vice President and Chief Operating Officer James L. Livingston, Jr. Executive Vice President 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 - -------------------------------------------------------------------------------- Estate Designer 54 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.] 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. - -------------------------------------------------------------------------------- Estate Designer 55 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.........................................28 Accumulation unit value...................................29 Adjustable term insurance rider...........................20 Base death benefit........................................21 Beneficiary(ies)..........................................21 Cash surrender value......................................28 Continuation of coverage..................................27 Death proceeds............................................21 Divisions.................................................11 Free look period..........................................35 General account...........................................15 Guaranteed interest division..............................15 Initial premium...........................................19 Investment date...........................................19 Investment options........................................11 Joint equivalent age......................................36 Loan division.............................................32 Minimum annual premium....................................18 Monthly processing date...................................56 Net account value.........................................28 Net amount at risk........................................43 Net cash surrender value..................................28 Net premium............................................4, 18 Partial withdrawal........................................18 Policy.....................................................4 Policy date...............................................17 Policy loan...............................................32 Portfolios................................................11 Scheduled premium.........................................17 Segment...................................................24 Separate account..........................................11 Special continuation period...............................18 Stated death benefit......................................16 Target death benefit......................................24 Target premium............................................42 Total death benefit.......................................24 Transaction date..........................................29 Valuation date............................................28 Valuation period..........................................29 Variable division.........................................11 Variable investment option................................11 Younger insured person's 100th birthday...................36 - -------------------------------------------------------------------------------- Estate Designer 56 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 ?. 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] - -------------------------------------------------------------------------------- Estate Designer 57 APPENDIX A FACTORS FOR THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST FOR A LIFE INSURANCE POLICY
Attained Attained Attained Attained Age of Younger Age of Younger Age of Younger Age of Younger Insured Factor Insured Factor Insured Factor Insured Factor 0 2.50 25 2.50 50 1.85 75 1.05 1 2.50 26 2.50 51 1.78 76 1.05 2 2.50 27 2.50 52 1.71 77 1.05 3 2.50 28 2.50 53 1.64 78 1.05 4 2.50 29 2.50 54 1.57 79 1.05 5 2.50 30 2.50 55 1.50 80 1.05 6 2.50 31 2.50 56 1.46 81 1.05 7 2.50 32 2.50 57 1.42 82 1.05 8 2.50 33 2.50 58 1.38 83 1.05 9 2.50 34 2.50 59 1.34 84 1.05 10 2.50 35 2.50 60 1.30 85 1.05 11 2.50 36 2.50 61 1.28 86 1.05 12 2.50 37 2.50 62 1.26 87 1.05 13 2.50 38 2.50 63 1.24 88 1.05 14 2.50 39 2.50 64 1.22 89 1.05 15 2.50 40 2.50 65 1.20 90 1.05 16 2.50 41 2.43 66 1.19 91 1.04 17 2.50 42 2.36 67 1.18 92 1.03 18 2.50 43 2.29 68 1.17 93 1.02 19 2.50 44 2.22 69 1.16 94 1.01 20 2.50 45 2.15 70 1.15 95 1.00 21 2.50 46 2.09 71 1.13 96 1.00 22 2.50 47 2.03 72 1.11 97 1.00 23 2.50 48 1.97 73 1.09 98 1.00 24 2.50 49 1.91 74 1.07 99 1.00 100 1.00
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE. - -------------------------------------------------------------------------------- Estate Designer 58 APPENDIX B GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST FOR A LIFE INSURANCE POLICY
Attained Attained Attained Attained Age of Younger Age of Younger Age of Younger Age of Younger Insured Factor Insured Factor Insured Factor Insured Factor 0 2.50 25 2.50 50 1.85 75 1.05 1 2.50 26 2.50 51 1.78 76 1.05 2 2.50 27 2.50 52 1.71 77 1.05 3 2.50 28 2.50 53 1.64 78 1.05 4 2.50 29 2.50 54 1.57 79 1.09 5 2.50 30 2.50 55 1.50 80 1.14 6 2.50 31 2.50 56 1.46 81 1.18 7 2.50 32 2.50 57 1.42 82 1.22 8 2.50 33 2.50 58 1.38 83 1.26 9 2.50 34 2.50 59 1.34 84 1.31 10 2.50 35 2.50 60 1.30 85 1.35 11 2.50 36 2.50 61 1.28 86 1.33 12 2.50 37 2.50 62 1.26 87 1.31 13 2.50 38 2.50 63 1.24 88 1.29 14 2.50 39 2.50 64 1.22 89 1.27 15 2.50 40 2.50 65 1.20 90 1.26 16 2.50 41 2.43 66 1.19 91 1.24 17 2.50 42 2.36 67 1.18 92 1.22 18 2.50 43 2.29 68 1.17 93 1.19 19 2.50 44 2.22 69 1.16 94 1.16 20 2.50 45 2.15 70 1.15 95 1.12 21 2.50 46 2.09 71 1.13 96 1.11 22 2.50 47 2.03 72 1.11 97 1.09 23 2.50 48 1.97 73 1.09 98 1.06 24 2.50 49 1.91 74 1.07 99 1.03 100 1.00
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE. - -------------------------------------------------------------------------------- Estate Designer 59 APPENDIX C PERFORMANCE INFORMATION POLICY PERFORMANCE The following hypothetical illustrations demonstrate how the actual investment experience of each variable investment option of the separate account affects the cash surrender value, account value and death benefit of a policy. These hypothetical illustrations are based on the actual historical return of each portfolio as if a policy had been issued on the date indicated. Each portfolio's annual total return is based on the total return calculated for each fiscal year. These annual total return figures reflect the net portfolio's management fees after any voluntary waiver and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions, which if reflected, would result in lower total return figures than those shown. The illustrations are based on the payment of a $13,000 annual premium, paid at the beginning of each year, for a hypothetical policy with a $1,000,000 face amount, the guideline premium test, death benefit option 1, issued to a preferred, non-smoker male, age 50 and a preferred, non-smoker female, age 50. It is assumed that all premiums are allocated to the variable investment option illustrated for the period shown. The benefits are calculated for a specific date. The amount and timing of premium payments and the use of other policy features, such as policy loans, would affect individual policy benefits. The amounts shown for the cash surrender values, account values and death benefits take into account the charges against premiums, current cost of insurance and monthly deductions, the daily charge against the separate account for mortality and expense risks, and each portfolio's charges and expenses. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 41. This prospectus also contains illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 50. [TO BE UPDATED BY AMENDMENT.] - -------------------------------------------------------------------------------- Estate Designer 60 [TO BE UPDATED BY AMENDMENT.] HYPOTHETICAL ILLUSTRATIONS Non-smoker Male Age 50 Preferred Risk Class Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $1,000,000 Annual Premium $13,000 - -------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 AIM V.I. GOVERNMENT SECURITIES FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 ALGER AMERICAN GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 The assumptions underlying these values are described in Performance Information, page 60. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Separate Account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Estate Designer 61 HYPOTHETICAL ILLUSTRATION (Continued) Non-smoker Male Age 50 Preferred Risk Class Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $1,000,000 Annual Premium $13,000 - -------------------------------------------------------------------------------- ALGER AMERICAN MIDCAP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 % 1,000,000 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 FIDELITY VIP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 % 1,000,000 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 The assumptions underlying these values are described in Performance Information, page 60. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Separate Account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Estate Designer 62 HYPOTHETICAL ILLUSTRATION (Continued) Non-smoker Male Age 50 Preferred Risk Class Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $1,000,000 Annual Premium $13,000 - -------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/89 % 1,000,000 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 FIDELITY VIP OVERSEAS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 % 1,000,000 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 FIDELITY VIP II ASSET MANAGER PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 The assumptions underlying these values are described in Performance Information, page 60. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Separate Account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Estate Designer 63 HYPOTHETICAL ILLUSTRATION (Continued) Non-smoker Male Age 50 Preferred Risk Class Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $1,000,000 Annual Premium $13,000 - -------------------------------------------------------------------------------- FIDELITY VIP II INDEX 500 PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 INVESCO VIF-EQUITY INCOME FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 INVESCO VIF-HIGH YIELD FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 INVESCO VIF-SMALL COMPANY GROWTH FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/98 % 1,000,000 INVESCO VIF-TOTAL RETURN FUND Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 The assumptions underlying these values are described in Performance Information, page 60. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Separate Account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Estate Designer 64 HYPOTHETICAL ILLUSTRATION (Continued) Non-smoker Male Age 50 Preferred Risk Class Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $1,000,000 Annual Premium $13,000 - -------------------------------------------------------------------------------- INVESCO VIF-UTILITIES FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 NEUBERGER BERMAN GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 % 1,000,000 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 NEUBERGER BERMAN LIMITED MATURITY BOND PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 % 1,000,000 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 NEUBERGER BERMAN PARTNERS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 The assumptions underlying these values are described in Performance Information, page 60. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Separate Account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Estate Designer 65 HYPOTHETICAL ILLUSTRATION (Continued) Non-smoker Male Age 50 Preferred Risk Class Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1 Stated Death Benefit $1,000,000 Annual Premium $13,000 - -------------------------------------------------------------------------------- VAN ECK WORLDWIDE BOND FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 % 1,000,000 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 VAN ECK WORLDWIDE EMERGING MARKETS FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 VAN ECK WORLDWIDE HARD ASSETS FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/91 % 1,000,000 12/31/92 % 1,000,000 12/31/93 % 1,000,000 12/31/94 % 1,000,000 12/31/95 % 1,000,000 12/31/96 % 1,000,000 12/31/97 % 1,000,000 12/31/98 % 1,000,000 % VAN ECK WORLDWIDE REAL ESTATE FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/98 % 1,000,000 The assumptions underlying these values are described in Performance Information, page 60. *These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Separate Account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Estate Designer 66 PART II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. UNDERTAKING REGARDING INDEMNIFICATION Please refer to the Articles of Incorporation listed as Exhibits 1.A(6)(a) and I.A(6)(b-g) and the By-Laws listed as Exhibits I.A(6)(h) and 1.A(6)(h)(i). Security Life of Denver's (the "corporation") Certificate of Incorporation and bylaws provide that the corporation shall have every power and duty of indemnification of directors, officers, employees and agents, without limitation, provided by the laws of the state of Colorado. Under Colorado law, the corporation has the power to indemnify such persons against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed action, suit or proceeding, if such person acted in good faith and in a manner which that person reasonably believed to be in or not opposed to the best interest of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In the case of actions by or in the right of the corporation, such indemnification cannot be made where such person is adjudged liable to the corporation, except pursuant to a court order. The corporation is required to indemnify directors, officers, employees and agents against expense actually and reasonably incurred in connection with actions where such persons have been successful on the merits or otherwise in defense of such actions. Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the securities and Exchange commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling preceding, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. UNDERTAKING REQUIRED BY SECTION 26(E)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED Security Life of Denver Insurance Company represents that the fees and charges deducted under the Policy, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred and the risks assumed by the Company. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents; The facing sheet. - -------------------------------------------------------------------------------- Estate Designer II - 1 Cross-Reference table. The prospectus. The undertaking to file reports. The undertaking regarding indemnification, The undertaking required by Section 26(e)2(A) of the Investment Company Act of 1940, as amended. The signatures. Written consents of the following persons: James L. Livingston, Jr. (See Exhibit 6B). [TO BE FILED BY AMENDMENT) Ernst & Young, L.L.P. (See Exhibit 7A). [TO BE FILED BY AMENDMENT) Sutherland Asbill & Brennan LLP (See Exhibit 7B). [TO BE FILED BY AMENDMENT] The following exhibits: 1. A. (1) Resolution of the Executive Committee of the Board of Directors of Security Life of Denver Insurance Company ("Security Life of Denver") authorizing the establishment of the Registrant./1/ (2) Not Applicable. (3) (a) Security Life of Denver Distribution Agreement./1/ (i) Amendment to Security Life of Denver Insurance Company Distribution Agreement./8/ (ii) Amendment to Security Life of Denver Insurance Company Distribution Agreement./11/ (b) Specimen Amendment to Broker/Dealer Supervisory and Selling Agreement for Variable Contracts with Compensation Schedule./11/ (c) Commission Schedule for Policies./11/ (4) Not Applicable. (5) (a) Specimen Estate Designer Universal Life Insurance Policy (Form No.2506(JTVUL)- 5/00)./11/ (b) Adjustable Term Insurance Rider (Form No. R2007-5/00)./4/ (c) Single Life Term Insurance Rider (Form No.R2004-8/99)./4/ (6) (a) Security Life of Denver's Restated Articles of Incorporation./1/ (b-g) Amendments to Articles of Incorporation through June 12, 1987./1/ - -------------------------------------------------------------------------------- Estate Designer II - 2 (h) Security Life of Denver's By-Laws./1/ (i) Bylaws of Security Life of Denver Insurance Company (Restated with Amendments through September 30, 1997)./2/ (7) Not Applicable. (8) (a) Participation Agreements (i) Participation Agreement by and among AIM Variable Insurance Funds, Inc., Life Insurance Company, on Behalf of Itself and its Separate Accounts and Name of Underwriter of Variable Contracts and Policies./3/ (ii) Sales Agreement by and among The Alger American Fund, Fred Alger Management, Inc., and Security Life of Denver Insurance Company./1/ (iii) Sales Agreement by and among Neuberger & Berman Advisers Management Trust, Neuberger & Berman Management Incorporated, and Security Life of Denver Insurance Company./1/ (iv) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (v) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (vi) Participation Agreement among INVESCO Variable Investment Funds, Inc., INVESCO Funds Group, Inc., and Security Life of Denver Insurance Company./1/ (vii) Participation Agreement between Van Eck Investment Trust and the Trust's investment adviser, Van Eck Associates Corporation, and Security Life of Denver Insurance Company./1/ (viii) Specimen Participation Agreement among Security Life of Denver Insurance Company, The GCG Trust and Directed Services, Inc./10/ (b) (i) First Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Investment Trust and Van Eck Associates Corporation./3/ (ii) Second Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Worldwide Insurance Trust and Van Eck Associates Corporation./3/ (iii) Assignment and Modification Agreement between Neuberger & Berman Advisers Management Trust, Neuberger & Berman Management Incorporated, Neuberger & Berman Advisers Management Trust, Advisers Managers Trust and Security Life of Denver Insurance Company./3/ (iv) First Amendment to Participation Agreement by and among The Alger American Fund, Fred Alger Management, Inc., Security Life of Denver Insurance Company./1/ (v) First Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (vi) Second Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (vii) First Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (viii) Second Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./1/ (ix) First Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc./1/ - -------------------------------------------------------------------------------- Estate Designer II - 3 (x) Third Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./8/ (xi) Third Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc./8/ (xii) Fourth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Company./8/ (xiii) Fourth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./8/ (xiv) Amendment No. 2 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc./8/ (xv) Fourth Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc./9/ (xvi) Amendment No. 3 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc./9/ (xvii) Fifth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./9/ (xviii) Fifth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./9/ (xix) Amendment No. 4 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc./11/ (xx) Sixth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./11/ (xxi) Sixth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company./11/ (xxii) Fifth Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc./11/ (c) (i) Service Agreement between Fred Alger Management, Inc. and Security Life of Denver Insurance Company./6/ (ii) Expense Allocation Agreement Between A I M Advisors, Inc., AIM Distributors, Inc. and Security Life of Denver./7/ (iii) Service Agreement between INVESCO Funds Group, Inc. and Security Life of Denver Insurance Company./7/ (iv) Service Agreement between Neuberger & Berman Management Incorporated and Security Life of Denver Insurance Company./7/ (v) Service Agreement between Fidelity Investments Institutional Operations Company, Inc. and Security Life of Denver Insurance Company./7/ (vi) Side Letter between Van Eck Worldwide Insurance Trust and Security Life of Denver./7/ (9) Not Applicable. - -------------------------------------------------------------------------------- Estate Designer II - 4 (10) Specimen Estate Designer Life Insurance Application with Binding Limited Life Insurance Coverage Form (Form No. Q2006-9/97)./11/ 2. Included as Exhibit l.A(5) above. 3. A. Opinion and consent of Gary W. Waggoner as to securities being registered. 4. Not Applicable. 5. Not Applicable. 6. A. Opinion and consent of James L. Livingston, Jr. [TO BE FILED BY AMENDMENT] 7. B. Consent of Ernst & Young L.L.P. (TO BE FILED BY AMENDMENT] C. Consent of Sutherland Asbill & Brennan LLP. [TO BE FILED BY AMENDMENT] 8. Not Applicable. 11. Issuance, Transfer and Redemption Procedures Memorandum. - ------------- /1/ Incorporated herein by reference to Post-Effective Amendment No. 7 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on April 27, 1998 (File No. 33-74190). /2/ Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on October 29, 1998 (File No. 33-74190). /3/ Incorporated herein by reference to Post-Effective Amendment No. 6 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on March 2, 1998 (File No. 33-74190). /4/ Incorporated herein by reference to the Initial Registration to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on February 22, 1999 (File No. 333-72753). /5/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form. S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on March 30, 1999 (File Nc. 333-72753). /6/ Incorporated herein by reference to Post-Effective Amendment 140. 7 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on April 27, 1998 (File No. 33-74190). /7/ Incorporated herein by reference to Post-Effective Amendment No. 10 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on April 23, 1999 (File No. 33-74190). /8/ Incorporated herein by reference to Pre-Effective Amendment No. 2 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on May 10, 1999 (File No. 333-72753). /9/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account Ll, filed with the Securities and Exchange Commission on December 3, 1999 (File No. 333-90577). /10/ Incorporated herein by reference to the Pre-Effective Amendment No. 2 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on February 2, 2000 (File No. 333-90577). /11/ Incorporated herein by reference to the Post-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on February 29, 2000 (File No. 333-72753). - -------------------------------------------------------------------------------- Estate Designer II - 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Security Life of Denver Insurance Company and the Registrant, Security Life Separate Account Ll, have duly caused this Registration Statement to be signed on their behalf by the undersigned, hereunto duly authorized, and their seal to be hereunto fixed and attested, all in the City and County of Denver and the State of Colorado on the 7th day of April, 2000. SECURITY LIFE OF DENVER INSURANCE COMPANY (Depositor) BY: /s/ Stephen M. Christopher ------------------------- Stephen M. Christopher President (Seal) ATTEST: /s/ Gary W. Waggoner - ------------------- Gary W. Waggoner SECURITY LIFE SEPARATE ACCOUNT Ll (Registrant) BY: SECURITY LIFE OF DENVER INSURANCE COMPANY (Depositor) BY: /s/ Stephen M. Christopher ------------------------- Stephen M. Christopher President (Seal) ATTEST: /s/ Gary W. Waggoner - ------------------- Gary W. Waggoner - -------------------------------------------------------------------------------- Estate Designer II - 6 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities with Security Life of Denver Insurance Company and on the date indicated. PRINCIPAL EXECUTIVE OFFICERS: /s/ Stephen M. Christopher - --------------------------- Stephen M. Christopher President, Chief Executive Officer and Director /s/ James L. Livingston, Jr. - -------------------------- James L. Livingston, Jr. Executive Vice President and Chief Financial Officer PRINCIPAL ACCOUNTING OFFICER: /s/ Shari A. Enger - --------------------------- Shari A. Enger Vice President - Controller DIRECTORS: /s/ P. Randall Lowery - --------------------------- P. Randall Lowery /s/ Michael W. Cunningham - --------------------------- Michael W. Cunningham - -------------------------------------------------------------------------------- Estate Designer II - 7 EXHIBIT INDEX Exhibit No. Description of Exhibit - ----------- ---------------------- 3. A. Opinion and consent of Gary W. Waggoner as to securities being registered. 11. Issuance, Transfer and Redemption Procedures Memorandum. - -------------------------------------------------------------------------------- Estate Designer II - 8 EX-1 2 WAGGONER OPINION LETTER [logo of Security Life of Denver appears here] EXHIBIT 3.A April 7, 2000 Security Life of Denver Insurance Company Security Life Center 1290 Broadway Denver, Colorado 80203-5699 Dear Sirs: This opinion is furnished in connection with the Form S-6 Registration Statement being filed by Security Life of Denver Insurance Company ("Security Life") under the Securities Act of 1933, as amended (the "Act"), for the offering of interests ("Interests") in Security Life Separate Account L1 ("Separate Account L1") under the Flexible Premium Variable Life Insurance Policies ("Policies") to be issued by Security Life. The securities being registered under the Act are to be offered in the manner described in the Registration Statement. I have examined or supervised the examination of all such corporate records of Security Life and such other documents and such laws as I consider appropriate as a basis for the opinion hereinafter expressed. On the basis of such examination, it is my opinion that: 1. Security Life is a corporation duly organized and validly existing under the laws of the State of Colorado. 2. Separate Account L1 was duly created as a separate investment account of Security Life pursuant to the laws of the State of Colorado. 3. The assets of Separate Account L1 will be owned by Security Life. Under Colorado law and the provisions of the Policies, the income, gains and losses, whether or not realized, from assets allocated to Separate Account L1 must be credited to or charged against such Account, without regard to the other income, gains or losses of Security Life. 4. The Policies provide that the assets of Separate Account L1 may not be charged with liabilities arising out of any other business Security Life may conduct, except to the extent that assets of Separate Account L1 exceed its liabilities arising under the Policies. April 7, 2000 Page 2 5. The Policies and the Interests in Separate Account L1 to be issued under the Policies have been duly authorized by Security Life; and the Policies, including the Interests therein, when issued and delivered, will constitute validly issued and binding obligations of Security Life in accordance with their terms. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of my name under the caption "Legal Matters" in the Prospectus contained in the Registration Statement. Very truly yours, /s/ Gary W. Waggoner Gary W. Waggoner Vice President, General Counsel and Corporate Secretary EX-2 3 ITR MEMO Exhibit 11 DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(l2)(III) This document sets forth the administrative procedures that will be followed by Security Life of Denver ("Security Life") in connection with the issuance of its joint and survivor flexible premium variable universal life insurance policies (the "policies") issued through Security Life Separate Account Ll (the "Separate Account"), the transfer of assets held under the policies, and the redemption of interests in policies. I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES A. Offering of the Policy The policy is offered on two lives to persons or entities who satisfy certain suitability standards ("owners"). The policy may be purchased to acquire insurance on the lives of two individuals (joint "insureds") in whom the owner has an insurable interest. Security Life requires satisfactory evidence of each of the insured's insurability, which may include a medical examination. The available issue ages are 0 through 90. Age is determined on the insured's age as of the birthday nearest the policy date. The joint equivalent age of the insured individuals is based on the sum of both insured's ages divided by two. It cannot exceed age 85 at time of issue, and must be at least 15. For Estate Designer ("ED"), the minimum stated death benefit is $1,000; however, the required minimum total death benefit is $500,000. The total death benefit includes stated death benefit plus coverage provided under a term rider. Acceptance of an application depends on Security Life's underwriting rules. Security Life reserves the right to reject an application for any reason. If a policy has more than one owner (joint owners), then transactions under the policy except telephone transfers of account value require the authorization of all owners. B. Cost of Insurance Charges Structure, Payments and Underwriting Standards Security Life places the joint insureds in a premium class when the policy is issued, based on underwriting. This original premium class applies to the initial stated death benefit. The current cost of insurance charge rate for a policy is based on the age at issue, sex, and premium class of the insured, and on the policy year, and therefore varies from time to time. Security Life currently places insureds in the following premium classes, based on underwriting: Standard Tobacco (ages 15-90); Standard Nontobacco (ages 15-90), or Preferred Estate Designer February 28, 2000 1 (ages 15-90). Or, insureds may be placed in a substandard rate class, with a higher mortality risk than the standard tobacco or standard nontobacco classes. Additionally, an uninsurable rating may be assessed to an individual that is rated higher than table P. The uninsurable rating will be handled in the unideath calculation the same way a table rating is except the percentage will be higher. The uninsurable rating is capped at the later of age 65 or 15 years from issue. Security Life guarantees that the cost of insurance rates used to calculate the monthly cost of insurance charge will not exceed the maximum cost of insurance premiums 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. 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 will be determined based on Security Life's 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 nontobacco 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 nontobacco 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 for the policy will not be the same for all owners. 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 actually 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. Although there will be no uniform cost of insurance charges for all insureds for a given stated death benefit 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 and/or rider benefits, and if the misstatement becomes known during the lifetime of the insured, then policy values will be adjusted to those based on the correct monthly deductions (reflecting 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 on such date, 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. Estate Designer February 28, 2000 2 The policy provides coverage on joint insureds named under the policy and a Death Benefit payable upon the death of the second insured. The policy will remain in force as long as the policy's cash surrender value is sufficient to cover the charges due. Security Life guarantees that a policy will remain in force during the special continuation period, regardless of the sufficiency of the cash surrender value, if the sum of the premiums paid to date, less any partial cash surrenders and policy debt equals or exceeds the minimum monthly premium (shown in the policy) multiplied by the number of complete policy months since the policy date, including the current policy month. The special continuation period is five years following the policy date. The minimum monthly premium is calculated for each policy based on the joint equivalent age, sex and premium class of each insured, the requested stated death benefit and supplemental or rider benefits. The minimum monthly premium may change as a result of changes to the stated death benefit, the death benefit option, ratings, and supplemental or rider benefits. Security Life will notify the owner of any change in the minimum monthly premium. On or after one year from the policy date, the owner may request a reduction in the stated death benefit, by 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. The decrease in stated death benefit will become effective on the next monthly processing date following the date that the decrease is approved by Security Life. Security Life reserves the right to decline a requested decrease in the stated death benefit if compliance with the guideline premium limitations under current tax law resulting from this decrease would result in immediate termination of the policy, or if to effect the requested decrease, payments to the owner would have to be made from the accumulated value for compliance with the guideline premium limitations, and the amount of such payments would exceed the cash surrender value under the policy. At any time after issue the owner may request an increase in the stated death benefit. An increase in the stated death benefit must be at least $1,000 (unless the increase is effected pursuant to a rider providing for automatic, scheduled increases in stated death benefit), and an application must be submitted. An increase requires satisfactory evidence of insurability and must meet Security Life's underwriting rules. The increase in stated death benefit will become effective on the next monthly processing date following the date the request is approved. The account value will reflect a monthly deduction (as of the effective date) based on the increased stated death benefit. Estate Designer February 28, 2000 3 Security Life will determine a cost of insurance rate for each increase in coverage based on the joint equivalent age of the insureds at the time of the increase. The following rules will apply for purposes of determining the risk amount for each rate. When an increase in stated death benefit is requested, Company conducts underwriting before approving the increase (except as noted below) 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. For the purposes of determining the risk amount associated with a stated death benefit, Security Life will attribute the account value solely to the initial stated death benefit unless the account value exceeds the initial stated death benefit. If the account value exceeds the initial stated death benefit, the excess will be considered attributable to the increases in stated death benefit in the order of the increases. If there is a decrease in stated death benefit after an increase, a 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. C. Application and Payment Processing To purchase a policy, an application must be completed and submitted through an authorized Security Life agent. The initial premium payment must be at least equal to the scheduled premiums from the policy date through the investment date. The Policy Date is used to determine the monthly processing date, coverage effective date and policy anniversaries. The policy coverage is effective on the policy date. 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 allocates funds to the Policy. It is the next valuation date following the date that we have received the initial premium, approved the policy for issue and have received all issue requirements. It generally is the same as the policy date. Estate Designer February 28, 2000 4 As provided for under state insurance law, the owner, to preserve insurance age, may be permitted to backdate the policy. In no case may the policy date be more than six months prior to the date the application was completed. Charges for the monthly deductions for the backdated period are deducted on the policy date. 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. 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 the home office. If an additional premium payment is rejected, Security Life will return the premium payment promptly, without adjustment. The policy date is the date from which policy months, years, and anniversaries are measured. A policy month is a one-month period beginning with a monthly date and ending with the day immediately preceding the next following monthly processing date. The monthly processing date is the same day as the policy date for each succeeding month. The monthly deduction is deducted on each monthly processing date. A policy year is a period of twelve months commencing with the policy date and ending with the day immediately preceding the next annual date. The annual date is the same day in each policy year as the policy date. The issue date, if the same as the policy date, is the date from which the suicide and contestable periods start. It is shown in the policy. D. Allocation of Net Premiums On the investment date, the account value is equal to the initial net premium credited (initial premium payment less the premium expense charges), less 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 variable account, the guaranteed interest division, and the loan account. The account value will vary to reflect the performance of the subdivisions to which amounts have been allocated, interest credited on amounts allocated to the guaranteed interest division, interest credited on amounts in the loan account, charges, transfers, partial cash surrenders, loans and loan repayments. The net account value is account value minus outstanding policy debt. Cash surrender value is account value plus the applicable refund of sales charge. Net cash surrender value is the cash surrender value minus outstanding policy debt. When applying for a policy, the owner selects a plan for paying level premium payments at specified intervals, e.g., quarterly, semiannually or annually, until the maturity date. If the owner elects, Security Life will arrange for payment of planned period premiums on a monthly basis under a pre-authorized bank draft. The owner is not required to pay premium payments in accordance with these plans; rather, the owner can pay more or less than planned or skip a Estate Designer February 28, 2000 5 planned periodic premium entirely. Currently, there is no minimum amount for each premium. Security Life may establish a minimum amount 90 days after Security Life sends the owner a written notice of such increase. Subject to certain limits (described below), the owner can change the amount and frequency of planned periodic premiums whenever the owner wishes by sending notice to the home office. However, Security Life reserves the right to limit the amount of a premium payment or the total premium payments paid. In the application, the owner specifies the percentage of net premium to be allocated to each variable investment option and to the guaranteed interest division. Net premiums will generally be invested on the valuation date that Security Life receives them and in accordance with the allocations specified in the most recent instructions received from the owner. State guidelines regarding free look periods vary. 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 should the owner exercise his/her free look option he/she is entitled to receive the value of the fund allocations plus the policy charges previously deducted. Amounts you designate for the guaranteed interest division will be invested into that division on the investment date. If the owner's state requires return of premium during the free look period, amounts designated for the variable division are initially invested into the Fidelity VIP Money Market Portfolio. Later these amounts are transferred from the Money Market Portfolio to the selected variable investment options, at the earlier of: 1) five days after we mailed your policy and your state free look period has ended; or 2) you have actually received your policy, we have received your delivery receipt and your state free look period has ended. If the owner's state provides for return of account value during the free look period or no free look period, amounts designated for the variable division are invested directly into the selected variable investment options. The net premium allocation percentages specified in the application will apply to subsequent premium payments until the owner instructs otherwise. The minimum allocation percentage that may be specified for investment option, including the guaranteed account is 1%, and all allocation percentages must be whole numbers. The sum of allocations must equal 100%. Security Life reserves the right to limit the number of investment options (18) to which account value may be allocated. An owner can change the allocation percentages at any time, by sending notice to the home office or if telephone privileges are in effect, the request can be received by phone. The change will apply to all premium payments received with or after receipt of the owner's notice. E. 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. Estate Designer February 28, 2000 6 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 owner may specify that a specific unscheduled payment is to be applied as a repayment of policy debt. The payment of premiums may cause a policy to be a Modified Endowment Contract under the Internal Revenue Code. If acceptance of a premium paid would, in Security Life's view, cause the policy to become a modified endowment contract, then to the extent feasible Security Life will not accept that portion of the premium that would cause the policy to become a modified endowment contract unless the owner confirms in writing that it is his/her intent to convert the policy to a modified endowment contract. Security Life may return that portion of the payment pending receipt of instructions from the owner. F. Policy Termination and Grace Period The policy terminates at the earliest of the end of the grace period, the surrender of the policy by the owner or the fulfillment of Security Life's obligations under the policy (i.e., payment of the death benefit proceeds). If the cash surrender value on a monthly processing date is less than the amount of the monthly deduction to be deducted and the special continuation period is not in effect, the policy will be in default. In addition, if on a monthly processing date the cash value less policy debt exceeds the amount of the monthly deduction due for the following policy month, the policy will be in default whether or not the special continuation period is in effect. An owner, and any assignee of record, will be sent notice of the default. The special continuation period is the first five policy years. If the special continuation period is in effect, Security Life guarantees that the client's policy will not lapse, regardless of its net cash surrender value, if on a monthly processing date the sum of all premiums received minus partial withdrawals and loans taken is greater than or equal to the sum of minimum monthly premiums from the inception of the policy to the current date. At the end of the special continuation period the client must pay enough premium to bring the net cash surrender value to zero plus the amount needed to pay the following two months' monthly deductions. If sufficient payment is not made, the policy will lapse. Estate Designer February 28, 2000 7 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 a period of two additional months or a sufficient amount to avoid termination of the policy due to excessive loans. Security Life will send notice of the amount required to be paid during the grace period ("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. An owner's policy will remain in effect during the grace period. If the second insured person should die during the grace period, the death benefit proceeds will still be payable to the beneficiary, although the amount paid will reflect a reduction for the monthly deductions due on or before the date of the insured's death and for outstanding policy debt. If the grace period premium payment is not paid before the grace period ends, the policy will lapse. It will have no value and no benefits will be payable. G. 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. H. Repayment of a Loan An owner may repay all or part of his/her policy debt at any time while at least one insured person is living and the policy is in force. Loan repayments must be sent to the home office and will be credited as of the date received. The owner may give Security Life notice that a specific unscheduled payment made while a loan is outstanding is to be applied as a loan repayment. When a loan repayment is made, account value in the loan division, in an amount equivalent to the repayment, is transferred from the loan division to the investment options in accordance with the owner's current net premium allocation instructions. I. Policy Riders Supplemental or rider benefits may be available to be added to the policy. Monthly charges for these benefits or riders, if any, will be deducted from the account value as part of the monthly deduction. The following rider benefits may be available: Adjustable Term Insurance Rider and Single Life Term Rider. Additional rules and limits apply to these supplemental or rider benefits, and are set forth in the applicable endorsement or rider. II. TRANSFERS AMONG INVESTMENT DIVISIONS Several investment options under the Separate Account are available for allocation of Net Premiums paid under the policy, subject to certain limitations set forth in the policy. Each Estate Designer February 28, 2000 8 investment option invests in shares or units of an underlying portfolio, Available investment options of the Separate Account invest in portfolios of AIM Variable Insurance Funds, Inc., The Alger American Fund, Fidelity Variable Insurance Products Fund and Variable Insurance Products Fund II, INVESCO Variable Investment Funds, Inc., Neuberger Berman Advisors Management Trust and Van Eck Worldwide Insurance Trust. All Funds are registered under the Investment Company Act of 1940 as an open-end management investment company. Additional funds may be 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 investment options investing in one portfolio to other investment options, including the guaranteed interest division. An amount may be transferred from the guaranteed interest to the variable investment options. Subject to some restrictions, the minimum transfer amount is the lesser of $100 or the entire amount in that investment option. A transfer request that would reduce the amount in an investment option below $100 will be treated as a transfer request for the entire amount. Transfers from the guaranteed interest division are permitted only within the first 30 days of a policy year. Transfer requests received within 30 days prior to a policy anniversary will be processed on the policy anniversary. Such transfers are limited in amount to the greatest of: 25% of the balance in the guaranteed interest division on the policy anniversary; the total withdrawn in the prior policy year; or $100. With the exception of the right to exchange (described below), Security Life reserves the right to limit the number or frequency of transfers permitted in the future. Security Life will make the transfer as of the end of the valuation period during which such transfer is received by Security Life. Currently, there is a limit (12) on the number of free transfers that can be made between investment options in a policy year. Currently, Security Life assesses an excess transfer charge of $25 for each transfer during a policy year in excess of the first twelve transfers. The excess transfer charge will be deducted from the investment option from which the requested transfer is being made, on a pro-rata basis. Telephone transfers will be accepted by telephone, provided the appropriate election has been provided to Security Life. Security Life reserves the right to suspend telephone transfer privileges at any time, for any reason, if Security Life deems such suspension to be in the best interests of owners. During the first twenty-four policy months following the policy date, and within sixty days of the later of notification of a change in the investment policy of the separate account or the effective date of such change, the owner may exercise a one-time Right to Exchange the policy by requesting that all of the variable account value be transferred to the guaranteed interest division. Exercise of the Right to Exchange is not subject to the excess transfer charge. Following the exercise of the Right to Exchange, net premiums may not be allocated to, 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 a Dollar Cost Averaging Plan or Auto Rebalancing Plan elected by the owner as described in the current prospectus for the policies. Estate Designer February 28, 2000 9 III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS A. Surrender for Cash Surrender Value An owner may surrender the policy at any time for its net 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 later be reinstated. Security Life will make the payment out of its general account and, at the same time, transfer assets from the Separate Account in an amount equal to the sum of account value (applicable to the policy) held in each variable investment option. B. Death Claims The death benefit proceeds are equal to the sum of the base death benefit for each coverage segment under the death benefit option selected, calculated on the date of the second insured's death, plus supplemental or rider benefits, minus outstanding policy debt including accrued but unpaid interest, minus unpaid monthly deductions incurred prior to the date of death. If an insured's age or sex has been misstated in the application for the policy or in an application for supplemental or rider benefits, and if the misstatement becomes known after the death of the second insured person, then the death benefit under the policy or such supplemental or rider benefits will be that which the cost of insurance charge which was deducted from the account value on the last monthly processing date prior to the death of the second insured would have purchased for the correct sex and age. Security Life will pay interest at the rate declared by us or at a higher rate required by law. Security Life will usually pay the death benefit proceeds to the beneficiary within seven days after receipt at its Home Office of due proof of death of the second insured and all other requirements necessary to make payment. If the payment of the death benefit of a policy is contested, payment of proceeds may be delayed. The death benefit payable depends on the death benefit option in effect on the date of death. Subject to certain conditions, owners may change the death benefit option. Under Option 1, the base death benefit is the greater of the specified amount or the applicable percentage of account value on the date of the second insured's death. Under Option 2, the base death benefit is the greater of the specified amount plus the account value, or the applicable percentage of the account value on the date of the second insured's death. Under Option 3, the base death benefit is the greater of the specified amount plus the sum of all premiums received, minus partial withdrawals or the applicable percentage of the account value on the date of the second insured's death. Estate Designer February 28, 2000 10 The "Applicable Percentage" is the appropriate factor from the Definition of Life Insurance factors shown in the policy's appendix A or B. A table showing the applicable percentages for attained ages 0 to 100 is set forth in the policy. On or after one year from the policy date, the owner may change the death benefit option on the policy, by notice to Security Life, subject to the following rules. A change in the Death Benefit Option may be requested at least one day prior to a policy anniversary. After the change, the specified death benefit amount must still comply with the minimums set to issue a policy. The effective date of the change will be the next monthly processing date following the day that Security life approves the request for change. 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 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, specified death benefit amount after the change will be the specified death benefit before the change plus the account value on the effective date of the change. When a change from Option 3 to Option 1 is made, the specified death benefit after the change is effected will be the specified death benefit before the change plus the sum of premiums received, minus partial withdrawals taken as of the effective date of the change. Security Life will make payment of the death benefit proceeds from its general account and, at the same time, will transfer the account value applicable to the policy out of the separate account to the general account. C. Policy Loan After the first monthly processing date and while at least one insured is living, provided the policy is not in the grace period, the owner may borrow against the policy by submitting a request to the home office. The minimum amount of a loan is $100. The maximum loan amount is the net cash surrender value less monthly deductions to the next policy anniversary or 13 monthly deductions if the loan request is received within 30 days prior to a policy anniversary. Maximum loan amounts may be different if required by state law. An outstanding loan reduces the amount available for a new loan. A loan is processed as of the date the loan notice 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 Estate Designer February 28, 2000 11 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 account will be transferred to the loan account on each policy anniversary. Such interest will be transferred from each investment option in the same proportion that account value bears to the total unloaned account value. The loan account will be credited with interest at an effective annual rate of not less than the annual loan interest rate of 3%. Loan interest accrues daily at a compound annual interest rate of 3.75%. Interest is due in arrears on each policy anniversary. Outstanding loans (including unpaid interest added to the loan) plus accrued interest not yet due equals the policy debt. D. Partial Withdrawals An owner may make partial cash surrenders (known as partial withdrawals) from the policy at any time after the first policy anniversary. An owner must submit a request to the home office. Each partial withdrawal must be at least $100. The maximum partial withdrawal is the amount which will leave $5OO 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 request, 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 pro-rata 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 amount required to issue the policy, or if the partial withdrawal would cause the policy to fail to qualify as a life insurance contract under applicable tax laws, as interpreted by Security Life. Partial withdrawals will be processed as of the valuation date the request is received by Security Life, and generally will be paid within seven calendar days. E. Monthly Charges On each monthly processing date, Security Life will deduct from the account value the monthly deductions due, commencing as of the policy date. An owner's policy date is the date used to determine the applicable monthly processing date. The monthly deduction consists of (1) cost of insurance charges, (2) the monthly administrative charge, and (3) charges for supplemental or rider benefits. The monthly deduction is deducted from the investment options, including Estate Designer February 28, 2000 12 the guaranteed interest division pro rata based on the account value in each, unless the owner has selected a designated deduction investment option for the policy. F. Continuation of Coverage The maturity date is generally the insured's 100th birthday, and is shown in the policy. At the policy's maturity date, the owner may surrender the policy for its net cash surrender value. Or, he/she may allow insurance coverage to continue under the continuation of coverage feature. if the policy is in effect and surrendered, the target death benefit, which includes term rider coverage, becomes the specified death benefit amount. All riders are terminated. Policies with death benefit options 2 or 3 become policies with death benefit option 1. A one-time fee of $400 is deducted to cover all future costs of the policy and the account value is transferred into the Guaranteed Interest Division. No further premium payments can be made, however, loan and interest payments are accepted. All variable investment features terminate. Loans and partial withdrawals may be taken. The policy will continue until the death of the second insured person so long as it does not lapse. G. Settlement Options During the insured's lifetime, the owner may elect that the Beneficiary receive the death proceeds other than in one sum. If this election has not been made, the Beneficiary may do so within 60 days after the second insured person's death. The owner may also elect to take the net cash surrender value under one of these options. Option I: Payouts for a Designated Period: Payouts will be made in 1, 2, 4 or 12 installments per year as elected for a designated period, which may be 5 to 30 years. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 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 available only for ages shown in this Table. Option III: Hold at Interest: Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4 or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. Estate Designer February 28, 2000 13 Option IV: Payouts of a Designated Amount: Payouts will be made until proceeds, together with interest, which will be at the rate declared by us or at any higher rate required by law, are exhausted. Payouts will be made in 1, 2, 4, or 12 equal installments per year, as elected. Option V: Other: The Owner may ask us to apply the money under any other option that we make available at the time the benefit is paid. Payments under these options are not affected by the investment experience of any Division of our Variable Account. Instead, interest accrues pursuant to the options chosen. Payment options will also be subject to our rules at the time of selection. These alternate payment options are only available if the proceeds applied are $2000 or more and a periodic payment will be at least $20. The Beneficiary or any other person who is entitled to receive payment may name a successor to receive any amount that we would otherwise pay to that person's estate if that person died. The person who is entitled to receive payment may change the successor at any time. We must approve any 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. Estate Designer February 28, 2000 14 -----END PRIVACY-ENHANCED MESSAGE-----