S-6/A 1 si_121901.htm STRATEGIC INVESTOR VUL Strategic Investor VUL December 19, 2001

As filed with the Securities and Exchange Commission on December 19, 2001

Registration No. 333-73464

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

Pre-effective Amendment No. 1
_________________
SECURITY LIFE SEPARATE ACCOUNT L1
(Exact Name of Trust)

SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)

 

J. NEIL MCMURDIE, ESQ.
Security Life of Denver Insurance Company
1290 Broadway
Denver, Colorado 80203-5699
(303) 860-2127
 
(Name and Address of Agent for Service)

____________________________

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.

Title of securities being registered: Strategic Investor variable life insurance policies.

SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-73464)

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 Values in the Variable Investment Option; Charges and Deductions; Surrender; Partial Withdrawals; Guaranteed Interest Division; Transfer of Account Value; Lapse; Reinstatement; Premium Payments
 
10(f) Voting Privileges; Right to Change Operations
 
10(g), (h) Right to Change Operations
 
10(i) Tax Considerations; Detailed Information about the Policy; General Policy Provisions; Guaranteed Interest Division
 
11, 12 Security Life Separate Account L1
 
13 Policy Summary; Charges and Deductions; Group, Sponsored or Wrap Fee Arrangements, or Corporate Purchasers
 
14, 15 Policy Summary; Free Look Period; General Policy Provisions; Applying for a Policy
 
16 Premium Payments; Allocation of Net Premium; How We Calculate Accumulation Unit Values
 
17 Premium Payments Affect Your Coverage; Surrender; Partial Withdrawals
 
18 Policy Summary; Tax Considerations; Detailed Information about the Policy; Security Life Separate Account L1
 
19 Reports to Owners; Notification and Claims Procedures; Performance Information (Appendix C)
 
20 See 10(g) & 10(a)
 
21 Policy Loans
 
22 Policy Summary; Premium Payments; Grace Period; Security Life Separate Account L1; Detailed Information about the 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
 
37 Inapplicable
 
38, 39, 40, 41(a) General Policy Provisions; Distribution of the Policies; Security Life of Denver Insurance Company
 
41(b), 41(c), 42, 43 Inapplicable
 
44 Determining Values in the Variable Investment Option; How We Calculate Accumulation Unit Values
 
45 Inapplicable
 
46 Partial Withdrawals; Detailed Information about the Policy
 
47, 48, 49, 50 Inapplicable
 
51 Detailed Information about the Policy
 
52 Determining Values in the Variable Investment Option; Right to Change Operations
 
53(a) Tax Considerations
 
53(b), 54, 55 Inapplicable
 
56, 57, 58 Inapplicable
 
59 Financial Statements

 

 

 

STRATEGIC INVESTOR VARIABLE UNIVERSAL LIFE
A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
issued by

Security Life of Denver Insurance Company
and
Security Life Separate Account L1

Consider carefully the policy charges and deductions beginning on page 45 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 and our affiliates offer other products to insure people which may or may not better match your needs.

Replacing your existing life insurance policy(ies) with this policy may not be beneficial to you. Your existing policy may be subject to fees or penalties upon surrender or cancellation.

Your Policy

  • is a flexible premium variable universal life insurance policy
  • is issued by Security Life of Denver Insurance Company
  • is designed primarily for use on a individual life basis but is also available on a multi-life basis when the insured people share a common employment or business relationship.
  • is returnable by you during the free look period if you are not satisfied.

Your Premium Payments

  • are flexible, so the premium amount and frequency may vary
  • are allocated to variable investment options and the guaranteed interest division, based on your instructions
  • are subject to specified deductions.

Your Account Value

  • is the sum of your holdings in the variable investment options, the guaranteed interest division and the loan division
  • has no guaranteed minimum value under the variable investment options. The value varies with the value of the underlying investment portfolio
  • has a minimum guaranteed rate of return for amounts in the guaranteed interest division
  • is subject to specified expenses and charges.

Death Proceeds

  • are paid if the policy is in force when the insured person dies
  • are equal to the death benefit minus an outstanding policy loan, accrued loan interest and unpaid charges incurred before the insured person dies
  • are calculated under your choice of options:
    * Option 1 - a stated death benefit;
    * Option 2 - a stated death benefit plus your account value;
    * Option 3 - a stated death benefit plus the sum of premium payments we receive minus partial withdrawals you have taken
  • are generally not subject to federal income tax if your policy continues to meet the federal income tax definition of life insurance.

Neither the Securities and Exchange Commission ("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.

<R>Date of Prospectus December 26, 2001</R>

 

 

 

ISSUED BY: Security Life of Denver
Insurance Company
ING Security Life Center
1290 Broadway
Denver, CO 80203-5699
(800) 525-9852		 UNDERWRITTEN BY: ING America Equities, Inc.
1290 Broadway
Denver, CO 80203-5699
(303) 860-2000

THROUGH ITS: Security Life Separate Account L1

ADMINISTERED BY: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362

"ING Security Life," "we," "us," "our" and the "company" refer to Security Life of Denver Insurance Company. "You" and "your" refer to the policy owner. The owner is the individual, entity, partnership, representative or party who may exercise all rights over the policy and receive the policy benefits during the insured person's lifetime.

State variations are covered in a special policy form used in that state. This prospectus provides a general description of the policy. Your actual policy and any riders and endorsements are the controlling documents. If you would like to review a copy of the policy and any riders and endorsements, contact our customer service center or your agent/registered representative.

 

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TABLE OF CONTENTS

<R>POLICY SUMMARY4
     Your Policy 4
Free Look Period 4
Premium Payments 4
Charges and Deductions 4
Guaranteed Interest Division 6
Variable Investment Options 6
Policy Values 9
Transfer of Account Value 9
Special Policy Features 9
Policy Modification, Termination and Continuation Features 10
Death Benefits 10
Tax Considerations 10
 
INFORMATION ABOUT ING SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS13
Security Life of Denver Insurance Company 13
Security Life Separate Account L1 13
Guaranteed Interest Division 19
 
DETAILED INFORMATION ABOUT THE POLICY20
Applying for a Policy 20
Temporary Insurance 20
Policy Issuance 21
Premium Payments 21
Premium Payments Affect Your Coverage 23
Death Benefits 23
Riders 28
Special Features 30
Refund of Sales Charges 32
Policy Values 32
Transfer of Account Value 33
Dollar Cost Averaging 34
Automatic Rebalancing 35
Policy Loans 35
Lapse 38
Reinstatement 38
Surrender 39
General Policy Provisions 39
Free Look Period 39
Your Policy 39
Guaranteed Issue 39
Age 40
Ownership 40
Beneficiaries 40
Collateral Assignment 40
Incontestability 40
Misstatements of Age or Gender 40
Suicide 41
Transaction Processing 41
Notification and Claims Procedures 41
Telephone Privileges 42
Non-participation 42
Distribution of the Policies 42
Advertising Practices and Sales Literature43
Settlement Provisions 43
Administrative Information About the Policy43
 
CHARGES AND DEDUCTIONS 45
Deductions from Premium 45
Monthly Deductions from Account Value 46
Policy Transaction Fees 48
Group, Sponsored or Wrap Fee Arrangements, or Corporate Purchasers 48
 
TAX CONSIDERATIONS 49
Tax Status of the Policy 49
Diversification and Investor Control Requirements 49
Tax Treatment of Policy Death Benefits 50
Modified Endowment Contracts 50
Multiple Policies 50
Distributions Other than Death Benefits 50
Investment in the Policy 51
Policy Loans 51
Accelerated Death Benefit Rider 52
Continuation of Policy Beyond Age 100 52
Section 1035 Exchanges 52
Tax-exempt Policy Owners 52
Possible Tax Law Changes 52
Changes to Comply with the Law 52
Other 52
 
ADDITIONAL INFORMATION 54
Directors and Officers 54
Regulation 55
Legal Matters 55
Legal Proceedings 55
Experts 55
Registration Statement 55
 
FINANCIAL STATEMENTS 56
 
APPENDIX A 232
 
APPENDIX A - Enhanced 233
 
APPENDIX B 234
 
APPENDIX B - Enhanced 235
 
APPENDIX C 236</R>

 

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POLICY SUMMARY

This summary highlights some important points about your policy. The policy is more fully described in the other sections of this prospectus which should be read carefully before you purchase the policy.

Your Policy

Your policy provides life insurance protection on the insured person. The policy includes the basic policy, applications and riders or endorsements. As long as the policy remains in force, we pay a death benefit at the death of the insured person. While your policy is in force, you may access 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 insured person's 100th birthday, if the insured person is still alive, you may surrender your policy or it will continue under the continuation of coverage provisions. See Continuation of Coverage, page 30.

We designed the Strategic Investor policy primarily for use on an individual-life basis but it is also available on a multi-life basis when the insured people share a common employment or business relationship. The policy may be owned individually or by a corporation, trust, association or similar entity. The policy may be used for such purposes as informally funding non-qualified executive deferred compensation, salary continuation plans, retiree medical benefits or other purposes.

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.

We pay compensation to firms for sales of this policy. See Distribution of the Policies, page 42.

Free Look Period

Within the time limits specified by law, you have the right to examine your policy and return it for a refund if you are not satisfied for any reason. Generally, the refund will equal all premium payments we have received or the account value, depending on state law. The policy is then void. See Free Look Period, page 39.

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:

  • for us to issue your policy;
  • sufficient to keep your policy in force; and
  • as necessary to continue certain benefits.

Depending on the amount of premium you choose to pay, it may not be enough to keep your policy or certain riders in force. See Premium Payments Affect Your Coverage, page 23.

Allocation of Net Premium

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 Premium, page 22.

Charges and Deductions

All charges presented here are guaranteed unless stated otherwise.

 

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Charges

Other Than Investment Portfolio Annual Expenses
(See Charges and Deductions, page 45)

Premium Deductions -- Maximum amount deducted when each premium is received.

Charge Amount Deducted
Tax Charges
  • 2.5% for state and local taxes;
  • 1.5% for estimated federal income tax treatment of deferred acquisition costs.
Sales Charge
  • 11% of premium up to policy or segment target premium in policy or segment years 1-10.
  • There is no sales charge on premium above the policy or segment target premium, or on any premium after policy or segment year 10.
Monthly Policy Charges -- Maximum amount deducted each month from account value.
Charge Amount Deducted
Mortality and Expense Risk Charge Account Value 1st Policy Year Policy Years
2 - 10		 Policy Years 11+
Less than $25,000 .0625%
(0.75% annually)		 .0625%
(0.75% annually)		 .0250%
(0.30% annually)
$25,000 to $250,000 .0625%
(0.75% annually)		 .0583%
(0.6996% annually)		 .0167%
(0.2004% annually)
Greater than $250,000 .0625%
(0.75% annually)		 .0542%
(0.6504% annually)		 .0083%
(0.0996% annually)
Policy Charge
  • $13 per month in policy years 1 - 3.
  • $3 per month in policy years 4+.
Administrative Charge Per $1,000 of stated death benefit (or target death benefit, if greater) up to $5 million:
Issue Ages Policy Years 1 - 5 Policy Years 6 +
0 - 14 $0.038 $0.010
15 - 50 $0.043 $0.010
51 - 62 $0.049 $0.010
63 - 73 $0.054 $0.010
74 - 77 $0.060 $0.010
78 - 85 $0.065 $0.010
86 - 89 $0.070 $0.010
90 $0.076 $0.010
Cost of Insurance Charge Varies based on current cost of insurance rates for each segment and the net amount at risk. Current cost of insurance rates depend on age, gender, policy duration, amount of target death benefit and premium class. Different cost of insurance rates will apply to each segment.
Rider Charges Varies depending on the rider benefits you choose.
Transaction Fees -- Maximum amount deducted on the transaction date.
Charge Amount Deducted
Partial Withdrawal Fee Two percent of the amount withdrawn, up to $25.
Excess Illustration Fee $25 per illustration after the first each policy year.

 

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Guaranteed Interest Division

The guaranteed interest division guarantees principal and is part of our general account. Amounts you direct into the guaranteed interest division are credited with interest at a fixed rate. See Guaranteed Interest Division, page 19.

Variable Investment Options

The variable investment options under your policy are divisions of Security Life Separate Account L1 (the separate account), a separate account of the company. Each variable investment option invests in a corresponding mutual fund (investment portfolio). If you invest in the variable investment options, you may make or lose money depending on market conditions. You do not invest directly in or hold shares of the investment portfolios.

The variable investment options purchase shares of the investment portfolios at net asset value. This price reflects investment management fees, 12b-1 fees and other direct expenses deducted from the investment portfolio's assets as described in the following table. The fees and expenses are shown in gross amounts and net amounts after waiver or reimbursement of fees or expenses by the investment portfolio adviser.

These fees and expenses are not direct charges against a variable investment option's assets or reductions from policy values; rather, these expenses are included in computing each underlying investment portfolio's net asset value, which is the share price used to calculate the unit values of the variable investment options. For a more complete description of the investment portfolios' fees and expenses, see the prospectuses for each of the investment portfolios.

We receive 12b-1 fees from some investment portfolios. Some investment portfolio advisers and distributors (or their affiliates) may pay us compensation for servicing, distribution, administration or other expenses. The amount of compensation is usually based on the aggregate assets of the investment portfolio from policies that we issue or administer. Some advisers and distributors may pay us more or less than others. We receive compensation from AIM Advisors, Inc., Fred Alger Management Inc., Fidelity Management & Research Company, Directed Services Inc., INVESCO Funds Group Inc., Janus Capital, Neuberger Berman Management, ING Pilgrim Investments, LLC, Putnam Investment Management, LLC and Van Eck Associates Corporation.

Risks Associated with Investing in the Investment Portfolios

Each investment portfolio has its own and risks. Information about the risks associated with investing in the investment portfolios is located in their separate prospectuses. Read the investment portfolio prospectuses in conjunction with this prospectus, and retain the prospectuses for future reference. See also Investment Portfolio Objectives, page 14.

An investment portfolio available through the policy may not be the same as a retail mutual fund with a similar name. Accordingly, the management, expenses and performance of an investment portfolio is likely to differ from a similarly named retail mutual fund.

The information in the following table was provided to us by the investment portfolios and we have not independently verified this information.

 

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Investment Portfolio Annual Expenses (As a Percentage of Portfolio Average Net Assets)

<R>Investment Portfolio Investment
Management Fees		 12b-1 Fees Other Expenses Total Portfolio
Expenses
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund 0.61% N/A 0.21% 0.82%
AIM V.I. Government Securities Fund 1 0.50% N/A 0.47% 0.97%
The Alger American Fund
Alger American Growth Portfolio 0.75% 0.0% 0.04% 0.79%
Alger American Leveraged AllCap Portfolio 0.85% 0.0% 0.05% 0.90%
Alger American MidCap Growth Portfolio 0.80% 0.0% 0.04% 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.0% 0.05% 0.90%
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio - Service Class 2 0.57% 0.10% 0.09% 0.76%
VIP Overseas Portfolio - Service Class 2 0.72% 0.10% 0.17% 0.99%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio - Service Class 0.53% 0.10% 0.09% 0.72%
VIP II Index 500 Portfolio - Initial Class 3 0.24% N/A 0.09% 0.33%
The GCG Trust 4
Fully Managed Portfolio 0.94% N/A 0.01% 0.95%
Liquid Asset Portfolio 0.54% N/A 0.01% 0.55%
Mid-Cap Growth Portfolio 0.88% N/A 0.01% 0.89%
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Equity Income Fund 5 0.75% N/A 0.33% 1.08%
INVESCO VIF-High Yield Fund 5 0.60% N/A 0.45% 1.05%
INVESCO VIF-Small Company Growth Fund 5, 6 0.75% N/A 0.68% 1.43%
INVESCO VIF-Total Return Fund 5, 7 0.75% N/A 0.69% 1.44%
INVESCO VIF-Utilities Fund 5, 8 0.60% N/A 0.81% 1.41%
Janus Aspen Series
Janus Aspen Aggressive Growth - Service Shares 9 0.65% 0.25% 0.02% 0.92%
Janus Aspen Growth - Service Shares 9 0.65% 0.25% 0.02% 0.92%
Janus Aspen International Growth - Service Shares 9 0.65% 0.25% 0.06% 0.96%
Janus Aspen Worldwide Growth - Service Shares 9 0.65% 0.25% 0.05% 0.95%
Neuberger Berman Advisers Management Trust
Growth Portfolio 10 0.82% N/A 0.08% 0.90%
Limited Maturity Bond Portfolio 10 0.65% N/A 0.11% 0.76%
Partners Portfolio 10 0.82% N/A 0.10% 0.92%
Pilgrim Variable Products Trust 11
Growth Opportunities Portfolio - Class R Shares 12 0.75% N/A 1.44% 2.19%
MagnaCap Portfolio - Class R Shares 12 0.75% N/A 7.15% 7.90%
MidCap Opportunities Portfolio - Class R Shares 12 0.75% N/A 5.01% 5.76%
SmallCap Opportunities Portfolio - Class R Shares 12 0.75% N/A 0.23% 0.98%
Putnam Variable Trust
Putnam VT Growth and Income Fund - Class IB Shares13 0.46% 0.25% 0.04% 0.75%
Putnam VT New Opportunities Fund - Class IB Shares13 0.52% 0.25% 0.05% 0.82%
Putnam VT Small Cap Value Fund - Class IB Shares13 0.80% 0.25% 0.30% 1.35%
Putnam VT Voyager Fund - Class IB Shares13 0.51% 0.25% 0.05% 0.81%
Van Eck Worldwide Insurance Trust 14
Worldwide Bond Fund 15 1.00% N/A 0.21% 1.21%
Worldwide Emerging Markets Fund 16 1.00% N/A 0.33% 1.33%
Worldwide Hard Assets Fund 17 1.00% N/A 0.16% 1.16%
Worldwide Real Estate Fund 18 1.00% N/A 1.27% 2.27%

 

Strategic Investor   			7

 

____________________________

1 Included in AIM V.I. Government Securities Fund's "Other Expenses" is 0.12% of interest expense.

2 Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses, and/or because through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's custodian expenses. See the accompanying fund prospectus for details.

3 The fund's manager has voluntarily agreed to reimburse the class's expenses if they exceed a certain level. Including this reimbursement, the annual class operating expenses were 0.28%. This arrangement may be discontinued by the fund's manager at any time.

4 The GCG Trust pays Directed Services, Inc. ("DSI") a monthly management fee for their services based on the annual rates of the average daily net assets of the investment portfolios. DSI (and not the GCG Trust) in turn pays each portfolio manager a monthly fee for managing the assets of the portfolios.

5 The Portfolios' "Other Expenses" and "Total Portfolio Expenses" were lower than the figure shown because their custodian fees were reduced under expense offset arrangements.

6 INVESCO assumed a portion of VIF-Small Company Growth Fund's "Other Expenses" and "Total Portfolio Expenses." After this, these expenses are 0.62% and 1.37%, respectively.

7 INVESCO assumed a portion of VIF-Total Return Fund's "Other Expenses" and "Total Portfolio Expenses." After this, these expenses are 0.46% and 1.21%, respectively.

8 INVESCO assumed a portion of VIF-Utilities Fund's "Other Expenses" and "Total Portfolio Expenses." After this, these expenses are 0.62% and 1.22%, respectively.

9 Janus Aspen Service Shares has a distribution plan or "Rule 12b-1 plan" which is described in the funds' prospectuses. Expenses are based on expenses for the fiscal year that ended on December 31, 2000, restated to reflect a reduction in the management fee for those portfolios. All expenses are shown without the effect of any expense offset arrangements.

10 Neuberger Berman Management Inc. ("NBMI") has undertaken through April 30, 2002 to reimburse certain operating expenses, excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1% of the Portfolios' average daily net asset value.

11 The table shows the estimated operating expenses for each Portfolio as a ratio of expenses to average daily net assets. These estimates are based on each Portfolio's actual operating expenses for its most recently completed fiscal year and do not include fee waivers to which the Adviser has agreed for each Portfolio.

12 ING Pilgrim Investments has entered into written expense limitation agreements with each Portfolio which it advises under which it will limit expenses of the Portfolio, excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments within three years. The expense limit for each such Fund is 0.90%. For each Portfolio, the expense limits will continue through at least December 31, 2001.

13 Restated to reflect an increase in 12b-1 fees currently payable to Putnam Investment Management, LLC ("Putnam Management"). The Trustees currently limit payments on class IB shares to 0.25% of average net assets. Actual 12b-1 fees during the most recent fiscal year were 0.15% of average net assets.

14 Operating Expenses for the Worldwide Hard Assets Fund, the Worldwide Emerging Markets Fund and the Worldwide Real Estate Fund were reduced by a brokerage agreement where the Funds direct certain portfolio trades to a broker that, in return, pays a portion of the Funds' operating expenses.

15 The Adviser may sometimes waive fees and/or reimburse certain expenses of the fund.

16 The Adviser may sometimes waive fees and/or reimburse certain expenses of the fund. After Advisory fee waiver and expense reimbursements with brokers, the total net fund expenses were 1.31%. These fee waivers are not contractual and may be discontinued at the discretion of the Adviser.

17 The Adviser may sometimes waive fees and/or reimburse certain expenses of the fund, but is not obligated to do so. After expense reimbursement agreement with brokers, the total net fund expenses were 1.14%.

18The Adviser may sometimes waive fees and/or reimburse certain expenses of the fund. After Advisory fee waiver and expense reimbursements with brokers, the total net fund expenses were 1.48%. These fee waivers are not contractual and may be discontinued at the discretion of the Adviser. </R>

 

Strategic Investor   			8

 

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 32, and Partial Withdrawals, page 36.

Your Account Value in the Variable Investment Options

Accumulation units are the way we measure value in the variable investment options. Accumulation unit value is the value of one unit of a variable investment option on a valuation date. Each variable investment option has a different accumulation unit value. See Determining Values in the Variable Investment Options, page 32.

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 the expenses of the investment portfolio. See Determining Values in the Variable Investment Options, page 32, and How We Calculate Accumulation Unit Values, page 33.

Transfer of Account Value

You may make an unlimited number of free transfers among the variable investment options or to the guaranteed interest division each policy year. There are restrictions on transfers from the guaranteed interest division. The minimum transfer amount is $100. See Transfer of Account Value, page 33.

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 Option, page 30.

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 28.

Dollar Cost Averaging

Dollar cost averaging is a systematic plan of transferring account values to selected variable 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 34.

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 35.

Loans

You may take loans against your policy's net account value. We charge an annual loan interest rate of 3.75% in policy years 1 - 10 and 3.15% thereafter. We credit an annual interest rate of 3.00% on amounts held in the loan division as collateral for your loan. See Policy Loans, page 35.

Policy loans reduce your policy's death benefit and may cause your policy to lapse.

Loans may have tax consequences. See Tax Considerations, page 49.

Partial Withdrawals

You may withdraw part of your net account value after your first policy anniversary. You may make twelve partial withdrawals per policy year. Partial

 

Strategic Investor   			9

 

withdrawals may reduce your policy's death benefit and will reduce your account value. We assess a fee for each withdrawal. See Partial Withdrawals, page 36.

Some policies with a high account value may qualify for a partial withdrawal before the first policy anniversary. Partial withdrawals may have tax consequences. See Partial Withdrawals, page 36, and Tax Considerations, page 49.

Refund of Sales Charges

If you surrender your policy within the first two policy years and it has not lapsed, we may refund a portion of the sales charges we previously deducted from your premium payments. See Refund of Sales Charges, page 32.

Policy Modification, Termination and Continuation Features

Right to Change Policy

For 24 months after the policy date you may change your policy to a guaranteed policy, unless state law requires differently. There is no charge for this change. See Right to Change Policy, page 30.

Surrender

You may surrender your policy for its net cash surrender value at any time before the death of the insured person. All insurance coverage ends on the date we receive your request. See Surrender, page 39.

A surrender may have tax consequences. See Tax Considerations, page 49.

Lapse

In general, insurance coverage continues as long as your net account value is enough to pay the monthly deductions. See Lapse, page 38.

Reinstatement

You may reinstate your policy and riders within five years of its lapse if you still own the policy and the insured person is still insurable. You will also need to pay the required reinstatement premium.

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 38.

Continuation of Coverage

If the policy is in force on the policy anniversary nearest the insured person's 100th birthday, the policy will continue pursuant to the terms of the policy unless you surrender it. See Continuation of Coverage, page 30.

Death Benefits

After the insured person's death, we pay death proceeds to the beneficiaries if your policy is in force. Based on the death benefit option you have chosen and whether or not you have coverage under an adjustable term insurance rider, your policy's death benefit may vary.

Generally we require a minimum total death benefit of $100,000 ($50,000 for guaranteed issue policies) to issue your policy.

We may lower this minimum for group, sponsored or wrap fee arrangements, or corporate purchasers. A separate cost of insurance applies to your base death benefit.

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 49.

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:

  • partial withdrawals
  • loans
  • surrender
  • lapse.

 

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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 50.

In recent years, Congress has adopted new rules relating to life insurance owned by businesses. A 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.

 

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How the Policy Works

 

Strategic Investor   			12

 

INFORMATION ABOUT ING SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS

Security Life of Denver Insurance Company

We are 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 2000, we had over $41.5 billion of life insurance in force. As of December 31, 2000 our total assets were over $8.8 billion and capital and surplus were over $491 million measured on a statutory basis of accounting, as prescribed or permitted by the Colorado Division of Insurance.

We are a wholly owned indirect subsidiary of ING Groep, N.V. ("ING"), a global financial institution active in the field of insurance, banking and asset management. ING ranks 10th among the top 20 global financial institutions by market capitalization and is headquartered in Amsterdam, The Netherlands.

ING companies offer a complete line of life insurance products, including:

  • annuities
  • individual life
  • group life
  • pension products
  • market life reinsurance.

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 ING Security Life and is registered as a broker-dealer with the SEC and the National Association of Securities Dealers, Inc. ("NASD"). ING America Equities, Inc., is located at 1290 Broadway, Denver, Colorado 80203-5699.

Security Life Separate Account L1

Separate Account Structure

We established separate account on November 3, 1993, under Colorado 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 ING Security Life.

The separate account is used to support our variable life insurance policies and for other purposes allowed by law and regulation. We may offer other variable life insurance policies with different benefits and charges that invest in the separate account. We do not discuss these policies in this prospectus. The separate account may invest in other securities not available for the policy described in this prospectus.

We own 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 the separate account's assets equal to its reserves and other liabilities. This means that if we ever became insolvent, the separate account assets will be used first to pay separate account policy claims. Only if separate account assets remain after these claims have been satisfied can these assets be used to pay other policy owners and creditors.

The separate account may have liabilities from assets credited to other variable life policies offered by the separate account. If the assets of the separate account are greater than required reserves and policy liabilities, we may transfer the excess to our general account.

Investment Options

Investment options include the variable and the guaranteed interest divisions, but not the loan division. The separate account has several variable investment options which invest in shares of underlying investment portfolios. The investment

 

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performance of a policy depends on the performance of the investment portfolios you choose.

Investment Portfolios

Each of the investment portfolios is a separate series of an open-end management investment company. The investment company receives investment advice from a registered investment adviser who, other than Directed Services, Inc., is not affiliated 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 of 1986, as amended ("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, but you should carefully 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.

INVESTMENT PORTFOLIO OBJECTIVES

Investment Portfolios Investment Company/ Adviser/ Manager/ Sub-Adviser Investment Objective
AIM V.I. Capital Appreciation Fund Investment Company:
AIM Variable Insurance Funds
Investment Adviser:
A I M Advisors, Inc.		 Seeks growth of capital.
AIM V.I. Government Securities Fund Investment Company:
AIM Variable Insurance Funds
Investment Adviser:
A I M Advisors, Inc.		 Seeks to achieve a high level of current income consistent with reasonable concern for safety of principal.
Alger American Growth Portfolio Investment Company:
The Alger American Fund
Investment Manager:
Fred Alger Management, Inc.		 Seeks long-term capital appreciation by focusing on growing companies that generally have broad product lines, markets, financial resources and depth of management.

 

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INVESTMENT PORTFOLIO OBJECTIVES

Investment Portfolios Investment Company/ Adviser/ Manager/ Sub-Adviser Investment Objective
Alger American Leveraged AllCap Portfolio Investment Company:
The Alger American Fund
Investment Manager:
Fred Alger Management, Inc.		 Seeks long-term capital appreciation by investing, under normal circumstances, in the equity securities of companies of any size which demonstrate promising growth potential.
Alger American MidCap Growth Portfolio Investment Company:
The Alger American Fund
Investment Manager:
Fred Alger Management, Inc.		 Seeks long-term capital appreciation by focusing on midsize companies with promising growth potential.
Alger American Small Capitalization Portfolio Investment Company:
The Alger American Fund
Investment Manager:
Fred Alger Management, Inc.		 Seeks long-term capital appreciation by focusing on small, fast-growing companies that offer innovative products, services or technologies to a rapidly expanding marketplace.
VIP Growth Portfolio - Service Class Investment Company:
Fidelity Variable Insurance Products Fund
Investment Manager:
Fidelity Management & Research Company		 Seeks capital appreciation by normally investing in common stocks of companies that it believes have above-average growth potential.
VIP Overseas Portfolio - Service Class Investment Company:
Fidelity Variable Insurance Products Fund
Investment Manager:
Fidelity Management & Research Company		 Seeks long-term growth of capital by normally investing at least 65% of total assets in foreign securities.
VIP II Asset Manager Portfolio - Service Class Investment Company:
Fidelity Variable Insurance Products Fund II
Investment Manager:
Fidelity Management & Research Company		 Seeks high total return with reduced risk over the long term by allocating its assets among stocks, bonds, and short-term instruments.
VIP II Index 500 Portfolio - Initial Class Investment Company:
Fidelity Variable Insurance Products Fund II
Investment Manager:
Fidelity Management & Research Company
Sub-Advisor:
Bankers Trust Company		 Seeks investment results that correspond to the total return of common stocks publicly traded in the United States as represented by the S&P® 500.

 

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INVESTMENT PORTFOLIO OBJECTIVES

Investment Portfolios Investment Company/ Adviser/ Manager/ Sub-Adviser Investment Objective
Fully Managed Portfolio Investment Company:
The GCG Trust
Investment Manager:
Directed Services, Inc.
Portfolio Manager:
T. Rowe Price Associates, Inc.		 Seeks, over the long term, a high total investment return consistent with the preservation of capital and with prudent investment risk.
Liquid Asset Portfolio Investment Company:
The GCG Trust
Investment Manager:
Directed Services, Inc.
Portfolio Manager:
ING Investment Management, LLC		 Seeks high level of current income consistent with the preservation of capital and liquidity.
Mid-Cap Growth Portfolio Investment Company:
The GCG Trust
Investment Manager:
Directed Services, Inc.
Portfolio Manager:
Massachusetts Financial Services Company		 Seeks long-term growth of capital by normally investing at least 65% of its total assets in common stocks and related securities of companies with medium market capitalization which the portfolio manager believes have above-average growth potential.
INVESCO VIF-Equity Income Fund Investment Company:
INVESCO Variable Investment Funds, Inc.
Investment Adviser:
INVESCO Funds Group, Inc.		 Seeks high total return through both growth and current income by investing in a mix of equity securities and debt securities, as well as options and other investments whose value is based on the values of these securities.
INVESCO VIF-High Yield Fund Investment Company:
INVESCO Variable Investment Funds, Inc.
Investment Adviser:
INVESCO Funds Group, Inc.		 Seeks to provide a high level of current income through investments in debt securities and preferred stocks. It also seeks capital appreciation.
INVESCO VIF-Small Company Growth Fund Investment Company:
INVESCO Variable Investment Funds, Inc.
Investment Adviser:
INVESCO Funds Group, Inc.		 Seeks to make an investment grow by investing primarily in equity securities that it believes will rise in price faster than other securities, as well as in options and other investments whose values are based upon the values of equity securities.
INVESCO VIF-Total Return Fund Investment Company:
INVESCO Variable Investment Funds, Inc.
Investment Adviser:
INVESCO Funds Group, Inc.		 Seeks to provide high total return through both growth and current income by investing in a mix of equity securities and debt securities, as well as in options and other investments whose values are based upon the values of these securities.

 

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INVESTMENT PORTFOLIO OBJECTIVES

Investment Portfolios Investment Company/ Adviser/ Manager/ Sub-Adviser Investment Objective
INVESCO VIF-Utilities Fund Investment Company:
INVESCO Variable Investment Funds, Inc.
Investment Adviser:
INVESCO Funds Group, Inc. 		Seeks investment growth and current income by investing primarily in equity securities of companies that produce, generate, transmit or distribute natural gas or electricity or that provide telecommunications services.
Janus Aspen Aggressive Growth Portfolio - Service Shares Investment Company:
Janus Aspen Series
Investment Adviser:
Janus Capital		 Seeks long-term growth of capital by investing primarily in common stocks selected for their growth potential, and normally investing at least 50% of its equity assets in medium-sized companies which fall within the range of companies in the S&P® MidCap 400 Index.
Janus Aspen Growth Portfolio - Service Shares Investment Company:
Janus Aspen Series
Investment Adviser:
Janus Capital		 Seeks long-term growth of capital in a manner consistent with preservation of capital by investing primarily in common stocks selected for their growth potential. Although the portfolio can invest in companies of any size, it generally invests in larger, more established companies.
Janus Aspen International Growth Portfolio - Service Shares Investment Company:
Janus Aspen Series
Investment Adviser:
Janus Capital		 Seeks long-term growth of capital by normally investing at least 65% of its total assets in securities of issuers from at least five different countries, excluding the United States.
Janus Aspen Worldwide Growth Portfolio - Service Shares Investment Company:
Janus Aspen Series
Investment Adviser:
Janus Capital		 Seeks long-term growth of capital in a manner consistent with preservation of capital by investing primarily in common stocks of companies of any size throughout the world.
Growth Portfolio Investment Company:
Neuberger Berman Advisers Management Trust
Investment Adviser:
Neuberger Berman Management Inc.
Sub-Adviser:
Neuberger Berman, LLC		 Seeks growth of capital by investing mainly in common stock mid-capitalization companies.
Limited Maturity Bond Portfolio Investment Company:
Neuberger Berman Advisers Management Trust
Investment Adviser:
Neuberger Berman Management Inc.
Sub-Adviser:
Neuberger Berman, LLC		 Seeks the highest available current income consistent with liquidity and low risk to principal by investing mainly in investment-grade bonds and other debt securities from U.S. Government and corporate issuers. Total return is a secondary goal.

 

Strategic Investor   			17

 

INVESTMENT PORTFOLIO OBJECTIVES

Investment Portfolios Investment Company/ Adviser/ Manager/ Sub-Adviser Investment Objective
Partners Portfolio Investment Company:
Neuberger Berman Advisers Management Trust
Investment Adviser:
Neuberger Berman Management Inc.
Sub-Adviser:
Neuberger Berman, LLC		 Seeks growth of capital by investing mainly in common stock of mid- to large-capitalization companies.
Pilgrim VP Growth Opportunities Portfolio - Class R Shares Investment Company:
Pilgrim Variable Products Trust
Investment Adviser:
ING Pilgrim Investments, LLC		 Seeks long-term growth of capital.
Pilgrim VP MagnaCap Portfolio - Class R Shares Investment Company:
Pilgrim Variable Products Trust
Investment Adviser:
ING Pilgrim Investments, LLC		 Seeks growth of capital with dividend income as a secondary consideration.
Pilgrim VP MidCap Opportunities Portfolio - Class R Shares Investment Company:
Pilgrim Variable Products Trust
Investment Adviser:
ING Pilgrim Investments, LLC		 Seeks long-term capital appreciation.
Pilgrim VP SmallCap Opportunities Portfolio - Class R Shares Investment Company:
Pilgrim Variable Products Trust
Investment Adviser:
ING Pilgrim Investments, LLC		 Seeks long-term capital appreciation.
Putnam VT Growth and Income Fund - Class IB Shares Investment Company:
Putnam Variable Trust
Investment Adviser:
Putnam Investment Management, LLC		 Seeks capital growth and current income by investing mainly in common stocks of U.S. companies with a focus on value stocks that offer the potential for capital growth, current income or both.
Putnam VT New Opportunities Fund - Class IB Shares Investment Company:
Putnam Variable Trust
Investment Adviser:
Putnam Investment Management, LLC		 Seeks long-term capital appreciation by investing mainly in commons stocks of U.S. companies with a focus on growth stocks within sectors of the economy believed to have high growth potential.
Putnam VT Small Cap Value Fund - Class IB Shares Investment Company:
Putnam Variable Trust
Investment Adviser:
Putnam Investment Management, LLC		 Seeks capital appreciation by investing in common stocks of U.S. companies with a focus on value stocks.

 

Strategic Investor   			18

 

INVESTMENT PORTFOLIO OBJECTIVES

Investment Portfolios Investment Company/ Adviser/ Manager/ Sub-Adviser Investment Objective
Putnam VT Voyager Fund - Class IB Shares Investment Company:
Putnam Variable Trust
Investment Adviser:
Putnam Investment Management, LLC		 Seeks to provide capital appreciation by investing mainly in stocks of U.S. companies with a focus on growth stocks.
Worldwide Bond Fund Investment Company:
Van Eck Worldwide Insurance Trust
Investment Adviser and Manager:
Van Eck Associates Corporation		 Seeks high total return--income plus capital appreciation--by investing globally, primarily in a variety of debt securities.
Worldwide Emerging Markets Fund Investment Company:
Van Eck Worldwide Insurance Trust
Investment Adviser and Manager:
Van Eck Associates Corporation		 Seeks long-term capital appreciation by investing primarily in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund Investment Company:
Van Eck Worldwide Insurance Trust
Investment Adviser and Manager:
Van Eck Associates Corporation		 Seeks long-term capital appreciation by investing primarily in "hard asset securities." Hard assets securities are stocks, bonds and other securities of companies that derive at least 50% of gross revenue or profit from exploration, development, production or distribution of precious metals, natural resources, real estate and commodities.
Worldwide Real Estate Fund Investment Company:
Van Eck Worldwide Insurance Trust
Investment Adviser and Manager:
Van Eck Associates Corporation		 Seeks to maximize return by investing in equity securities of companies that own significant real estate or that principally do business in the real estate industry.

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.

 

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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 the net premium you allocate to that division, plus amounts you transfer to it, plus interest earned, minus amounts you transfer out or withdraw. It may be reduced by deductions for charges based on your account value allocated to it.

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 3.0%. 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 general account. We bear all of the investment risk for the guaranteed interest division.

DETAILED INFORMATION ABOUT THE POLICY

This prospectus describes our standard Strategic Investor variable universal life insurance policy. There may be differences in the policy features, benefits and charges because of state requirements where we issue your policy. We describe all such differences in your policy.

If you would like to know about variations specific to your state, please ask your agent/registered representative. ING Security Life can provide him/her with the list of variations that will apply to your policy.

Applying for a Policy

You purchase a Strategic Investor variable universal life policy by submitting an application to us. The policy is issued on a guaranteed issue, fully-underwritten or simplified-underwritten basis. On the policy date, the insured person must be no less than age 15. For a guaranteed issue policy, the insured person generally can be no more than age 70. For a fully-underwritten policy, the insured person generally can be no more than age 85. For a simplified-underwritten policy, the insured person generally can be no more than age 70 and certain other conditions/restrictions may apply. The insured person is the person on whose life we issue the policy. See Age, page 40.

You may request that we back-date the policy up to six months to allow the insured person to give proof of a younger age for the purposes of your policy.

From time to time, we may accept an insured person who exceeds our normal maximum age limit. We will not unfairly discriminate in determining the maximum age at issue. All exceptions to our normal limits are dependent upon our ability to obtain acceptable reinsurance coverage for our risk with an older insured.

We and our affiliates offer other products to insure people which may or may not better match your needs.

Temporary Insurance

If you apply and qualify, we may issue temporary insurance in an amount equal to the face amount of insurance for which you applied. The maximum amount of temporary insurance for binding limited life insurance coverage is $3 million, which includes other in-force coverage you have with us.

Temporary coverage begins when all of the following events have occurred:

  • you have completed and signed our binding limited life insurance coverage form
  • we receive and accept a premium payment of at least your scheduled premium (selected on your application)
  • part I of the application is complete.

Temporary life insurance coverage ends on the earliest of:

  • the date we return your premium payments
  • five days after we mail notice of termination to the address on your application
  • the date your policy coverage starts
  • the date we refuse to issue a policy based on your application
  • 90 days after you sign our binding limited life insurance coverage form.

 

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There is no death benefit under the temporary insurance agreement if any of the following events occurs:

  • there is a material misrepresentation in your answers on the binding limited life insurance coverage form
  • there is a material misrepresentation in statements on your application
  • the person or persons intended to be insured die by suicide or self-inflicted injury
  • the bank does not honor your premium check.

Policy Issuance

Before we issue a policy, we require satisfactory evidence of insurability of the insured person and payment of your initial premium. This evidence may include completion of underwriting and issue requirements.

The policy date shown on your policy schedule determines:

  • monthly processing dates
  • policy months
  • policy years
  • policy anniversaries.

It is not affected by when you receive the policy. The policy date may be different from the date we receive your first premium payment. Generally, we charge monthly deductions from your policy date.

The policy date is determined one of three ways:

  1. the date you designate on your application, subject to our approval.
  2. the back-date of the policy to save age, subject to our approval and law.
  3. if there is no designated date or back-date, the policy date is:
  • the date all underwriting and administrative requirements have been met if we receive your initial premium before we issue your policy; or
  • the date we receive your initial premium if it is after we approve your policy for issue.

If you choose to have your policy date be earlier than the date we issue your policy (called back-dating), then the following monthly policy charges will be charged from that earlier date on your first monthly processing date:

  • mortality and expense risk charge
  • policy charge
  • administrative charge
  • cost of insurance charges
  • rider charges

If you have elected to backdate your policy which enables you to gain benefit of a lower age for the purposes of calculating the cost of insurance charges on your policy, you should understand there are some inherent costs associated with your decision to backdate. For each month that your policy is backdated, the applicable cost of insurance charges are accumulated and deducted from your initial premium payment. Thus, backdating your policy has the effect of lowering your initial net premium and thus the amount available to be allocated to the investment options. On backdated policies the accrued cost of insurance charges deducted from the initial premium result in policy values being lower than those in any policy illustrations you have received.

Definition of Life Insurance

At policy issue, you may choose one of two tests for the federal income tax definition of life insurance. You cannot change your choice later.

The tests are the cash value accumulation test and the guideline premium/cash value corridor test. If you choose the guideline premium/cash value corridor test, we may limit premium payments relative to your policy death benefit under this test. See Tax Status of the Policy, page 49.

Premium Payments

You may choose the amount and frequency of premium payments, within limits. You cannot make premium payments after the death of the insured person or after the continuation of coverage period begins. See Continuation of Coverage, page 30.

We consider payments we receive to be premium payments if you do not have an outstanding loan and your policy is not in the continuation of coverage period. After we deduct certain charges from your premium payment, we add the remaining net premium to your policy.

 

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A payment is received by us when it is received at our offices. After you have paid your initial premium, we suggest you send payments directly to the Company, rather than through your agent/registered representative, to assure the earliest crediting date.

Scheduled Premium

Your premium payments are flexible. You may select your scheduled (planned) premium (within our limits) when you apply for your policy. The scheduled premium, shown in your policy and schedule, is the amount you choose to pay over a stated time period. This amount may or may not be enough to keep your policy in force. You may receive premium reminder notices for the scheduled premium on a quarterly, semi-annual 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. Your financial institution may charge for this service. If you choose to pay your initial premium by electronic transfer, please be sure to include the appropriate information as part of your application to avoid a delay in making your coverage effective.

You can change the amount of your scheduled premium within our minimum and maximum limits at any time. If you fail to pay your scheduled premium or if you change the amount of your scheduled premium, your policy performance will be affected.

Unscheduled Premium Payments

Generally speaking, you may make unscheduled premium payments at any time, however:

  • We may limit the amount of your unscheduled premium payments that would result in an increase in the base death benefit amount required by the federal income tax law definition of life insurance. We may require satisfactory evidence that the insured person is insurable at the time that you make the unscheduled premium payment if the death benefit is increased due to your unscheduled premium payments.
  • We may require proof that the insured person is insurable if your unscheduled premium payment will cause the net amount at risk to increase.
  • 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. The "seven-pay" limit is defined by the Internal Revenue Code and actuarially determined. It varies based on the age, gender and premium class of each insured, as well as the death benefit and additional benefits or riders on the policy. It is generally the maximum possible premium that we may receive during the first seven policy years in order for the policy not to be classified as a modified endowment contract.

See Modified Endowment Contracts, page 50, and Changes to Comply with the Law, page 52.

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.

Target Premium

Target premium is not based on your scheduled premium. Target premium is actuarially determined based on the age and gender of the insured person. The target premium is used to determine your initial sales charge and the sales compensation we pay. 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 additional segments is listed in your policy schedule pages.

Allocation of Net Premium

The net premium is the balance remaining after we deduct tax and sales charges from your premium payment.

Insurance coverage does not begin until we receive your initial premium. It must be at least the sum of the scheduled premium payments due from your policy date through your investment date.

 

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The investment date is the first date we apply net premium 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 the initial net premium to your policy after all of the following conditions have been met:

  • we receive the required amount of premium
  • all issue requirements have been received by our customer service center
  • 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 return of your premium during the free look period, we initially invest amounts you have designated for the variable investment options in the variable investment option which invests in the GCG Trust Liquid Asset investment portfolio. We later transfer these amounts from this variable investment option to your selected variable investment options, based on your most recent premium allocation instructions, at the earlier of the following dates:

  • five days after the date we mailed your policy plus the length of your state free look period; or
  • the date we have received your delivery receipt plus the length of your state free look period.

If your state provides for return of account value during the free look period (or provides no free look period), we invest amounts you designated for the variable investment options directly into your selected variable investment options.

We allocate all later premium payments to your policy on the valuation date of receipt. We will use your most recent premium allocation instructions specified in percentages stated to the nearest tenth and totaling 100%. A payment is received by us when it is received at our offices. After you have paid your initial premium, we suggest you send payments directly to us, rather than through your agent/registered representative, to assure the earliest crediting date.

Premium Payments Affect Your Coverage

Your coverage lasts only as long as your net account value is enough to pay the monthly charges and your account value is more than your outstanding policy loan plus accrued loan interest. If you do not meet these conditions, your policy will enter the 61-day grace period and you must make a premium payment to avoid lapse. See Lapse, page 38, and Grace Period, page 38.

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 premium we receive is 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 50.

Death Benefits

You decide the amount of insurance you need, now and in the future. You can combine the long-term advantages of permanent life insurance (base coverage) with the flexibility and short-term advantages of term life insurance. Both permanent and term life insurance are available with one policy. 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 28.

Generally, we require a minimum total death benefit of $100,000 ($50,000 for guaranteed issue policies). Our underwriting procedures in effect at the time

 

Strategic Investor   			23

 

you apply may limit the maximum stated death benefit.

It may be to your economic advantage to include part of your insurance coverage under the adjustable term insurance rider. The adjustable term insurance rider has no cash value, though, and provides no growth potential. Both the cost of insurance under the adjustable term insurance rider and the cost of insurance for the base death benefit are deducted monthly from your account value and generally increase with the age of the insured person. Use of the adjustable term insurance rider may reduce sales compensation, but may increase the monthly cost of insurance. See Adjustable Term Insurance Rider, page 28.

Your death benefit is calculated as of the date of death of the insured person.

Death Benefit Summary

This chart assumes no death benefit option changes and that partial withdrawals are less than the premium we receive.

Option 1 Option 2 Option 3
Stated Death Benefit The sum of death benefit segments under the policy. The stated death benefit changes when there is an increase or decrease or when a policy transaction causes it to change. The sum of death benefit segments under the policy. The stated death benefit changes when there is an increase or decrease or when a policy transaction causes it to change. The sum of death benefit segments under the policy. The stated death benefit changes when there is an increase or decrease or when a policy transaction causes it to change.
Base Death Benefit The greater of:
  • the stated death benefit; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors.
 The greater of:
  • the stated death benefit plus the account value; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors.
 The greater of:
  • the stated death benefit plus the sum of all premium payments we receive minus partial withdrawals you have taken; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors.
Target Death Benefit Stated death benefit plus adjustable term insurance rider benefit, if any. Stated death benefit plus adjustable term insurance rider benefit, if any. Stated death benefit plus adjustable term insurance rider benefit, if any.

 

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Option 1 Option 2 Option 3
Total Death Benefit It is the greater of:
  • the target death benefit; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors.
 It is the greater of:
  • the target death benefit plus the account value; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors.
 It is the greater of:
  • the target death benefit plus the sum of all premium payments we receive minus partial withdrawals you have taken; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors.
Adjustable Term Insurance Rider Benefit The total death benefit minus the base death benefit provided by the policy, but not less than zero
 
<R>If the account value plus the refund of sales charges, if any, multiplied by the death benefit factor is greater than the stated death benefit, the adjustable term insurance benefit will be decreased. It will be decreased so that the sum of the base death benefit and the adjustable term insurance rider benefit is not greater than the target death benefit. If the base death benefit becomes greater than the target death benefit, then the adjustable term insurance rider benefit is zero.</R> 		The total death benefit minus the base death benefit provided by the policy, but not less than zero.
 
<R>If the account value plus the refund of sales charges, if any, multiplied by the death benefit factor is greater than the stated death benefit plus the account value, the adjustable term insurance rider benefit will be decreased. It will be decreased so that the sum of the base death benefit and the adjustable term insurance rider benefit is not greater than the target death benefit plus the account value. If the base death benefit becomes greater than the target death benefit plus the account value, then the adjustable term insurance rider benefit is zero.</R>		 The total death benefit minus the base death benefit provided by the policy, but not less than zero.
 
<R>If the account value plus the refund of sales charges, if any, multiplied by the death benefit factor is greater than the stated death benefit plus the sum of all premium payments we receive minus partial withdrawals you have taken, the adjustable term insurance rider benefit will be decreased. It will be decreased so that the sum of the base death benefit and the adjustable term insurance rider benefit is not greater than the target death benefit plus the sum of all premium payments we receive minus partial withdrawals you have taken. If the base death benefit becomes greater than the target death benefit plus the sum of all premium payments we receive minus partial withdrawals you have taken, then the adjustable term insurance rider benefit is zero.</R>

 

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Base Death Benefit

Your base death benefit can be different from your stated death benefit as a result of:

  • your choice of death benefit option
  • increases or decreases in the stated death benefit
  • a change in your death benefit option.

Federal income tax law requires that your death benefit be at least as much as your account value multiplied by a factor defined by law. This factor is based on:

  • the insured person's age
  • the insured person's gender
  • the cash value accumulation test or the guideline premium/cash value corridor test for the federal income tax law definition of life insurance. See Appendix A, page 232, or Appendix B, page 234.

As long as your policy is in force, we will pay the death proceeds to your beneficiaries after the insured person dies. The beneficiaries are the people you name to receive the death proceeds from your policy. The death proceeds are:

  • your base death benefit on the date of the insured person's death; plus
  • the amount of any rider benefits; minus
  • any outstanding policy loan with accrued loan interest; minus
  • any outstanding policy charges incurred before the death of the insured person.

There could be outstanding policy charges if the insured person dies while your policy is in the grace period.

Death Benefit Options

You have a choice of three death benefit options. Your choice may result in your base death benefit being greater than your stated death benefit.

Option 1: Under death benefit option 1, your base death benefit is the greater of:

  • your stated death benefit on the date of the insured person's death; or
  • your account value on the date of the insured person's death plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A or B.

With 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 at a set amount with potentially lower cost of insurance charges over time.

Option 2: Under death benefit option 2, your base death benefit is the greater of:

  • your stated death benefit plus your account value on the date of the insured person's death; or
  • your account value on the date of the insured person's death plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A or B.

With option 2, investment performance is reflected in your insurance coverage.

Death benefit option 2 is not available during the continuation of coverage period. If you have option 2 on your policy, it automatically converts to death benefit option 1 when the continuation of coverage period begins. See Continuation of Coverage, page 30.

Option 3: Under death benefit option 3, your base death benefit is the greater of:

  • your stated death benefit on the date of the insured person's death plus the sum of all premium payments we receive minus partial withdrawals you have taken; or
  • the account value on the date of the insured person's death plus the refund of sales charges, if any, multiplied by the appropriate factor from the definition of life insurance factors shown in Appendix A or B.

With option 3, the base death benefit generally will increase as we receive premium and decrease if you take partial withdrawals. In no event will your base death benefit be less than your stated death benefit.

Death benefit option 3 is not available during the continuation of coverage period. If you have option 3 on your policy, it automatically converts to death

 

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benefit option 1 when the continuation of coverage period begins. See Continuation of Coverage, page 30.

Changes in Death Benefit Options

You may request a change in your death benefit option on or after your first monthly processing date and before the continuation of coverage period begins.

Your death benefit option change is effective on your next monthly processing date after we approve it, so long as at least one day remains before your monthly processing date. If less than one day remains before your monthly processing date, your change will be effective on the second following monthly processing date.

After we approve your request, we send a new policy schedule page to you. You should attach it to your policy. We may ask you to return your policy to our customer service center so that we can make this change for you.

A death benefit option change applies to your entire stated or base death benefit. Changing your death benefit option may reduce or increase your target death benefit, as well as your stated death benefit. 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.

You may change from death benefit option 1 to option 2, from option 2 to option 1, and from option 3 to option 1. For you to change from death benefit option 1 to option 2 we may require proof that the insured person is insurable under our normal rules of underwriting.

On the effective date of your option change, your stated death benefit changes as follows:

Change From Change
To		 Stated Death Benefit 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 all premium payments we have received minus all partial withdrawals you have taken as of the effective date of the change.

We increase or decrease your stated death benefit 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 47.

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.

Changing your death benefit option may have tax consequences. You should consult a tax adviser before making changes.

Changes in Death Benefit Amounts

Contact your agent/registered representative or our customer service center to request a change in your policy's death benefit. The change 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 make your requested change, we will send you a new policy schedule page. Keep it with your policy. We may ask you to send your policy to us so that we can make the change for you. You may change your target death benefit once a policy year.

 

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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 49.

You may change your policy's stated death benefit on or after your first policy anniversary (first monthly processing date for an increase). You may not decrease the stated death benefit below the minimum we require to issue your policy.

Requested reductions in the death benefit will first decrease the target death benefit. We decrease your stated death benefit only after your adjustable term insurance rider coverage is reduced to zero. If you have more than one segment, we divide decreases in stated death benefit among your benefit segments pro rata unless law requires differently.

You must provide satisfactory evidence that the insured person is still insurable to increase your death benefit. Unless you tell us differently, we assume your request for an increase in your target death benefit is a request for an increase to your stated death benefit. Thus, the amount of your adjustable term insurance rider will not change.

<R>A segment is a block of death benefit coverage. The initial 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 law requires differently. The segment year runs from the segment effective date to its anniversary.</R>

Each new segment may have:

  • a new sales charge
  • new cost of insurance charges, guaranteed and current
  • a new incontestability period
  • a new suicide exclusion period
  • a new target premium.

<R>We allocate the net amount at risk among death benefit segments in the same proportion that each segment bears to the total stated death benefit. Premium we receive after an increase is applied to your 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.</R>

If a death benefit option change causes the stated 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.

There may be tax consequences as a result of a change in your death benefit. You should consult a tax adviser before changing your death benefit amount. See Tax Status of the Policy, page 49, and Modified Endowment Contracts, page 50.

Riders

Your policy may include benefits, attached by rider. A rider may have an additional cost. You may cancel riders at any time.

We may offer riders not listed here. Not all riders may be available under your policy. Contact your agent/registered representative for a list of riders and their availability.

Adding or canceling riders may have tax consequences. See Modified Endowment Contracts, page 50.

Adjustable Term Insurance Rider

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 your anticipated needs. As the name suggests, the adjustable term insurance rider adjusts over time to maintain your desired level of coverage.

You specify a target death benefit when you apply for this rider. The target death benefit can be level for the life of your policy or can be scheduled to change at the beginning of a selected policy year(s). See Death Benefits, page 23.

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 benefit depends on which death benefit option is in effect:

 

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<R>Option 1: If option 1 is in effect, the total death benefit is the greater of:

  • the target death benefit; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the death benefit factors in the applicable Appendix B.

Option 2: If option 2 is in effect, the total death benefit is the greater of:

  • the target death benefit plus the account value; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the death benefit factors in the applicable Appendix B.

Option 3: If option 3 is in effect, the total death benefit is the greater of:

  • the target death benefit plus the sum of all premium payments we receive minus partial withdrawals you have taken; or
  • the account value plus the refund of sales charges, if any, multiplied by the appropriate factor from the death benefit factors in the applicable Appendix B.</R>

For example, under option 1, assume your base death benefit changes as a result of a change in your account value. The adjustable term insurance rider adjusts to provide a death benefit equal to your target death benefit in each year:

Base Death Benefit Target Death Benefit Adjustable Term Insurance Rider Amount
 
$201,500 $250,000 $48,500
202,500 250,000 47,500
202,250 250,000 47,750

It is possible that the amount of your adjustable term insurance may be zero if your base death benefit increases enough. Using the same example, if the base death benefit under your policy grew to $250,000 or more, the adjustable term insurance would be zero.

Even when the adjustable term insurance is reduced to zero, your rider remains in effect until you remove it from your policy. Therefore, if the base death benefit later drops below your target death benefit, the adjustable term insurance rider coverage reappears to maintain your target death benefit.

You may change the target death benefit schedule after it is issued, based on our rules. See Changes in Death Benefit Amounts, page 27.

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 36, and Changes in Death Benefit Options, page 27.

There is no defined premium for a given amount of adjustable term insurance coverage. Instead, we deduct a separate monthly cost of insurance charge from your account value. The cost of insurance for this rider is calculated as the monthly cost of insurance rate for the rider coverage multiplied by the adjustable term death benefit in effect at the monthly processing date. The cost of insurance rates are determined by us from time to time. They are based on the issue age, gender and premium class of the insured person, as well as the length of time since your policy date.

If the target death benefit is increased by you after the adjustable term insurance rider is issued, we use the same cost of insurance rate schedule for the entire coverage for this rider. These rates are based on the original premium class even though satisfactory new evidence of insurability is required for the increased schedule. Although the maximum cost of insurance rates for this rider are greater than the maximum cost of insurance rates for the base death benefit, the current rates for this rider may be lower than current cost of insurance rates for the base death benefit. Guaranteed maximum cost of insurance rates will be stated in the policy. See Cost of Insurance Charge, page 47.

Not all policy features apply to the adjustable term insurance rider. The rider does not contribute to the policy account value nor to surrender value. It does not affect investment performance and cannot be used for a policy loan. The adjustable term insurance rider provides benefits only at the insured person's death.

 

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Accelerated Death Benefit Rider

This rider pays part of the death benefit to you if a qualified doctor diagnoses a terminal illness of the insured person. Receipt of such an accelerated payment reduces the death benefit of your policy and its net cash surrender value. There is no charge for this rider. There may be tax consequences to requesting payment under this rider. See Tax Status of the Policy, page 49.

Waiver of Cost of Insurance Rider

If the insured person becomes totally disabled while your policy is in force, this rider provides that we waive the monthly expense, cost of insurance and rider charges during the disability period. The insured person must be no less than age 15 and no more than age 55. If you add this rider to your policy, you may not add the waiver of specified premium rider. This rider is not available if your policy is issued based on guaranteed issue or simplified underwriting. The rider charges are included as part of your monthly cost of insurance charge. See Cost of Insurance Charge, page 47.

Waiver of Specified Premium Rider

If the insured person becomes totally disabled while your policy is in force, this rider provides that after a waiting period, we credit a specified premium amount monthly to your policy during the disability period. Subject to our underwriting, you specify this amount on the application for the policy. The insured person must be no less than age 15 and no more than age 55. The minimum coverage under this rider is $25 monthly. The monthly charge for this rider is $1.70 to $12.70 per $100 of rider coverage depending on the insured person's age. If your policy is a guaranteed issue policy, the monthly charge for this rider is $3.40 to $25.40 per $100 of coverage depending on issue age. This rider is not available if your policy is issued based on simplified underwriting.

A policy may contain either the Waiver of Cost of Insurance Rider or the Waiver of Specified Premium Rider, but not both.

Special Features

Designated Deduction Option

You may designate one 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.

If you elect not to choose a designated deduction investment option or if the amount in your designated deduction investment option is not enough to cover the monthly deductions, then your monthly charges are taken from the variable investment options and guaranteed interest division in the same proportion that your account value in each has to your total net account value on the monthly processing date.

Right to Change Policy

During the first 24 months after your policy date, you have the right to permanently change your policy to a guaranteed policy, unless state law requires differently. If you elect to make this change, unless state law requires that we issue to you a new guaranteed policy, we will transfer the amount you have in the variable investment options to the guaranteed interest division and allocate all future net premium 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 this change. See Guaranteed Interest Division, page 19.

Continuation of Coverage

The continuation of coverage feature continues your insurance coverage in force beyond the policy anniversary nearest the insured person's 100th birthday. If you do not surrender your policy before this date, on this date we:

  • convert target death benefit to stated death benefit
  • convert death benefit options 2 and 3 to death benefit option 1, if applicable
  • terminate all riders
  • transfer your net account value (excluding the amount in the loan division) into the guaranteed interest division
  • terminate dollar cost averaging and automatic rebalancing.

 

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Your insurance coverage continues in force until the death of the insured person, unless the policy lapses or is surrendered. However we accept no more premium payments, we deduct no further charges and we cease monthly deductions.

You may not make transfers into the variable investment options during the continuation of coverage period but you may take a policy loan or partial withdrawals.

If you have an outstanding policy loan, interest continues to accrue. If you fail to make sufficient loan or loan interest payments, it is possible that the loan balance plus accrued interest may become greater than your account value and cause your policy to lapse. To avoid lapse, you may repay the loan and loan interest 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 other normal consequences of surrender apply. See Surrender, page 39.

The continuation of coverage feature is not 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. In certain states the death benefit during the continuation of coverage period is the account value. Contact your agent/registered representative or our customer service center to find out if this feature is available in your state and which type of death benefit applies in your state.

The tax consequences of coverage continuing beyond the insured person's 100th birthday are uncertain. You should consult a tax adviser as to those consequences. See Continuation of Policy Beyond Age 100, page 52.

Enhanced Death Benefit Corridor Option

For policies issued with select guaranteed issue rates, an additional benefit option is available. The policyowner may elect, at any time prior to policy issuance, the enhanced death benefit corridor option.

Existing group or corporate owners of Strategic Investor policies who have select guaranteed issue rates can add this option to their policies if it is added to all policies within that issue group. If you would like to do this, contact your agent/ registered representative or our customer service center for instructions.

This option generally provides an opportunity for an increased death benefit on the life of the insured person at certain ages. Under death benefit options 1 and 2 the account value plus the refund of sales charges, if any, is multiplied by a factor shown in Appendix A or B. The result of this calculation is the base death benefit if it exceeds the stated death benefit. Under the enhanced death benefit corridor option, the calculation uses the factor shown on the attached Appendix A and Appendix B (depending on which definition of life insurance is in effect for your policy). The result of this calculation is then used to determine the base death benefit as described under Death Benefit Options, page 26.

There is no separate charge for this feature. However, the same account value may generate a higher base death benefit under policies with this option than on policies not electing the option. Cost of insurance charges are based on the net amount at risk, which is the difference between the account value and the base death benefit. Therefore, as a result of the increased death benefit, the cost of insurance charges may be higher for policies electing this option. Your registered representative/agent can provide you with a personalized illustration to show the difference between a policy with this option and one without it. If your policy does not have sufficient account value, electing this option may have no effect on the base death benefit.

Adding this option to your policy does not affect the operation of your policy's riders, including the Adjustable Term Insurance Rider. When the base death benefit exceeds the stated death benefit, transactions which reduce your account value (such as a partial withdrawal) also reduce the death benefit. The dollar reduction to the death benefit under these circumstances is greater for policies with the enhancement option than on those without the option.

Once elected, this option cannot be deleted. Once elected, this option continues as long as coverage on the original insured person continues. You may lose the benefit of this option if your account value falls below the minimum level needed to keep it in effect.

 

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Refund of Sales Charges

If you surrender your policy within the first two policy years and your policy has not lapsed, we may refund a portion of the sales charges we previously deducted from your premium payments. In the first policy year, the amount of the refund will not be less than 3.00% of the premium we received. In the second policy year, the refund will not be less than 2.5% of the premium we received in the first policy year. The refund of sales charge is guaranteed only for the first two policy years. We reserve the right to extend the refund of sales charges beyond the first two policy years.

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. Also, the refund of sales charge is not available if your policy is surrendered to another insurer as part of a Section 1035 exchange.

Policy Values

Account Value

Your account value is the total amount you have in the guaranteed interest division, the variable investment options and the loan division. Your account value reflects:

  • net premium applied
  • charges deducted
  • partial withdrawals taken
  • investment performance of the investment portfolios
  • interest earned on the guaranteed interest division
  • 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 Investment Options

The amounts in the variable investment options 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.

The accumulation unit value is the value determined on each valuation date. The accumulation unit value of each variable investment option varies with the investment performance of the underlying investment portfolio. It reflects:

  • investment income
  • realized and unrealized gains and losses
  • investment portfolio expenses
  • taxes, if any.

A valuation date is one on which the net asset value of the investment portfolio shares and unit values of the variable investment options are determined. Valuation dates are each day the New York Stock Exchange and the company's customer service center are open for business, except for days on which an investment portfolio does not value its shares or any other day as required by law. Each valuation date ends at 4:00 p.m. Eastern time. Our customer service center may not be open on major holidays.

You purchase accumulation units when you allocate premium or make transfers to a variable investment option, including transfers from the loan division.

We redeem accumulation units:

  • when amounts are transferred from a variable investment option (including transfers to the loan division)
  • for the monthly deductions from your account value
  • for policy transaction fees
  • when you take a partial withdrawal
  • if you surrender your policy
  • to pay the death proceeds.

 

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To calculate the number of accumulation units purchased or sold we divide the dollar amount of your transaction by the accumulation unit value for the variable investment option calculated at the close of business on the valuation date of the transaction.

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 corresponding investment portfolios.

For amounts in the variable investment options, there is no guaranteed minimum 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 division is first opened. After that, the accumulation unit value on any valuation date is:

  • the accumulation unit value for the preceding valuation date multiplied by
  • 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:

  • We take the net asset value of the underlying investment portfolio shares as reported to us by the investment portfolio managers as of the close of business on that valuation date.
  • We add dividends or capital gain distributions declared and reinvested by the investment portfolio during the current valuation period.
  • We subtract a charge for taxes, if applicable.
  • We divide the resulting amount by the net asset value of the shares of the underlying investment portfolio at the close of business on the previous valuation date.

Transfer of Account Value

You generally may make transfers of your account value among the variable investment options and the guaranteed interest division. 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.

Currently, we do not limit your number of transfers, but we reserve the right to do so if we determine the trading within your policy is excessive. You may not make transfers during the continuation of coverage period. See Excessive Trading, page 34, and Continuation of Coverage, page 30.

You may make transfer requests in writing, or by telephone if you have telephone privileges, to our customer service center. You may fax your request to us. Telephone and facsimile transfers may not always be available. Telephone or fax systems, whether yours, your service provider's or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request in writing.

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, we transfer the entire amount.

 

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Excessive Trading

Excessive trading activity can disrupt investment portfolio management strategies and increase portfolio expenses through:

  • increased trading and transaction costs
  • forced and unplanned portfolio turnover
  • lost opportunity costs
  • 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 and impose a fee for each future transfer of up to $25. We will take such actions 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 occur 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. The minimum amount you may transfer is $100.

Dollar Cost Averaging

If your policy has at least $10,000 invested in the underlying GCG Trust Liquid Asset investment portfolio, you may elect dollar cost averaging. There is no charge for this feature.

Dollar cost averaging does not assure a profit nor does it protect you against a loss in a declining market.

The main goal of dollar cost averaging is to protect your policy values from short-term price changes. 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 also reduces the risk of investing too little when the price of an investment portfolio's shares is low. Since you transfer the same dollar amount to the variable investment options each period, you purchase more units when the unit value is low and you purchase fewer units when the unit value is high.

You may add dollar cost averaging to your policy at any time. The first dollar cost averaging date must be at least one day after we receive your dollar cost averaging request. If your state requires a refund of all premium received during the free look period, dollar cost averaging begins after the end of your free look period.

With dollar cost averaging, you designate either a dollar amount or a percentage of your account value to be automatically transferred at regular intervals from the variable investment option investing in the GCG Trust Liquid Asset investment portfolio to one or more other variable investment options. Fractional percentages, stated to the nearest tenth, are permitted. You may not use the guaranteed interest division or the loan division in dollar cost averaging.

The minimum percentage you may transfer to one investment division 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, your dollar cost averaging source portfolio cannot be included in your automatic rebalancing program.

Changing Dollar Cost Averaging

If you have telephone privileges, you may change the program by telephoning our customer service center or you may fax your request to us. Telephone and facsimile transfers may not always be available. Telephone or fax systems, whether yours, your service provider's or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have

 

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taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request in writing. See Telephone Privileges, page 42.

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 on the date:

  • you specify
  • your balance in the GCG Trust Liquid Asset investment portfolio reaches a dollar amount you set
  • the amount in the GCG Trust Liquid Asset investment portfolio is equal to or less than the amount to be transferred. We will transfer the remaining amount and dollar end 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. 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. You may select allocation percentages stated to the nearest tenth. 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 automatic rebalancing on your application or later by completing our customer service form. Automatic rebalancing may occur on the same day of the month on a monthly, quarterly, semi-annual or annual basis. If you do no specify a frequency, automatic rebalancing will occur quarterly.

The first transfer occurs on the date you select (after your free look period if your state requires return of premium during the free look period). If you do not request a date, processing is on the last valuation date of the calendar quarter in which we receive your request.

You may have both automatic rebalancing and dollar cost averaging at the same time. However, the source portfolio for your dollar cost averaging cannot be included in your automatic rebalancing program. You may not include the loan division.

Changing Automatic Rebalancing

You may change your allocation percentages for automatic rebalancing at any time. Your allocation change is effective on the valuation date that we receive it at our customer service center. If you reduce the amount allocated to the guaranteed interest division, it is considered a transfer from that division. You must meet the requirements for the maximum transfer amount and time limitations on transfers from the guaranteed interest division. See Transfers of Account Value, page 33.

Terminating Automatic Rebalancing

You may terminate automatic rebalancing at any time, as long as we receive your notice of termination at least one day before the next automatic rebalancing date.

Policy Loans

You may borrow from your policy at any time after the first monthly processing date, by using your policy as security for a loan, or as otherwise required by law.

The amount you borrow (policy loan) is:

  • the total amount you borrow from your policy; plus
  • policy loan interest that is capitalized when due; minus
  • policy loan or interest repayments you make.

Unless law requires differently, a new policy loan must be at least $100. The maximum amount you

 

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may borrow on any valuation date, unless required differently by law, is your net account value minus the monthly deductions to your next policy anniversary or 13 monthly deductions if you take a

loan within thirty days before your next policy anniversary.

Your request for a policy loan must be directed to our customer service center. If you have telephone privileges, you may request a policy loan for less than $25,000 by telephone or fax. Telephone and facsimile transfers may not always be available. Telephone or fax systems, whether yours, your service provider's or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request in writing. See Telephone Privileges, page 42.

When you request a loan you may specify the investment options from which the loan will be taken. If you do not specify the investment options, 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% during policy years 1 through 10 and 3.15% thereafter (3.00% on a current basis). Interest is due in arrears on each policy anniversary. If you do not pay it when due, we add it to your policy loan balance.

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. The loan division is part of our general account specifically designed to hold collateral for policy loans and interest. We credit the loan division with interest at an annual rate of 3.00%.

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. We assume that payments you make, other than scheduled premium payments, are policy loan repayments. You must tell us if you want payments to be premium payments.

When you make a loan repayment, 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

Taking a loan decreases the amount you have in the investment options. Accruing loan interest will change your net account value as compared to what it would have been if you did not take a loan.

Even if you repay your loan, it has a permanent effect on your account value. The benefits under your policy may be affected.

The loan is a first lien on your policy. If you do not repay your policy loan, we deduct your outstanding policy loan and accrued loan interest from the death proceeds or the cash surrender value when payable.

If you do not make loan payments your policy could lapse. Policy loans may cause your policy to lapse if your account value minus policy loan amounts and accrued loan interest is not enough to pay your deductions each month. See Lapse, page 38.

Policy loans may have tax consequences. If your policy lapses with a loan outstanding, you may have further tax consequences. See Distributions Other than Death Benefits, page 51.

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.

 

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You make a partial withdrawal by withdrawing part of your net account value. If your request is by telephone or fax, 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. Telephone and facsimile transfers may not always be available. Telephone or fax systems, whether yours, your service provider's or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request in writing. See Telephone Privileges, page 42.

You may take up to twelve partial withdrawals 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 cash surrender 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 and Deductions, page 45.

Partial withdrawals do not reduce the stated death benefit if your base death benefit has been increased to qualify your policy as life insurance under the federal income tax laws and if you withdraw an amount that is no greater than the amount that reduces your account value to a level which no longer requires your base death benefit to be increased to qualify as life insurance for federal income tax law purposes. See Tax Status of the Policy, page 49.

We require a minimum death benefit to issue your policy. You are not allowed to take a partial withdrawal if it reduces your death benefit below this minimum.

We will make a partial withdrawal from the guaranteed interest division and the variable investment options in the same proportion that each has to your net account value immediately before your withdrawal, or you may select the investment options 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.

Partial withdrawals may have adverse tax consequences. See Distributions Other than Death Benefits, page 51.

Partial Withdrawals under Death Benefit Option 1

Under death benefit option 1, if no more than fifteen years have passed since your policy date and the insured person is not yet age 81, you may make a partial withdrawal of up to the greater of 10% of your account value or 5% of your stated death benefit without decreasing your stated death benefit. Any additional amount withdrawn will reduce your stated death benefit by that additional amount.

Otherwise, amounts you withdraw will reduce your stated death benefit by the amount of the withdrawal unless your policy death benefit has been increased to meet the federal income tax definition of life insurance. Then at least part of your partial withdrawal may be taken without reducing your stated death benefit.

Partial Withdrawals under Death Benefit Option 2

Under death benefit option 2, a partial withdrawal does not reduce your stated death benefit.

Partial Withdrawals under Death Benefit Option 3

Under death benefit option 3, a partial withdrawal will reduce the stated death benefit by the amount of the partial withdrawal in excess of the total premium we have received minus the total of your partial withdrawals.

If a partial withdrawal reduces the stated death benefit, the target death benefit for the current year and all future years will be reduced by an amount equal to the reduction in the stated death benefit.

If your partial withdrawal is more than the total premium we have received minus the total of your prior partial withdrawals, a two step process is used:

 

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  1. Your withdrawal of the amount that makes premium received minus all partial withdrawals equal to zero is taken; then
  2. The excess withdrawal amount you requested will reduce your stated death

     benefit if:

  • The excess amount is greater than 10% of your account value after step "1" above; or
  • The excess amount is greater than 5% of your stated death benefit.

A reduction in the stated death benefit as a result of a partial withdrawal will be pro-rated among the existing coverage segments, unless state law requires otherwise. Target premium will be adjusted for the reduced stated death benefit.

Lapse

Your insurance coverage continues as long as your net account value is enough to pay your deductions each month.

If you have an outstanding policy loan, your policy will lapse if the loan plus accrued interest is more than your account value. Thus, during the continuation of coverage period, the policy could lapse if there is an outstanding policy loan even though there are no further monthly deductions.

Grace Period

Your policy enters a 61-day lapse grace period if, on a monthly processing date your net account value is zero (or less).

We notify you that your policy is in a grace period at least 30 days before it ends. We send this notice to you (or a person to whom you have assigned your policy) at your last known address in our records. We notify you of the premium payment necessary to prevent your policy from lapsing. This amount generally is the past due charges, plus your estimated monthly policy and rider deductions for the next two months. If the insured person dies during the grace period we do pay death proceeds to your beneficiaries with reductions for your policy loan balance, accrued loan interest and monthly deductions owed.

If we receive payment of the required amount before the end of the grace period, we apply it to your account value in the same manner as your other premium payments, then we deduct the overdue amounts from your account balance.

If you do not pay the full amount within the 61-day grace period, your policy and its 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 coverage has ended.

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.

Unless state law requires differently, we will reinstate your policy and riders if:

  • you are the owner and have not surrendered your policy
  • you provide satisfactory evidence that the insured person (including those under your riders) is still insurable according to our normal rules of underwriting
  • we receive enough premium to keep your policy and riders in force from the beginning to the end of the grace period and for two months after the reinstatement date.

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 premium received after reinstatement according to your most recent instructions which may be those in effect at the start of the grace period.

A policy that is restated more than 90 days after lapsing will be classified as a modified endowment contract for tax purposes. See Modified Endowment Contract, page 48.

 

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Surrender

You may surrender your policy for its net cash surrender value any time after the free look period while the insured person is alive. 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 (or lost policy form) at our customer service center. All insurance coverage ends on the date we receive your surrender request and policy. See Policy Values, page 32, and Settlement Provisions, page 43.

If you surrender your policy within the first two policy years, the net cash surrender value may include a refund of a portion of the sales charges previously deducted. See Refund of Sales Charges, page 32. Otherwise we do not pro-rate or add back to your account value charges or expenses which we deducted before your surrender.

Surrender of your policy may have adverse tax consequences. See Distributions Other than Death Benefits, page 51.

General Policy Provisions

Free Look Period

You have the right to examine your policy and return it (for any reason) to us within the period shown in the policy. The right to examine your policy (also called free look period) starts on the date you receive it. If you return your policy to us within your state's specified time limit, we cancel it as of your policy date.

If you cancel your policy during this free look period, you will receive a refund as determined by state law. Generally, there are two types of free look refunds:

  • some states require a return of all premium we receive
  • 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 will affect when premium we receive before the end of the free look period is allocated into the variable investment options. See Allocation of Net Premium, page 22.

Your Policy

The contract between you and us is the combination of:

  • your policy
  • a copy of your original application and applications for benefit increases or decreases
  • your riders
  • endorsements
  • policy schedule pages
  • 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 other officer of our company and our secretary or assistant secretary must sign all changes or amendments to your policy. No other person may change its terms or conditions.

Guaranteed Issue

We may offer policies on a guaranteed issue basis for certain individuals, groups or sponsored arrangements. We issue these policies up to a preset face amount with reduced evidence of insurability. Guaranteed issue policies carry a different mortality risk compared with policies that are fully underwritten. So, we may charge different cost of insurance rates for guaranteed issue policies. The cost of insurance rates under these circumstances may depend on the:

  • issue age of the insured people
  • risk class of the insured people
  • size of the group
  • total premium the group pays.

Generally, most guaranteed issued policies have higher overall charges for insurance than a similar underwritten policy issued in the standard tobacco

 

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non-user or standard tobacco user class. This means that the insured person in a group or sponsored arrangement could get individual, simplified or fully underwritten insurance coverage at a lower overall cost.

Age

We issue your policy at the insured person's age (stated in your policy schedule) based on the nearest birthday to the policy date. The policy is issued on a guaranteed issue, fully-underwritten or simplified-underwritten basis. On the policy date, the insured person must be no less than age 15. For a guaranteed issue policy, the insured person generally can be no more than age 70. For a fully-underwritten policy, the insured person generally can be no more than age 85. For a simplified underwritten policy, the insured person can generally be no more than age 70.

We often use age to calculate rates, charges and values. We determine the insured person's age at a given time by adding the number of completed policy years to the age calculated at issue and shown in the schedule.

Ownership

The original owner is the person named as the owner in the policy application. The owner can exercise all rights and receive benefits during the life of the insured person. These rights include the right to change the owner, beneficiaries 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 beneficiaries.

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.

Beneficiaries

You, as owner, name the beneficiaries when you apply for your policy. The primary beneficiaries who survive the insured person receives the death proceeds. Other surviving beneficiaries receive death proceeds only if there is no surviving primary beneficiaries. If more than one beneficiary survives the insured person, they share the death proceeds equally, unless you specify otherwise. If none of your policy beneficiaries has survived the insured person, we pay the death proceeds to you or to your estate, as owner.

You may name new beneficiaries during the insured person's lifetime. We pay death proceeds to the beneficiaries whom you have most recently named according to our records. We do not make payments to multiple sets of beneficiaries. The designation of certain beneficiaries may have tax consequences. See Other, page 52.

Collateral Assignment

You may assign your policy by sending written notice to us. After we record the assignment, your rights as owner and the beneficiaries' rights (unless the beneficiaries were made irrevocable beneficiaries under an earlier assignment) are subject to the assignment. It is your responsibility to make sure the assignment is valid. The transfer or assignment of a policy may have tax consequences. See Other, page 52.

Incontestability

After your policy has been in force and the insured person is alive for two years from your policy date, and from the effective date of any new segment, an increase in any other benefit or reinstatement, we will not question the validity of statements in your applicable application.

Misstatements of Age or Gender

Notwithstanding the Incontestability provision above, if the insured person's age or gender has been misstated, we adjust the death benefit to the amount which would have been purchased for the insured person's correct age and gender. We base the adjusted death benefit on the cost of insurance charges deducted from your account value on the

 

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last monthly processing date before the insured person's death, or as otherwise required by law.

If unisex cost of insurance rates apply, we do not make any adjustments for a misstatement of gender.

Suicide

If the insured person commits suicide (while sane or insane), within two years of your policy date, unless otherwise required by law, we limit death proceeds to:

  • the total premium we receive to the time of death; minus
  • outstanding policy loan and accrued loan interest; minus
  • any partial withdrawals taken.

If the person insured under the policy changed, and the new insured person dies by suicide within two years of the change date, we limit the death proceeds to:

  1. your net account value as of the change date; plus
  2. premium we received since the change; minus
  3. increases in the policy loan balance, accrued loan interest, and partial withdrawals since the change date.

We make a limited payment to the beneficiaries for a new segment or other increase if the insured person commits suicide (while sane or insane), within two years of the effective date of a new segment or within two years of an increase in any other benefit, unless otherwise required by law. The limited payment is equal to the cost of insurance and monthly expense charges which were deducted for the increase.

Transaction Processing

Generally, within seven days of when we receive all information required to process a payment, we pay:

  • death proceeds
  • net cash surrender value
  • partial withdrawals
  • loan proceeds.

We may delay processing these transactions if:

  • the New York Stock Exchange ("NYSE") is closed for trading
  • trading on the NYSE is restricted by the SEC
  • the SEC declares that an emergency exists so that it is not reasonably possible to sell securities in the variable investment options or to determine the account value in the variable investment options
  • a governmental body with jurisdiction over the separate account allows suspension by its order.

SEC rules and regulations generally determine whether or not these conditions exist.

We execute transfers among the variable investment options as of the valuation date of our receipt of your request at our customer service center.

We determine the death benefit as of the date of the insured person's death. The death proceeds are not affected by subsequent changes in the value of the variable investment options.

We may delay payment from our guaranteed interest division for up to six months, unless law requires otherwise, of surrender proceeds, withdrawal amounts or loan amounts. If we delay payment more than 30 days, we pay interest at our declared rate (or at a higher rate if required by law) from the date we receive your complete request.

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 or if you surrender it.

If the insured person dies while your policy is in force, please let us know as soon as possible. We will send you instructions on how to make a claim. As proof of the insured person's death, we may require proof of the deceased insured person's age and a certified copy of the death certificate.

 

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The beneficiaries and the deceased insured person's next of kin may need to sign authorization forms. These forms allow us to get information such as medical records 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 to call our customer service center to:

  • make transfers
  • change premium allocations
  • change your dollar cost averaging and automatic rebalancing programs
  • request partial withdrawals
  • 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:

  • requiring some form of personal identification
  • providing written confirmation of any transactions
  • tape recording telephone calls.

By accepting telephone privileges, you authorize us to record your telephone calls with us. If we use reasonable procedures to confirm instructions, we are not liable for losses from unauthorized or fraudulent instructions. We may discontinue this privilege at any time.

Non-participation

Your policy does not participate in the surplus earnings of ING Security Life.

Distribution of the Policies

The principal underwriter (distributor) for our policies is ING America Equities, Inc., a wholly owned subsidiary of ING Security Life. It is registered as a broker/dealer with the SEC and the NASD. We pay ING America Equities, Inc., under a distribution agreement.

We sell 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;
  2. Locust Street Securities, Inc., an indirect affiliate;
  3. Multi-Financial Securities, Corp., an indirect affiliate;
  4. IFG Network Securities, Inc., an indirect affiliate;
  5. Financial Network Investment Corporation, an indirect affiliate;
  6. Washington Square Securities, Inc., an indirect affiliate;
  7. Guaranty Brokerage Services, Inc., an indirect affiliate;
  8. AETNA Investment Services, LLC, an indirect affiliate;
  9. PrimeVest Financial Services, Inc., an indirect affiliate;
  10. Granite Investment Services, Inc., an indirect affiliate; and
  11. Financial Northeastern Securities, Inc., an indirect affiliate.

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 pay commissions to their agents/registered representatives who sell this policy.

During the first policy year, we may pay a distribution allowance of up to 12% (10% for policies issued based on simplified underwriting) of premium we receive up to target premium and lower thereafter.

Although it varies by policy, we estimate the typical first year compensation payable to a selling broker/dealer if a policy pays target premium to be

 

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$7.00 per $1,000 of stated death benefit ($6.00 per $1,000 for policies issued based on simplified underwriting).

Broker/dealers receive renewal payments (trails) of up to 0.15% of the average net account value beginning in the second policy month.

We pay wholesaler fees and marketing and training allowances. We may provide repayments or make sponsor payments for broker/dealers to use in sales contests for their registered representatives. We do not hold contests directly based on sales of this product. We do hold training programs from time to time at our own expense. We pay dealer concessions, wholesaling fees, other allowances and the costs of all other incentives or training programs from our resources which include sales charges.

Some broker/dealers receive a slightly lower distribution allowance because we provide them with greater marketing and administrative support. For sales of certain policies with reduced or waived sales and mortality and expense risk charges, distribution allowances and renewal payments may be reduced or eliminated.

Advertising Practices and Sales Literature

We may use advertisements and sales literature to promote this product, including:

  • articles on variable life insurance and other information published in business or financial publications
  • indices or rankings of investment securities
  • comparisons with other investment vehicles, including tax considerations.

We may use information regarding the past performance of the variable investment options and investment portfolios. Past performance is not indicative of future performance of the variable investment options or investment portfolios and is not reflective of the actual investment experience of policyowners.

We may feature certain investment portfolios and their managers, as well as describe asset levels and sales volumes. We may refer to past, current, or prospective economic trends, and, investment performance or other information we believe may be of interest to our customers.

Settlement Provisions

You may take your net cash surrender value in other than one payment. Likewise, you may elect to have the beneficiaries receive the death proceeds other than in one payment, if you make this election during the insured person's lifetime. If you have not made this election, the beneficiaries may do so within 60 days after we receive proof of the insured person's death.

The investment performance of the variable investment options does not affect payments under these settlement options. Instead, interest accrues at a fixed rate based on the option you choose. Payment options are subject to our rules at the time you make your selection. Currently, a periodic payment must be at least $20 and the total proceeds must be $2,000 or more.

Option I: Payouts for a Designated Period
Option II: Life Income with Payouts Guaranteed for a Designated Period
Option III: Hold at Interest
Option IV: Payouts of a Designated Amount
Option V: Other Options We Offer at the Time We Pay the Benefit

Administrative Information About the Policy

Voting Privileges

We invest the variable investment 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 policy. We count fractional shares. If you have a voting interest, we send you proxy material and a form on which to give us your voting instructions.

 

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Each investment portfolio share has the right to one vote. The votes of all investment portfolio shares are cast together on a collective basis, except on issues for which the interests of the portfolios differ. In these cases, voting is on a portfolio-by-portfolio basis.

Examples of issues that require a portfolio-by-portfolio vote are changes in the fundamental investment policy of a particular investment portfolio or approval of an investment advisory agreement.

We vote the shares in accordance with your instructions at meetings of investment portfolio shareholders. We vote any investment portfolio shares that are not attributable to policies and any investment portfolio shares for which the owner does not give us instructions, the same way we vote as if we did receive owner instructions.

We reserve the right to vote investment portfolio shares without getting instructions from policy owners if the federal securities laws, regulations or their interpretations change to allow this.

You may instruct us only on matters relating to the investment portfolios corresponding to those in which you have invested assets as of the record date set by the investment portfolio's Board for the portfolio's shareholders meeting. We determine the number of investment portfolio shares in each variable investment option for your policy by dividing your account value in that division by the net asset value of one share of the matching investment portfolio.

Material Conflicts

We are required to track events to identify material conflicts arising from using investment portfolios for both variable life and variable annuity separate accounts. The Boards of the investment portfolios, ING Security Life, and other insurance companies participating in the investment portfolios, have this same duty. There may be a material conflict if:

  • state insurance law or federal income tax law changes
  • investment management of an investment portfolio changes
  • 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 it, we may ignore voting instructions relating to changes in an investment portfolio's adviser or its investment policies. If we do ignore voting instructions, we give you a summary of our actions in our next semi-annual report to owners.

Under the Investment Company Act of 1940, we must get your approval for certain actions involving our separate account. In this case, you have one vote for every $100 of value you have in the variable 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 and federal law limitations and the rules and regulations thereunder, we may, from time to time, make any of the following changes to our separate account with respect to some or all classes of policies:

  • Change the investment objective.
  • Offer additional variable investment options which will invest in investment portfolios we find appropriate for policies we issue.
  • Eliminate variable investment options.
  • Combine two or more variable investment options.
  • Substitute a new investment portfolio for a portfolio in which the variable investment option currently invests. A substitution may become necessary if, in our judgment:
    » an investment portfolio no longer suits the purposes of your policy

 

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          » there is a change in laws or regulations
          » there is a change in an investment portfolio's investment objectives or restrictions
          » the investment portfolio is no longer available for investment
          » a substitution is deemed appropriate for some other reason

  • Transfer assets related to your policy class to another separate account.
  • Withdraw the separate account from registration under the Investment Company Act of 1940, as amended (the "1940 Act").
  • Operate the separate account as a management investment company under the 1940 Act.
  • Cause one or more variable investment options to invest in a mutual fund other than, or in addition to, the investment portfolios.
  • Stop selling these policies.
  • End any employer or plan trustee agreement with us under the agreement's terms.
  • Limit or eliminate any voting rights for the separate account.
  • Make any changes required by the 1940 Act or its rules or regulations.
  • Close an investment option to new investments.

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:

  • your total net policy death benefit (your stated death benefit plus adjustable term insurance rider death benefit, if any)
  • your account value
  • your policy loan, if any, plus accrued interest
  • your net cash surrender value
  • your account transactions during the policy year showing net premium, transfers, deductions, loan amounts and withdrawals.

We send semi-annual reports with financial information on the investment portfolios, including a list of the investment holdings of each portfolio.

We send confirmation notices to you throughout the year for certain policy transactions such as partial withdrawals and loans.

CHARGES AND DEDUCTIONS

The amount of a charge may not correspond to the cost incurred by us to provide the service or benefit. For example, the sales charge may not cover all of our sales and distribution expenses. Some proceeds from other charges, including the mortality and expense risk charge or cost of insurance charges, may be used to cover such expenses.

Deductions from Premium

We treat payments we receive as premium if you do not have an outstanding loan and your policy is not in the continuation of coverage period. After we deduct certain charges from your payment, we add the remaining net premium to your policy.

Initial Sales Charge

We deduct a percentage from each premium payment to help cover the costs of distribution, preparing our sales literature, promotional expenses and other direct and indirect expenses to sell the policy.

We base the percentage on the length of time since your policy or a segment becomes effective:

Segment Charge Percentage
 
Policy or Segment Year Up To Policy or Segment Target Above Policy or Segment Target Premium
1-10
11+		 11%
0%		 0%
0%

<R>To determine your applicable sales charge, premium payments we receive after an increase in stated death benefit are allocated to your death benefit segments in the same proportion as the target premium for

 

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each segment bears to the total target premium of your stated death benefit.</R>

We may reduce or waive the sales charge for certain group, sponsored or wrap fee arrangements, or for corporate purchasers. See Group, Sponsored or Wrap Fee Arrangements, or Corporate Purchasers, page 48.

Tax Charges

We pay state and local taxes in almost all states. These taxes vary in amount from state to state and may vary from jurisdiction to jurisdiction within a state. Currently, state and local taxes range from 0% to 5%. We deduct 2.5% of each premium payment to cover these taxes. This rate approximates the average tax rate we expect to pay.

To cover our estimated costs for the federal income tax treatment of deferred acquisition costs we deduct 1.5% of each premium payment. This cost is determined solely by the amount of life insurance premium we receive.

We reserve the right to increase or decrease this charge for taxes if there are changes in the tax law, within limits set by state law. We also reserve the right to increase or decrease the charge for the federal income tax treatment of deferred acquisition costs based on any change in that cost to us.

Monthly Deductions from Account Value

We deduct charges from your account value on each monthly processing date until the policy anniversary nearest the insured person's 100th birthday.

Mortality and Expense Risk Charge

Each month we deduct from your account value a percentage of the amount in the variable investment options for the mortality and expense risks we assume. This charge appears on your statement or confirmation.

This charge is assessed at the following monthly rates:

Account Value 1st Policy Year Policy Years 2-10 Policy Years 11+
Less than $25,000 0.0625% 0.0625% 0.0250%
$25,000 to $250,000 0.0625% 0.0583% 0.0167%
More than $250,000 0.0625% 0.0542% 0.0083%

The annualized rates for the mortality and expense risk charge are:

Account Value 1st Policy Year Policy Years 2-10 Policy Years 11+
Less than $25,000 0.75% 0.75% 0.30%
$25,000 to $250,000 0.75% 0.6996% 0.2004%
More than $250,000 0.75% 0.6504% 0.0996%

The mortality and expense risk charge is assessed each month at each account value level shown in the monthly table above. For example, an account value of $400,000 in the separate account in policy year three would result in a monthly mortality and expense risk charge of $25,000 multiplied by .0625%, plus $225,000 multiplied by .0583%, plus $150,000 multiplied by .0542%.

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 investment options 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.

We may reduce or waive the mortality and expense risk charge for certain group or sponsored arrangements, groups or individuals who purchase the policy through wrap fee arrangements or for corporate purchasers. See Group, Sponsored or Wrap Fee Arrangements, or Corporate Purchasers, page 48.

 

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Policy Charge

The policy charge is $13.00 per month for the first three policy years and $3.00 per month thereafter.

This charge compensates us for such costs as:

  • application processing
  • medical examinations
  • establishment of policy records
  • insurance underwriting costs.

Administrative Charge

We charge a per month administrative charge per $1,000 of stated death benefit (or target death benefit, if greater) as follows:

Issue Ages Policy Years 1 - 5 Policy Years 6+
0 - 14 $0.038 $0.010
15 - 50 $0.043 $0.010
51 - 62 $0.049 $0.010
63 - 73 $0.054 $0.010
74 - 77 $0.060 $0.010
78 - 85 $0.065 $0.010
86 - 89 $0.070 $0.010
90 $0.076 $0.010

This charge applies to the first $5 million of death benefit. The rate per $1,000 of death benefit is based on the length of time the policy has been in force.

This charge is designed to compensate us for ongoing costs such as:

  • premium billing and collections.
  • claim processing
  • policy transactions
  • record keeping
  • reporting and communications with policy owners
  • other expenses and overhead.

Cost of Insurance Charge

The cost of insurance charge compensates us for the ongoing costs of providing insurance coverage, including the expected cost of paying death proceeds that may be more than your account value.

The cost of insurance charge is equal to our current monthly cost of insurance rate multiplied by the net amount at risk for each segment of your death benefit. We calculate the net amount at risk monthly, on the monthly processing date. 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.

If your base death benefit on a monthly processing date increases as a requirement of the federal income tax law definition of life insurance, the net amount at risk for your base death benefit for that month also increases. Because your target death benefit did not change, the net amount at risk for your adjustable term insurance rider decreases. The amount of your cost of insurance charge varies from month to month as a result of changes in your net amount at risk, changes in the death benefit and the increasing age of the insured person. We allocate the net amount at risk to segments in the same proportion that each segment has to the total stated death benefit for all coverage as of the monthly processing date.

We base your current cost of insurance rates on the insured person's age, gender and premium class on the policy and each segment date. For fully underwritten policies, we make lower cost of insurance rates available for total death benefit amounts of $250,000 or more.

We apply unisex rates where appropriate under the law. This currently includes the state of Montana and policies purchased by employers and employee organizations in connection with employment-related insurance or benefit programs.

Separate cost of insurance rates apply to each segment of the base death benefit, and your riders.

The cost of insurance or rider charges for a class of insured persons may change from time to time. We base the new charge on changes in expectations about:

  • investment earnings
  • mortality
  • the time policies remain in effect
  • expenses
  • taxes.

 

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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 guaranteed maximum rates for the adjustable term insurance rider are 125% of the levels in the Commissioner's Standard Ordinary Sex Distinct Mortality Table.

The maximum rates for the initial and each new segment will be printed in your policy schedule pages.

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 your riders. Rider charges do not include those which are charged as a cost of insurance. See Riders, page 28.

Policy Transaction Fees

We charge fees for certain transactions under your policy. We deduct these fees from the variable and guaranteed interest divisions pro rata to the account value in each.

Excess Illustration Fee

Your first policy illustration in each policy year is free. After that, we assess a fee of $25 per illustration.

Partial Withdrawal Fee

We deduct a service fee of 2% of the requested partial withdrawal (but not more than $25) from your account value for each partial withdrawal. See Partial Withdrawals, page 36.

How We Deduct Charges, Loans and Partial Withdrawals

Monthly Charges: Cost of Insurance Charges, Rider Charges, Administrative Fees Policy Transactions and Fees: Excess Illustration Fee, Loans and Partial Withdrawals
Choice May choose a designated deduction investment option, including the guaranteed interest division May choose any investment option or combination of investment options
Default Proportionally among variable investment options and guaranteed interest division Proportionally among variable investment options and guaranteed interest division

Other Charges

Under current law, we pay no tax on investment income and capital gains included in variable life insurance policy reserves. So no charge is currently made for our federal income taxes. If the tax law changes and we have federal income tax chargeable to the variable investment options, we may make such a charge in the future.

Group, Sponsored or Wrap Fee 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 ING Security Life, its affiliates and appointed sales agents), corporate purchasers, groups or individuals who purchase the policy through wrap fee arrangements, or special exchange programs which we may offer from time to time, we may reduce or waive the:

  • administrative charge
  • minimum death benefit
  • minimum annual premium
  • target premium
  • sales charges
  • cost of insurance charges
  • refund of sales charges
  • mortality and expense risk charges
  • other charges normally assessed.

 

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We reduce or waive these items based on expected economies. 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, sponsored or wrap fee 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.

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 on a group basis or endorse a policy to a group of individuals. Sponsored arrangements include those in which an employer or association allows us to offer policies to its employees or members on an individual basis.

Each sponsored arrangement or corporation may have different group premium payments and premium requirements.

We will not unfairly discriminate 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 Section 7702. While there is very little guidance as to how these requirements are applied, 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.

Section 7702 provides that if one of two alternate tests is met, a policy will be treated as a life insurance policy for federal income tax purposes. These tests are referred to as the "cash value accumulation test" and the "guideline premium/cash value corridor test."

Under the cash value accumulation test, there is no limit to the amount that may be paid in premiums as long as there is enough death benefit in relation to account value at all times. The death benefit at all times must be at least equal to an actuarially determined factor, depending on the insured person's age, sex and premium class at any point in time, multiplied by the account value. See Appendix C, page 236, for a table of the Cash Value Accumulation Test factors.

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. In most situations, the death benefit that results from the guideline premium/cash value corridor test will ultimately be less than the amount of death benefit required under the cash value accumulation test. See Appendix B, page 234, for a table of the Guideline Premium/Cash Value Corridor Test factors.

We will at all times strive to assure that the policy meets the statutory definition which qualifies the policy as life insurance for federal income tax purposes. See Tax Treatment of Policy Death Benefits, page 50.

 

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Diversification and Investor Control Requirements

In addition to meeting the Code Section 7702 tests, Code Section 817(h) requires separate account investments, such as our separate account, to be adequately diversified. The Treasury has issued regulations which set the standards for measuring the adequacy of any diversification. To be adequately diversified, each variable investment option must meet certain tests. If your variable life policy is not adequately diversified under these regulations, it is not treated as life insurance under Code Section 7702. You would then be subject to federal income tax on your policy income as you earn it. Our variable investment options' investment portfolios have represented that they will meet the diversification standards that apply to your policy.

In certain circumstances, you, as owner of a variable life insurance policy, may be considered the owner for federal income tax purposes of the separate account assets used to support your policy. 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 additional 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.

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, such as reduction in benefits, 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.

If a policy becomes a modified endowment contract, distributions that occur during the policy year will be taxed as distributions from a modified endowment contract. In addition, distributions from a policy within two years before it becomes a modified endowment contract will be taxed in this manner. This means that a distribution made from a policy that is not a modified endowment contract could later become taxable as a distribution from 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

 

Strategic Investor   			50

 

amount includable in the policy owner's income when a taxable distribution occurs.

Distributions Other than Death Benefits

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

Once a policy is classified as a modified endowment contract, the following tax rules apply both prospectively and to any distributions made in the prior two years:

  1. All distributions other than death benefits, including distributions upon surrender and withdrawals, from a modified endowment contact will be treated first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed.
  2. Loan amounts taken from or secured by a policy classified as a modified endowment contract are treated as distributions and taxed first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed.
  3. A 10% additional income tax penalty may be imposed on the distribution amount subject to income tax. This tax penalty generally does not apply to distributions (a) made on or after the date on which the taxpayer attains age 59 ½, (b) which are attributable to the taxpayer's becoming disabled (as defined in the Internal Revenue Code), or (c) which are part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and his or her beneficiary. Consult a tax adviser to determine whether or not you may be subject to this penalty tax.

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 taxed as distributions. However, the tax consequences of such a loan that is outstanding after policy year 10 are uncertain and a tax advisor should be consulted about such loans. 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, 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 preferred loan available in the policy are uncertain. Before taking out a policy loan, you should consult a tax adviser as to the tax consequences.

 

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If a loan from a policy is outstanding when the policy is canceled or lapses, then the amount of the outstanding indebtedness will be added to the amount treated as a distribution from the policy and will be taxed accordingly.

Accelerated Death Benefit Rider

We believe that payments under the accelerated death benefit rider should be fully excludable from the gross income of the beneficiary if the beneficiary is the insured under the policy. (See Accelerated Death Benefit Rider, page 30, for more information about this rider.) However, you should consult a qualified tax adviser about the consequences of adding this rider to a policy or requesting payment under this rider.

Continuation of Policy Beyond Age 100

The tax consequences of continuing the policy beyond the policy anniversary nearest the insured person's 100th birthday are unclear. You should consult a tax adviser if you intend to keep the policy in force beyond the policy anniversary nearest the insured person's 100th birthday.

Section 1035 Exchanges

Code Section 1035 generally provides that no gain or loss shall be recognized on the exchange of one life insurance policy for another life insurance policy or for an endowment or annuity contract. We accept 1035 exchanges with outstanding loans. Special rules and procedures apply to Section 1035 exchanges. If you wish to take advantage of Section 1035, you should consult your tax adviser.

Tax-exempt Policy Owners

Special rules may apply to a policy that is owned by a tax-exempt entity. Tax-exempt entities should consult their tax adviser regarding the consequences of purchasing and owning a policy. These consequences could include an effect on the tax-exempt status of the entity and the possibility of the unrelated business income tax.

Possible Tax Law Changes

Although the likelihood of legislative action is uncertain, there is always the possibility that the tax treatment of the policy could be changed by legislation or otherwise. You should consult a tax adviser with respect to legislative developments and their effect on the policy.

Changes to Comply with the Law

So that your policy continues to qualify as life insurance under the Code, we reserve the right to refuse to accept all or part of your premium payments or to change your death benefit. We may refuse to allow you to make partial withdrawals that would cause your policy to fail to qualify as life insurance. We also may make changes to your policy or its riders or 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.

Any increase in your death benefit will cause an increase in your cost of insurance charges.

Other

The policy is not available for sale to and cannot be acquired with funds that are assets of (i) an employee benefit plan as defined in section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and that is subject to Title I of ERISA; (ii) a plan described in section 4975(e)(1) of the Internal Revenue Code of 1986 or (iii) an entity whose underlying assets include plan assets by reason of the investment by an employee benefit plan or other plan in such entity within the meaning of 29 C.F.R. Section 2510.3-101 or otherwise.

Policy owners may use our policies in various other arrangements, including:

  • non-qualified deferred compensation or salary continuance plans
  • split dollar insurance plans
  • executive bonus plans
  • retiree medical benefit plans
  • 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

 

Strategic Investor   			52

 

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.

 

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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 5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of each person denoted with two asterisks (**) is 20 Washington Avenue South, Minneapolis, MN 55401.

Name and Principal
Business and Address		 Position and Offices with Security Life of Denver Insurance Company
Robert C. Salipante** Chief Executive Officer, Director
Wayne R. Huneke* Chief Financial Officer, Director
Mark A. Tullis Director
P. Randall Lowery Director
Thomas J. McInerney Director
Chris D. Schreier** President
James L. Livingston, Jr. Executive Vice President
Douglas W. Campbell Senior Vice President, Agency Sales
Paula Cludray-Engelke** Secretary
Eric G. Banta Assistant Secretary
Rita J. Kummer Assistant Secretary

 

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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 and certain matters relating to the federal securities laws have been passed on by Counsel of ING Security Life.

Legal Proceedings

ING Security Life, as an insurance company, is ordinarily involved in litigation. We do not believe that any current litigation is material to ING 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

<R>The statutory basis financial statements of Security Life of Denver Insurance Company at December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, and the financial statements of the Security Life Separate Account L1 at December 31, 2000, and for each of the three years in the period ended December 31, 2000, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. Other financial statements included in the prospectus are unaudited.</R>

Actuarial matters in this prospectus have been examined by James L. Livingston, Jr., F.S.A., M.A.A.A., who is Executive Vice President of ING Security Life. His opinion on actuarial matters is filed as an exhibit to the Registration Statement we filed with the SEC.

Registration Statement

We have filed a Registration Statement relating to the separate account and the variable life insurance policy described in this prospectus with the SEC. The Registration Statement, which is required by the Securities Act of 1933, includes additional information that is not required in this prospectus under the rules and regulations of the SEC. The additional information may be obtained from the SEC's principal office in Washington, DC. There is a charge for this material.

 

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FINANCIAL STATEMENTS

<R>The statutory-basis financial statements of Security Life of Denver Insurance Company ("Security Life") at December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, are prepared in conformity with accounting practices prescribed or permitted by the Division of Insurance of the Department of Regulatory Agencies of the State of Colorado (Colorado Division of Insurance), which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States, and start on page 57. The financial statements included for the Security Life Separate Account L1 at December 31, 2000, and for each of the three years in the period ended December 31, 2000, are prepared in accordance with accounting principles generally accepted in the United States and represent those divisions that had commenced operations by that date. The financial statements of Security Life, 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 financial statements of Security Life 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 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. Other financial statements included in the prospectus are unaudited.

 

Strategic Investor   			56

 

Security Life of Denver Insurance Company
Financial Statements -- Statutory Basis
Years ended December 31, 2000, 1999, and 1998
with Report of Independent Auditors

 

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Security Life of Denver Insurance Company

Financial Statements - Statutory Basis

Years ended December 31, 2000, 1999 and 1998

Contents

Report of Independent Auditors      59

Audited Financial Statements - Statutory Basis

Balance Sheets - Statutory Basis     60
Statements of Operations - Statutory Basis     62
Statements of Changes in Capital and Surplus - Statutory Basis     64
Statements of Cash Flow - Statutory Basis     65
Notes to Financial Statements - Statutory Basis     67

 

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Report of Independent Auditors

Board of Directors and Stockholder
Security Life of Denver Insurance Company

We have audited the accompanying statutory-basis balance sheets of Security Life of Denver Insurance Company (a wholly owned subsidiary of ING America Insurance Holdings, Inc.) as of December 31, 2000 and 1999, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Division of Insurance of the Department of Regulatory Agencies of the State of Colorado (Colorado Division of Insurance), which practices differ from accounting principles generally accepted in the United States. The variances between such practices and accounting principles generally accepted in the United States are described in Note 1. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material.

In our opinion, because of the effects of the matter described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States, the financial position of Security Life of Denver Insurance Company at December 30, 2000 and 1999 or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2000.

However, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Security Life of Denver Insurance Company at December 31, 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting practices prescribed or permitted by the Colorado Division of Insurance.

 

March 23, 2001

 

Strategic Investor   			59

 

Security Life of Denver Insurance Company

Balance Sheets--Statutory Basis

(In Thousands)

September 30,
2001
 December 31
2000
 1999
Admitted assets (Unaudited)
Cash and invested assets:
Bonds $   6,601,832 $4,573,658 $3,418,381
    Preferred stocks 12,819 13,524 2,560
    Common stocks 19,112 15,483 4,977
    Subsidiaries 88,870 85,324 77,127
    Mortgage loans 2,191,673 1,672,169 983,087
    Real estate, less accumulated depreciation
         (2001 - $11,469; 2000 - $10,961;
          1999 - $10,069) 		33,702 34,066 31,363
    Policy loans 1,056,246 992,911 943,185
    Other invested assets 58,530 42,926 35,666
    Cash and short-term investments 354,643
 203,664
 226,054
Total cash and invested assets 10,417,427 7,633,725 5,722,400
 
 
 
Deferred and uncollected premiums, less loading
    (2001 - $995; 2000 - $1,814; 1999 - $2,684)		 119,891 135,041 101,343
Accrued investment income 115,864 95,887 75,101
Reinsurance balances recoverable 863,261 54,559 43,179
Data processing equipment, less accumulated
    depreciation (2001 - $1,386; 2000 - $1,340;
    1999 - $8,381)		 171 216 202
Indebtedness from related parties 35,769 69,338 42,451
Federal income tax recoverable 63,436 32,108 25,626
Separate account assets 772,267 799,966 644,975
Other assets 13,894 14,902 15,930
 
 
 
 
Total admitted assets $12,401,980
 $8,835,742
 $6,671,207

 

Strategic Investor   			60

 

September 30,
2001
 December 31
2000
 1999
(Unaudited) (In Thousands,
except share
amounts)
Liabilities and capital and surplus
Liabilities:
    Policy and contract liabilities:
        Life and annuity reserves $    6,193,466 $5,247,418 $4,924,746
        Accident and health reserves 23 23 11
        Deposit type contracts 3,877,860 - -
        Guaranteed investment contracts - 1,685,391 335,507
        Policyholders' funds 100,482 71,669 91,920
        Dividends left on deposit 8,800 8,748 8,647
        Dividends payable 4,129 2,755 2,626
        Unpaid claims 245,875
 182,051
 126,172
    Total policy and contract liabilities 10,430,635 7,198,055 5,489,629
 
    Accounts payable and accrued expenses 206,494 126,512 86,580
    Reinsurance balances due 13,951 15,520 14,565
    Indebtedness to related parties 15,000 8,016 18,329
    Litigation reserve 18,912 20,449 37,538
    Asset valuation reserve 70,071 52,125 29,875
    Interest maintenance reserve - - 1,523
    Borrowed money 228,673 127,993 15,200
    Other liabilities 131,833 (4,226) (25,008)
    Separate account liabilities 772,267
 799,966
 644,975
Total liabilities 11,887,836 8,344,410 6,313,206
 
Commitments and contingencies
 
Capital and surplus:
    Common stock, $20,000 par value:
        Authorized - 149 shares
        Issued and outstanding - 144 shares 2,880 2,880 2,880
        Surplus notes 165,032 184,259 100,000
    Paid-in and contributed surplus 435,562 435,562 374,562
    Unassigned deficit (89,330)
 (131,369)
 (119,441)
Total capital and surplus 514,144
 491,332
 358,001
Total liabilities and capital and surplus $ 12,401,980
 $8,835,742
 $6,671,207

See accompanying notes - statutory basis.

 

Strategic Investor   			61

 

Security Life of Denver Insurance Company

Statements of Operations--Statutory Basis
(In Thousands)

September 30,
2001
 Year ended December 31
2000
 1999
 1998
(Unaudited)
Premiums and other revenues:
    Life, annuity, and accident and health
         premiums		 $    1,788,490 $2,959,593 $1,459,361 $1,130,674
    Policy proceeds and dividends left on
         deposit		 15 388 651 515
    Net investment income 452,953 474,021 387,685 349,605
    Amortization of interest maintenance
         reserve		 531 670 2,358 3,793
Commissions, expense allowances and
    reserve adjustments on reinsurance
    ceded		 1,501 9,832 11,331 13,255
Considerations and reserve allowances on
    modified coinsurance		 4,491
 2,632
 3,670
 945
Total premiums and other revenues 2,247,981 3,447,136 1,865,056 1,498,787
 
Benefits paid or provided:
    Death benefits 272,281 316,167 273,368 270,537
    Annuity benefits 9,642 11,782 24,573 10,769
    Surrender benefits 204,191 258,858 229,434 198,988
    Interest on policy or contract funds 104,061 64,719 17,473 13,832
    Accident and health benefits 2,902 93 2,235 3,699
    Guaranteed investment contract
        withdrawals		 - 1,072,574 12,186 -
    Life contract withdrawals 951,798 - - -
    Other benefits 995 17,198 13,612 17,750
Increase in life, annuity, and accident and
    health reserves		 194,623 320,721 491,978 581,110
Increase in liability for guaranteed
    investment contracts		 - 721,725 335,507 -
Net transfers to separate accounts 129,817
 256,538
 78,988
 65,738
Total benefits paid or provided 1,870,310 3,040,375 1,479,354 1,162,423
 
Insurance expenses:
    Commissions 186,512 242,998 222,005 199,786
    General expenses 91,263 130,962 104,808 96,891
    Insurance taxes, licenses and fees,
         excluding federal income taxes		 10,474
 23,103
 23,861
 23,121
Total insurance expenses 288,249
 397,063
 350,674
 319,798
 
Gain from operations before policyholder
    dividends, federal income taxes and net
    realized capital gains		 89,422 9,698 35,028 16,566

 

Strategic Investor   			62

 

Security Life of Denver Insurance Company

Statements of Operations--Statutory Basis (continued)
(In Thousands)

September 30,
2001
 Year ended December 31
2000
 1999
 1998
(Unaudited)
 
Dividends to policyholders 2,560
 2,546
 2,594
 2,399
 
Gain from operations before federal income
    taxes and net realized capital losses		 86,862 7,152 32,434 14,167
Federal income taxes 54,406
 (1,339)
 8,613
 2,371
Gain from operations before net realized
    capital losses		 32,456 8,491 23,821 11,796
Net realized capital gains (losses) net of
    income taxes (2001 - $5,806; 2000 -
    $(7,916); 1999 - $(15,108), 1998-
    $2,001) and excluding net transfers to the
    interest maintenance reserve (2001 -
    $8,487; 2000 - $(18,289); 1999 -
    $(19,866); 1998 - $8,549)		 (10,017)
 3,589
 (8,194)
 (4,834)
Net income $     22,439
 $     12,080
 $     15,627
 $     6,962

See accompanying notes - statutory basis.

 

Strategic Investor   			63

 

Security Life of Denver Insurance Company

Statements of Changes in Capital and Surplus--Statutory Basis
(In Thousands)

September 30,
2001
 Year ended December 31
2000
 1999
 1998
(Unaudited)
Common stock:
    Balance at beginning and end of year $     2,880
 $    2,880
 $     2,880
 $     2,880
 
Surplus note:
    Balance at beginning of year $ 184,259 $ 100,000 $ 100,000 $   75,000
    Increase (decrease) in surplus note (19,227)
 84,259
 -
 25,000
    Balance at end of year $ 165,032
 $ 184,259
 $ 100,000
 $ 100,000
 
Paid-in and contributed surplus:
    Balance at beginning of year $ 435,562 $ 374,562 $ 344,562 $ 344,562
    Capital contributions -
 61,000
 30,000
 -
    Balance at end of year $ 435,562
 $ 435,562
 $ 374,562
 $ 344,562
 
Unassigned deficit:
    Balance at beginning of year $(131,369) $(119,441) $(134,540) $ (86,233)
    Net income 22,439 12,080 15,627 6,962
    Change in net unrealized capital gains or losses 1,847 12,101 (61) 7,839
    Change in net deferred income tax 1,158 - - -
    Decrease (increase) in nonadmitted assets 1,625 (11,048) (7,336) (28,686)
    (Increase) decrease in liability for reinsurance in
         unauthorized companies		 ( 915) (393) (550) 545
    (Increase) decrease in asset valuation reserve (17,947) (22,250) 1,726 (6,084)
    Increase in reserve valuation basis - - - (2,994)
    Increase in litigation reserve, net of tax - - - (26,000)
    Cession of existing risks, net of tax - (2,418) 127 12,591
    Prior period adjustments (8,054) - - (12,480)
    Change in accounting policy, net of tax - - 5,566 -
    Change in accounting principle 41,886
 -
 -
 -
    Balance at end of year $      (89,330)
 $(131,369)
 $(119,441)
 $(134,540)
 
Total capital and surplus $     514,144
 $ 491,332
 $ 358,001
 $ 312,902

See accompanying notes - statutory basis.

 

Strategic Investor   			64

 

Security Life of Denver Insurance Company

Statements of Cash Flow--Statutory Basis
(In Thousands)

September 30,
2001
 Year ended December 31
2000
 1999
 1998
(Unaudited)
Operations
Premiums, policy proceeds, and other
    considerations received, net of reinsurance
    paid		 $ 4,033,087 $2,910,602 $1,453,924 $1,128,910
Net investment income received 425,249 470,812 379,574 361,645
Commission and expense allowances
    received on reinsurance ceded		 1,501 9,831 9,246 10,709
Benefits paid (1,466,686) (1,691,985) (558,572) (494,981)
Net transfers to separate accounts (139,957) (225,694) (101,948) (96,273)
Insurance expenses paid (293,043) (361,130) (337,254) (325,688)
Dividends paid to policyholders (1,186) (2,417) (2,562) (2,317)
Federal income taxes received (paid) (39,119) 11,961 (28,779) (17,582)
Other revenues in excess of other (expenses) 189,818
 611,646
 (9,832)
 11,734
Net cash provided by operations 2,709,664 1,733,626 803,797 576,157
 
Investments
Proceeds from sales, maturities, or
    repayments
of investments:
    Bonds 2,596,755 2,254,036 2,051,280 4,353,422
    Preferred stocks - 67 1,900 627
    Common stocks 5,450 - - 1,362
    Mortgage loans 75,249 79,874 45,272 48,709
    Other invested assets 51,802 106,724 310,554 362,419
    Miscellaneous proceeds (15,926) 11,213 - 9,836
Net proceeds from sales, maturities, or
    repayments of investments		 2,713,330 2,451,914 2,409,006 4,776,375
 
Cost of investments acquired:
    Bonds 4,635,879 3,458,376 2,631,687 4,720,513
    Preferred stocks - 11,031 - 2,060
    Common stocks 10,740 10,450 10 341
    Mortgage loans 595,269 769,741 262,886 246,511
    Real estate 145 3,653 189 98
    Other invested assets 46,932 109,244 88,661 387,144
    Miscellaneous (receipts) applications -
 23,155
 (18,179)
 8,516
Total cost of investments acquired 5,288,965 4,385,650 2,965,254 5,365,183
 
Net increase in policy loans 63,335
 49,725
 35,890
 51,702
Net cash used in investment activities (2,638,970) (1,983,461) (592,138) (640,510)

 

Strategic Investor   			65

 

Security Life of Denver Insurance Company

Statements of Cash Flow--Statutory Basis (continued)
(In Thousands)

September 30,
2001
 Year ended December 31
2000
 1999
 1998
(Unaudited)
Financing and miscellaneous activities
Cash provided:
    Capital and surplus paid-in (19,228) 126,000 20,000 25,000
    Borrowed money 100,681 112,792 15,200 -
    Other sources (1,168)
 (11,347)
 (50,565)
 1,390
Net cash provided by (used in) financing and
    miscellaneous activities		 80,285
 227,445
 (15,365)
 26,390
 
 
Net (decrease) increase in cash and short-
    term investments		 150,979 (22,390) 196,294 (37,963)
Cash and short-term investments:
    Beginning of year 203,664
 226,054
 29,760
 67,723
    End of year $354,643
 $203,664
 $226,054
 $ 29,760

See accompanying notes - statutory basis.

 

Strategic Investor   			66

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis

December 31, 2000

1. Nature of Operations and Basis of Financial Reporting

Security Life of Denver Insurance Company (the Company) is a wholly owned subsidiary of ING America Insurance Holdings, Inc. (ING America). The Company focuses on three markets, the advanced market, reinsurance to other insurers and the investment products market. The life insurance products offered for the advanced market include wealth transfer and estate planning, executive benefits, charitable giving and corporate-owned life insurance. These products include traditional life, interest-sensitive life, universal life, and variable life. Operations are conducted almost entirely on the general agency basis and the Company is presently licensed in all states (approved for reinsurance only in New York), the District of Columbia and the U.S. Virgin Islands. In the reinsurance market, the Company offers financial security to clients through a mix of total risk management and traditional life insurance services. In the investment products market, the Company offers guaranteed investment contracts, funding agreements, and Trust notes to institutional buyers.

The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

Basis of Presentation

The accompanying financial statements of the Company have been prepared in conformity with accounting practices prescribed or permitted by the Division of Insurance of the Department of Regulatory Agencies of the State of Colorado (Colorado Division of Insurance), which practices differ from accounting principles generally accepted in the United States ("GAAP"). The most significant variances from GAAP are as follows:

Investments

Investments in bonds and mandatorily redeemable preferred stocks are reported at amortized cost or market value based on the National Association of Insurance Commissioners ("NAIC") rating; for GAAP, such fixed maturity investments are designated at purchase as held-to-maturity, trading or available-for-sale. Held-to-maturity investments are reported at amortized cost, and the remaining fixed maturity investments are reported at fair value with unrealized capital gains and losses reported in operations for those designated as trading and as a separate component of other comprehensive income in stockholder's equity for those designated as available-for-sale.

Investments in real estate are reported net of related obligations rather than on a gross basis. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset, and investment income and operating expenses include rent for the Company's occupancy of those properties. Changes between depreciated cost and admitted asset investment amounts are credited or charged directly to unassigned surplus rather than income.

 

Strategic Investor   			67

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

1. Nature of Operations and Basis of Financial Reporting (continued)

Valuation Allowances

The asset valuation reserve (AVR) is determined by an NAIC-prescribed formula and is reported as a liability rather than as a valuation allowance or an appropriation of surplus. The change in AVR is reported directly to unassigned surplus.

Under a formula prescribed by the NAIC, the Company defers the portion of realized gains and losses on sales of fixed-income investments, principally bonds and mortgage loans attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity based on groupings of individual securities sold in five-year bands. The net deferral is reported as the interest maintenance reserve (IMR) in the accompanying balance sheets.

Realized gains and losses on investments are reported in operations net of federal income tax and transfers to the IMR. Under GAAP, realized capital gains and losses are reported in the statements of operations on a pretax basis in the period that the asset giving rise to the gain or loss is sold and valuation allowances are provided when there has been a decline in value deemed other than temporary, in which case the provision for such declines is charged to income.

Policy Acquisition Costs

The costs of acquiring and renewing business are expensed when incurred. Under GAAP, acquisition costs related to traditional life insurance, to the extent recoverable from future policy revenues, are deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance and investment products, acquisition costs are amortized generally in proportion to the present value of expected gross margins from surrender charges and investment, mortality, and expense margins.

Benefit and Contract Reserves

Life policy and contract reserves under statutory accounting practices are calculated based upon both the net level premium and Commissioners' Reserve Valuation methods using statutory rates for mortality and interest. GAAP requires that policy reserves for traditional products be based upon the net level premium method utilizing reasonably conservative estimates of mortality, interest, and withdrawals prevailing when the policies were sold. For interest-sensitive products, the GAAP policy reserve is equal to the policy fund balance plus an unearned revenue reserve which reflects the unamortized balance of early year policy loads over renewal year policy loads.

Reinsurance

For business ceded to unauthorized reinsurers, statutory accounting practices require that reinsurance credits permitted by the treaty be recorded as an offsetting liability and charged against unassigned surplus. Such treatment is not required by GAAP. Statutory income recognized on certain reinsurance treaties representing financing arrangements is not recognized on a GAAP basis.

 

Strategic Investor   			68

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

1. Nature of Operations and Basis of Financial Reporting (continued)

Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as required under GAAP.

Commissions allowed by reinsurers on business ceded are reported as income when received rather than being deferred and amortized with deferred policy acquisition costs as required under GAAP.

Subsidiaries

The accounts and operations of the Company's subsidiaries are not consolidated with the accounts and operations of the Company as required under GAAP.

Nonadmitted Assets

Certain assets designated as "nonadmitted," principally the difference between amortized cost and fair value of less-than-investment-grade bonds, agents' debit balances, furniture and equipment and deferred federal income tax recoverable, are excluded from the accompanying balance sheets and are charged directly to unassigned surplus.

Employee Benefits

For purposes of calculating the Company's postretirement benefit obligation, only vested participants and current retirees are included in the valuation. Under GAAP, active participants not currently vested are also included.

Investment-type Products

Revenues for investment-type products consist of the entire premium received and benefits represent the death benefits paid and the change in policy reserves. Under GAAP, premiums received in excess of policy charges are not recognized as premium revenue; benefits represent the excess of benefits paid over the policy account value and interest credited to the account values.

Policyholder Dividends

Policyholder dividends are recognized when declared rather than over the term of the related policies.

Surplus Notes

Surplus notes are reported as a component of surplus. Under statutory accounting practices, no interest is recorded on the surplus notes until payment has been approved by the Colorado Division of Insurance. Under GAAP, surplus notes are reported as liabilities and the related interest is reported as a charge to earnings over the term of the note.

 

Strategic Investor   			69

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

1. Nature of Operations and Basis of Financial Reporting (continued)

Statements of Cash Flows

Cash and short-term investments in the statements of cash flows represent cash balances and investments with initial maturities of one year or less. Under GAAP, the corresponding caption of cash and cash equivalents include cash balances and investments with initial maturities of three months or less.

Reconciliation to GAAP

The effects of the preceding variances from GAAP on the accompanying Statutory-basis financial statements have not been determined, but are presumed to be material.

Other significant accounting practices are as follows:

Investments

Bonds, preferred stocks, common stocks, short-term investments and derivative instruments are stated at values prescribed by the NAIC, as follows:

Bonds not backed by other loans are principally stated at amortized cost using the interest method.
        
Single class and multi-class mortgage-backed/asset-backed securities are valued at amortized cost using the interest method including anticipated prepayments. Prepayment assumptions are obtained from dealer surveys or internal estimates and are based on the current interest rate and economic environment. The retrospective adjustment method is used to value all such securities except for higher-risk asset backed securities, which are valued using the prospective method.
 
Redeemable preferred stocks are reported at cost or amortized cost or the lower of cost, amortized cost, or market value and nonredeemable preferred stocks are reported at market value or the lower of cost or market value as determined by the Securities Valuation Office of the NAIC ("SVO").
 
Common stocks are reported at market value as determined by the SVO and the related unrealized capital gains/(losses) are reported in unassigned surplus without any adjustment for federal income taxes.
 
The Company uses interest rate swaps, caps and floors, options and certain other derivatives as part of its overall interest rate risk management strategy for certain life insurance and annuity products. As the Company only uses derivatives for hedging purposes, the Company values all derivative instruments on a consistent basis with the hedged item. Upon termination, gains and losses on those instruments are included in the carrying values of the underlying hedged items and are amortized over the remaining lives of the hedged items as adjustments to investment income or benefits from the hedged items. Any unamortized gains or losses are recognized when the underlying hedged items are sold.

 

Strategic Investor   			70

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

1. Nature of Operations and Basis of Financial Reporting (continued)

 
       Interest rate swap contracts are used to convert the interest rate characteristics (fixed or variable) of certain investments to match those of the related insurance liabilities that the investments are supporting. The net interest effect of such swap transactions is reported as an adjustment of interest income from the hedged items as incurred.
 
Interest rate caps and floors are used to limit the effects of changing interest rates on yields of variable rate or short-term assets or liabilities. The initial cost of any such agreement is amortized to net investment income over the life of the agreement. Periodic payments that are receivable as a result of the agreements are accrued as an adjustment of interest income or benefits from the hedged items.
 
The Company's insurance subsidiaries are reported at their underlying statutory-basis net assets plus the admitted portion of goodwill, and the Company's noninsurance subsidiary is reported at the GAAP-basis of its net assets. The admitted portion of goodwill, which represents the excess of the purchase price over the statutory-basis net assets of the subsidiary at acquisition, is amortized on a straight-line basis over ten years. Dividends from subsidiaries are included in net investment income. The remaining net change in the subsidiaries' equity is included in the change in net unrealized capital gains or losses.
Mortgage loans are reported at unpaid principal balances, less allowance for impairments.
 
Policy loans are reported at unpaid principal balances.
 
Land is reported at cost. Real estate occupied by the company is reported at depreciated cost; other real estate is reported at the lower of depreciated cost or fair value. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties.
 
Dollar roll transactions are accounted for as collateral borrowings, where the amount borrowed is equal to the sales price of the underlying securities.
 
Short-term investments are reported at cost. Short-term investments include investments with maturities of less than one year at the date of acquisition.
 
Other invested assets are reported at amortized cost using the effective interest method. Other invested assets primarily consist of residual collateralized mortgage obligations and partnership interests.
 
Realized capital gains and losses are determined using the specific identification basis. Changes in market values of common stocks are reported as a change in unrealized gains or losses directly in unassigned surplus and, accordingly, have no effect on net income.

 

Strategic Investor   			71

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

1. Nature of Operations and Basis of Financial Reporting (continued)

Aggregate Reserve for Life Policies and Contracts

Life, annuity, and accident and health reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum or guaranteed policy cash value or the amounts required by law. Interest rates range from 2% to 11.25%.

The Company waives the deduction of deferred fractional premiums upon the death of the insured. It is the Company's practice to return a pro rata portion of any premium paid beyond the policy month of death, although it is not contractually required to do so for certain issues.

The methods used in valuation of substandard policies are as follows:

       1.    For Life, Endowment and Term policies issued substandard, the standard reserve during the premium-paying period is increased by 50% of the gross annual extra premium. Standard reserves are held on Paid-Up Limited Pay contracts.
 
2. For reinsurance accepted:
 
a.    with table rating, the reserve established is a multiple of the standard reserve corresponding to the table rating;
 
b.    with flat extra premiums, the standard reserve is increased by 50% of the flat extra.

The amount of insurance in force for which the gross premiums are less than the net premiums, according to the standard of valuation required by the State of Colorado, is $61,062,274,000 at December 31, 2000. The amount of reserves for policies on which gross premiums are less than the net premiums is $783,259,000 at December 31, 2000.

The tabular interest has been determined from the basic data for the calculation of policy reserves for all direct ordinary life insurance and for the portion of group life insurance classified as group Section 79. The method of determination of tabular interest of funds not involving life contingencies is as follows: current year reserves, plus payments, less prior year reserves, less funds added.

Reinsurance

Reinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Reserves are based on the terms of the reinsurance contracts, and are consistent with the risks assumed. Premiums and benefits ceded to other companies have been reported as a reduction of premium revenue and benefits expense. Amounts applicable to reinsurance ceded for reserves and unpaid claim liabilities have been reported as reductions of these items, and expense allowances received in connection with reinsurance ceded have been reflected in operations.

 

Strategic Investor   			72

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

1. Nature of Operations and Basis of Financial Reporting (continued)

Real Estate and Electronic Data Processing Equipment

Real estate and electronic data processing equipment are carried at cost less accumulated depreciation. Depreciation for major classes of assets is calculated on a straight-line basis over the estimated useful life.

Participating Insurance

Participating business approximates less than 1% of the Company's ordinary life insurance in force and 1.5% of premium income. The amount of dividends to be paid is determined annually by the Board of Directors. Amounts allocable to participating policyholders are based on published dividend projections or expected dividend scales. Dividends of $2,417,000, $2,562,000 and $2,317,000 were paid in 2000, 1999 and 1998, respectively.

Federal Income Taxes

Deferred federal income taxes have been recognized to reflect prepayment of taxes relating to significant timing differences between income reported for tax and financial statement purposes using assumptions that are both reasonable and conservative. The deferred tax asset has been nonadmitted as a charge against surplus.

Pension Plans

The Company provides noncontributory retirement plans for substantially all employees and certain agents. Pension costs are charged to operations as contributions are made to the plan. The Company also provides a contributory retirement plan for substantially all employees.

Nonadmitted Assets

Nonadmitted assets are summarized as follows:

December
2000
 1999
(In thousands)
 
Deferred federal income tax recoverable $159,281 $169,893
Agents' debit balances 2,354 2,652
Furniture and equipment 4,308 4,168
Bonds in default 549 4,303
Disallowed Interest Maintenance Reserves 17,436 -
Other 4,910
 714
Total nonadmitted assets $188,838
 $181,730

Changes in nonadmitted assets are generally reported directly in surplus as an increase or decrease in nonadmitted assets. Certain changes are reported directly in surplus as a change in unrealized capital gains or losses.

 

Strategic Investor   			73

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

1. Nature of Operations and Basis of Financial Reporting (continued)

Claims and Claims Adjustment Expenses

Claim expenses represent the estimated ultimate net cost of all reported and unreported claims incurred through December 31. The Company does not discount claim and claim adjustment expense reserves. Such estimates are based on actuarial projections applied to historical claim payment data. Such liabilities are considered to be reasonable and adequate to discharge the Company's obligations for claims incurred but unpaid as of December 31.

Cash Flow Information

Cash and short-term investments include cash on hand, demand deposits and short-term fixed maturity instruments (with a maturity of less than one year at date of acquisition).

The Company borrowed $1,387,826,000 and repaid $1,382,300,000 during 2000, borrowed $2,055,061,000 and repaid $2,039,861,000 during 1999, and borrowed $837,411,000 and repaid $837,411,000 during 1998. These borrowings were on a short-term basis, at an interest rate that approximated current money market rates and exclude borrowings from dollar roll transactions. Interest paid on borrowed money was $1,586,000, $2,180,000 and $4,500,000 during 2000, 1999 and 1998, respectively.

Separate Accounts

Separate accounts held by the Company represent funds held for the benefit of the Company's variable life and annuity policy and contract holders who bear all of the investment risk associated with the policies. All net investment experience, positive or negative, is attributed to the policy and contract holders' account values. The assets and liabilities of these accounts are carried at fair value.

Reserves related to the Company's mortality risk associated with these policies are included in life and annuity reserves. The operations of the separate accounts are not included in the accompanying statements of operations.

2. Permitted Statutory-Basis Accounting Practices

The Company prepares statutory-basis financial statements in accordance with accounting practices prescribed or permitted by the Colorado Division of Insurance. Currently, prescribed statutory accounting practices are interspersed throughout state insurance laws and regulations, NAIC's Accounting Practices and Procedures Manual and a variety of publications of the NAIC. "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, and from company to company within a state, and may change in the future.

The NAIC has revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised manual will be effective January 1, 2001. The State of Colorado has adopted the provisions of the revised manual. The revised manual has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that the Company uses to prepare its statutory-basis financial statements. The cumulative effect of changes in accounting principles adopted to

 

Strategic Investor   			74

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

2. Permitted Statutory-Basis Accounting Practices (continued)

conform to the revised Accounting Practices and Procedures Manual, will be reported as an adjustment to surplus as of January 1, 2001. Management believes the effect of these changes will not result in a significant reduction in the Company's statutory-basis capital and surplus as of adoption. (See Note 19).

The Company is required to identify those significant accounting practices that are permitted, and obtain written approval of the significant practices from the Colorado Division of Insurance.

Prescribed statutory reserve methodology does not fully encompass universal life-type products. The NAIC, however, has promulgated a Model Regulation regarding universal life reserves. The Colorado Division of Insurance has not adopted the regulation, but requires that reserves be held which are at least as great as those required by Colorado statutes. The NAIC Universal Life Model Regulation is used by the Company to provide reserves consistent with the principles of this article. Because the reserves satisfy the requirements prescribed by the State of Colorado for the valuation of universal life insurance, the Company is permitted to compute reserves in accordance with this model regulation.

3. Investments

The amortized cost and fair value of bonds and equity securities are as follows:

Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair Value
(In Thousands)
At December 31, 2000:
U.S. Treasury securities and obligations of
    U.S. government corporations and
    agencies		 $     90,840 $    3,049 $     317 $    93,572
    States, municipalities, and political
        subdivisions		 125 2 - 127
    Public utilities securities 285,546 3,616 10,684 278,478
    Corporate securities 2,269,006 45,861 67,427 2,247,440
    Mortgage-backed securities 1,166,237 43,237 23,305 1,186,169
    Other asset-backed securities 762,453
 18,052
 18,770
 761,735
Total fixed maturities 4,574,207 113,817 120,503 4,567,521
 
    Preferred stocks 13,524 3 - 13,527
    Common stocks 12,853
 2,630
 -
 15,483
Total equity securities 26,377
 2,633
 -
 29,010
Total $4,600,584
 $116,450
 $120,503
 $4,596,531

 

Strategic Investor   			75

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

3. Investments (continued)

Amortized
Cost
 Gross
Unrealized
Gains
 Gross
Unrealized
Losses
 Fair
Value
(In Thousands)
At December 31, 1999:
U.S. Treasury securities and obligations
    of U.S. government corporations and

    Agencies

 $     54,461 $     42 $    5,112 $     49,391
States, municipalities, and political
    Subdivisions		 751 - 9 742
Public utilities securities 255,807 272 18,221 237,858
Debt securities issued by foreign
    Governments		 452 - - 452
Corporate securities 1,338,680 3,801 71,739 1,270,742
Mortgage-backed securities 1,055,856 23,727 56,039 1,023,544
Other asset-backed securities 716,677
 7,580
 32,221
 692,036
Total fixed maturities 3,422,684 35,422 183,341 3,274,765
  
    Preferred stocks 2,560 329 - 2,889
    Common stocks 2,404
 2,573
 -
 4,977
Total equity securities 4,964
 2,902
 -
 7,866
Total $3,427,648
 $38,324
 $183,341
 $3,282,631

 

Amortized
Cost
 Fair
Value
December 31, 2000 (In Thousands)
Maturity:
    Due in 1 year or less $             - $             -
    Due after 1 year through 5 years 676,919 682,616
    Due after 5 years through 10 years 881,403 862,763
    Due after 10 years 1,087,195
 1,074,238
 
Mortgage-backed securities 1,166,237 1,186,169
Other asset-backed securities 762,453
 761,735
Total $4,574,207
 $4,567,521

At December 31, 2000, investments in certificates of deposit, bonds, and mortgage loans, with an admitted asset value of $20,777,000, were on deposit with state insurance departments to satisfy regulatory requirements.

 

Strategic Investor   			76

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

3. Investments (continued)

Reconciliation of bonds from amortized cost to carrying value as of December 31:

2000
 1999
(In Thousands)
 
Amortized cost $4,574,207 $3,422,684
Less nonadmitted bonds 549
 4,303
Carrying value $4,573,658
 $3,418,381

The amortized cost and fair value of investments in bonds at December 31, 2000, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Proceeds from sales of investments in bonds and other fixed maturity interest securities were $2,254,036,000, $3,273,528,000 and $4,527,803,000 in 2000, 1999 and 1998, respectively. Gross gains of $31,736,000, $18,928,000 and $38,615,000 and gross losses of $54,352,000, $55,203,000 and $33,297,000 during 2000, 1999 and 1998, respectively, were realized on those sales. A portion of the gains realized in 2000, 1999 and 1998 has been deferred to future periods in the interest maintenance reserve.

Net realized gains (losses), before capital gains tax and interest maintenance reserve transfers and changes in net unrealized gains (losses), are summarized as follows:

Capital Gains (Losses)
 Net Capital
Gain (Loss)
Bonds
 Stocks
 Other
(In Thousands)
2000:
    Net realized $(35,399) $       - $12,783 $(22,616)
    Net unrealized 3,754
 8,244
 103
 12,101
Total $(31,645)
 $8,244
 $12,886
 $(10,515)
 
1999:
    Net realized $(44,838) $ 124 $1,546 $(43,168)
    Net unrealized (4,303)
 4,078
 174
 (51)
Total $(49,141)
 $4,202
 $1,720
 $(43,219)
 
1998:
    Net realized $   5,318 $   165 $   233 $   5,716
    Net unrealized -
 7,040
 799
 7,839
Total $   5,318
 $7,205
 $1,032
 $ 13,555

 

Strategic Investor   			77

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

3. Investments (continued)

Major categories of net investment income are summarized as follows:

Year ended December 31
2000
 1999
 1998
(In Thousands)
Income:
    Bonds $316,733 $233,247 $216,972
    Mortgage loans 101,617 66,456 51,173
    Policy loans 67,909 59,085 56,767
    Company-occupied property 2,154 2,313 2,252
    Other 4,733
 41,800
 44,469
Total investment income 493,146 402,901 371,633
Investment expenses (19,126)
 (15,216)
 (22,028)
Net investment income $474,021
 $387,685
 $349,605

As part of its overall investment strategy, the Company has entered into agreements to purchase securities as follows:

December 31
2000
 1999
 1998
(In Thousands)
 
Investment purchase commitments $98,228 $140,600 $75,575

The Company also entered into dollar roll transactions to increase its return on investments and improve liquidity. Dollar rolls involve a sale of securities and an agreement to repurchase substantially the same securities as those sold. The dollar rolls are accounted for as short term collateralized financings and the repurchase obligation is reported in borrowed money. The repurchase obligation totaled $121,936,000 at December 31, 2000. Such borrowings averaged approximately $122,215,000 during the last three months of 2000 and were collateralized by investment securities with fair values approximately equal to the loan value. The primary risk associated with short-term collateralized borrowings is that the counterparty will be unable to perform under the terms of the contract. The Company's exposure is limited to the excess of the net replacement cost of the securities over the value of the short-term investments (such excess was not material at December 31, 2000). The Company believes the counterparties to the dollar roll agreements are financially responsible and that the counterpary risk is minimal

The Company has an outstanding liability for borrowed money in the amount of $5,926,875 which is due to an affiliate. The principal amount is due January 5, 2001. Interest at 6.75% is required to be paid at maturity.

The maximum and minimum lending rates for long-term mortgage loans during 2000 were 9.10% and 6.85%. Fire insurance is required on all properties covered by mortgage loans and must at least equal the excess of the loan over the maximum loan which would be permitted by law on the land without the buildings.

 

Strategic Investor   			78

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

3. Investments (continued)

The maximum percentage of any loan to the value of collateral at the time of the loan, exclusive of insured or guaranteed or purchase money mortgages, was 75.7% on commercial properties. As of December 31, 2000, the Company held no mortgages with interest more than one year overdue. Total interest due equals $101,607.

4. Derivative Financial Instruments Held for Purposes Other than Trading

The Company enters into interest rate and currency contracts, including swaps, caps, floors, and options, to reduce and manage risks which include the risk of a change in the value, yield, price, cash flows, exchange rates or quantity of, or a degree of exposure with respect to, assets, liabilities, or future cash flows which the Company has acquired or incurred. Hedge accounting practices are supported by cash flow matching, scenario testing and duration matching.

Interest rate swap agreements generally involve the exchange of fixed and floating interest payments over the life of the agreement without an exchange of the underlying principal amount. Currency swap agreements generally involve the exchange of local and foreign currency payments over the life of the agreements without an exchange of the underlying principal amount. Interest rate cap and interest rate floor agreements owned entitle the Company to receive payments to the extent reference interest rates exceed or fall below strike levels in the contracts based on the notional amounts.

Premiums paid for the purchase of interest rate contracts are included in other invested assets and are being amortized to interest expense over the remaining terms of the contracts or in a manner consistent with the financial instruments being hedged. Amounts paid or received, if any, from such contracts are included in interest expense or income. Accrued amounts payable to or receivable from counterparties are included in other liabilities or other invested assets.

Gains or losses as a result of early terminations of interest rate contracts are amortized to investment income over the remaining term of the items being hedged to the extent the hedge is considered to be effective; otherwise, they are recognized upon termination.

Interest rate contracts that are matched or otherwise designated to be associated with other financial instruments are recorded at fair value if the related financial instruments mature, are sold, or are otherwise terminated or if the interest rate contracts cease to be effective hedges. Changes in the fair value of the derivative are recorded as investment income. The Company manages the potential credit exposure from interest rate contracts through careful evaluation of the counterparties' credit standing, collateral agreements, and master netting agreements.

The Company is exposed to credit loss in the event of nonperformance by counterparties on interest rate contracts; however, the Company does not anticipate nonperformance by any of these counterparties. The amount of such exposure is generally the unrealized gains in such contracts.

 

Strategic Investor   			79

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

4. Derivative Financial Instruments Held for Purposes Other than Trading (continued)

The table below summarizes the Company's interest rate contracts included in other invested assets at December 31, 2000 and 1999 (in thousands):

December 31, 2000
Notional
Amount
 Carrying
Value
 Fair
Value
 
Interest rate contracts:
    Swaps $2,478,442 $     95 $(49,375)
    Swaps--affiliates 1,645,143
 (95)
 60,703
Total swaps 4,123,585 - 11,328
 
    Caps owned 53,543 1,224 492
    Caps owned--affiliates 20,525
 26
 -
Total caps owned 74,068 1,250 492
 
    Floors owned 259,637
 905
 1,975
Total floors owned 259,637 905 1,975
    Options owned 97,000
 627
 342
Total options owned 97,000 627 342
 
Total derivatives $4,554,290
 $2,782
 $ 14,137

 

Strategic Investor   			80

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

4. Derivative Financial Instruments Held for Purposes Other than Trading (continued)

December 31, 1999
Notional
Amount
 Carrying
Value
 Fair
Value
 
Interest rate contracts:
    Swaps $1,340,582 $    (125) $ 19,014
    Swaps--affiliates 1,034,535
 125
 (18,869)
Total swaps 2,375,117 - 145
 
    Caps owned 20,525 (39) (17)
    Caps owned--affiliates 50,525
 80
 17
Total caps owned 71,050 41 -
 
    Floors owned 90,500
 252
 172
Total floors owned 90,500 252 172
 
    Options owned 302,000 4,000 7,118
    Options owned--affiliates 277,000
 (3,210)
 (6,198)
Total options owned 579,000 790 920
 
    Forwards owned 152,300 - 37
    Forwards owned--affiliates 144,300
 -
 (32)
Total forwards owned 296,600
 -
 5
 
Total derivatives $3,412,267
 $1,083
 $  1,242

5. Concentrations of Credit Risk

The Company held less-than-investment-grade corporate bonds with an aggregate book value of $419,904,000 and $317,271,000 with an aggregate market value of $395,837,000 and $305,533,000 at December 31, 2000 and 1999, respectively. Those holdings amounted to 9.2% of the Company's investments in bonds and 4.8% of total admitted assets at December 31, 2000. The holdings of less-than-investment-grade bonds are widely diversified and of satisfactory quality based on the Company's investment policies and credit standards.

The Company held unrated bonds of $723,168,000 and $335,079,000 with an aggregate NAIC market value of $724,545,000 and $332,404,000 at December 31, 2000 and 1999, respectively. The carrying value of these holdings amounted to 16% of the Company's investment in bonds and 8% of the Company's total admitted assets at December 31, 2000.

At December 31, 2000, the Company's commercial mortgages involved a concentration of properties located in Calfornia (14%) and Florida (10%). The remaining commercial mortgages relate to properties located in 37 other states. The portfolio is well diversified, covering many different types of income-producing properties on which the Company has first mortgage liens. The maximum mortgage outstanding on any individual property is $45,000,000.

 

Strategic Investor   			81

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

6. Annuity Reserves

At December 31, 2000 and 1999, the Company's annuity reserves, including those held in separate accounts and deposit fund liabilities that are subject to discretionary withdrawal (with adjustment), subject to discretionary withdrawal (without adjustment), and not subject to discretionary withdrawal provisions are summarized as follows:

December 31, 2000
Amount
 Percent
(In Thousands)
Subject to discretionary withdrawal (with adjustment):
    With market value adjustment $2,619,437 60.8%
    At book value less surrender charge 134,697
 3.1    
Subtotal 2,754,134 63.9    
Subject to discretionary withdrawal (without adjustment)
    at book value with minimal or no charge or adjustment		 248,208 5.8    
Not subject to discretionary withdrawal 1,305,567
 30.3    
Total annuity reserves and deposit fund liabilities--
    Before reinsurance		 4,307,909 100.0%
Less reinsurance 2,269,160
Net annuity reserves and deposit fund liabilities $2,038,749
 
December 31, 1999
Amount
 Percent
(In Thousands)
Subject to discretionary withdrawal (with adjustment):
    With market value adjustment $2,918,405 69.3%
    At book value less surrender charge 119,807
 2.9    
Subtotal 3,038,212 72.2    
Subject to discretionary withdrawal (without adjustment)
    at book value with minimal or no charge or adjustment		 367,014 8.7    
Not subject to discretionary withdrawal 803,795
 19.1    
Total annuity reserves and deposit fund liabilities--
    before reinsurance		 4,209,021 100.0    
Less reinsurance 3,555,109
Net annuity reserves and deposit fund liabilities $   653,912

 

Strategic Investor   			82

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

7. Employee Benefit Plans

Pension Plan and Postretirement Benefits

The Company has a qualified noncontributory defined benefit retirement plan covering substantially all employees. In addition, the Company maintains a nonqualified unfunded Supplemental Employees Retirement Plan (SERP).

In addition to providing pension plans, the Company provides certain health care and life insurance benefits for retired employees. Net postretirement benefit cost for the year ended December 31, 2000, 1999 and 1998 was $1,016,000, $1,118,000 and $930,000 respectively, and includes the expected cost of such benefits for newly eligible or vested employees, interest cost, gains and losses arising from differences between actuarial assumptions and actual experiences, and amortization of the transition obligation. At December 31, 2000 and 1999, the unfunded postretirement benefit obligation for retirees and other fully eligible or vested plan participants was $6,245,000 and $5,549,000, respectively. The estimated cost of the benefit obligation for active nonvested employees was $1,906,000.

The funded status for the defined benefit plans and other postretirement benefit plan is as follows (in thousands):

Qualified
Plan
 SERP
 Post-
Retirement
 
December 31, 2000
Projected benefit obligation $(39,931) $(13,135) $(6,370)
Less plan assets at fair value 47,098
 -
 -
Plan assets in excess of (less than) projected benefit obligation $  7,167
 $(13,135)
 $(6,370)
 
Qualified
Plan
 SERP
 Post-
Retirement
 
December 31, 1999
Projected benefit obligation $(36,352) $(11,803) $(6,256)
Less plan assets at fair value 50,495
 -
 -
Plan assets in excess of (less than) projected benefit obligation $ 14,143
 $(11,803)
 $(6,256)

 

Strategic Investor   			83

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

7. Employee Benefit Plans (continued)

Pension Plan and Postretirement Benefits (continued)

The net periodic pension cost, employer contribution, plan participant contributions, and benefits paid for the defined benefit plans are as follows (in thousands):

Qualified
Plan
 SERP
 Post-
Retirement
December 31, 2000
Net periodic pension (benefit) expense $ (337) $2,426 $1,016
Employer contributions - 375 320
Plan participants' contributions - - 120
Benefits paid 1,916 375 440
 
Qualified
Plan
 SERP
 Post-
Retirement
December 31, 1999
Net periodic pension expense $    40 $1,971 $1,236
Employer contributions - 387 467
Plan participants' contributions - - 94
Benefits paid 1,238 387 561
 
Qualified
Plan
 SERP
 Post-
Retirement
December 31, 1998
Net periodic pension expense $82 $1,109 $893
Employer contributions - 325 218
Plan participants' contributions - - 77
Benefits paid 890 325 296

Assumptions used in determining the accounting for the defined benefit plans as of December 31, 2000 and 1999 were as follows:

2000
 1999
Weighted-average discount rate 7.75% 8.00%
Rate of increase in compensation level 5.00% 5.00%
Expected long-term rate of return on assets 9.25% 9.25%

 

Strategic Investor   			84

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

7. Employee Benefit Plans (continued)

Plan assets of the defined benefit plans at December 31, 2000 are invested primarily in U.S. government securities, corporate bonds, mutual funds, mortgage loans, money market funds, and common stock. Certain of the Qualified Plan's investments are held in the ING-NA Master Trust, which was established in 1998 for the investment of assets of the Plan and several other ING-NA sponsored retirement plans.

The annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for the medical plan is 8.5% graded to 5.5% over 6 years. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the medical plan as of December 31, 2000 by $501,000. Decreasing the assumed health care cost trend rates by one percentage point in each year would decrease the accumulated postretirement benefit obligation for the medical plan as of December 31, 2000 by $(436,000).

The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.75% at December 31, 2000 and 8.00 % at December 31, 1999.

401(k) Plan

Effective January 1, 2000, the Security Life of Denver Insurance Company Savings Incentive Plan was merged into the ING Savings Plan (Savings Plan), a defined contribution plan sponsored by ING America. The Savings Plan is a defined contribution plan, which is available to substantially all home office employees. Participants may make contributions to the plan through salary reductions up to a maximum of $10,500 for 2000, 1999 and 1998. Such contributions are not currently taxable to the participants. The Company matches 100% of the first 3% of participant contributions, plus 50% of contributions which exceed 3% of participants' compensation, subject to a maximum matching percentage of 4-1/2% of the individual's salary. Company matching contributions were $1,552,000, $1,423,000 and $1,343,000 for 2000, 1999 and 1998, respectively.

Plan assets of the Savings Plan at December 31, 2000 are invested in a group deposit administration contract (the Contract) with the Company, various mutual funds maintained by the Principal Financial Group, and loans to participants. The Contract is an employee benefit liability of the Company and had a balance of $28.0 million and $28.7 million at December 31, 2000 and 1999, respectively.

8. Separate Accounts

Separate account assets and liabilities represent funds segregated by the Company for the benefit of certain policy and contract holders who bear the investment risk. Revenues and expenses on the separate account assets and related liabilities equal the benefits paid to the separate account policy and contract holders.

Premiums, deposits, and other considerations received for the years ended December 31, 2000, 1999 and 1998 were $256,712,000, $153,671,000 and $129,527,000, respectively.

 

Strategic Investor   			85

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

8. Separate Accounts (continued)

A reconciliation of the amounts transferred to and from the separate accounts is presented below:

2000
 1999
 1998
(In Thousands)
Transfers as reported in the summary of operations
    of the Separate Accounts Statement:
        Transfers to separate accounts $317,529 $161,205 $136,617
        Transfers from separate accounts 61,187
 82,218
 70,879
Net transfers to separate accounts 256,342 78,987 65,738
Reconciling adjustments:
    Miscellaneous transfers 196
 1
 -
Transfers as reported in the Statement of Operations $256,538
 $ 78,988
 $ 65,738

9. Reinsurance

The Company is involved in both ceded and assumed reinsurance with other companies for the purpose of diversifying risk and limiting exposure on larger risks. As of December 31, 2000, the Company's retention limit for acceptance of risk on life insurance policies had been set at various levels up to $3,000,000.

To the extent that the assuming companies become unable to meet their obligations under these treaties, the Company remains contingently liable to its policyholders for the portion reinsured. To minimize its exposure to significant losses from retrocessionaire insolvencies, the Company evaluates the financial condition of the retrocessionaire and monitors concentrations of credit risk.

Assumed premiums amounted to $612,585,000, $520,490,000 and $426,503,000 for the years ended December 31, 2000, 1999 and 1998 respectively.

The Company's ceded reinsurance arrangements reduced certain items in the accompanying financial statements by the following amounts:

2000
 1999
 1998
(In Thousands)
Premiums $   859,405 $1,701,959 $2,916,141
Benefits paid or provided 247,622 216,778 71,001
Policy and contract liabilities at year end 2,647,258 3,890,702 3,525,241

During 2000, 1999 and 1998, the Company had ceded blocks of insurance under reinsurance treaties to provide funds for financing and other purposes. These reinsurance transactions, generally known as "financial reinsurance," represent financing arrangements. Financial reinsurance has the effect of increasing current statutory surplus while reducing future statutory surplus as the reinsurers recapture amounts.

 

Strategic Investor   			86

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

10. Federal Income Taxes and Policyholders' Surplus Account

Federal income tax expense consists of the following:

2000
 1999
 1998
(In Thousands)
Operations:
    Current $(1,339) $ 21,193 $20,910
    Deferred -
 (12,580)
 (18,539)
Federal income tax expense $(1,339)
 $ 8,613
 $2,371

Deferred federal income taxes arise from the recognition of timing differences between income determined for financial statement purposes and income tax purposes (principally differences relating to the recognition of tax-basis deferred acquisition costs, policy and contract liabilities and investment income). The resulting deferred tax asset is nonadmitted and charged against surplus.

The Company files a consolidated federal income tax return with its parent, ING America, and other U.S. affiliates and subsidiaries. The parties that join in the consolidated return have an agreement for the allocation of taxes. The agreement specifies that the separate return payable or the separate return receivable of each member will be the federal income tax payable or receivable that the member would have had for the period had it filed a separate return.

The Policyholders' Surplus Account is an accumulation of certain special deductions for income tax purposes and a portion of the "gain from operations" which were not subject to current taxation under the Life Insurance Company Income Tax Act of 1959. At December 31, 1984, the balance in this account for tax return purposes was approximately $60,490,000. The Tax Reform Act of 1984 provides that no further accumulations will be made in this account. If amounts accumulated in the Policyholders' Surplus Account exceed certain limits, or if distributions to the shareholder exceed amounts in the Shareholder's Surplus Account as determined for income tax purposes, amounts in the Policyholders' Surplus Account would become subject to income tax at rates in effect at that time. Should this occur, the maximum tax, under current tax law, which would be paid is $21,172,000. The Company does not anticipate any such action or foresee any events that would result in such tax.

11. Investment in and Advances to Subsidiaries

The Company has two wholly owned insurance subsidiaries, Midwestern United Life Insurance Company (Midwestern United) and First ING Life Insurance Company of New York (First ING). The Company also has three wholly owned noninsurance subsidiaries, First Secured Mortgage Deposit Corporation, Tailored Investments Notes Trust, and ING America Equities, Inc.

ING America Equities, Inc. is a wholesale broker/dealer whose business activities consist only of the distribution of variable life and annuity contracts. ING America Equities, Inc. does not hold customer funds or securities.

 

Strategic Investor   			87

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

11. Investment in and Advances to Subsidiaries (continued)

Amounts invested in and advanced to the Company's subsidiaries are summarized as follows:

December 31
2000
 1999
(In Thousands)
Common stock (cost--$61,318 in 2000 and 1999) $85,324 $77,127
(Payable) receivable from subsidiaries (2,476) 2,060

Summarized financial information for these subsidiaries is as follows:

2000
 1999
 1998
(In Thousands)
Revenues $  97,086 $  89,507 $  74,536
Income before net realized gains on investments 9,783 7,884 6,123
Net income 9,571 6,301 6,123
Admitted assets 298,260 296,265 308,771
Liabilities 212,936 219,139 234,881

Midwestern United and First ING paid a common stock dividend to the Company of $1,320,000 and $1,970,000 in 1999 and $1,385,000 and $0 in 1998, respectively. No such dividend was paid in 2000.

12. Capital and Surplus

Under Colorado insurance regulations, the Company is required to maintain a minimum total capital and surplus of $1,500,000. Additionally, the amount of dividends which can be paid by the Company to its stockholder without prior approval of the Colorado Division of Insurance is limited to the greater of 10% of statutory surplus or the statutory net gain from operations.

The Company has two surplus notes to a related party for $84,259,000 and $100,000,000 which represent the cumulative cash draws on two $100,000,000 commitments issued by ING America through December 31, 2000, less principal payments.

 

Strategic Investor   			88

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

12. Capital and Surplus (continued)

These subordinated notes bear interest at a variable rate equal to the prevailing rate for 10-year U.S. Treasury bonds plus 1/4% adjusted annually. The principal and interest is scheduled to be repaid in five annual installments beginning on April 15, 2000 and continuing through April 15, 2004 for the first note and April 2005 and continuing through April 15, 2009, for the second note, respectively. Future minimum payments, assuming a current effective interest rate of 5.11%, are as follows (in thousands):

Year
 Total
Payments
2001 $  25,842
2002 25,842
2003 25,842
2004 25,842
Subsequent years 143,788
Total 247,156
Less imputed interest (62,897)
Outstanding principal $184,259

The repayment of these notes require approval of the Commissioner of Insurance of the State of Colorado and are payable only out of surplus funds of the Company and only at such time as the surplus of the Company, after payment is made, does not fall below the prescribed level. In July 2000, the Company made payments of $15,741,000 and $11,098,000 for principal and interest, respectively, after receiving approval from the Commissioner of Insurance of the State of Colorado.

13. Fair Values of Financial Instruments

In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the financial instrument. Accordingly, the aggregate fair value amounts presented herein do not represent the underlying value of the Company.

Life insurance liabilities that contain mortality risk and all nonfinancial instruments have been excluded from the disclosure requirements. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company's overall management of interest rate risk, such that the Company's exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts.

 

Strategic Investor   			89

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

13. Fair Values of Financial Instruments (continued)

The carrying amounts and fair values of the Company's financial instruments are summarized as follows:

December 31
2000 1999
Carrying
Amount
 Fair
Value
 Carrying
Amount
 Fair
Value
(In Thousands)
Assets:
    Bonds $4,573,658 $4,567,521 $3,418,381 $3,274,765
    Preferred stocks 13,524 13,527 2,560 2,889
    Unaffiliated common stocks 15,483 15,483 4,977 4,977
    Mortgage loans 1,672,169 1,705,801 983,087 943,041
    Policy loans 992,911 992,911 943,185 943,185
    Residual collateralized
        mortgage obligations 30,846 13,141 18,200 16,922
    Derivative securities 2,782 14,137 1,083 1,242
    Short-term investments 114,848 114,848 179,036 179,036
    Cash 88,816 88,816 47,018 47,018
    Indebtedness from related parties 69,338 69,338 42,451 42,451
    Separate account assets 799,966 799,966 644,975 644,975
    Receivable for securities 5,084 5,084 102 102
 
Liabilities:
    Individual and group annuities 203,489 142,743 133,025 132,984
    Guaranteed investment contracts 1,578,057 1,575,822 335,507 332,275
    Policyholder funds 71,669 71,669 91,920 91,920
    Policyholder dividends 11,503 11,503 11,273 11,273
    Indebtedness to related parties 8,016 8,016 18,329 18,239
    Separate account liabilities 799,966 799,966 644,975 644,975
    Payable for securities 3,162 3,162 14,023 14,023

The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments:

       Fixed maturities and equity securities: The fair values for bonds, preferred stocks and common stocks, reported herein, are based on quoted market prices, where available. For securities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, collateralized mortgage obligations and other mortgage derivative investments, are estimated by discounting expected future cash flows. The discount rates used vary as a function of factors such as yield, credit quality, and maturity, which fall within a range between 6% and 15% over the total portfolio. Fair values determined on this basis can differ from values published by the NAIC Securities Valuation Office. Market value as determined by the NAIC as of December 31, 2000 and 1999 was $4,675,995,000 and $3,448,196,000, respectively.

 

Strategic Investor   			90

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

13. Fair Values of Financial Instruments (continued)

       Mortgage loans: Estimated market values for commercial real estate loans were generated using a discounted cash flow approach. Loans in good standing are discounted using interest rates determined by U.S. Treasury yields on December 31 and spreads implied by independent published surveys. The same is applied on new loans with similar characteristics. The amortizing features of all loans are incorporated in the valuation. Where data on option features is available, option values are determined using a binomial valuation method, and are incorporated into the mortgage valuation. Restructured loans are valued in the same manner; however, these loans were discounted at a greater spread to reflect increased risk. All residential loans are valued at their outstanding principal balances, which approximate their fair values.
 
Residual collateralized mortgage obligations: Residual collateralized mortgage obligations are included in the other invested assets balance. Fair values are calculated using discounted cash flows. The discount rates used vary as a function of factors such as yield, credit quality, and maturity, which fall within a range between 6% and 15% over the total portfolio.
 
Derivative financial instruments: Fair values for on-balance-sheet derivative financial instruments (caps and floors) and off-balance-sheet derivative financial instruments (swaps) are based on broker/dealer valuations or on internal discounted cash flow pricing models taking into account current cash flow assumptions and the counterparties' credit standing.
 
Guaranteed investment contracts: The fair values of the Company's guaranteed investment contracts are estimated using discounted cash flow calculations, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued.
 
Off-balance-sheet instruments: The Company accepted additional deposits on existing synthetic guaranteed investment contracts in the amounts of $0, $70,000,000 and $66,480,000 in 2000, 1999 and 1998, respectively, from trustees of 401(k) plans. Pursuant to the terms of these contracts, the trustees own and retain the assets related to these contracts. Such assets had a value of $406,896,000 and $471,380,000 at December 31, 2000 and 1999, respectively. Under synthetic guaranteed investment contracts, the synthetic issuer may assume interest rate risk on individual plan participant initiated withdrawals from stable value options of 401(k) plans. Approximately 88% of the synthetic guaranteed investment contract book values are on a participating basis and have a credited interest rate reset mechanism which passes such interest rate risk to plan participants.
 
Other investment-type insurance contracts: The fair values of the Company's deferred annuity contracts are estimated based on the cash surrender values. The carrying values of other policyholder liabilities, including immediate annuities, dividend accumulations, supplementary contracts without life contingencies, and premium deposits, approximate their fair values.
 
Letters of credit: The Company is the recipient of letters of credit totaling $250,071,000 (see Note 15), which have a market value to the Company of $0, and two lines of credit totaling $340,136,000 which have a market value to the Company of $0.

The carrying value of all other financial instruments approximates their fair value.

 

Strategic Investor   			91

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

14. Commitments and Contingencies

The Company is a party to pending or threatened lawsuits arising from the normal conduct of its business. Due to the climate in insurance and business litigation, suits against the Company sometimes include substantial additional claims, consequential damages, punitive damages and other similar types of relief. While it is not possible to forecast the outcome of such litigation, it is the opinion of management that the disposition of such lawsuits will not have a materially adverse effect on the Company's financial position or interfere with its operations. The Company has established an accrued liability in the financial statements of $20,449,000 related to certain pending litigation. The Company is vigorously defending its position in these cases.

The Company guarantees the obligations incurred by its wholly owned subsidiary, Midwestern United, with respect to all life insurance policies in force in both 2000, 1999 and 1998. In the event Midwestern United is unable to fulfill its obligations under these policies, the Company would be required to assume the policy obligations. The statutory reserve liabilities for the guaranteed policies totaled $201,306,000 and $209,203,000 as of December 31, 2000 and 1999, respectively.

The Company entered into a Tangible Net Worth Maintenance Agreement, dated June 25, 1998 pursuant to which the Company agreed to cause First ING, a wholly owned subsidiary of the Company, to have a tangible net worth equal to an NAIC-defined risk-based capital ratio of at least 200%, calculated by dividing (total adjusted capital x 100) by (the authorized control level risk based capital x 2). The contingent statutory reserve liability for this guarantee is $189,036.

The Company has agreed to guarantee a revolving line of credit issued to Pen-Cal Administrators, Inc., a California producer group, and represented by the credit agreement dated January 1, 2000 between Bank One and Pen-Cal Administrators, Inc., in the principal amount of $2,500,000.

15. Financing Agreements

The Company has a line of credit of $100,000,000 to provide short-term liquidity which expires July 31, 2001. The amount of funds available under this line is reduced by borrowings of certain affiliates also party to the agreement. Interest on all loans is based on the cost of funds by the lender plus .23%. The Company had outstanding borrowings under this agreement at December 31, 2000 and 1999 of $-0- and $200,000, respectively.

The Company is the beneficiary of letters of credit totaling $250,071,000 that were established in accordance with the terms of reinsurance agreements. The terms of the letters of credit provide for automatic renewal for the following year at December 31, unless otherwise canceled or terminated by either party to the financing. The letters were unused during both 2000 and 1999.

 

Strategic Investor   			92

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

16. Related Party Transactions

Affiliates

The Company has a $200,136,000 line of credit issued by the Company's parent to provide short-term liquidity. Interest on the loans are indexed to the A1+/P1 commercial paper rates. The average borrowing by the Company in 2000 and 1999 was $17,453,000 and $10,365,000, respectively, with an average borrowing rate of 6.29% and 5.16%, respectively. At December 31, 2000 and 1999, outstanding borrowings were $5,927,000 and $15,000,000, respectively.

The Company provides administrative, investment and other operating services to affiliates. Amounts received for these services were $13,053,000, $2,606,000 and $1,605,000 for 2000, 1999 and 1998, respectively.

The Company also has an Investment Advisory Agreement with an affiliate whereby it receives investment and portfolio management services for a fee. Total fees under the agreement were approximately $9,885,000, $11,373,000 and $10,504,000 for 2000, 1999 and 1998, respectively.

Subsidiaries

The Company provides administrative, investment and other operating services to certain of its subsidiaries pursuant to contractual arrangements. Amounts received for these services were $3,561,000, $4,057,000 and $4,280,000 for 2000, 1999 and 1998, respectively.

17. Guaranty Fund Assessments

Insurance companies are assessed the costs of funding the insolvencies of other insurance companies by the various state guaranty associations, generally based on the amount of premium companies collect in that state.

The Company accrues the cost of future guaranty fund assessments based on estimates of insurance company insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) and the amount of premiums written in each state. The Company reduces the accrual by credits allowed in some states to reduce future premium taxes by a portion of assessments in that state. The Company has estimated this liability to be $2,305,000 as of December 31, 2000 and 1999 and has recorded a reserve. The Company has also recorded an asset of $5,045,000 and $5,950,000 as of December 31, 2000 and 1999, respectively, for future credits to premium taxes for assessments already paid. Payments received for guaranty fund assessments in 2000 and 1999 were $267,000 and $120,000, respectively.

18. Regulatory Risk-Based Capital

The NAIC prescribes risk-based capital (RBC) requirements for life/health insurance companies. RBC is a series of dynamic surplus-related formulas for monitoring solvency. At December 31, 2000, the Company exceeded all minimum RBC requirements.

 

Strategic Investor   			93

 

Security Life of Denver Insurance Company

Notes to Financial Statements - Statutory Basis (continued)

19. Accounting Changes ( Unaudited )

Accounting changes adopted to conform to the provisions of the NAIC Accounting Practices and Procedures manual - Version effective January 1, 2001 are reported as changes in accounting principles. The cumulative effect of changes in accounting principles is reported as an adjustment to unassigned deficit, a component of capital and surplus, in the period of the change in accounting principle. The cumulative effect is the difference between the amount of capital and surplus at the beginning of the year and the amount of capital and surplus that would have been reported at that date if the new accounting principles had been applied retroactively for all prior periods. As a result of these changes, the Company decreased its unassigned deficit, $41.9 million as of January 1, 2001.

The net decrease in unassigned deficit is comprised of increases to capital and surplus of approximately $51.3 million related to admitting deferred tax assets and $4.7 million related to prepayment penalties on bonds and mortgage loans released from the IMR liability. Partially offsetting these increases to capital and surplus are increases of approximately $12.3 million and $1.3 million related to Supplemental Employee Retirement Liability (SERP) and vacation liability, respectively.

 

Strategic Investor   			94

 

Security Life Separate Account L1 of
Security Life of Denver Insurance Company
Financial Statements - Unaudited
As of September 30, 2001

 

Strategic Investor   			95

 

Security Life Separate Account L1

Financial Statements - Unaudited

As of September 30, 2001

Contents

Unaudited Financial Statements

Statement of Assets and Liabilities     97
Statement of Operations     108
Statement of Changes in Net Assets     119
Notes to Financial Statements     130

 

Strategic Investor   			96

 

Security Life Separate Account L1

Statement of Assets and Liabilities
(Unaudited)
September 30, 2001

NB
Limited
Maturity
Bond
 Growth
 Partners
Assets
Investments in mutual funds at
    market value (Note 4)		 $18,301,630
 $10,009,825
 $24,550,654
Total assets 18,301,630
 10,009,825
 24,550,654
 
Liabilities
Due to (from) Security Life of
    Denver		 (8,224)
 (65,701)
 (106,901)
Total liabilities (8,224)
 (65,701)
 (106,901)
 
Net assets $18,309,854
 $10,075,526
 $24,657,555
 
Policyholder reserves
Reserves attributable to the
    policyholders (Note 2)		 $18,309,854
 $10,075,526
 $24,657,555
 
Total policyholder reserves $18,309,854
 $10,075,526
 $24,657,555
 
Number of divisional units
    outstanding (Note 8):		      
        Class A 1,266,146.581
 678,719.272
 1,223,913.915
        Class B 11,739.142
 5,038.762
 3,445.477
 
Value per divisional unit:
        Class A $14.36
 $14.79
 $20.12
        Class B $10.53
 $6.97
 $8.30
 
Number of Shares 1,366,7867
 10,737,983
 1,902,292

See accompanying notes.

 

Strategic Investor   			97

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

Alger
American
Small
Capitalization
 American
MidCap
Growth
 American
Growth
 American
Leveraged
AllCap
Assets
Investments in mutual funds at
    market value (Note 4) $18,138,243
 $31,406,350
 $42,934,697
 $17,762,534
Total assets 18,138,243
 31,406,350
 42,934,697
 17,762,534
 
Liabilities
Due to (from) Security Life of Denver 58,749
 (70,248)
 87,611
 (81,638)
Total liabilities 58,749
 (70,248)
 87,611
 (81,638)
 
Net assets $18,079,494
 $31,476,598
 $42,847,086
 $17,844,172
 
Policyholder reserves
Reserves attributable to the
    policyholders (Note 2) $18,079,494
 $31,476,598
 $42,847,086
 $17,844,172
 
Total policyholder reserves $18,079,494
 $31,476,598
 $42,847,086
 $17,844,172
 
Number of divisional units outstanding
    (Note 8):
        Class A		  
 
1,509,536.384
  
 
1,198,930.258
  
 
1,986,333.871
  
 
602,773.575
        Class B 62,310.934
 40,121.720
 69,337.261
 5,114.120
 
Value per divisional unit:
        Class A $11.73
 $25.89
 $21.30
 $29.53
        Class B $6.00
 $10.73
 $7.86
 $8.29
 
Number of Shares 1,241,369
 2,077,414
 1,335,871
 647,849

See accompanying notes.

 

Strategic Investor   			98

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

Fidelity
Asset
Manager
 Growth
 Growth SC
 Overseas
 Overseas SC
 Money
Market
 Index 500
Assets
Investments in mutual funds at
    market value (Note 4) $18,403,338
 $48,559,314
 $39,069
 $35,140,928
 $56,392
 $104,269,952
 $165,134,818
Total assets 18,403,338
 48,559,314
 39,069
 35,140,928
 56,392
 104,269,952
 165,134,818
 
Liabilities
Due to (from) Security Life of Denver 116,954
 188,725
 -
 (141,095)
 -
 270,052
 (118,217)
Total liabilities 116,954
 188,725
 -
 (141,095)
 -
 270,052
 (118,217)
 
Net assets 18,286,384
 $48,370,589
 $39,069
 $35,282,023
 $56,392
 $103,999,900
 $165,253,035
 
Policyholder reserves
Reserves attributable to the
    policyholders (Note 2) $18,286,384
 $48,370,589
 $39,069
 $35,282,023
 $56,392
 $103,999,900
 $165,253,035
 
Total policyholder reserves $18,286,384
 $48,370,589
 $39,069
 $35,282,023
 $56,392
 $103,999,900
 $165,253,035
 
Number of divisional units outstanding
    (Note 8):
            Class A		  
 
1,156,791.661
  
 
2,250,864.880
  
 
-
  
 
2,597,785.408
  
 
-
  
 
7,625,127.938
  
 
6,918,271,816
            Class B 26,313.332
 62,913.082
 5,211.697
 694,477.886
 8,179.664
 -
 1,111,443.792
 
Value per divisional unit:
        Class A		 $15.60
 $21.28
 $      -
 $11.61
 $      -
 $13.64
 $22.61
        Class B $9.12
 $7.60
 $7.50
 $7.37
 $6.89
 $        -
 $7.93
 
Number of Shares 1,381,501
 1,697,925
 1,364.97
 2,809,870
 4,511
 104,269,976
 1,416,735

See accompanying notes.

 

Strategic Investor   			99

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

INVESCO
Total
Return
 Equity
Income
 High Yield
 Utilities
 Small Company
Growth
Assets
Investments in mutual funds at
    market value (Note 4) $12,144,819
 $25,681,577
 $9,214,844
 $7,467,107
 $10,460,141
Total assets 12,144,819
 25,681,577
 9,214,844
 7,467,107
 10,460,141
 
Liabilities
Due to (from) Security Life of Denver (13,157)
 55,392
 (72,271)
 (4,960)
 (145,016)
Total liabilities (13,157)
 55,392
 (72,271)
 (4,960)
 (145,016)
 
Net assets $12,157,976
 $25,626,185
 $9,287,115
 $7,472,067
 $10,605,157
 
Policyholder reserves
Reserves attributable to the
    policyholders (Note 2) $12,157,976
 $25,626,185
 $9,287,115
 $7,472,067
 $10,605,157
 
Total policyholder reserves $12,157,976
 $25,626,185
 $9,287,115
 $7,472,067
 $10,605,157
 
Number of divisional units outstanding
    (Note 8):
        Class A		  
 
784,615.582
  
 
1,120,571.435
  
 
705,483.302
  
 
497,812.071
  
 
864,531.358
        Class B 9,292.612
 72,952.755
 29,772.229
 4,758.584
 20,749.332
 
Value per divisional unit:
        Class A		 $15.39
 $22.29
 $12.85
 $14.94
 $12.05
        Class B $9.31
 $8.92
 $7.56
 $6.84
 $8.84
 
Number of Shares 996,292
 1,500,790
 1,098,432
 539,357
 859,733

See accompanying notes.

 

Strategic Investor   			100

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

Van Eck
Worldwide
Hard
Assets
 Worldwide
Bond
 Worldwide
Emerging
Markets
 Worldwide
Real
Estate
Assets
Investments in mutual funds
    at market value (Note 4) $1,807,820
 $1,231,030
 $3,467,592
 $2,187,361
Total assets 1,807,820
 1,231,030
 3,467,592
 2,187,361
 
Liabilities
Due to (from) Security Life of Denver 10
 (4)
 2,381
 -
Total liabilities 10
 (4)
 2,381
 -
 
Net assets $1,807,810
 $1,231,034
 $3,465,211
 $2,187,361
 
Policyholder reserves
Reserves attributable to the
    policyholders (Note 2) $1,807,810
 $1,231,034
 $3,465,211
 $2,187,361
 
Total policyholder reserves $1,807,810
 $1,231,034
 $3,465,211
 $2,187,361
 
 
Number of divisional units outstanding
    (Note 8):
        Class A		  
 
203,521.465
  
 
123,234.447
  
 
535,825.114
  
 
217,366.861
        Class B 13.677
 255.806
 36,852.978
 1,575.885
 
Value per divisional unit:
        Class A		 $8.88
 $9.97
 $6.03
 $9.98
        Class B $8.19
 $9.86
 $6.38
 $11.05
 
Number of Shares 182,475
 126,247
 541,673
 210,490

See accompanying notes.

 

Strategic Investor   			101

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

AIM
Capital
Appreciation
 Government
Securities
Assets
Investments in mutual funds at market value (Note 4) $10,908,024
 $69,368,797
Total assets 10,908,024
 69,368,797
 
Liabilities
Due to (from) Security Life of Denver (19,484)
 (6,315)
Total liabilities (19,484)
 (6,315)
 
Net assets $10,927,508
 $69,375,112
 
Policyholder reserves
Reserves attributable to the policyholders (Note 2) $10,927,508
 $69,375,112
 
Total policyholder reserves $10,927,508
 $69,375,112
 
Number of divisional units outstanding (Note 8):
    Class A		  
971,640.477
  
1,786,935.309
    Class B 232,658.986
 4,049,142.811
 
Value per divisional unit:
    Class A		  
$9.37
  
$11.96
    Class B $7.86
 $11.85
 
Number of Shares 545,671
 5,834,261

See accompanying notes.

 

Strategic Investor   			102

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

GCG
Equity
Income
 Growth
 Hard
Assets
 Limited
Maturity
Bond
 Liquid
Asset
 MidCap
Growth
 Research
 Total
Return
 Fully
Managed
Assets
Investments in mutual funds
    at market value (Note 4)		  
$3,226
  
$5,172
  
$  -
  
$1,144,133
  
$4,137,301
  
$110,991
  
$1,539
  
$29,482
  
$2,253,669
Total assets 3,226
 5,172
 -
 1,144,133
 4,137,301
 110,991
 1,539
 29,482
 2,253,669
 
Liabilities
Due to (from) Security Life
    of Denver		  
-
  
-
  
-
  
-
  
-
  
-
  
-
  
-
  
-
Total liabilities -
 -
 -
 -
 -
 -
 -
 -
 -
 
Net assets $3,226
 $5,172
 $  -
 $1,144,133
 $4,137,301
 $110,991
 $1,539
 $29,482
 $2,253,669
 
Policyholder reserves
Reserves attributable to the
    policyholders (Note 2)		  
$3,226
  
$5,172
  
$  -
  
$1,144,133
  
$4,137,301
  
$110,991
  
$1,539
  
$29,482
  
$2,253,669
 
Total policyholder reserves  
$3,226
  
$5,172
  
$  -
  
$1,144,133
  
$4,137,301
  
$110,991
  
$1,539
  
$29,482
  
$2,253,669
Number of divisional units
    outstanding (Note 8):
        Class A		  
 
-
  
 
-
  
 
-
  
 
-
  
 
-
  
 
12,588.249
  
 
-
  
 
-
  
 
219,306.572
        Class B 325.075
 686.746
 -
 96,914.830
 373,052.660
 1,149.040
 197.916
 2,688.403
 3,993.953
Value per divisional unit:
        Class A		  
$  -
  
$  -
  
$  -
  
$  -
  
$  -
  
$7.85
  
$  -
  
$  -
  
$10.09
        Class B $9.92
 $7.53
 $  -
 $11.81
 $11.10
 $10.57
 $7.77
 $10.97
 $10.13
 
Number of Shares 296
 413
 -
 100,272
 4,137,301
 9,683
 106
 1,834
 129,878

See accompanying notes.

 

Strategic Investor   			103

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

Janus
Growth
 Aggressive
Growth
 Worldwide
Growth
 International
Growth
Assets
Investments in mutual funds at market
    value (Note 4)		 $2,155,887
 $1,515,206
 $1,908,586
 $4,139,907
Total assets 2,155,887
 1,515,206
 1,908,586
 4,139,907
 
Liabilities
Due to (from) Security Life of Denver -
 -
 -
 -
Total liabilities -
 -
 -
 -
 
Net assets $2,155,887
 $1,515,206
 $1,908,586
 $4,139,907
 
Policyholder reserves
Reserves attributable to the policyholders
    (Note 2)		 $2,155,887
 $1,515,206
 $1,908,586
 $4,139,907
 
Total policyholder reserves $2,155,887
 $1,515,206
 $1,908,586
 $4,139,907
Number of divisional units
    outstanding (Note 8):
        Class A		  
 
374,228.179
  
 
386,703.945
  
 
302,692.294
  
 
686,018.038
        Class B 22,582.056
 28,184.319
 21,263.352
 28,976.041
 
Value per divisional unit:
        Class A		 $5.43
 $3.65
 $5.89
 $5.79
        Class B $5.47
 $3.68
 $5.94
 $5.83
 
Number of Shares 124,301
 78,678
 76,347
 202,889

See accompanying notes.

 

Strategic Investor   			104

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

M
International
Equity
 Enhanced
US Equity
 Capital
Appreciation
 Core
Growth
Assets
Investments in mutual funds at market
    value (Note 4)		 $1,099,802
 $666,240
 $890,363
 $146,464
Total assets 1,099,802
 666,240
 890,363
 146,464
 
Liabilities
Due to (from) Security Life of Denver -
 -
 -
 -
Total liabilities -
 -
 -
 -
 
Net assets $1,099,802
 $666,240
 $890,363
 $146,464
 
Policyholder reserves
Reserves attributable to the policyholders
    (Note 2)		 $1,099,802
 $666,240
 $890,363
 $146,464
 
Total policyholder reserves $1,099,802
 $666,240
 $890,363
 $146,464
Number of divisional units
    outstanding (Note 8):
        Class A		  
 
125,031.764
  
 
74,088.595
  
 
105,033.545
  
 
17,267.848
        Class B 231.817
 34.188
 543.718
 106.670
 
Value per divisional unit:
        Class A		 $8.78
 $8.99
 $8.43
 $8.43
        Class B $8.81
 $9.01
 $8.46
 $8.47
 
Number of Shares 91,516
 52,050
 65,685
 12,323

See accompanying notes.

 

Strategic Investor   			105

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

Pilgrim
Growth
Opportunities
 MagnaCap
 MidCap
Opportunities
 SmallCap
Opportunities
Assets
Investments in mutual funds at market
    value (Note 4)		 $8,492
 $76,342
 $75,286
 $109,219
Total assets 8,492
 76,342
 75,286
 109,219
 
Liabilities
Due to (from) Security Life of Denver -
 -
 -
 -
Total liabilities -
 -
 -
 -
 
Net assets $8,492
 $76,342
 $75,286
 $109,219
 
Policyholder reserves
Reserves attributable to the policyholders
    (Note 2)		 $8,492
 $76,342
 $75,286
 $109,219
 
Total policyholder reserves $8,492
 $76,342
 $75,286
 $109,219
Number of divisional units
outstanding (Note 8):
        Class A		  
 
1,138.989
  
 
7,618.144
  
 
9,945.500
  
 
12,810.621
        Class B -
 864.888
 26.044
 367.643
 
Value per divisional unit:
        Class A		 $7.46
 $9.00
 $7.55
 $8.29
        Class B $      -
 $8.98
 $7.45
 $8.30
 
Number of Shares 1,798
 9,241
 15,271
 6,775

See accompanying notes.

 

Strategic Investor   			106

 

Security Life Separate Account L1

Statement of Assets and Liabilities (continued)
(Unaudited)
September 30, 2001

Putnam
New
Opportunities
 Voyager
 Growth
and Income
 Small Cap
Value
Assets
Investments in mutual funds at market
    value (Note 4)		 $175,596
 $38,193
 $716,653
 $895,460
Total assets 175,596
 38,193
 716,653
 895,460
 
Liabilities
Due to (from) Security Life of Denver -
 -
 -
 -
Total liabilities -
 -
 -
 -
 
Net assets $175,596
 $38,193
 $716,653
 $895,460
 
Policyholder reserves
Reserves attributable to the policyholders
    (Note 2)		 $175,596
 $38,193
 $716,653
 $895,460
 
Total policyholder reserves $175,596
 $38,193
 $716,653
 $895,460
Number of divisional units
outstanding (Note 8):
        Class A		  
 
20,496.413
  
 
4,416.369
  
 
77,415.535
  
 
89,076.344
        Class B 1,686.535
 23.864
 157.737
 1,954.892
 
Value per divisional unit:
        Class A		 $7.91
 $8.60
 $9.24
 $9.84
        Class B $7.94
 $8.63
 $9.27
 $9.84
 
Number of Shares 12,845
 1,482
 32,596
 70,356

See accompanying notes.

 

Strategic Investor   			107

 

Security Life Separate Account L1

Statement of Operations
(Unaudited)
Nine months ended September 30, 2001

NB
Limited
Maturity Bond
 Growth
 Partners
Investment Income
Dividends from mutual funds $953,448 $6,951,959 $1,186,558
Less valuation period deductions
    (Note 2) 92,409
 81,874
 161,085
Net investment income (loss) 861,039
 6,870,085
 1,025,473
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    Investments (143,790) (8,528,144) (1,054,314)
Net unrealized gains (losses) on
    Investments 495,407
 (6,570,124)
 (4,918,083)
Net realized and unrealized gains
    (losses) on investments 351,617
 (15,098,268)
 (5,972,397)
 
Net increase (decrease) in net assets
    resulting from operations $1,212,656
 $(8,228,183)
 $(4,946,924)

See accompanying notes.

 

Strategic Investor   			108

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

Alger
American
Small
Capitalization
 American
MidCap
Growth
 American
Growth
 American
Leveraged
AllCap
Investment Income
Dividends from mutual funds $11,078 $16,595,646 $6,375,756 $844,791
Less valuation period deductions
    (Note 2)		 122,654
 198,151
 280,040
 130,145
Net investment income (loss) (111,576)
 16,397,495
 6,095,716
 714,646
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments (3,211,611) (10,113,537) (574,752) (10,400,578)
Net unrealized gains (losses) on
    investments (7,316,939)
 (14,244,865)
 (18,464,604)
 2,152,849
Net realized and unrealized gains
    (losses) on investments (10,528,550)
 (24,358,402)
 (19,039,356)
 (8,247,729)
 
Net increase (decrease) in net assets
    resulting from operations $(10,640,126)
 $(7,960,907)
 $(12,943,640)
 $(7,533,083)

See accompanying notes.

 

Strategic Investor   			109

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

Fidelity
Asset
Manager
 Growth
 Growth SC
 Overseas
 Overseas SC
 Money
Market
 Index 500
Investment income
Dividends from mutual funds $903,965 $4,536,923 $     - $5,340,174 $     - $2,511,589 $1,936,486
Less valuation period deductions
    (Note 2) 104,838
 351,213
 -
 216,162
 -
 421,406
 974,190
Net investment income (loss) 799,127
 4,185,710
 -
 5,124,012
 -
 2,090,183
 962,296
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments (1,333,723) (8,394,238) (8,299) (7,918,094) (64) - 2,005,052
Net unrealized gains (losses) on
    investments (1,786,550)
 (17,260,429)
 (6,406)
 (11,186,604)
 (15,770)
 -
 (46,372,634)
Net realized and unrealized gains
    (losses) on investments (3,120,273)
 (25,654,667)
 (14,705)
 (19,104,698)
 (15,834)
 -
 (44,367,582)
 
Net increase (decrease) in net assets
    resulting from operations $(2,321,146)
 $(21,468,957)
 $(14,705)
 $(13,980,686)
 $(15,834)
 $2,090,183
 $(43,405,286)

See accompanying notes.

 

Strategic Investor   			110

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

INVESCO
Total
Return
 Equity
Income
 High Yield
 Utilities
 Small Company
Growth
Investment Income
Dividends from mutual funds $      - $      - $      - $      - $      -
Less valuation period deductions
    (Note 2) 66,544
 140,586
 58,859
 47,837
 68,303
Net investment income (loss) (66,544)
 (140,586)
 (58,859)
 (47,837)
 (68,303)
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments (468,777) 143,442 (472,065) (100,255) (1,478,280)
Net unrealized gains (losses) on
    investments (547,842)
 (5,021,480)
 (1,317,590)
 (3,455,761)
 (3,256,600)
Net realized and unrealized gains
    (losses) on investments (1,016,619)
 (4,878,038)
 (1,789,655)
 (3,556,016)
 (4,734,880)
 
Net increase (decrease) in net assets
    resulting from operations $(1,083,163)
 $(5,018,624)
 $(1,848,514)
 $(3,603,853)
 $(4,803,183)

See accompanying notes.

 

Strategic Investor   			111

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

Van Eck
Worldwide
Hard
Assets
 Worldwide
Bond
 Worldwide
Emerging
Markets
 Worldwide
Real Estate
 
Investment Income
Dividends from mutual funds $25,272 $44,322 $      - $38,335
Less valuation period deductions
    (Note 2) 13,526
 5,895
 22,837
 10,015
Net investment income (loss) 11,746
 38,427
 (22,837)
 28,320
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments 135,326 (26,384) (990,221) 58,819
Net unrealized gains (losses) on
    investments (532,795)
 (28,601)
 (6,036)
 (92,801)
Net realized and unrealized gains
    (losses) on investments (397,469)
 (54,985)
 (996,257)
 (33,982)
 
Net increase (decrease) in net assets
    resulting from operations $(385,723)
 $(16,558)
 $(1,019,094)
 $(5,662)

See accompanying notes.

 

Strategic Investor   			112

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

AIM
Capital
Appreciation
 Government
Securities
Investment Income
Dividends from mutual funds $      - $      -
Less valuation period deductions
    (Note 2) 56,237
 96,489
Net investment income (loss) (56,237)
 (96,489)
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    Investments (2,469,266) 188,570
Net unrealized gains (losses) on
    Investments (4,603,030)
 3,416,228
Net realized and unrealized gains
    (losses) on investments (7,072,296)
 3,604,798
 
Net increase (decrease) in net assets
    resulting from operations $(7,128,533)
 $3,508,309

See accompanying notes.

 

Strategic Investor   			113

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

GCG
Equity
Income
 Growth
 Hard
Assets
 Limited
Maturity
Bond
 Liquid
Asset
 MidCap
Growth
 Research
 Total
Return
 Fully
Managed
Investment income
Dividends from mutual funds $     - $     - $     - $     - $155,365 $     - $     - $     - $     -
Less valuation period deductions
    (Note 2)		 -
 -
 -
 -
 -
 121
 -
 -
 2,623
 
Net investment income (loss) -
 -
 -
 -
 155,365
 (121)
 -
 -
 (2,623)
 
Realized and unrealized gains (losses)
on investments
Net realized gains (losses) on
    investments		 4 (473) - (2,533) - (5,748) (270) (376) (1,507)
Net unrealized gains (losses) on
    investments		 (248)
 (815)
 -
 86,154
 -
 (31,208)
 (356)
 (1,106)
 (76,768)
Net realized and unrealized gains
    (losses) on investments		 (244)
 (1,288)
 -
 83,621
 -
 (36,956)
 (626)
 (1,482)
 (78,275)
 
Net increase (decrease) in net assets
    resulting from operations		 $(244)
 $(1,288)
 $     -
 $83,621
 $155,365
 $(37,077)
 $(626)
 $(1,482)
 $(80,898)

See accompanying notes.

 

Strategic Investor   			114

 

Security Life Separate Account L1

Statement of Operations (continued)

(Unaudited)

Nine months ended September 30, 2001

Janus
Growth
 Aggressive
Growth
 Worldwide
Growth
 International
Growth
Investment Income
Dividends from mutual funds $4,387 $     - $4,480 $22,708
Less valuation period deductions
    (Note 2) 8,354
 5,763
 7,792
 16,351
Net investment income (loss) (3,967)
 (5,763)
 (3,312)
 6,357
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments (66,138) (52,832) (188,602) (45,901)
Net unrealized gains (losses) on
    investments (770,447)
 (620,228)
 (490,331)
 (1,192,508)
Net realized and unrealized gains
    (losses) on investments (836,585)
 (673,060)
 (678,933)
 (1,238,409)
 
Net increase (decrease) in net assets
    resulting from operations $(840,552)
 $(678,823)
 $(682,245)
 $(1,232,052)

See accompanying notes.

 

Strategic Investor   			115

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

M
International
Equity
 Enhanced
US Equity
 Capital
Appreciation
 Core Growth
Investment Income
Dividends from mutual funds $68 $     - $172 $4
Less valuation period deductions
    (Note 2) 656
 484
 523
 118
Net investment income (loss) (588)
 (484)
 (351)
 (114)
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments (2,402) (1,096) (3,447) (110)
Net unrealized gains (losses) on
    investments (97,793)
 (47,816)
 (149,084)
 (14,305)
Net realized and unrealized gains
    (losses) on investments (100,195)
 (48,912)
 (152,531)
 (14,415)
 
Net increase (decrease) in net assets
    resulting from operations $(100,783)
 $(49,396)
 $(152,882)
 $(14,529)

See accompanying notes.

 

Strategic Investor   			116

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

Pilgrim
Growth
Opportunities
 MagnaCap
 MidCap
Opportunities
 SmallCap
Opportunities
Investment Income
Dividends from mutual funds $     - $     - $     - $241
Less valuation period deductions
    (Note 2) 9
 88
 98
 101
Net investment income (loss) (9)
 (88)
 (98)
 140
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments (135) (833) (4,931) (684)
Net unrealized gains (losses) on
    investments (1,677)
 (6,117)
 (14,824)
 (20,337)
Net realized and unrealized gains
    (losses) on investments (1,812)
 (6,950)
 (19,755)
 (21,021)
 
Net increase (decrease) in net assets
    resulting from operations $(1,821)
 $(7,038)
 $(19,853)
 $(20,881)

See accompanying notes.

 

Strategic Investor   			117

 

Security Life Separate Account L1

Statement of Operations (continued)
(Unaudited)
Nine months ended September 30, 2001

Putnam
New
Opportunities
 Voyager
 Growth
and Income
 Small Cap
Value
Investment Income
Dividends from mutual funds $     - $     - $     - $     -
Less valuation period deductions
    (Note 2) 36
 35
 579
 1,028
Net investment income (loss) (36)
 (35)
 (579)
 (1,028)
 
Realized and unrealized gains
    (losses) on investments
Net realized gains (losses) on
    investments (1,711) (292) (488) 2,286
Net unrealized gains (losses) on
    investments (2,405)
 (3,672)
 (40,786)
 (86,221)
Net realized and unrealized gains
    (losses) on investments (4,116)
 (3,964)
 (41,274)
 (83,935)
 
Net increase (decrease) in net assets
    resulting from operations $(4,152)
 $(3,999)
 $(41,853)
 $(84,963)

See accompanying notes.

 

Strategic Investor   			118

 

Security Life Separate Account L1

Statement of Changes in Net Assets
(Unaudited)
Nine months ended September 30, 2001

NB
Limited
Maturity Bond
 Growth
 Partners
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $861,039 $6,870,085 $1,025,473
Net realized gains (losses) on
    investments (143,790) (8,528,144) (1,054,314)
Net unrealized gains (losses) on
    investments 495,407
 (6,570,124)
 (4,918,083)
Increase (decrease) in net assets from
    operations 1,212,656
 (8,228,183)
 (4,946,924)
 
Changes from principal
    transactions
Net premiums 1,873,806 2,923,785 3,589,106
Cost of insurance and
    administrative charges (466,860) (548,934) (1,176,952)
Benefit payments - - -
Surrenders (467,521) (202,352) (1,062,230)
Net transfers among divisions
    (including the loan division and
    guaranteed interest division in
    the general account) 1,667,688 (3,810,780) 679,750
Other (4,066)
 (2,916)
 19,026
Increase (decrease) from principal
    transactions 2,603,047
 (1,641,197)
 2,048,700
 
Total increase (decrease) in net assets 3,815,703 (9,869,380) (2,898,224)
 
Net assets at beginning of year 14,494,151
 19,944,906
 27,555,779
 
Net assets at end of year $18,309,854
 $10,075,526
 $24,657,555

See accompanying notes.

 

Strategic Investor   			119

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

Alger
American
Small
Capitalization
 American
MidCap
Growth
 American
Growth
 American
Leveraged
AllCap
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $(111,576) $16,397,495 $6,095,716 $714,646
Net realized gains (losses) on
    investments (3,211,611) (10,113,537) (574,752) (10,400,578)
Net unrealized gains (losses) on
    investments (7,316,939)
 (14,244,865)
 (18,464,604)
 2,152,849
Increase (decrease) in net assets from
    operations (10,640,126)
 (7,960,907)
 (12,943,640)
 (7,533,083)
 
Changes from principal
    transactions
Net premiums 4,553,211 7,796,119 9,023,477 5,069,199
Cost of insurance and
    administrative charges (981,734) (1,465,438) (2,106,987) (1,311,526)
Benefit payments - - - -
Surrenders (595,965) (1,197,795) (1,117,742) (777,555)
Net transfers among divisions
    (including the loan division and
    guaranteed interest division in
    the general account) (402,843) 1,111,738 (58,483) (2,120,485)
Other (22,179)
 (100,870)
 (67,971)
 140,014
Increase (decrease) from principal
    transactions 2,550,490
 6,143,754
 5,672,294
 999,647
 
Total increase (decrease) in net assets (8,089,636) (1,817,153) (7,271,346) (6,533,436)
 
Net assets at beginning of year 26,169,130
 33,293,751
 50,118,432
 24,377,608
 
Net assets at end of year $18,079,494
 $31,476,598
 $42,847,086
 $17,844,172

See accompanying notes.

 

Strategic Investor   			120

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

Fidelity
Asset
Manager
 Growth
 Growth SC
 Overseas
 Overseas SC
 Money
Market
 Index 500
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $799,127 $4,185,710 $     - $5,124,012 $     - $2,090,183 $962,296
Net realized gains (losses) on
    investments (1,333,723) (8,394,238) (8,299) (7,918,094) (64) 1,798,913 2,005,052
Net unrealized gains (losses) on
    investments (1,786,550)
 (17,260,429)
 (6,406)
 (11,186,604)
 (15,770)
 (1,798,913)
 (46,372,634)
Increase (decrease) in net assets from
    operations (2,321,146)
 (21,468,957)
 (14,705)
 (13,980,686)
 (15,834)
 2,090,183
 (43,405,286)
 
Changes from principal
    transactions
Net premiums 3,679,706 10,807,387 62,782 7,272,439 66,462 88,102,103 35,902,623
Cost of insurance and
    administrative charges (835,313) (2,441,729) (1,532) (1,506,200) (1,319) (3,455,771) (7,689,386)
Benefit payments - - - - - (579,967) -
Surrenders (372,658) (2,041,763) - (1,448,283) - (3,072,457) (4,304,294)
Net transfers among divisions
    (including the loan division and
    guaranteed interest division in
    the general account) 2,403,551 (4,975,532) (7,345) 1,750,726 6,130 (41,128,003) 3,791,793
Other (22,374)
 (15,020)
 (131)
 (127,850)
 953
 29,000
 17,144
Increase (decrease) from principal
    transactions 4,852,912
 1,333,343
 53,774
 5,940,832
 72,226
 39,894,905
 27,717,880
 
Total increase (decrease) in net assets 2,531,766 (20,135,614) 39,069 (8,039,854) 56,392 41,985,088 (15,687,406)
 
Net assets at beginning of year 15,754,618
 68,506,203
 -
 43,321,877
 -
 62,014,812
 180,940,441
 
Net assets at end of year $18,286,384
 $48,370,589
 $39,069
 $35,282,023
 $56,392
 $103,999,900
 $165,253,035

See accompanying notes.

 

Strategic Investor   			121

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

INVESCO
Total
Return
 Equity
Income
 High Yield
 Utilities
 Small Company
Growth
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $(66,544) $(140,586) $(58,859) $(47,837) $(68,303)
Net realized gains (losses) on
    investments (468,777) 143,442 (472,065) (100,255) (1,478,280)
Net unrealized gains (losses) on
    investments (547,842)
 (5,021,480)
 (1,317,590)
 (3,455,761)
 (3,256,600)
Increase (decrease) in net assets from
    operations (1,083,163)
 (5,018,624)
 (1,848,514)
 (3,603,853)
 (4,803,183)
 
Changes from principal
    transactions
Net premiums 1,645,834 3,594,047 1,794,573 2,226,839 2,568,865
Cost of insurance and
    administrative charges (698,137) (1,244,698) (480,469) (411,603) (493,547)
Benefit payments - - - - -
Surrenders (577,591) (359,353) (208,715) (99,927) (452,315)
Net transfers among divisions
    (including the loan division and
    guaranteed interest division in
    the general account) 1,172,479 7,159,477 (469,867) 1,501,839 1,953,248
Other 3,923
 (40,760)
 3,755
 46,840
 (16,014)
Increase (decrease) from principal
    transactions 1,546,508
 9,108,713
 639,277
 3,263,988
 3,560,237
 
Total increase (decrease) in net assets 463,345 4,090,089 (1,209,237) (339,865) (1,242,946)
 
Net assets at beginning of year 11,694,631
 21,536,096
 10,496,352
 7,811,932
 11,848,103
 
Net assets at end of year $12,157,976
 $25,626,185
 $9,287,115
 $7,472,067
 $10,605,157

See accompanying notes.

 

Strategic Investor   			122

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

Van Eck
Worldwide
Hard
Assets
 Worldwide
Bond
 Worldwide
Emerging
Markets
 Worldwide
Real
Estate
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $11,746 $38,427 $(22,837) $28,320
Net realized gains (losses) on
    investments 135,326 (26,384) (990,221) 58,819
Net unrealized gains (losses) on
    investments (532,795)
 (28,601)
 (6,036)
 (92,801)
Increase (decrease) in net assets from
    operations (385,723)
 (16,558)
 (1,019,094)
 (5,662)
 
Changes from principal
    transactions 226,207 299,916 952,897 468,455
Net premiums
Cost of insurance and
    administrative charges (104,223) (69,357) (189,443) (72,864)
Benefit payments - - - -
Surrenders (290,575) (9,234) (80,627) (288)
Net transfers among divisions
    (including the loan division and
    guaranteed interest division in
    the general account) 49,675 93,709 (764,206) 485,639
Other (902)
 1,131
 3,684
 (227)
Increase (decrease) from principal
    transactions (119,818)
 316,165
 (77,695)
 880,715
 
Total increase (decrease) in net assets (505,541) 299,607 (1,096,789) 875,053
 
Net assets at beginning of year 2,313,351
 931,427
 4,562,000
 1,312,308
 
Net assets at end of year $1,807,810
 $1,231,034
 $3,465,211
 $2,187,361

See accompanying notes.

 

Strategic Investor   			123

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

AIM
Capital
Appreciation
 Government
Securities
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $(56,237) $(96,489)
Net realized gains (losses) on
    investments (2,469,266) 188,570
Net unrealized gains (losses) on
    investments (4,603,030)
 3,416,228
Increase (decrease) in net assets from
    operations (7,128,533)
 3,508,309
 
Changes from principal
    transactions
Net premiums 3,519,507 2,241,128
Cost of insurance and
    administrative charges (708,763) (1,873,858)
Benefit payments - -
Surrenders (287,754) (219,941)
Net transfers among divisions
    (including the loan division and
    guaranteed interest division in
    the general account) (37,907,694) 48,560,641
Other 2,402,069
 394,935
Increase (decrease) from principal
    transactions (32,982,635)
 49,102,905
 
Total increase (decrease) in net assets (40,111,168) 52,611,214
 
Net assets at beginning of year 51,038,676
 16,763,898
 
Net assets at end of year $10,927,508
 $69,375,112

See accompanying notes.

 

Strategic Investor   			124

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

GCG
Equity
Income
 Growth
 Hard
Assets
 Limited
Maturity
Bond
 Liquid
Asset
 MidCap
Growth
 Research
 Total
Return
 Fully
Managed
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $     - $     - $     - $     - $155,365 $(121) $     - $     - $(2,623)
Net realized gains (losses) on
    investments 4 (473) - (2,533) - (5,748) (270) (376) (1,507)
Net unrealized gains (losses) on
    investments (248)
 (815)
 -
 86,154
 -
 (31,208)
 (356)
 (1,106)
 (76,768)
Increase (decrease) in net assets from
    operations (244)
 (1,288)
 -
 83,621
 155,365
 (37,077)
 (626)
 (1,482)
 (80,898)
 
Changes from principal
    transactions
Net premiums 4,020 5,529 - 125,575 11,154,856 32,152 4,019 25,913 132,198
Cost of insurance and
    administrative charges (262) (218) - (25,656) (192,824) (2,517) (237) (992) (10,015)
Benefit payments - - - - - - - - -
Surrenders - - - (28,821) (64,165) - - - -
Net transfers among divisions
    (including the loan division and
    guaranteed interest division in
    the general account) (287) (361) - 112,849 (8,917,271) 116,110 (1,617) (4,384) 2,212,603
Other (1)
 277
 -
 (233)
 9,838
 2,323
 -
 (106)
 (219)
Increase (decrease) from principal
transactions 3,470
 5,227
 -
 183,714
 1,990,434
 148,068
 2,165
 20,431
 2,334,567
Total increase (decrease) in net assets 3,226 3,939 - 267,335 2,145,799 110,991 1,539 18,949 2,253,669
 
Net assets at beginning of year -
 1,233
 -
 876,798
 1,991,502
 -
 -
 10,533
 -
 
Net assets at end of year $3,226
 $5,172
 $     -
 $1,144,133
 $4,137,301
 $110,991
 $1,539
 $29,482
 $2,253,669

See accompanying notes.

 

Strategic Investor   			125

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

Janus
Growth
 Aggressive
Growth
 Worldwide
Growth
 International
Growth
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $(3,967) $(5,763) $(3,312) $6,357
Net realized gains (losses) on investments (66,138) (52,832) (188,602) (45,901)
Net unrealized gains (losses) on investments (770,447)
 (620,228)
 (490,331)
 (1,192,508)
Increase (decrease) in net assets from
    operations		 (840,552)
 (678,823)
 (682,245)
 (1,232,052)
 
Changes from principal transactions
Net premiums 843,683 656,670 770,445 997,292
Cost of insurance and administrative
    expenses		 (68,517) (59,897) (73,929) (87,762)
Benefit payments - - - -
Surrenders (2,404) (5,593) (55,040) (1,942)
Net transfers among divisions (including the
    loan division and guaranteed interest
    division in the general account) 		1,979,388 1,073,793 1,630,824 4,043,370
Other 648
 4,473
 (889)
 385
Increase (decrease) from principal transactions 2,752,798
 1,669,446
 2,271,411
 4,951,343
 
Total increase (decrease) in net assets 1,912,246 990,623 1,589,166 3,719,291
 
Net assets at beginning of year 243,641
 524,583
 319,420
 420,616
 
Net assets at end of year $2,155,887
 $1,515,206
 $1,908,586
 $4,139,907

See accompanying notes.

 

Strategic Investor   			126

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

M
International
Equity
 Enhanced
US Equity
 Capital
Appreciation
 Core Growth
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $(588) $(484) $(351) $(114)
Net realized gains (losses) on investments (2,402) (1,096) (3,447) (110)
Net unrealized gains (losses) on investments (97,793)
 (47,816)
 (149,084)
 (14,305)
Increase (decrease) in net assets from operations (100,783)
 (49,396)
 (152,882)
 (14,529)
 
Changes from principal transactions
Net premiums 27,786 37,540 22,739 8,845
Cost of insurance and administrative expenses (5,028) (2,196) (4,405) (648)
Benefit payments - - - -
Surrenders (423) - (420) -
Net transfers among divisions (including the
    loan division and guaranteed interest division
    in the general account) 		1,178,592 680,257 1,026,098 152,791
Other (342)
 35
 (767)
 5
Increase (decrease) from principal transactions 1,200,585
 715,636
 1,043,245
 160,993
 
Total increase (decrease) in net assets 1,099,802 666,240 890,363 146,464
 
Net assets at beginning of year -
 -
 -
 -
 
Net assets at end of year $1,099,802
 $666,240
 $890,363
 $146,464

See accompanying notes.

 

Strategic Investor   			127

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

Pilgrim
Growth
Opportunities
 MagnaCap
 MidCap
Opportunities
 SmallCap
Opportunities
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $(9) $(88) $(98) $140
Net realized gains (losses) on investments (135) (833) (4,931) (684)
Net unrealized gains (losses) on investments (1,677)
 (6,117)
 (14,824)
 (20,337)
Increase (decrease) in net assets from operations (1,821)
 (7,038)
 (19,853)
 (20,881)
 
Changes from principal transactions
Net premiums 1,989 22,346 1,547 49,789
Cost of insurance and administrative expenses (153) (1,616) (671) (2,102)
Benefit payments - - - -
Surrenders - - - (181)
Net transfers among divisions (including the
    loan division and guaranteed interest division
    in the general account) 		8,413 62,752 92,340 82,640
Other 64
 (102)
 1,923
 (46)
Increase (decrease) from principal transactions 10,313
 83,380
 95,139
 130,100
 
Total increase (decrease) in net assets 8,492 76,342 75,286 109,219
 
Net assets at beginning of year -
 -
 -
 -
 
Net assets at end of year $8,492
 $76,342
 $75,286
 $109,219

See accompanying notes.

 

Strategic Investor   			128

 

Security Life Separate Account L1

Statement of Changes in Net Assets (continued)
(Unaudited)
Nine months ended September 30, 2001

Putnam
New
Opportunities
 Voyager
 Growth
and Income
 Small Cap
Value
Increase (decrease) in net assets
 
Operations
Net investment income (loss) $(36) $(35) $(579) $(1,028)
Net realized gains (losses) on investments (1,711) (292) (488) 2,286
Net unrealized gains (losses) on investments (2,405)
 (3,672)
 (40,786)
 (86,221)
Increase (decrease) in net assets from operations (4,152)
 (3,999)
 (41,853)
 (84,963)
 
Changes from principal transactions
Net premiums 27,153 12,573 167,986 167,132
Cost of insurance and administrative expenses (696) (1,145) (6,504) (10,083)
Benefit payments - - - -
Surrenders - - - (10,133)
Net transfers among divisions (including the loan
    division and guaranteed interest division in the
     general account) 		153,503 30,741 596,974 832,214
Other (212)
 23
 50
 1,293
Increase (decrease) from principal transactions 179,748
 42,192
 758,506
 980,423
 
Total increase (decrease) in net assets 175,596 38,193 716,653 895,460
 
Net assets at beginning of year -
 -
 -
 -
 
Net assets at end of year $175,596
 $38,193
 $716,653
 $895,460

See accompanying notes.

 

Strategic Investor   			129

 

Security Life Separate Account L1

Notes to Financial Statements
(Unaudited)
September 30, 2001

1. Organization

Security Life Separate Account L1 (the "Separate Account") was established by resolution of the Board of Directors of Security Life of Denver Insurance Company (the "Company") on November 3, 1993. The Separate Account is organized as a unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940.

The Separate Account supports the operations of the FirstLine Variable Universal Life, FirstLine II Variable Universal Life, Strategic Advantage Variable Universal Life, Strategic Advantage II Variable Universal Life, Variable Survivorship Universal Life, Corporate Benefits Variable Universal Life, Strategic Benefits Variable Universal Life, Asset Portfolio Manager Variable Universal Life, and Estate Designer policies ("Variable Universal Life Policies") offered by the Company. Corporate Benefits Variable Universal Life and Strategic Benefits Variable Universal Life became effective in 2000 and are defined as Class B policies due to their mortality and expense charge structure. Asset Portfolio Manager Variable Universal Life became effective in 2001 and is also defined as a Class B policy. All other Variable Universal Life Policies are defined as Class A policies. The Separate Account may be used to support other variable life policies as the Company offers them. The assets of the Separate Account are the property of the Company. However, the portion of the Separate Account's assets attributable to the policies will not be used to satisfy liabilities arising out of any other operations of the Company.

As of September 30, 2001, the Separate Account offered 50 investment divisions (collectively "Funds") available to the policyholders, 37 of which invest in an independently managed mutual fund portfolio and thirteen of which invest in a mutual fund portfolio managed by an affiliate, either Direct Services, Inc. or ING Pilgrim Investments, LLC. The Funds are as follows:

Portfolio Managers/Portfolios (Funds)

Neuberger Berman Management Incorporated (NB)
     Neuberger Berman Limited Maturity Bond Portfolio
     Neuberger Berman Growth Portfolio
     Neuberger Berman Partners Portfolio

Fred Alger Management, Inc. (Alger)
     Alger American Small Capitalization Portfolio
     Alger American MidCap Growth Portfolio
     Alger American Growth Portfolio
     Alger American Leveraged AllCap Portfolio

Fidelity Management & Research Company (Fidelity)
     Fidelity Investments VIP II Asset Manager Portfolio
     Fidelity Investments VIP Growth Portfolio
     Fidelity Investments VIP Growth Service Class Portfolio
     Fidelity Investments VIP Overseas Portfolio
     Fidelity Investments VIP Overseas Service Class Portfolio
     Fidelity Investments VIP Money Market Portfolio
     Fidelity Investments VIP II Index 500 Portfolio

 

Strategic Investor   			130

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

1. Organization (continued)

Portfolio Managers/Portfolios (Funds) (continued)

INVESCO Funds Group, Inc. (INVESCO)
     INVESCO VIF Total Return Portfolio
     INVESCO VIF Equity Income Portfolio
     INVESCO VIF High Yield Portfolio
     INVESCO VIF Utilities Portfolio
     INVESCO VIF Small Company Growth Portfolio

Van Eck Associates Corporation (Van Eck)
     Van Eck Worldwide Hard Assets Portfolio
     Van Eck Worldwide Bond Portfolio
     Van Eck Worldwide Emerging Markets Portfolio
     Van Eck Worldwide Real Estate Portfolio

AIM Advisors, Inc. (AIM)
     AIM VI - Capital Appreciation Portfolio
     AIM VI - Government Securities Portfolio

Directed Services, Inc. ("GCG")
     GCG Trust - Equity Income Portfolio
     GCG Trust - Growth Portfolio
     GCG Trust - Hard Assets Portfolio
     GCG Trust - Limited Maturity Bond Portfolio
     GCG Trust - Liquid Asset Portfolio
     GCG Trust - MidCap Growth Portfolio
     GCG Trust - Research Portfolio
     GCG Trust - Total Return Portfolio
     GCG Trust - Fully Managed Portfolio

Janus Aspen Series Funds ("Janus")
     Growth Portfolio
     Aggressive Growth Portfolio
     Worldwide Growth Portfolio
     International Growth Portfolio

M Fund, Inc. ("M")
     Brandes International Equity Fund
     Clifton Enhanced U.S. Equity Fund
     Frontier Capital Appreciation Fund
     Turner Core Growth Fund

 

Strategic Investor   			131

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

1. Organization (continued)

Portfolio Managers/Portfolios (Funds) (continued)

ING Pilgrim Investments, LLC ("Pilgrim")
     VP Growth Opportunities Portfolio
     VP MagnaCap Portfolio
     VP MidCap Opportunities Portfolio
     VP SmallCap Opportunities Portfolio

Putnam Investment Management, LLC ("Putnam")
     Putnam VT New Opportunities Fund - Class 1B Shares
     Putnam VT Voyager Fund - Class 1B Shares
     Putnam VT Growth and Income Fund - Class 1B Shares
     Putnam VT Small Cap Value Fund - Class 1B Shares

Effective May 1, 2001 fifteen new divisions became available to the policyholders for investment in the following funds:

Fidelity Management & Research Company (Fidelity)
     Fidelity Investments VIP Growth Service Class Portfolio
     Fidelity Investments VIP Overseas Service Class Portfolio

Directed Services, Inc. ("GCG")
     GCG Trust - Fully Managed Portfolio

M Fund, Inc. ("M")
     Brandes International Equity Fund
     Clifton Enhanced U.S. Equity Fund
     Frontier Capital Appreciation Fund
     Turner Core Growth Fund

ING Pilgrim Investments, LLC ("Pilgrim")
     VP Growth Opportunities Portfolio
     VP MagnaCap Portfolio
     VP MidCap Opportunities Portfolio
     VP SmallCap Opportunities Portfolio

Putnam Investment Management, LLC ("Putnam")
     Putnam VT New Opportunities Fund - Class 1B Shares
     Putnam VT Voyager Fund - Class 1B Shares
     Putnam VT Growth and Income Fund - Class 1B Shares
     Putnam VT Small Cap Value Fund - Class 1B Shares

 

Strategic Investor   			132

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

1. Organization (continued)

Portfolio Managers/Portfolios (Funds) (continued)

The Variable Universal Life Policies allow the policyholders to specify the allocation of their net premium to the various Funds. They can also transfer their account values among the Funds. The Variable Universal Life Policies also provide the policyholders the option to allocate their net premiums, or to transfer their account values, to a Guaranteed Interest Division ("GID") in the Company's general account. The GID guarantees a rate of interest to the policyholder, and it is not variable in nature. Therefore, it is not included in these Separate Account statements.

2. Summary of Significant Accounting Policies

The accompanying financial statements of the Separate Account have been prepared on the basis of accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The significant accounting principles followed by the Separate Account and the methods of applying those principles are presented below or in the footnotes that follow:

Investment Valuation

The investments in shares of the Funds are valued at the closing net asset value (market value) per share as determined by the Funds on the day of measurement.

Investment Transactions and Related Investment Income

The investments in shares of the Funds are accounted for on the date the order to buy or sell is confirmed. Dividend income and distributions of capital gains are recorded on the ex-dividend date. Realized gains and losses from sales transactions are reported using the first-in, first-out ("FIFO") method of accounting for cost. The difference between cost and current market value of investments owned on the day of measurement is recorded as unrealized gain or loss on investment.

Valuation Period Deductions

For FirstLine, FirstLine II, Strategic Advantage, Strategic Advantage II, Variable Survivorship and Estate Designer policies (Class A Policies), charges are made directly against the assets of the Separate Account divisions and are reflected daily in the computation of the unit values of the divisions.

A daily deduction, at an annual rate of .75% of the daily asset value of the Separate Account divisions, is charged to the Separate Account for mortality and expense risks assumed by the Company. Total mortality and expense charges for the nine months ended September 30, 2001 were $3,766,054

 

Strategic Investor   			133

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

For the Corporate Benefits, Strategic Benefits and Asset Portfolio Manager policies (Class B Policies), mortality and expense charges result in the redemption of units rather than a deduction in the daily computation of unit values

For Corporate Benefits policies, a monthly deduction, at an annual rate of .20% of the account value, is charged. For Strategic Benefits policies, a monthly deduction, at an annual rate of .85%, .60% and .05% of the account value, is charged during policy years 1 through 10, 11 through 20, and 21 and later, respectively. For Asset Portfolio Manager, a monthly deduction, at an annual rate of .90% and .45% of the account value, is charged during policy years 1 through 10 and 11 through 20, respectively. There is no mortality and expense charge after year 20 for Asset Portfolio Manager policies. Total mortality and expense charges for these policies for the nine months ended September 30, 2001 were $117,234 and are included in the Statement of Changes in Net Assets as cost of insurance and administrative charges.

Policyholder Reserves

Policyholder reserves are recorded in the Separate Account at the aggregate account values of the policyholders invested in the Separate Account divisions. To the extent that benefits to be paid to the policyholders exceed their account values, the Company will contribute additional funds to the benefit proceeds.

3. Related Party Transactions

During the nine months ended September 30, 2001, management fees were paid indirectly to Direct Services, Inc., an affiliate of the Company, in its capacity as investment manager to GCG Trust. The Fund's advisory agreement provided for a fee at an annual rate of .94% of the average net assets of the Equity Income, Hard Assets and Fully Managed Portfolios, .99% of the average net assets of the Growth Portfolio, .54% of the average net assets of the Limited Maturity Bond and Liquid Assets Portfolios, and .88% of the average net assets of the MidCap, Research and Total Return Portfolios. In addition, management fees were paid to ING Pilgrim Investments, LLC, an affiliate of the Company, in its capacity as investment advisor to Pilgrim Variable Products Trust. The Fund's advisory agreement provides for a fee at an annual rate of .75% of the average net assets of the fund for all available Pilgrim funds.

4. Investments

Fund shares are purchased at net asset value with net premiums (premium payments, less sales and tax loads charged by the Company) and divisional transfers from other divisions. Fund shares are redeemed for the payment of benefits, for surrenders, for transfers to other divisions, and for charges by the Company for certain cost of insurance and administrative charges. The cost of insurance and administrative charges for the nine months ended September 30, 2001 was $30,894,716. Dividends made by the Funds are reinvested in the Funds.

 

Strategic Investor   			134

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

4. Investments (continued)

For the nine months ended September 30, 2001 the cost of purchases (plus reinvested dividends) and sales of investments are as follows:

Fund
 Beginning
of Year
 Purchases
 Sales
 End
of Year
 
Neuberger Berman Management Inc.:
    Limited Maturity Bond $14,317,177 $9,833,157 $(6,515,553) $17,634,781
    Growth 23,675,702 11,654,195 (15,008,036) 20,321,861
    Partners 26,760,069 23,327,672 (21,312,796) 28,774,945
 
Fred Alger Management, Inc.:
    American Small Capitalization 29,017,464 7,200,099 (7,970,932) 28,246,631
    American MidCap Growth 32,585,413 47,695,306 (35,334,268) 44,946,451
    American Growth 57,519,366 17,361,380 (6,055,876) 68,824,870
    American Leveraged AllCap 30,403,675 30,525,084 (39,280,783) 21,647,976
 
Fidelity Management & Research Co.:
    Asset Manager 16,794,005 12,581,884 (8,145,836) 21,230,053
    Growth 76,947,214 25,701,078 (28,420,205) 74,228,087
    Growth SC - - - -
    Overseas 47,778,416 36,291,549 (33,079,359) 50,990,606
    Overseas SC - - - -
    Money Market 62,301,092 134,998,767 (93,029,907) 104,269,952
    Index 500 171,986,004 46,080,738 (15,471,172) 202,595,570
 
INVESCO Funds Group, Inc.:
    Total Return 13,758,395 3,323,740 (2,356,356) 14,725,779
    Equity Income 20,783,337 12,004,405 (2,835,000) 29,952,742
    High Yield 11,975,324 3,851,647 (3,800,870) 12,026,101
    Utilities 7,691,761 4,628,178 (1,517,562) 10,802,377
    Small Company Growth 14,096,290 6,001,772 (4,003,922) 16,094,140
 
Van Eck Associates Corporation:
    Worldwide Hard Assets 2,041,764 1,220,311 (1,193,058) 2,069,017
    Worldwide Bond 913,802 642,334 (314,200) 1,241,936
    Worldwide Emerging Markets 6,215,858 2,124,071 (3,214,716) 5,125,213
    Worldwide Real Estate 1,192,797 1,591,292 (623,412) 2,160,677
 
AIM Advisors, Inc.:
    Capital Appreciation 51,815,173 9,320,530 (44,829,713) 16,305,990
    Government Securities 16,599,323 53,962,296 (4,773,896) 65,787,723

 

Strategic Investor   			135

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

4. Investments (continued)

Fund
 Beginning
of Year
 Purchases
 Sales
 End
of Year
Directed Services, Inc. (GCG):
    Equity Income - 3,991 (517) 3,474
    Growth 1,401 7,709 (2,954) 6,156
    Hard Assets - - - -
    Limited Maturity Bond 922,084 311,237 (130,056) 1,103,265
    Liquid Asset 1,991,502 14,647,461 (12,501,662) 4,137,301
    MidCap Growth - 158,554 (16,356) 142,198
    Research - 3,991 (2,095) 1,896
    Total Return 11,083 28,275 (8,220) 31,138
    Fully Managed - 2,377,472 (47,035) 2,330,437
 
Janus Aspen Series Funds:
    Growth 258,748 2,995,398 (312,693) 2,941,453
    Aggressive Growth 575,061 1,753,178 (142,309) 2,185,930
    Worldwide Growth 336,173 2,942,885 (863,379) 2,415,679
    International Growth 437,129 5,208,140 (296,326) 5,348,943
 
M Fund, Inc.:
    Brandes - 1,240,840 (43,244) 1,197,596
    Clifton - 724,772 (10,716) 714,056
    Frontier - 1,082,801 (43,354) 1,039,447
    Turner - 161,512 (743) 160,769
 
ING Pilgrim Investments, LLC:
    Growth Opportunities - 13,010 (2,841) 10,169
    MagnaCap - 91,882 (9,395) 82,487
    Mid-Cap Opportunities - 106,497 (16,387) 90,110
    Small Cap Opportunities - 133,734 (4,178) 129,556
 
Putnam Investment Management, LLC:
    New Opportunity - 188,345 (10,344) 178,001
    Voyager - 44,823 (2,957) 41,866
    Growth and Income - 765,548 (8,109) 757,439
    Small Cap Value - 1,057,284 (75,602) 981,682

Aggregate proceeds from sales of investments for the year ended September 30, 2001 were $339,904,411.

 

Strategic Investor   			136

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

5. Other Policy Deductions

The Variable Universal Life Policies provide for certain deductions for sales and tax loads from premium payments received from the policyholders and for surrender charges and taxes from amounts paid to policyholders. Such deductions are taken before the purchase of divisional units or after the redemption of divisional units of the Separate Account. Such deductions are not included in the Separate Account financial statements.

6. Policy Loans

The Variable Universal Life Policies allow the policyholders to borrow against their policies by using them as collateral for a loan. At the time of borrowing against the policies, an amount equal to the loan amount is transferred from the Separate Account divisions to a Loan Division in the Company's General Account to secure the loan. As payments are made on the policy loan, amounts are transferred back from the Loan Division to the Separate Account divisions. Interest is credited to the balance in the Loan Division at a fixed rate. The Loan Division is not variable in nature and is not included in these Separate Account statements.

7. Federal Income Taxes

The Separate Account is not taxed separately because the operations of the Separate Account are part of the total operations of the Company. The Company is taxed as a life insurance company under the Internal Revenue Code. The Separate Account is not taxed as a "Regulated Investment Company" under subchapter "M" of the Internal Revenue Code.

 

Strategic Investor   			137

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

8. Summary of Changes in Units

The following schedule summarizes the changes in divisional units for the nine months ended September 30, 2001:

Division
 Outstanding
at Beginning
of Year
 Increase
for Payments
Received
 (Decrease) for
Withdrawals
and Other
Deductions
 Outstanding
at End
of Year
 
Neuberger Berman Management Inc.:
    Limited Maturity Bond:
         Class A 1,085,190.344 633,981.266 (453,025.029) 1,266,146.581
         Class B - 11,870.651 (131.509) 11,739.142
    Growth:
         Class A 755,032.816 211,630.138 (297,943.682) 678,719.272
         Class B - 5,187.887 (149.125) 5,038.762
    Partners:
         Class A 1,131,357.503 954,332.012 (861,775.600) 1,223,913.915
         Class B 727.044 3,644.189 (925.756) 3,445.477
Fred Alger Management, Inc.:
    American Small Capitalization:
         Class A 1,351,105.091 494,615.223 (336,183.930) 1,509,536.384
         Class B 55,669.122 13,745.027 (7,103.215) 62,310.934
    American MidCap Growth:
         Class A 1,022,948.192 992,259.366 (816,277.300) 1,198,930.258
         Class B 4,581.526 42,048.850 (6,508.656) 40,121.720
    American Growth:
         Class A 1,795,058.476 402,366.412 (211,091.017) 1,986,333.871
         Class B 11,503.557 64,282.741 (6,449.037) 69,337.261
    American Leveraged AllCap:
         Class A 602,197.766 819,661.610 (819,085.801) 602,773.575
         Class B - 5,213.278 (99.158) 5,114.120
Fidelity Management & Research Co.:
    Asset Manager:
         Class A 878,584.296 673,615.192 (395,407.827) 1,156,791.661
         Class B - 27,300.458 (987.126) 26,313.332
    Growth:
         Class A 2,222,867.138 780,227.088 (752,229.346) 2,250,864.880
         Class B 40,727.108 28,191.232 (6,005.258) 62,913.082
    Growth SC:
         Class A - - - -
         Class B - 10,635.510 (5,423.813) 5,211.697
    Overseas:
         Class A 2,586,286.303 1,374,102.231 (1,362,603.126) 2,597,785.408
         Class B 83,750.568 1,138,500.038 (527,772.720) 694,477.886
    Overseas SC:
         Class A - - - -
         Class B - 8,253.934 (74.270) 8,179.664
    Money Market:
         Class A 4,689,569.461 9,818,823.896 (6,883,266.419) 7,625,126.938
         Class B - - - -
    Index 500:
         Class A 6,025,479.633 1,389,040.776 (496,248.593) 6,918,271.816
         Class B 704,951.502 850,688.233 (444,195.943) 1,111,443.792

 

Strategic Investor   			138

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

8. Summary of Changes in Units (continued)

Division
 Outstanding
at Beginning
of Year
 Increase
for Payments
Received
 (Decrease) for
Withdrawals
and Other
Deductions
 Outstanding
at End
of Year
 
INVESCO Funds Group, Inc.:
    Total Return:
        Class A 698,007.347 198,981.329 (112,373.094) 784,615.582
        Class B - 9,860.724 (568.112) 9,292.612
    Equity Income:
        Class A 782,880.410 452,568.963 (114,877.938) 1,120,571.435
        Class B 23,197.396 53,355.532 (3,600.173) 72,952.755
    High Yield:
        Class A 680,080.798 235,922.007 (210519.503) 705,483.302
        Class B 2,293.135 29,970.920 (2,491.826) 29,772.229
    Utilities:
        Class A 341,947.485 229,222.309 (73,357.723) 497,812.071
        Class B - 6,855.602 (2,097.018) 4,758.584
    Small Company Growth:
        Class A 658,499.168 378,941.248 (172,909.058) 864,531.358
        Class B 2,459.473 20,102.781 (1,812.922) 20,749.332
Van Eck Associates Corporation:
    Worldwide Hard Assets:
        Class A 214,971.664 112,334.417 (123,784.616) 203,521.465
        Class B - 2,087.328 (2,073.651) 13.677
    Worldwide Bond:
        Class A 91,236.724 60,797.233 (28,799.510) 123,234.447
        Class B 42.100 272.010 (58.304) 255.806
    Worldwide Emerging Markets:
        Class A 543,314.421 268,211.374 (275,700.681) 535,825.114
        Class B 36,043.266 5,491.307 (4,681.595) 36,852.978
    Worldwide Real Estate:
        Class A 131,207.896 155,468.629 (69,309.664) 217,366.861
        Class B 395.373 1,255.009 (74.497) 1,575.885
AIM Advisors, Inc.:
    Capital Appreciation:
        Class A 647,483.811 455,916.587 (131,759.921) 971,640.477
        Class B 3,435,424.363 374,457.966 (3,577,223.343) 232,658.986
    Government Securities:
        Class A 1,022,213.843 909,066.908 (144,345.442) 1,786,935.309
        Class B 469,535.280 3,863,575.759 (283,968.228) 4,049,142.811

 

Strategic Investor   			139

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

8. Summary of Changes in Units (continued)

Division
 Outstanding
at Beginning
of Year
 Increase
for Payments
Received
 (Decrease) for
Withdrawals
and Other
Deductions
 Outstanding
at End
of Year
 
Directed Services, Inc. (GCG):
    Equity Income:
        Class A - - - -
        Class B - 373.031 (47.956) 325.075
    Growth:
        Class A - - - -
        Class B 103.679 814.912 (231.845) 686.746
    Hard Assets:
        Class A - - - -
        Class B - - - -
    Limited Maturity Bond:
        Class A - - - -
        Class B 80,478.798 27,750.347 (11,314.315) 96,914.830
    Liquid Asset:
        Class A - - - -
        Class B 183,932.621 1,320,267.028 (1,131,146.989) 373,052.660
    MidCap Growth:
        Class A - 13,786.105 (1,197.856) 12,588.249
        Class B - 1,269.186 (120.146) 1,149.040
    Research:
        Class A - - - -
        Class B - 399.308 (201.392) 197.916
    Total Return:
        Class A - - - -
        Class B 908.365 2,449.192 (669.154) 2,688.403
    Fully Managed:
        Class A - 223,008.727 (3,702.155) 219,306.572
        Class B - 4,607.591 (613.638) 3,993.953
Janus Aspen Series Funds:
    Growth:
        Class A 29,430.276 378,803.998 (34,006.095) 374,228.179
        Class B - 23,700.310 (1,118.254) 22,582.056
    Aggressive Growth:
        Class A 53,752.789 345,618.839 (12,667.683) 386,703.945
        Class B 22,786.649 11,209.173 (5,811.503) 28,184.319
    Worldwide Growth:
        Class A 19,710.545 380,733.407 (97,751.658) 302,692.294
        Class B 17,011.166 6,125.993 (1,873.807) 21,263.352
    International Growth:
        Class A 42,106.076 671,293.298 (27,381.336) 686,018.038
        Class B 6,269.387 27,479.028 (4,772.374) 28,976.041
M Fund, Inc.:
    Brandes:
        Class A - 129,279.832 (4,248.068) 125,031.764
        Class B - 234.984 (3.167) 231.817
    Clifton:
        Class A - 75,096.341 (1,007.746) 74,088.595
        Class B - 41.210 (7.022) 34.188
    Frontier:
        Class A - 109,053.187 (4,019.642) 105,033.545
        Class B - 553.939 (10.221) 543.718
    Turner:
        Class A - 17,312.395 (44.547) 17,267.848
        Class B - 119.092 (12.422) 106.670

 

Strategic Investor   			140

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

8. Summary of Changes in Units (continued)

Division
 Outstanding
at Beginning
of Year
 Increase
for Payments
Received
 (Decrease) for
Withdrawals
and Other
Deductions
 Outstanding
at End
of Year
 
ING Pilgrim Investments, LLC:
    Growth Opportunities:
         Class A - 1,429.571 (290.582) 1.138.989
         Class B - - - -
    MagnaCap:
         Class A - 8,476.145 (858.001) 7,618.144
         Class B - 890.161 (25.273) 864.888
    Mid-Cap Opportunities:
         Class A - 11,454.437 (1,508.937) 9,945.500
         Class B - 26.044 - 26.044
    Small Cap Opportunities:
         Class A - 13,141.785 (331.164) 12,810.621
         Class B - 369.609 (1.966) 367.643
Putnam Investment Management, LLC:
    New Opportunities:
         Class A - 21,527.240 (1,030.827) 20,496.413
         Class B - 1,699.870 (13.335) 1,686.535
    Voyager:
         Class A - 4,684.642 (268.273) 4,416.369
         Class B - 25.078 (1.214) 23.864
    Growth and Income:
         Class A - 78,154.086 (738.551) 77,415.535
         Class B - 158.978 (1.241) 157.737
    Small Cap Value:
         Class A - 95,839.897 (6,763.553) 89,076.344
         Class B - 2,247.174 (292.282) 1,954.892

 

Strategic Investor   			141

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios

The following schedule summarizes expense ratios, excluding expenses of underlying funds and total return for the nine-month period ended September 30, 2001 and the years ended December 31, 2000, 1999, 1998, and 1997.

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Neuberger Berman Management Inc.:
    Limited Maturity Bond - Class A
 
        September 30, 2001 1,266,146.581 $14.36 $18,186 .30% 7.49%
        December 31, 2000 1,085,190.344 13.36 14,494 .29 6.03
        December 31, 1999 889,159.604 12.60 11,201 .28 .72
        December 31, 1998 1,245,559.121 12.51 15,578 * 3.65
        December 31, 1997 552,985.394 12.97 6,675 * 5.97
 
Neuberger Berman Management Inc.:
    Limited Maturity Bond - Class B
 
        September 30, 2001 11,739.142 $10.53 $124 1.55% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Neuberger Berman Management Inc.:
    Growth - Class A
 
        September 30, 2001 678,719.272 $14.79 $10,040 .51% (44.02)%
        December 31, 2000 755,032.816 26.42 19,945 .39 (12.26)
        December 31, 1999 434,338.368 30.11 13,076 .41 49.28
        December 31, 1998 447,486.376 20.17 9,026 * 14.60
        December 31, 1997 316,146.084 17.60 5,564 * 28.09
 
Neuberger Berman Management Inc.:
    Growth - Class B
 
        September 30, 2001 5,038.762 $6.97 $35 2.61% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Neuberger Berman Management Inc.:
    Government Income - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 75,811.559 11.79 894 * 8.76
 
Neuberger Berman Management Inc.:
    Partners - Class A
 
        September 30, 2001 1,223,913.915 $20.12 $24,629 .37% (17.37)%
        December 31, 2000 1,131,357.503 24.35 27,548 .55 .33
        December 31, 1999 1,212,133.448 24.27 29,420 .51 6.54
        December 31, 1998 986,298.018 22.78 22,463 * 3.45
        December 31, 1997 626,285.721 22.02 13,792 * 30.30

 

Strategic Investor   			142

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Neuberger Berman Management Inc.:
    Partners - Class B
 
        September 30, 2001 3,445.477 $8.30 $29 5.51% (16.75)%
        December 31, 2000 727.044 9.97 7 8.66 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fred Alger Management, Inc:
    American Small Capitalization - Class A
 
        September 30, 2001 1,509,536.384 $11.73 $17,705 0.49% (38.17)%
        December 31, 2000 1,351,105.091 18.97 25,632 0.57 (27.90)
        December 31, 1999 1,055,757.484 26.31 27,780 .053 42.29
        December 31, 1998 838,692.418 18.49 15,503 * 14.70
        December 31, 1997 648,733.740 16.12 11,275 * 10.56
 
Fred Alger Management, Inc:
    American Small Capitalization - Class B
 
        September 30, 2001 62,310.934 $6.00 $374 0.50% (37.82)%
        December 31, 2000 55,669.122 9.65 537 1.26 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fred Alger Management, Inc:
    American MidCap Growth - Class A
 
        September 30, 2001 1,198,930.258 $25.89 $31,046 0.61% (20.31)%
        December 31, 2000 1,022,948.192 32.49 33,232 0.61 8.41
        December 31, 1999 576,738.314 29.97 17,287 0.71 30.82
        December 31, 1998 402,532.472 22.91 9,220 * 29.36
        December 31, 1997 288,809.482 17.71 5,115 * 14.11
 
Fred Alger Management, Inc:
    American MidCap Growth - Class B
 
        September 30, 2001 40,121.720 $10.73 $430 3.34% (20.10)%
        December 31, 2000 4,581.526 13.43 62 14.13 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fred Alger Management, Inc:
    American Growth - Class A
 
        September 30, 2001 1,986,333.871 $21.30 $42,302 0.51% (23.57)%
        December 31, 2000 1,795,058.476 27.87 50,001 0.54 (15.31)
        December 31, 1999 1,257.371.637 32.89 41,383 0.54 32.70
        December 31, 1998 923,696.066 24.80 22,904 * 47.01
        December 31, 1997 569,990.309 16.87 9,616 * 24.78

 

Strategic Investor   			143

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Fred Alger Management, Inc:
    American Growth - Class B
 
        September 30, 2001 69,337.261 $7.86 $545 1.77% (22.64)%
        December 31, 2000 11,503.557 10.16 117 8.26 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fred Alger Management, Inc:
    American Leveraged AllCap - Class A
 
        September 30, 2001 602,773.575 $29.53 $17,802 0.81% (27.05)%
        December 31, 2000 602,197.766 40.48 24,377 0.74 (25.35)
        December 31, 1999 425,281.099 54.23 23,064 0.63 76.70
        December 31, 1998 221,642.446 30.69 6,801 * 56.66
        December 31, 1997 148,542.639 19.59 2,910 * 18.80
 
Fred Alger Management, Inc:
    American Leveraged AllCap - Class B
 
        September 30, 2001 5,114.120 $8.29 $42 4.87% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Asset Manager - Class A
 
        September 30, 2001 1,156,791.661 $15.60 $18,046 0.50% (12.99)%
        December 31, 2000 878,584.296 17.93 15,755 0.55 (4.63)
        December 31, 1999 722,717.906 18.80 13,590 0.50 10.26
        December 31, 1998 600,255.213 17.05 10,237 * 14.12
        December 31, 1997 410,906.106 14.94 6,137 * 19.81
 
Fidelity Management & Research Co.:
    Asset Manager - Class B
 
        September 30, 2001 26,313.332 $9.12 $240 1.92% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Growth - Class A
 
        September 30, 2001 2,250,864.880 $21.28 $47,892 0.51% (30.50)%
        December 31, 2000 2,222,867.138 30.62 68,065 0.68 (11.76)
        December 31, 1999 1,676,236.646 34.70 58,158 0.49 36.40
        December 31, 1998 1,293,480.338 25.44 32,900 * 38.49
        December 31, 1997 983,842.388 18.37 18,075 * 22.55

 

Strategic Investor   			144

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Fidelity Management & Research Co.:
    Growth - Class B
 
        September 30, 2001 62,913.082 $7.60 $478 1.95% (28.89)%
        December 31, 2000 40,727.108 10.84 441 4.93 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Growth SC - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Growth SC - Class B
 
        September 30, 2001 5,211.697 $7.50 $56 5.03% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Overseas - Class A
 
        September 30, 2001 2,597,785.408 $11.61 $30,163 .48% (29.25)%
        December 31, 2000 2,586,286.303 16.41 42,453 .45 (19.48)
        December 31, 1999 1,716,617.627 20.38 34,984 .44 41.53
        December 31, 1998 1,429,659.907 14.40 20,582 * 11.98
        December 31, 1997 950,328.899 12.86 12,226 * 10.67
 
Fidelity Management & Research Co.:
    Overseas - Class B
 
        September 30, 2001 694,477.886 $7.37 $5,119 2.53% (29.00)%
        December 31, 2000 83,750.568 10.38 869 1.40 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Overseas SC- Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			145

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Fidelity Management & Research Co.:
    Overseas SC- Class B
 
        September 30, 2001 8,179.664 $6.89 $56 1.58% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Money Market - Class A
 
        September 30, 2001 7,625,127.938 $13.64 $104,000 .72% 3.18%
        December 31, 2000 4,689,569.461 13.22 62,105 1.35 5.00
        December 31, 1999 2,763,648.297 12.59 34,797 .99 4.39
        December 31, 1998 1,526,404.399 12.06 18,412 * 4.69
        December 31, 1997 1,303,059.881 11.52 15,013 * 4.63
 
Fidelity Management & Research Co.:
    Money Market - Class B
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Fidelity Management & Research Co.:
    Index 500 - Class A
 
        September 30, 2001 6,918,271,816 $22.61 $156,436 .50% (21.63)%
        December 31, 2000 6,025,479.633 28.85 173,842 .53 (9.96)
        December 31, 1999 4,772,484.597 32.04 152,916 1.08 19.60
        December 31, 1998 3,215,990.519 26.79 86,154 * 27.39
        December 31, 1997 1,863,056.104 21.03 39,185 * 31.68
 
Fidelity Management & Research Co.:
    Index 500 - Class B
 
        September 30, 2001 1,111,443.792 $7.93 $8,817 1.72% (21.25)%
        December 31, 2000 704,951.502 10.07 7,098 .99 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
INVESCO Funds Group, Inc:
    Total Return - Class A
 
        September 30, 2001 784,615.582 $15.39 $12,071 82% (8.12)%
        December 31, 2000 698,007.347 16.75 11,695 .96 (2.90)
        December 31, 1999 602,187.614 17.25 10,387 1.02 (4.11)
        December 31, 1998 450,557.216 17.99 8,105 * 8.77
        December 31, 1997 184,042.238 16.54 3,045 * 21.98

 

Strategic Investor   			146

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

    

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
INVESCO Funds Group, Inc:
    Total Return - Class B
 
        September 30, 2001 9,292.612 $9.31 $87 1.00% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
INVESCO Funds Group, Inc:
    Equity Income - Class A
 
        September 30, 2001 1,120,561.435 $22.29 $24,975 .67% (18.02)%
        December 31, 2000 782,880.410 27.19 21,286 .81 4.10
        December 31, 1999 621,047.937 26.12 16,221 .85 13.96
        December 31, 1998 473,616.752 22.92 10,853 * 14.49
        December 31, 1997 297,553.033 20.02 5,958 * 27.19
 
INVESCO Funds Group, Inc:
    Equity Income - Class B
 
        September 30, 2001 72,952.755 $8.92 $651 .89% (17.33)%
        December 31, 2000 23,197.396 10.79 250 1.88 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
INVESCO Funds Group, Inc:
    High Yield - Class A
 
        September 30, 2001 705,483.302 $12.85 $9,062 .52% (16.56)%
        December 31, 2000 680,080.798 15.40 10,476 .54 (12.25)
        December 31, 1999 536,863.946 17.55 9,421 .57 8.40
        December 31, 1998 486,858.648 16.19 7,883 * 0.68
        December 31, 1997 333,501.857 16.08 5,364 * 16.44
 
INVESCO Funds Group, Inc:
    High Yield - Class B
 
        September 30, 2001 29,772.229 $7.56 $225 1.39% (16.43)%
        December 31, 2000 2,293.135 9.07 21 12.83 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
INVESCO Funds Group, Inc:
    Utilities - Class A
 
        September 30, 2001 497,812.071 $14.94 $7,440 .76% (34.62)%
        December 31, 2000 341,947.485 22.85 7,812 .72 4.53
        December 31, 1999 189,409.984 21.86 4,141 .72 18.23
        December 31, 1998 110,379.616 18.49 2,041 * 24.51
        December 31, 1997 78,118.685 14.85 1,160 * 22.52

 

Strategic Investor   			147

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
INVESCO Funds Group, Inc:
    Utilities - Class B
 
        September 30, 2001 4,758.584 $6.84 $33 2.21% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
INVESCO Funds Group, Inc:
    Small Company Growth - Class A
 
        September 30, 2001 864,531.358 $12.05 $10,422 .72% (32.91)%
        December 31, 2000 658,499.168 17.96 11,825 .83 (14.60)
        December 31, 1999 212,503.210 21.03 4,469 .98 89.63
        December 31, 1998 67,506.441 11.09 749 * -
        December 31, 1997 - - - * -
 
INVESCO Funds Group, Inc:
    Small Company Growth - Class B
 
        September 30, 2001 20,749.332 $8.84 $183 2.26% (33.13)%
        December 31, 2000 2,459.473 13.22 33 9.94 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Van Eck Associates Corporation:
    Worldwide Hard Assets - Class A
 
        September 30, 2001 203,521.465 $8.88 $1,808 .37% (17.47)%
        December 31, 2000 214,971.664 10.76 2,313 .36 10.59
        December 31, 1999 236,972.429 9.73 2,306 .47 20.12
        December 31, 1998 132,513.824 8.10 1,074 * (31.47)
        December 31, 1997 77,046.773 11.82 911 * (2.48)
 
Van Eck Associates Corporation:
    Worldwide Hard Assets - Class B
 
        September 30, 2001 13.677 $8.19 - .64% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Van Eck Associates Corporation:
    Worldwide Bond - Class A
 
        September 30, 2001 123,234.447 $9.97 $1,229 .72% (2.25)%
        December 31, 2000 91,236.724 10.20 931 .80 1.09
        December 31, 1999 33,114.078 10.09 334 1.00 (8.52)
        December 31, 1998 18,656.317 11.03 206 * -
        December 31, 1997 - - - * -

 

Strategic Investor   			148

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Van Eck Associates Corporation:
    Worldwide Bond - Class B
 
        September 30, 2001 255.806 $9.86 $3 15.08% (1.60)%
        December 31, 2000 42.100 10.02 422 56.52 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Van Eck Associates Corporation:
    Worldwide Emerging Markets - Class A
 
        September 30, 2001 535,825.114 $6.03 $3,230 .71% (23.18)%
        December 31, 2000 543,314.421 7.85 4,264 .64 (42.32)
        December 31, 1999 228,819.195 13.61 3,114 .46 98.69
        December 31, 1998 67,354.295 6.85 461 -
        December 31, 1997 - - - -
 
Van Eck Associates Corporation:
    Worldwide Emerging Markets - Class B
 
        September 30, 2001 36,852.978 $6.38 $235 .50% (22.85)%
        December 31, 2000 36,043.266 8.27 298 1.28 -
        December 31, 1999 - - - -
        December 31, 1998 - - - -
        December 31, 1997 - - - -
 
Van Eck Associates Corporation:
    Worldwide Real Estate - Class A
 
        September 30, 2001 217,366.861 $9.98 $2,170 .62% .10%
        December 31, 2000 131,207.896 9.97 1,308 .63 17.85
        December 31, 1999 64,967.173 8.46 550 .96 (2.76)
        December 31, 1998 8,765.232 8.70 76 -
        December 31, 1997 - - -
 
Van Eck Associates Corporation:
    Worldwide Real Estate - Class B
 
        September 30, 2001 1,575.885 $11.05 $17 6.01% .73%
        December 31, 2000 395.373 10.97 4 11.51 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
AIM Advisors, Inc.:
    Capital Appreciation- Class A
 
        September 30, 2001 971,640.477 $9.37 $9,099 1.10% (34.01)%
        December 31, 2000 647,483.811 14.52 9,404 1.20 (13.36)
        December 31, 1999 323,846.032 16.39 5,309 1.32 43.52
        December 31, 1998 105,457.867 11.42 1,204 -
        December 31, 1997 - - - -

 

Strategic Investor   			149

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
AIM Advisors, Inc.:
    Capital Appreciation- Class B
 
        September 30, 2001 232,658.986 $7.86 $1,828 .71% (35.15)%
        December 31, 2000 3,435,424.363 12.12 41,634 .38 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
AIM Advisors, Inc.:
    Government Securities - Class A
 
        September 30, 2001 1,786,935.309 $11.96 $21,380 .30% 5.93%
        December 31, 2000 1,022,213.843 11.29 11,540 .32 5.29
        December 31, 1999 715,905.149 10.33 7,394 .39 (2.09)
        December 31, 1998 246,150.062 10.55 2,596 -
        December 31, 1997 - - - -
 
AIM Advisors, Inc.:
    Government Securities - Class B
 
        September 30, 2001 4,049,142.811 $11.85 $47,995 1.47% 6.47%
        December 31, 2000 469,535.280 11.13 5,224 .53 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Equity Income - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Equity Income - Class B
 
        September 30, 2001 325.075 $9.92 $3 3.13% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Growth - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			150

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Directed Services, Inc. (GCG):
    Growth - Class B
 
        September 30, 2001 687.746 $7.53 $5 1.91% (36.67)%
        December 31, 2000 103.679 11.89 1 - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Hard Assets - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Hard Assets - Class B
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Limited Maturity Bond - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Limited Maturity Bond - Class B
 
        September 30, 2001 96,914.830 $11.81 $1,144 .31% 8.45%
        December 31, 2000 80,478.798 10.89 877 .72 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Liquid Assets - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			151

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Directed Services, Inc. (GCG):
    Liquid Assets - Class B
 
        September 30, 2001 373,052.660 $11.10 $4,137 .82% 2.49%
        December 31, 2000 183,932.621 10.83 1,992 .37 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    MidCap Growth - Class A
 
        September 30, 2001 12,588.249 $7.85 $99 .93% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    MidCap Growth - Class B
 
        September 30, 2001 1,149.040 $10.57 $12 3.15%
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Research - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Research - Class B
 
        September 30, 2001 197.916 $7.77 $1 3.38% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Total Return - Class A
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			152

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Directed Services, Inc. (GCG):
    Total Return - Class B
 
        September 30, 2001 2,688.403 $10.97 $3 2.56% (5.43)%
        December 31, 2000 908.365 11.60 11 - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Fully Managed- Class A
 
        September 30, 2001 219,306.572 $10.09 $2,213 .21% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Directed Services, Inc. (GCG):
    Fully Managed- Class B
 
        September 30, 2001 3,993.953 $10.13 $40 2.36% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Janus Aspen Series Funds:
    Growth - Class A
 
        September 30, 2001 374,228.179 $5.43 $2,032 1.19% (32.42)%
        December 31, 2000 29,430.276 8.28 244 0.24 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Janus Aspen Series Funds:
    Growth - Class B
 
        September 30, 2001 22,582.056 $5.47 $123 4.04% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Janus Aspen Series Funds:
    Aggressive Growth - Class A
 
        September 30, 2001 386,073.945 $3.65 $1,411 1.34% (46.72)%
        December 31, 2000 53,752.789 6.85 368 0.16 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			153

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Janus Aspen Series Funds:
    Aggressive Growth - Class B
 
        September 30, 2001 28,184.319 $3.68 $104 0.76% (46.36)%
        December 31, 2000 22.786.649 6.86 156 0.19 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Janus Aspen Series Funds:
    Worldwide Growth - Class A
 
        September 30, 2001 302,692.294 $5.89 $1,782 1.17% (32.22)%
        December 31, 2000 19,710.545 8.69 171 0.24 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Janus Aspen Series Funds:
    Worldwide Growth - Class B
 
        September 30, 2001 21,263.352 $5.94 $126 0.77% (31.80)%
        December 31, 2000 17,011.166 8.71 148 0.20 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Janus Aspen Series Funds:
    International Growth - Class A
 
        September 30, 2001 686,018.038 $5.79 $3,971 0.47% (33.37)%
        December 31, 2000 42,106.076 8.69 366 0.24 -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Janus Aspen Series Funds:
    International Growth - Class B
 
        September 30, 2001 28,976.041 $5.83 $169 2.80% (33.07)%
        December 31, 2000 6,269.387 8.71 55 - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
M Fund, Inc.:
    International Equity - Class A
 
        September 30, 2001 125,031.764 $8.78 $1,098 .21% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			154

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
M Fund, Inc.:
    International Equity - Class B
 
        September 30, 2001 231.817 $8.81 $2 12.05% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
M Fund, Inc.:
    Enhanced US Equity- Class A
 
        September 30, 2001 74,088.595 $8.99 $665 .14% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
M Fund, Inc.:
    Enhanced US Equity- Class B
 
        September 30, 2001 34.188 $9.01 - 34.61% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
M Fund, Inc.:
    Capital Appreciation - Class A
 
        September 30, 2001 105,033.545 $8.43 $886 .20% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
M Fund, Inc.:
    Capital Appreciation - Class B
 
        September 30, 2001 523.718 $8.46 $4 13.74% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
M Fund, Inc.:
    Core Growth - Class A
 
        September 30, 2001 17,267.848 $8.43 $146 .32% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			155

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
M Fund, Inc.:
    Core Growth - Class B
 
        September 30, 2001 106.670 $8.47 - 20.53% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
ING Pilgrim Investment, LLC:
    Growth Opportunities - Class A
 
        September 30, 2001 1,138.989 $7.46 $8,492 2.86% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
ING Pilgrim Investment, LLC:
    Growth Opportunities - Class B
 
        September 30, 2001 - - - - -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
ING Pilgrim Investment, LLC:
    MagnaCap - Class A
 
        September 30, 2001 7,618.144 $9.00 $69 1.57% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
ING Pilgrim Investment, LLC:
    MagnaCap - Class B
 
        September 30, 2001 864.888 8.98 $8 9.16% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
ING Pilgrim Investment, LLC:
    Mid-Cap Opportunities - Class A
 
        September 30, 2001 9,945.500 $7.55 $75 .41% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			156

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
ING Pilgrim Investment, LLC:
    Mid-Cap Opportunities - Class B
 
        September 30, 2001 26.044 $7.45 - 51.50% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
ING Pilgrim Investment, LLC:
    Small Cap Opportunities - Class A
 
        September 30, 2001 12,810.621 $8.29 $106 1.23% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
ING Pilgrim Investment, LLC:
    Small Cap Opportunities - Class B
 
        September 30, 2001 367.643 $8.30 $3 28.22% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Putnam Investment Management, LLC:
    New Opportunities - Class A
 
        September 30, 2001 20,496.413 $7.91 $162 1.52% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Putnam Investment Management, LLC:
    New Opportunities - Class B
 
        September 30, 2001 1,686.535 $7.94 $13 2.88% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Putnam Investment Management, LLC:
    Voyager - Class A
 
        September 30, 2001 4,416.369 $8.60 $38 2.50% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

 

Strategic Investor   			157

 

Security Life Separate Account L1
(Unaudited)
Notes to Financial Statements (continued)

9. Summary of Expense and Investment Ratios (continued)

Division
 Units
 Net Assets
 Expenses as a
% of Average
Net Assets
 Total
Return
Unit
Value
 (000s)
 
Putnam Investment Management, LLC:
    Voyager - Class A
 
        September 30, 2001 23.864 $8.63 - 15.79% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Putnam Investment Management, LLC:
    Growth and Income - Class A
 
        September 30, 2001 77,415.535 $9.24 $715 .54% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Putnam Investment Management, LLC:
    Growth and Income - Class B
 
        September 30, 2001 157.737 $9.27 $1 27.46% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Putnam Investment Management, LLC:
    Small Cap Value - Class A
 
        September 30, 2001 89,076.344 $9.84 $876 .55% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -
 
Putnam Investment Management, LLC:
    Small Cap Value - Class B
 
        September 30, 2001 1,954.892 $9.84 $19 3.32% -
        December 31, 2000 - - - - -
        December 31, 1999 - - - - -
        December 31, 1998 - - - - -
        December 31, 1997 - - - - -

*Ratio not provided for years ended December 31, 1998 and 1997.</R>

 

Strategic Investor   			158

 

Security Life Separate Account L1 of
Security Life of Denver Insurance Company
Financial Statements
Years ended December 31, 2000, 1999 and 1998

 

 

 

  

Strategic Investor   			159


Security Life Separate Account L1

Financial Statements

Years ended December 31, 2000, 1999 and 1998

Contents

Report of Independent Auditors161
 
Audited Financial Statements
 
Statement of Net Assets162
Statement of Operations171
Statement of Changes in Net Assets     194
Notes to Financial Statements217


Strategic Investor   			160


Report of Independent Auditors

Policyholders
Security Life Separate Account L1 of
     Security Life of Denver Insurance Company

We have audited the accompanying statement of net assets of Security Life Separate Account L1 of Security Life of Denver Insurance Company, comprising, respectively, the Neuberger Berman Advisers Management Trust (comprising the Limited Maturity Bond, Growth and Partners Divisions) ("NB"), the Alger American Fund (comprising the American Small Capitalization, American MidCap Growth, American Growth and American Leveraged AllCap Divisions) ("Alger"), the Fidelity Variable Insurance Products Fund and Variable Insurance Products Fund II (comprising the Asset Manager, Growth, Overseas, Money Market and Index 500 Divisions) ("Fidelity"), the INVESCO Variable Investment Funds, Inc. (comprising the Total Return, Equity Income, High Yield, Utilities and Small Company Growth Divisions) ("INVESCO"), the Van Eck Worldwide Trust (comprising the Worldwide Hard Assets, Worldwide Bond, Worldwide Emerging Markets and Worldwide Real Estate Divisions) ("Van Eck"), AIM Advisors, Inc. (comprising the Capital Appreciation and Government Securities Divisions) ("AIM"), the Directed Services, Inc. (comprising the Equity Income, Growth, Hard Asset, Limited Maturity Bond, Liquid Asset, MidCap, Research and Total Return Divisions) ("GCG"), and Janus Aspen Series Funds (comprising the Aggressive Growth, Growth, International Growth and Worldwide Growth Divisions) ("Janus"), as of December 31, 2000, and the related statements of operations and changes in net assets for each of the three years in the period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2000, by correspondence with the transfer agents. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Security Life Separate Account L1 at December 31, 2000, and the results of its operations and changes in its net assets for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States.

April 3, 2001



Strategic Investor   			161


Security Life Separate Account L1

Statement of Net Assets

December 31, 2000

Total All Divisions
 Total NB
 Total Alger
 Total Fidelity
 Total INVESCO
 Total Van Eck
 Total AIM
 Total GCG
 Total Janus
Assets
Investments in mutual funds at market value (Note 3) $711,116,580
$61,876,992
$133,977,481
$370,730,205
$63,237,456
$9,121,476
$67,784,644
$2,880,066
$1,508,260
Total assets 711,116,580
61,876,992
133,977,481
370,730,205
63,237,456
9,121,476
67,784,644
2,880,066
1,508,260
Liabilities
Due to (from) Security Life of Denver (72,228)
 (117,844)
 18,560
192,254
(149,658)
 2,390
(17,930)
 -
 -
Total liabilities (72,228)
 (117,844)
 18,560
192,254
(149,658)
 2,390
(17,930)
 -
 -
Net assets $711,188,808
 $61,994,836
$133,958,921
$370,537,951
$63,387,114
$9,119,086
$67,802,574
$2,880,066
$1,508,260
Policyholder reserves
Reserves attributable to the policyholders (Note 2) $711,188,808
$61,994,836
$133,958,921
$370,537,951
$63,387,114
$9,119,086
$67,802,574
$2,880,066
$1,508,260
Total policyholder reserves $711,188,808
$61,994,836
$133,958,921
$370,537,951
$63,387,114
 $9,119,086
$67,802,574
$2,880,066
$1,508,260

See accompanying notes.



Strategic Investor   			162


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

NB
Total NB
 Limited Maturity Bond
 Growth
 Partners
Assets
Investments in mutual funds at market value (Note 3) $61,876,992
 $14,488,939
 $19,934,193
 $27,453,860
Total assets 61,876,992
 14,488,939
 19,934,193
 27,453,860
Liabilities
Due to (from) Security Life of Denver (117,844)
 (5,212)
 (10,713)
 (101,919)
Total liabilities (117,844)
 (5,212)
 (10,713)
 (101,919)
Net assets $61,994,836
 $14,494,151
 $19,944,906
$27,555,779
Policyholder reserves
Reserves attributable to the policyholders (Note 2) $61,994,836
 $14,494,151
 $19,944,906
 $27,555,779
Total policyholder reserves $61,994,836
 $14,494,151
 $19,944,906
 $27,555,779
Number of divisional units outstanding (Note 7):
     Class A
 
 		 1,085,190.344
 755,032.816
 1,131,357.503
     Class B
 
 		 -
 -
 727.044
Value per divisional unit:
     Class A
 
 		 $13.36
 $26.42
 $24.35
     Class B
 
 		 $ -
 $ -
 $ 9.97

See accompanying notes.



Strategic Investor   			163


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

Alger
Total Alger
 American Small Capitalization
 American MidCap Growth
 American Growth
 American Leveraged AllCap
Assets
Investments in mutual funds at market value (Note 3) $133,977,481
 $26,226,670
 $33,290,178
 $50,094,730
 $24,365,903
Total assets 133,977,481
 26,226,670
 33,290,178
 50,094,730
 24,365,903
Liabilities
Due to (from) Security Life of Denver 18,560
 57,540
 (3,573)
 (23,702)
 (11,705)
Total liabilities 18,560
 57,540
 (3,573)
 (23,702)
 (11,705)
Net assets $133,958,921
 $26,169,130
 $33,293,751
 $50,118,432
 $24,377,608
Policyholder reserves
Reserves attributable to the policyholders (Note 2) $133,958,921
 $26,169,130
 $33,293,751
 $50,118,432
 $24,377,608
Total policyholder reserves $133,958,921
 $26,169,130
 $33,293,751
 $50,118,432
 $24,377,608
Number of divisional units outstanding (Note 7):
     Class A
 
 		 1,351,105.091
 1,022,948.192
 1,795,058.476
 602,197.766
     Class B
 
 		 55,669.122
 4,581.526
 11,503.557
 -
Value per divisional unit:
     Class A
 
 		 $18.97
 $32.49
 $27.87
 $40.48
     Class B $ 9.65
 $13.43
 $10.16
 $ -

See accompanying notes.



Strategic Investor   			164


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

Fidelity
Total Fidelity
 Asset Manager
 Growth
 Overseas
 Money Market
 Index 500
Assets
Investments in mutual funds at
     market value (Note 3) $370,730,205
 $15,754,225
 $68,586,160
 $43,188,471
 $62,301,092
 $180,900,257
Total assets 370,730,205
 15,754,225
 68,586,160
 43,188,471
 62,301,092
 180,900,257
Liabilities
Due to (from) Security Life of Denver 192,254
 (393)
 79,957
 (133,406)
 286,280
 (40,184)
Total liabilities 192,254
 (393)
 79,957
 (133,406)
 286,280
 (40,184)
Net assets $370,537,951
 $15,754,618
 $68,506,203
 $43,321,877
 $62,014,812
 $180,940,441
Policyholder reserves
Reserves attributable to the
     policyholders (Note 2) $370,537,951
 $15,754,618
 $68,506,203
 $43,321,877
 $62,014,812
 $180,940,441
Total policyholder reserves $370,537,951
 $15,754,618
 $68,506,203
 $43,321,877
 $62,014,812
 $180,940,441
Number of divisional units outstanding (Note 7):
     Class A
 
 		 878,584.296
 2,222,867.138
 2,586,286.303
 4,689,569.461
 6,025,479.633
     Class B
 
 		 -
 40,727.108
 83,750.568
 -
 704,951.502
Value per divisional unit:
     Class A
 
 		 $17.93
 $30.62
 $16.41
 $13.22
 $28.85
     Class B
 
 		 $ -
 $10.84
 $10.38
 $ -
 $10.07

See accompanying notes.



Strategic Investor   			165


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

INVESCO
Total INVESCO
 Total Return
 Equity Income
 High Yield
 Utilities
 Small Company Growth
Assets
Investments in mutual funds at
     market value (Note 3) $63,237,456
 $11,689,940
 $21,534,053
 $10,481,915
 $7,812,397
 $11,719,151
Total assets 63,237,456
 11,689,940
 21,534,053
 10,481,915
 7,812,397
 11,719,151
Liabilities
Due to (from) Security Life of Denver (149,658)
 (4,691)
 (2,043)
 (14,437)
 465
 (128,952)
Total liabilities (149,658)
 (4,691)
 (2,043)
 (14,437)
 465
 (128,952)
Net assets $63,387,114
 $11,694,631
 $21,536,096
 $10,496,352
 $7,811,932
 $11,848,103
Policyholder reserves
Reserves attributable to the
     policyholders (Note 2) $63,387,114
 $11,694,631
 $21,536,096
 $10,496,352
 $7,811,932
 $11,848,103
Total policyholder reserves $63,387,114
 $11,694,631
 $21,536,096
 $10,496,352
 $7,811,932
 $11,848,103
Number of divisional units outstanding (Note 7):
     Class A
 
 		 698,007.347
 782,880.410
 680,080.798
 341,947.485
 658,499.168
     Class B
 
 		 -
 23,197.396
 2,293.135
 -
 2,459.473
Value per divisional unit:
     Class A
 
 		 $16.75
 $27.19
 $15.40
 $22.85
 $17.96
     Class B
 
 		 $-
 $10.79
 $ 9.07
 $ -
 $13.22

See accompanying notes.



Strategic Investor   			166


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

Van Eck
Total Van Eck
 Worldwide Hard Assets
 Worldwide Bond
 Worldwide Emerging Markets
 Worldwide Real Estate
Assets
Investments in mutual funds
     at market value (Note 3) $9,121,476
 $2,313,362
 $931,424
 $4,564,382
 $1,312,308
Total assets 9,121,476
 2,313,362
 931,424
 4,564,382
 1,312,308
Liabilities
Due to (from) Security Life of Denver 2,390
 11
 (3)
 2,382
 -
Total liabilities 2,390
 11
 (3)
 2,382
 -
Net assets $9,119,086
 $2,313,351
 $931,427
 $4,562,000
 $1,312,308
Policyholder reserves
Reserves attributable to the
     policyholders (Note 2) $9,119,086
 $2,313,351
 $931,427
 $4,562,000
 $1,312,308
Total policyholder reserves $9,119,086
 $2,313,351
 $931,427
 $4,562,000
 $1,312,308
Number of divisional units outstanding (Note 7):
     Class A
 
 		 214,971.664
 91,236.724
 543,314.421
 131,207.896
     Class B
 
 		 -
 42.100
 36,043.266
 395.373
Value per divisional unit:
     Class A
 
 		 $10.76
 $10.20
 $7.85
 $ 9.97
     Class B
 
 		 $ -
 $10.02
 $8.27
 $10.97

See accompanying notes.



Strategic Investor   			167


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

AIM
Total AIM
 Capital Appreciation
 Government Securities
Assets
Investments in mutual funds at
     market value (Note 3) $67,784,644
 $51,020,236
 $16,764,408
Total assets 67,784,644
 51,020,236
 16,764,408
Liabilities
Due to (from) Security Life of Denver (17,930)
 (18,440)
 510
Total liabilities (17,930)
 (18,440)
 510
Net assets $67,802,574
 $51,038,676
 $16,763,898
Policyholder reserves
Reserves attributable to the
     policyholders (Note 2) $67,802,574
 $51,038,676
 $16,763,898
Total policyholder reserves $67,802,574
 $51,038,676
 $16,763,898
Number of divisional units outstanding (Note 7):
     Class A
 
 		 647,483.811
 1,022,213.843
     Class B
 
 		 3,435,424.363
 469,535.280
Value per divisional unit:
     Class A
 
 		 $14.52
 $11.29
     Class B
 
 		 $12.12
 $11.13

See accompanying notes.



Strategic Investor   			168


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

GCG
Total GCG
 Equity Income
 Growth
 Hard Assets
 Limited Maturity Bond
 Liquid Asset
 MidCap Growth
 Research
 Total Return
Assets
Investments in mutual funds at market value (Note 3) $2,880,066
 $ -
 $1,233
 $ -
 $876,798
 $1,991,502
 $ -
 $ -
 $10,533
Total assets 2,880,066
 -
 1,233
 -
 876,798
 1,991,502
 -
 -
 10,533
Liabilities
Due to (from) Security Life of Denver -
 -
 -
 -
 -
 -
 -
 -
 -
Total liabilities -
 -
 -
 -
 -
 -
 -
 -
 -
Net assets $2,880,066
 $ -
 $1,233
 $ -
 $876,798
 $1,991,502
 $ -
 $ -
 $10,533
Policyholder reserves
Reserves attributable to the policyholders (Note 2) $2,880,066
 $ -
 $1,233
 $ -
 $876,798
 $1,991,502
 $ -
 $ -
 $10,533
Total policyholder reserves $2,880,066
 $ -
 $1,233
 $ -
 $876,798
 $1,991,502
 $ -
 $ -
 $10,533
Number of divisional units outstanding (Note 7):
     Class A
 
 		 -
 -
 -
 -
 -
 -
 -
 -
     Class B
 
 		 -
 103.679
 -
 80,478.798
 183,932.621
 -
 -
 908.365
Value per divisional unit:
     Class A
 
 		 -
 -
 -
 -
 -
 -
 -
 -
     Class B
 
 		 -
 $11.89
 -
 $10.89
 $10.83
 -
 -
 $11.60

See accompanying notes.



Strategic Investor   			169


Security Life Separate Account L1

Statement of Net Assets (continued)

December 31, 2000

Janus
Total Janus
 Growth
 Aggressive Growth
 Worldwide Growth
 International Growth
Assets
Investments in mutual funds at market value (Note 3) $1,508,260
 $243,641
 $524,583
 $319,420
 $420,616
Total assets 1,508,260
 243,641
 524,583
 319,420
 420,616
Liabilities
Due to (from) Security Life of Denver -
 -
 -
 -
 -
Total liabilities -
 -
 -
 -
 -
Net assets $1,508,260
 $243,641
 $524,583
 $319,420
 $420,616
Policyholder reserves
Reserves attributable to the policyholders (Note 2) $1,508,260
 $243,641
 $524,583
 $319,420
 $420,616
Total policyholder reserves $1,508,260
 $243,641
 $524,583
 $319,420
 $420,616
Number of divisional units
outstanding (Note 7):
     Class A
 
 		 29,430.276
 53,752.789
 19,710.545
 42,106.076
     Class B
 
 		 -
 22,786.649
 17,011.166
 6,269.387
Value per divisional unit:
     Class A
 
 		 $8.28
 $6.85
 $8.69
 $8.69
     Class B
 
 		 $ -
 $6.86
 $8.71
 $8.71

See accompanying notes.



Strategic Investor   			170


Security Life Separate Account L1

Statement of Operations

Year ended December 31, 2000

Total All Divisions
 Total NB
 Total Alger
 Total Fidelity
 Total INVESCO
 Total Van Eck
 Total AIM
 Total GCG
 Total Janus
Investment income
Dividends from mutual funds $ 50,577,183 $ 7,022,071 $ 21,585,044 $ 16,687,757 $ 3,487,264 $ 59,217 $ 818,477 $916,460 $ 893
Less valuation period deductions
     (Note 2) 4,508,171
 450,958
 982,444
 2,480,381
 404,934
 59,822
 128,874
 -
 758
Net investment income (loss) 46,069,012
 6,571,113
 20,602,600
 14,207,376
 3,082,330
 (605)
 689,603
 916,460
 135
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 5,695,914 (1,808,706) (5,036,278) 10,515,603 1,339,426 220,229 475,369 - (9,729)
Net unrealized gains (losses) on
     investments (118,856,269)
 (7,325,351)
 (40,865,515)
 (58,774,602)
 (7,701,130)
 (2,223,947)
 (1,820,869)
 (46,004)
 (98,851)
Net realized and unrealized gains
     (losses) on investments (113,160,355)
 (9,134,057)
 (45,901,793)
 (48,258,999)
 (6,361,704)
 (2,003,718)
 (1,345,500)
 (46,004)
 (108,580)
Net increase (decrease) in net assets
     resulting from operations $ (67,091,343)
 $(2,562,944)
 $(25,299,193)
 $(34,051,623)
 $(3,279,374)
 $(2,004,323)
 $ (655,897)
 $870,456
 $(108,445)

See accompanying notes.



Strategic Investor   			171


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

NB
Total NB
 Limited Maturity Bond
 Growth
 Partners
Investment income
Dividends from mutual funds $ 7,022,071 $775,107 $ 1,356,082 $4,890,882
Less valuation period deductions
     (Note 2) 450,958
 92,250
 138,445
 220,263
Net investment income (loss) 6,571,113
 682,857
 1,217,637
 4,670,619
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments (1,808,706) (281,540) 3,777,374 (5,304,540)
Net unrealized gains (losses) on
     investments (7,325,351)
 351,484
 (7,971,190)
 294,355
Net realized and unrealized gains
     (losses) on investments (9,134,057)
 69,944
 (4,193,816)
 (5,010,185)
Net increase (decrease) in net assets
     resulting from operations $(2,562,944)
 $752,801
 $(2,976,179)
 $ (339,566)

See accompanying notes.



Strategic Investor   			172


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

Alger
Total Alger
 American Small Capitalization
 American MidCap Growth
 American Growth
 American Leveraged AllCap
Investment income
Dividends from mutual funds $21,585,044 $9,941,662 $2,936,254 $6,249,935 $2,457,193
Less valuation period deductions
     (Note 2) 982,444
 222,078
 194,721
 366,802
 198,843
Net investment income (loss) 20,602,600
 9,719,584
 2,741,533
 5,883,133
 2,258,350
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments (5,036,278) (9,976,931) 1,057,836 1,775,571 2,107,246
Net unrealized gains (losses) on
     investments (40,865,515)
 (9,435,613)
 (2,672,195)
 (16,304,212)
 (12,453,495)
Net realized and unrealized gains
     (losses) on investments (45,901,793)
 (19,412,544)
 (1,614,359)
 (14,528,641)
 (10,346,249)
Net increase (decrease) in net assets
     resulting from operations $(25,299,193)
 $(9,692,960)
 $1,127,174
 $(8,645,508)
 $(8,087,899)

See accompanying notes.



Strategic Investor   			173


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

Fidelity
Total Fidelity
 Asset Manager
 Growth
 Overseas
 Money Market
 Index 500
Investment income
Dividends from mutual funds $ 16,687,757 $1,469,444 $ 6,670,347 $ 3,516,677 $2,798,325 $ 2,232,964
Less valuation period deductions
     (Note 2) 2,480,381
 105,478
 489,501
 301,304
 340,745
 1,243,353
Net investment income (loss) 14,207,376
 1,363,966
 6,180,846
 3,215,373
 2,457,580
 989,611
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 10,515,603 8,816 2,581,814 1,800,478 - 6,124,495
Net unrealized gains (losses) on
     investments (58,774,602)
 (2,092,103)
 (17,925,268)
 (13,999,080)
 -
 (24,758,151)
Net realized and unrealized gains
     (losses) on investments (48,258,999)
 (2,083,287)
 (15,343,454)
 (12,198,602)
 -
 (18,633,656)
Net increase (decrease) in net assets
     resulting from operations $(34,051,623)
 $ (719,321)
 $(9,162,608)
 $(8,983,229)
 $2,457,580
 $(17,644,045)

See accompanying notes.



Strategic Investor   			174


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

INVESCO
Total INVESCO
 Total Return
 Equity Income
 High Yield
 Utilities
 Small Company Growth
Investment income
Dividends from mutual funds $ 3,487,264 $1,540,605 $1,186,862 $ 97,398 $324,011 $ 338,388
Less valuation period deductions
     (Note 2) 404,934
80,022
139,132
78,969
43,912
62,899
Net investment income (loss) 3,082,330
1,460,583
1,047,730
18,429
280,099
275,489
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 1,339,426 (314,414) 593,634 (390,743) 256,021 1,194,928
Net unrealized gains (losses) on
     investments (7,701,130)
 (1,435,710)
 (904,246)
 (1,002,431)
 (372,493)
 (3,986,250)
Net realized and unrealized gains
     (losses) on investments (6,361,704)
 (1,750,124)
 (310,612)
 (1,393,174)
 (116,472)
 (2,791,322)
Net increase (decrease) in net assets
     resulting from operations $(3,279,374)
 $ (289,541)
 $ 737,118
$(1,374,745)
 $163,627
$(2,515,833)

See accompanying notes.



Strategic Investor   			175


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

Van Eck
Total Van Eck
 Worldwide Hard Assets
 Worldwide Bond
 Worldwide Emerging Markets
 Worldwide Real Estate
Investment income
Dividends from mutual funds $ 59,217 $ 25,149 $20,595 $ - $ 13,473
Less valuation period deductions
     (Note 2) 59,822
 17,641
 5,005
 31,191
 5,985
Net investment income (loss) (605)
 7,508
 15,590
 (31,191)
 7,488
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 220,229 140,202 (14,783) 87,666 7,144
Net unrealized gains (losses) on
     investments (2,223,947)
 123,530
 23,588
 (2,508,578)
 137,513
Net realized and unrealized gains
     (losses) on investments (2,003,718)
 263,732
 8,805
 (2,420,912)
 144,657
Net increase (decrease) in net assets
     resulting from operations $(2,004,323)
 $271,240
 $24,395
 $(2,452,103)
 $152,145

See accompanying notes.



Strategic Investor   			176


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

AIM
Total AIM
 Capital Appreciation
 Government Securities
Investment income
Dividends from mutual funds $ 818,477 $ 266,665 $551,812
Less valuation period deductions
     (Note 2) 128,874
 58,290
 70,584
Net investment income (loss) 689,603
 208,375
 481,228
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     Investments 475,369 418,127 57,242
Net unrealized gains (losses) on
     Investments (1,820,869)
 (2,171,530)
 350,661
Net realized and unrealized gains
     (losses) on investments (1,345,500)
 (1,753,403)
 407,903
Net increase (decrease) in net assets
     resulting from operations $ (655,897)
 $(1,545,028)
 $889,131

See accompanying notes.



Strategic Investor   			177


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

GCG
Total GCG
 Equity Income
 Growth
 Hard Assets
 Limited Maturity Bond
 Liquid Asset
 MidCap Growth
 Research
 Total Return
Investment income
Dividends from mutual funds $916,460 $ - $ 90 $ - $54,281 $861,303 $ - $ - $786
Less valuation period deductions (Note 2) -
 -
 -
 -
 -
 -
 -
 -
 -
Net investment income (loss) 916,460
 -
 90
 -
 54,281
 861,303
 -
 -
 786
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments - - - - - - - - -
Net unrealized gains (losses) on investments (46,004)
 -
 (168)
 -
 (45,286)
 -
 -
 -
 (550)
Net realized and unrealized gains (losses) on investments (46,004)
 -
 (168)
 -
 (45,286)
 -
 -
 -
 (550)
Net increase (decrease) in net assets resulting from operations $870,456
 $ -
 $ (78)
 $ -
 $ 8,995
 $861,303
 $ -
 $ -
 $236

See accompanying notes.



Strategic Investor   			178


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 2000

Janus
Total Janus
 Growth
 Aggressive Growth
 Worldwide Growth
 International Growth
Investment income
Dividends from mutual funds $ 893 $ - $ - $ 83 $ 810
Less valuation period deductions
     (Note 2) 758
 180
 218
 147
 213
Net investment income (loss) 135
 (180)
 (218)
 (64)
 597
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments (9,729) (1,546) (86) (7,584) (513)
Net unrealized gains (losses) on
     investments (98,851)
 (15,107)
 (50,478)
 (16,753)
 (16,513)
Net realized and unrealized gains
     (losses) on investments (108,580)
 (16,653)
 (50,564)
 (24,337)
 (17,026)
Net increase (decrease) in net assets
     resulting from operations $(108,445)
 $(16,833)
 $(50,782)
 $(24,401)
 $(16,429)

See accompanying notes.



Strategic Investor   			179


Security Life Separate Account L1

Statement of Operations

Year ended December 31, 1999

Total All Divisions
 Total NB
 Total Alger
 Total Fidelity
 Total INVESCO
 Total Van Eck
 Total AIM
Investment income
Dividends from mutual funds $18,884,169 $2,123,919 $ 7,325,481 $ 7,908,482 $1,183,695 $ 30,826 $ 311,766
Less valuation period deductions
     (Note 2) 2,908,885
 371,218
 557,411
 1,629,301
 272,130
 27,814
 51,011
Net investment income (loss) 15,975,284
 1,752,701
 6,768,070
 6,279,181
 911,565
 3,012
 260,755
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 18,191,446 557,950 5,023,269 11,358,812 1,094,239 73,144 84,032
Net unrealized gains (losses) on
     investments 55,998,041
 3,797,732
 17,500,945
 30,152,442
 2,135,798
 1,374,192
 1,036,932
Net realized and unrealized gains
     (losses) on investments 74,189,487
 4,355,682
 22,524,214
 41,511,254
 3,230,037
 1,447,336
 1,120,964
Net increase (decrease) in net assets
     resulting from operations $90,164,771
 $6,108,383
 $29,292,284
 $47,790,435
 $4,141,602
 $1,450,348
 $1,381,719

See accompanying notes.



Strategic Investor   			180


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1999

NB
Total NB
 Limited Maturity Bond
 Growth
 Partners
Investment income
Dividends from mutual funds $2,123,919 $911,596 $ 453,085 $ 759,238
Less valuation period deductions
     (Note 2) 371,218
108,699
70,308
192,211
Net investment income (loss) 1,752,701
802,897
382,777
567,027
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 557,950 (293,615) 318,964 532,601
Net unrealized gains (losses) on
     investments 3,797,732
(423,477)
 3,714,218
506,991
Net realized and unrealized gains
     (losses) on investments 4,355,682
(717,092)
 4,033,182
1,039,592
Net increase (decrease) in net assets
     resulting from operations $6,108,383
$ 85,805
$4,415,959
$1,606,619

See accompanying notes.



Strategic Investor   			181


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1999

Alger
Total Alger
 American Small Capitalization
 American MidCap Growth
 American Growth
 American Leveraged AllCap
Investment income
Dividends from mutual funds $ 7,325,481 $2,200,048 $1,636,538 $2,764,203 $ 724,692
Less valuation period deductions
     (Note 2) 557,411
 141,734
 88,955
 233,373
 93,349
Net investment income (loss) 6,768,070
 2,058,314
 1,547,583
 2,530,830
 631,343
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 5,023,269 94,825 322,974 2,007,625 2,597,845
Net unrealized gains (losses) on
     investments 17,500,945
 5,993,398
 2,015,333
 4,584,649
 4,907,565
Net realized and unrealized gains
     (losses) on investments 22,524,214
 6,088,223
 2,338,307
 6,592,274
 7,505,410
Net increase (decrease) in net assets
     resulting from operations $29,292,284
 $8,146,537
 $3,885,890
 $9,123,104
 $8,136,753

See accompanying notes.



Strategic Investor   			182


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1999

Fidelity
Total Fidelity
 Asset Manager
 Growth
 Overseas
 Money Market
 Index 500
Investment income
Dividends from mutual funds $ 7,908,482 $ 798,528 $ 3,508,501 $ 820,014 $1,277,704 $ 1,503,735
Less valuation period deductions
     (Note 2) 1,629,301
 83,646
 308,868
 188,207
 188,211
 860,369
Net investment income (loss) 6,279,181
 714,882
 3,199,633
 631,807
 1,089,493
 643,366
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 11,358,812 122,474 7,459,882 553,230 - 3,223,226
Net unrealized gains (losses) on
     investments 30,152,442
 316,538
 3,509,953
 8,740,414
 -
 17,585,537
Net realized and unrealized gains
     (losses) on investments 41,511,254
 439,012
 10,969,835
 9,293,644
 -
 20,808,763
Net increase (decrease) in net assets
     resulting from operations $47,790,435
 $1,153,894
 $14,169,468
 $9,925,451
 $1,089,493
 $21,452,129

See accompanying notes.



Strategic Investor   			183


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1999

INVESCO
Total INVESCO
 Total Return
 Equity Income
 High Yield
 Utilities
 Small Company Growth
Investment income
Dividends from mutual funds $1,183,695 $ 276,071 $ 252,055 $618,531 $ 37,038 $ -
Less valuation period deductions
     (Note 2) 272,130
 71,255
 97,430
 65,338
 23,769
 14,338
Net investment income (loss) 911,565
 204,816
 154,625
 553,193
 13,269
 (14,338)
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 1,094,239 286,623 506,767 (241,611) 304,911 237,549
Net unrealized gains (losses) on
     investments 2,135,798
 (923,083)
 965,264
 379,005
 179,598
 1,535,014
Net realized and unrealized gains
     (losses) on investments 3,230,037
 (636,460)
 1,472,031
 137,394
 484,509
 1,772,563
Net increase (decrease) in net assets
     resulting from operations $4,141,602
 $(431,644)
 $1,626,656
 $690,587
 $497,778
 $1,758,225

See accompanying notes.



Strategic Investor   			184


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1999

Van Eck
Total Van Eck
 Worldwide Hard Assets
 Worldwide Bond
 Worldwide Emerging Markets
 Worldwide Real Estate
Investment income
Dividends from mutual funds $ 30,826 $ 16,585 $ 12,446 $ - $ 1,795
Less valuation period deductions
     (Note 2) 27,814
 12,646
 2,550
 10,886
 1,732
Net investment income (loss) 3,012
 3,939
 9,896
 (10,886)
 63
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 73,144 (313,009) (25,853) 410,384 1,622
Net unrealized gains (losses) on
     investments 1,374,192
 592,123
 (9,920)
 809,962
 (17,973)
Net realized and unrealized gains
     (losses) on investments 1,447,336
 279,114
 (35,773)
 1,220,346
 (16,351)
Net increase (decrease) in net assets
     resulting from operations $1,450,348
 $283,053
 $(25,877)
 $1,209,460
 $(16,288)

See accompanying notes.



Strategic Investor   			185


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1999

AIM
Total AIM
 Capital Appreciation
 Government Securities
Investment income
Dividends from mutual funds $ 311,766 $ 113,467 $198,299
Less valuation period deductions
     (Note 2) 51,011
 19,289
 31,722
Net investment income (loss) 260,755
 94,178
 166,577
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 84,032 92,256 (8,224)
Net unrealized gains (losses) on
     investments 1,036,932
 1,257,369
 (220,437)
Net realized and unrealized gains
     (losses) on investments 1,120,964
 1,349,625
 (228,661)
Net increase (decrease) in net assets
     resulting from operations $1,381,719
 $1,443,803
 $ (62,084)

See accompanying notes.



Strategic Investor   			186


Security Life Separate Account L1

Statement of Operations

Year ended December 31, 1998

Total All Divisions
 Total NB
 Total Alger
 Total Fidelity
 Total INVESCO
 Total Van Eck
 Total AIM
Investment income
Dividends from mutual funds $17,747,833 $4,273,690 $ 4,617,072 $ 6,943,854 $1,625,860 $ 189,620 $ 97,737
Less valuation period deductions
     (Note 2) 1,740,661
 291,487
 290,412
 971,160
 162,321
 11,393
 13,888
Net investment income (loss) 16,007,172
 3,982,203
 4,326,660
 5,972,694
 1,463,539
 178,227
 83,849
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
     investments 18,766,977
 (2,323,636)
 5,825,800
 15,230,082
 248,681
 (368,037)
 154,087
Net realized and unrealized gains
     (losses) on investments 27,303,251
 (1,975,813)
 7,511,094
 21,633,430
 604,461
 (628,607)
 158,686
Net increase (decrease) in net
     assets resulting from operations $43,310,423
 $2,006,390
 $11,837,754
 $27,606,124
 $2,068,000
 $(450,380)
 $242,535

See accompanying notes.



Strategic Investor   			187


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1998

NB
Total NB
 Limited Maturity Bond
 Growth
 Government Income
 Partners
Investment income
Dividends from mutual funds $4,273,690 $409,268 $1,579,109 $136,565 $2,148,748
Less valuation period deductions
     (Note 2) 291,487
 87,183
 52,660
 3,213
 148,431
Net investment income (loss) 3,982,203
 322,085
 1,526,449
 133,352
 2,000,317
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
     investments (2,323,636)
 59,369
 (81,576)
 (60,954)
 (2,240,475)
Net realized and unrealized gains
     (losses) on investments (1,975,813)
 69,372
 (345,724)
 (114,848)
 (1,584,613)
Net increase (decrease) in net
     assets resulting from operations $2,006,390
 $391,457
 $1,180,725
 $ 18,504
 $ 415,704

See accompanying notes.



Strategic Investor   			188


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1998

Alger
Total Alger
 American Small Capitalization
 American MidCap Growth
 American Growth
 American Leveraged AllCap
Investment income
Dividends from mutual funds $ 4,617,072 $1,681,373 $ 593,045 $2,196,712 $ 145,942
Less valuation period deductions
     (Note 2) 290,412
 95,588
 53,316
 113,376
 28,132
Net investment income (loss) 4,326,660
 1,585,785
 539,729
 2,083,336
 117,810
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
     investments 5,825,800
 166,990
 1,022,340
 3,099,428
 1,537,042
Net realized and unrealized gains
     (losses) on investments 7,511,094
 353,953
 1,339,272
 4,015,300
 1,802,569
Net increase (decrease) in net
     assets resulting from operations $11,837,754
 $1,939,738
 $1,879,001
 $6,098,636
 $1,920,379

See accompanying notes.



Strategic Investor   			189


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1998

Fidelity
Total Fidelity
 Asset Manager
 Growth
 Overseas
 Money Market
 Index 500
Investment income
Dividends from mutual funds $ 6,943,854 $ 808,986 $2,663,618 $1,015,626 $830,137 $ 1,625,487
Less valuation period deductions
     (Note 2) 971,160
 63,669
 183,002
 129,504
 116,932
 478,053
Net investment income (loss) 5,972,694
 745,317
 2,480,616
 886,122
 713,205
 1,147,434
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 6,403,348 20,247 1,534,000 298,379 - 4,550,722
Net unrealized gains (losses) on
     investments 15,230,082
 315,702
 4,444,805
 707,398
 -
 9,762,177
Net realized and unrealized gains
     (losses) on investments 21,633,430
 335,949
 5,978,805
 1,005,777
 -
 14,312,899
Net increase (decrease) in net
     assets resulting from operations $27,606,124
 $1,081,266
 $8,459,421
 $1,891,899
 $713,205
 $15,460,333

See accompanying notes.



Strategic Investor   			190


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1998

INVESCO
Total INVESCO
 Total Return
 Equity Income
 High Yield
 Utilities
 Small Company Growth
Investment income
Dividends from mutual funds $1,625,860 $312,534 $ 514,174 $769,805 $ 29,058 $ 289
Less valuation period deductions
     (Note 2) 162,321
 40,898
 60,678
 49,140
 10,730
 875
Net investment income (loss) 1,463,539
 271,636
 453,496
 720,665
 18,328
 (586)
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
     investments 248,681
 73,689
 359,519
 (541,125)
 282,500
 74,098
Net realized and unrealized gains
     (losses) on investments 604,461
 210,162
 701,861
 (692,507)
 317,745
 67,200
Net increase (decrease) in net
     assets resulting from operations $2,068,000
 $481,798
 $1,155,357
 $ 28,158
 $336,073
 $66,614

See accompanying notes.



Strategic Investor   			191


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1998

Van Eck
Total Van Eck
 Worldwide Balanced
 Worldwide Hard Assets
 Worldwide Bond
 Worldwide Emerging Markets
 Worldwide Real Estate
Investment income
Dividends from mutual funds $ 189,620 $45,674 $ 143,946 $ - $ - $ -
Less valuation period deductions
     (Note 2)
 		 11,393
 1,050
 8,170
 212
 1,736
 225
Net investment income (loss)
 		 178,227
 44,624
 135,776
 (212)
 (1,736)
 (225)
Realized and unrealized gains (losses) on investments
Net realized gains (losses) on investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on investments
 		 (368,037)
 (23,403)
 (395,698)
 3,953
 47,140
 (29)
Net realized and unrealized gains (losses) on investments
 		 (628,607)
 (18,721)
 (557,808)
 4,083
 (54,296)
 (1,865)
Net increase (decrease) in net assets resulting from operations
 
 		 $(450,380)
 $25,903
 $(422,032)
 $3,871
 $ (56,032)
 $(2,090)

See accompanying notes.



Strategic Investor   			192


Security Life Separate Account L1

Statement of Operations (continued)

Year ended December 31, 1998

AIM
Total AIM
 Capital Appreciation
 Government Securities
Investment income
Dividends from mutual funds $ 97,737 $ 27,109 $ 70,628
Less valuation period deductions
     (Note 2) 13,888
 3,056
 10,832
Net investment income (loss) 83,849
 24,053
 59,796
Realized and unrealized gains
     (losses) on investments
Net realized gains (losses) on
     investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
     investments 154,087
 119,225
 34,862
Net realized and unrealized gains
     (losses) on investments 158,686
 115,910
 42,776
Net increase (decrease) in net
     assets resulting from operations $242,535
 $139,963
 $102,572

See accompanying notes.



Strategic Investor   			193


Security Life Separate Account L1

Statement of Changes in Net Assets

Year ended December 31, 2000

Total All Divisions
 Total NB
 Total Alger
 Total Fidelity
 Total INVESCO
 Total Van Eck
 Total AIM
 Total GCG
 Total Janus
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 46,069,012 $ 6,571,113 $ 20,602,600 $ 14,207,376 $ 3,082,330 $ (605) $ 689,603 $ 916,460 $ 135
Net realized gains (losses) on
     investments 5,695,914 (1,808,706) (5,036,278) 10,515,603 1,339,426 220,229 475,369 - (9,729)
Net unrealized gains (losses) on
     investments (118,856,269)
 (7,325,351)
 (40,865,515)
 (58,774,602)
 (7,701,130)
 (2,223,947)
 (1,820,869)
 (46,004)
 (98,851)
Increase (decrease) in net assets from
     operations (67,091,343)
 (2,562,944)
 (25,299,193)
 (34,051,623)
 (3,279,374)
 (2,004,323)
 (655,897)
 870,456
 (108,445)
Changes from principal
     transactions
Net premiums 317,402,712 12,252,726 37,515,640 184,341,968 18,591,825 3,290,844 6,971,977 53,982,127 455,605
Cost of insurance and
     administrative charges (30,552,382) (2,409,367) (6,276,189) (16,796,166) (3,114,778) (384,336) (861,571) (702,322) (7,653)
Benefit payments (1,594,522) (19,938) (28,371) (1,534,182) (12,031) - - - -
Surrenders (21,566,997) (3,720,641) (4,011,887) (11,413,075) (1,965,457) (86,249) (369,688) - -
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) (7,189,963) 4,582,877 21,813,159 (44,990,539) 8,412,713 2,032,846 51,053,800 (51,255,284) 1,160,465
Other 478,335
 175,141
 731,362
 535,825
 115,805
 (33,873)
 (1,039,302)
 (14,911)
 8,288
Increase (decrease) from principal
     transactions 256,977,183
 10,860,798
 49,743,714
 110,143,831
 22,028,077
 4,819,232
 55,755,216
 2,009,610
 1,616,705
Total increase (decrease) in net assets 189,885,840 8,297,854 24,444,521 76,092,208 18,748,703 2,814,909 55,099,319 2,880,066 1,508,260
Net assets at beginning of year 521,302,968
 53,696,982
 109,514,400
 294,445,743
 44,638,411
 6,304,177
 12,703,255
 -
 -
Net assets at end of year $711,188,808
 $61,994,836
 $133,958,921
 $370,537,951
 $63,387,114
 $9,119,086
 $67,802,574
 $ 2,880,066
 $1,508,260

See accompanying notes.



Strategic Investor   			194


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

NB
Total NB
 Limited Maturity Bond
 Growth
 Partners
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 6,571,113 $ 682,857 $ 1,217,637 $ 4,670,619
Net realized gains (losses) on
     investments (1,808,706) (281,540) 3,777,374 (5,304,540)
Net unrealized gains (losses) on
     investments (7,325,351)
 351,484
 (7,971,190)
 294,355
Increase (decrease) in net assets from
     operations (2,562,944)
 752,801
 (2,976,179)
 (339,566)
Changes from principal
     transactions
Net premiums 12,252,726 3,373,191 3,809,287 5,070,248
Cost of insurance and
     administrative charges (2,409,367) (422,495) (645,717) (1,341,155)
Benefit payments (19,938) - - (19,938)
Surrenders (3,720,641) (485,003) (434,853) (2,800,785)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 4,582,877 72,092 7,083,628 (2,572,843)
Other 175,141
 2,737
 32,586
 139,818
Increase (decrease) from principal
     transactions 10,860,798
 2,540,522
 9,844,931
 (1,524,655)
Total increase (decrease) in net assets 8,297,854 3,293,323 6,868,752 (1,864,221)
Net assets at beginning of year 53,696,982
 11,200,828
 13,076,154
 29,420,000
Net assets at end of year $61,994,836
 $14,494,151
 $19,944,906
 $27,555,779

See accompanying notes.



Strategic Investor   			195


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

Alger
Total Alger
 American Small Capitalization
 American MidCap Growth
 American Growth
 American Leveraged AllCap
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 20,602,600 $ 9,719,584 $ 2,741,533 $ 5,883,133 $ 2,258,350
Net realized gains (losses) on
     investments (5,036,278) (9,976,931) 1,057,836 1,775,571 2,107,246
Net unrealized gains (losses) on
     investments (40,865,515)
 (9,435,613)
 (2,672,195)
 (16,304,212)
 (12,453,495)
Increase (decrease) in net assets from
     operations (25,299,193)
 (9,692,960)
 1,127,174
 (8,645,508)
 (8,087,899)
Changes from principal
     transactions
Net premiums 37,515,640 6,777,077 8,256,914 14,199,181 8,282,468
Cost of insurance and
     administrative charges (6,276,189) (1,361,117) (1,182,610) (2,244,564) (1,487,898)
Benefit payments (28,371) (8,499) - - (19,872)
Surrenders (4,011,887) (1,213,521) (527,415) (1,866,225) (404,726)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 21,813,159 3,623,099 8,242,898 7,157,011 2,790,151
Other 731,362
 265,296
 89,303
 135,039
 241,724
Increase (decrease) from principal
     transactions 49,743,714
 8,082,335
 14,879,090
 17,380,442
 9,401,847
Total increase (decrease) in net assets 24,444,521 (1,610,625) 16,006,264 8,734,934 1,313,948
Net assets at beginning of year 109,514,400
 27,779,755
 17,287,487
 41,383,498
 23,063,660
Net assets at end of year $133,958,921
 $26,169,130
 $33,293,751
 $50,118,432
 $24,377,608

See accompanying notes.



Strategic Investor   			196


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

Fidelity
Total Fidelity
 Asset Manager
 Growth
 Overseas
 Money Market
 Index 500
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 14,207,376 $ 1,363,966 $ 6,180,846 $ 3,215,373 $ 2,457,580 $ 989,611
Net realized gains (losses) on
     investments 10,515,603 8,816 2,581,814 1,800,478 - 6,124,495
Net unrealized gains (losses) on
     investments (58,774,602)
 (2,092,103)
 (17,925,268)
 (13,999,080)
 -
 (24,758,151)
Increase (decrease) in net assets from
     operations (34,051,623)
 (719,321)
 (9,162,608)
 (8,983,229)
 2,457,580
 (17,644,045)
Changes from principal
     transactions
Net premiums 184,341,968 4,246,313 16,858,828 10,774,262 102,634,205 49,828,360
Cost of insurance and
     administrative charges (16,796,166) (729,175) (2,871,811) (1,545,175) (3,421,123) (8,228,882)
Benefit payments (1,534,182) - (8,585) - (1,512,600) (12,997)
Surrenders (11,413,075) (523,096) (1,526,139) (1,310,651) (1,580,652) (6,472,537)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) (44,990,539) (110,602) 6,705,250 9,264,961 (71,323,681) 10,473,533
Other 535,825
 41
 353,438
 137,428
 (36,325)
 81,243
Increase (decrease) from principal
     transactions 110,143,831
 2,883,481
 19,510,981
 17,320,825
 24,759,824
 45,668,720
Total increase (decrease) in net assets 76,092,208 2,164,160 10,348,373 8,337,596 27,217,404 28,024,675
Net assets at beginning of year 294,445,743
 13,590,458
 58,157,830
 34,984,281
 34,797,408
 152,915,766
Net assets at end of year $370,537,951
 $15,754,618
 $68,506,203
 $43,321,877
 $ 62,014,812
 $180,940,441

See accompanying notes.



Strategic Investor   			197


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

INVESCO
Total INVESCO
 Total Return
 Equity Income
 High Yield
 Utilities
 Small Company Growth
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 3,082,330 $ 1,460,583 $ 1,047,730 $ 18,429 $ 280,099 $ 275,489
Net realized gains (losses) on
     investments 1,339,426 (314,414) 593,634 (390,743) 256,021 1,194,928
Net unrealized gains (losses) on
     investments (7,701,130)
 (1,435,710)
 (904,246)
 (1,002,431)
 (372,493)
 (3,986,250)
Increase (decrease) in net assets from
     operations (3,279,374)
 (289,541)
 737,118
 (1,374,745)
 163,627
 (2,515,833)
Changes from principal
     transactions
Net premiums 18,591,825 4,101,918 5,744,367 2,639,161 2,052,375 4,054,004
Cost of insurance and
     administrative charges (3,114,778) (753,096) (1,128,125) (507,500) (326,968) (399,089)
Benefit payments (12,031) - (12,031) - - -
Surrenders (1,965,457) (882,070) (593,452) (303,992) (148,234) (37,709)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 8,412,713 (858,136) 588,741 584,364 1,906,098 6,191,646
Other 115,805
 (11,094)
 (21,075)
 38,387
 23,719
 85,868
Increase (decrease) from principal
     transactions 22,028,077
 1,597,522
 4,578,425
 2,450,420
 3,506,990
 9,894,720
Total increase (decrease) in net assets 18,748,703 1,307,981 5,315,543 1,075,675 3,670,617 7,378,887
Net assets at beginning of year 44,638,411
 10,386,650
 16,220,553
 9,420,677
 4,141,315
 4,469,216
Net assets at end of year $63,387,114
 $11,694,631
 $21,536,096
 $10,496,352
 $7,811,932
 $11,848,103

See accompanying notes.



Strategic Investor   			198


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

Van Eck
Total Van Eck
 Worldwide Hard Assets
 Worldwide Bond
 Worldwide Emerging Markets
 Worldwide Real Estate
Increase (decrease) in net assets
Operations
Net investment income (loss) $ (605) $ 7,508 $ 15,590 $ (31,191) $ 7,488
Net realized gains (losses) on
     investments 220,229 140,202 (14,783) 87,666 7,144
Net unrealized gains (losses) on
     investments (2,223,947)
 123,530
 23,588
 (2,508,578)
 137,513
Increase (decrease) in net assets from
     operations (2,004,323)
 271,240
 24,395
 (2,452,103)
 152,145
Changes from principal
     transactions
Net premiums 3,290,844 358,451 329,600 2,190,959 411,834
Cost of insurance and
     administrative charges (384,336) (106,083) (44,145) (190,748) (43,360)
Benefit payments - - - - -
Surrenders (86,249) (36,625) (12,576) (35,659) (1,389)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 2,032,846 (475,702) 298,840 1,965,172 244,536
Other (33,873)
 (4,008)
 1,110
 (29,680)
 (1,295)
Increase (decrease) from principal
     transactions 4,819,232
 (263,967)
 572,829
 3,900,044
 610,326
Total increase (decrease) in net assets 2,814,909 7,273 597,224 1,447,941 762,471
Net assets at beginning of year 6,304,177
 2,306,078
 334,203
 3,114,059
 549,837
Net assets at end of year $9,119,086
 $2,313,351
 $931,427
 $4,562,000
 $1,312,308

See accompanying notes.



Strategic Investor   			199


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

AIM
Total AIM
 Capital Appreciation
 Government Securities
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 689,603 $ 208,375 $ 481,228
Net realized gains (losses) on
     investments 475,369 418,127 57,242
Net unrealized gains (losses) on
     investments (1,820,869)
 (2,171,530)
 350,661
Increase (decrease) in net assets from
     operations (655,897)
 (1,545,028)
 889,131
Changes from principal
     transactions
Net premiums 6,971,977 4,809,190 2,162,787
Cost of insurance and
     administrative charges (861,571) (550,172) (311,399)
Benefit payments - - -
Surrenders (369,688) (120,337) (249,351)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 51,053,800 44,182,854 6,870,946
Other (1,039,302)
 (1,046,753)
 7,451
Increase (decrease) from principal
     transactions 55,755,216
 47,274,782
 8,480,434
Total increase (decrease) in net assets 55,099,319 45,729,754 9,369,565
Net assets at beginning of year 12,703,255
 5,308,922
 7,394,333
Net assets at end of year $67,802,574
 $51,038,676
 $16,763,898

See accompanying notes.



Strategic Investor   			200


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

GCG
Total GCG
 Equity Income
 Growth
 Hard Assets
 Limited Maturity Bond
 Liquid Asset
 MidCap Growth
 Research
 Total Return
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 916,460 $ - $ 90 $ - $ 54,281 $ 861,303 $ - $ - $ 786
Net realized gains (losses) on
     investments - - - - - - - - -
Net unrealized gains (losses) on
     investments (46,004)
 -
 (168)
 -
 (45,286)
 -
 -
 -
 (550)
Increase (decrease) in net assets from
     operations 870,456
 -
 (78)
 -
 8,995
 861,303
 -
 -
 236
Changes from principal
     transactions
Net premiums 53,982,127 - - - 868,271 53,113,856 - - -
Cost of insurance and
     administrative charges (702,322) - - - (3,837) (698,485) - - -
Benefit payments -
Surrenders - - - - - - - - -
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) (51,255,284) - 1,311 - 3,369 (51,270,261) - - 10,297
Other (14,911)
 -
 -
 -
 -
 (14,911)
 -
 -
 -
Increase (decrease) from principal
     transactions 2,009,610
 -
 1,311
 -
 867,803
 1,130,199
 -
 -
 10,297
Total increase (decrease) in net assets 2,880,066 - 1,233 - 876,798 1,991,502 - - 10,533
Net assets at beginning of year -
 -
 -
 -
 -
 -
 -
 -
 -
Net assets at end of year $ 2,880,066
 $ -
 $1,233
 $ -
 $876,798
 $ 1,991,502
 $ -
 $ -
 $10,533

See accompanying notes.



Strategic Investor   			201


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 2000

Janus
Total Janus
 Growth
 Aggressive Growth
 Worldwide Growth
 International Growth
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 135 $ (180) $ (218) $ (64) $ 597
Net realized gains (losses) on investments (9,729) (1,546) (86) (7,584) (513)
Net unrealized gains (losses) on investments (98,851)
 (15,107)
 (50,478)
 (16,753)
 (16,513)
Increase (decrease) in net assets from operations (108,445)
 (16,833)
 (50,782)
 (24,401)
 (16,429)
Changes from principal transactions
Net premiums 455,605 44,231 197,569 202,866 10,939
Cost of insurance and administrative expenses (7,653) (1,752) (2,059) (1,621) (2,221)
Benefit payments - - - - -
Surrenders - - - - -
Net transfers among divisions (including the loan
      division and guaranteed interest division in the general account)		 1,160,465 216,576 370,746 142,784 430,359
Other 8,288
 1,419
 9,109
 (208)
 (2,032)
Increase (decrease) from principal transactions 1,616,705
 260,474
 575,365
 343,821
 437,045
Total increase (decrease) in net assets 1,508,260 243,641 524,583 319,420 420,616
Net assets at beginning of year -
 -
 -
 -
 -
Net assets at end of year $1,508,260
 $243,641
 $524,583
 $319,420
 $420,616

See accompanying notes.



Strategic Investor   			202


Security Life Separate Account L1

Statement of Changes in Net Assets

Year ended December 31, 1999

Total All Divisions
 Total NB
 Total Alger
 Total Fidelity
 Total INVESCO
 Total Van Eck
 Total AIM
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 15,975,284 $ 1,752,701 $ 6,768,070 $ 6,279,181 $ 911,565 $ 3,012 $ 260,755
Net realized gains (losses) on
     investments 18,191,446 557,950 5,023,269 11,358,812 1,094,239 73,144 84,032
Net unrealized gains (losses) on
     investments 55,998,041
 3,797,732
 17,500,945
 30,152,442
 2,135,798
 1,374,192
 1,036,932
Increase (decrease) in net assets from
     operations 90,164,771
 6,108,383
 29,292,284
 47,790,435
 4,141,602
 1,450,348
 1,381,719
Changes from principal
     transactions
Net premiums 162,042,407 9,691,552 19,246,531 115,810,413 12,770,723 1,311,620 3,211,568
Cost of insurance and
     administrative charges (20,649,015) (2,172,531) (3,837,369) (11,622,709) (2,460,819) (173,456) (382,131)
Benefit payments (542,037) - - (542,037) - - -
Surrenders (15,066,657) (1,529,928) (3,447,763) (7,887,081) (1,567,128) (33,331) (601,426)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 91,435 (5,513,893) 13,797,533 (17,535,989) 2,140,348 1,919,235 5,284,201
Other 231,958
 45,648
 34,663
 146,782
 (17,068)
 12,762
 9,171
Increase (decrease) from principal
     transactions 126,108,091
 520,848
 25,793,595
 78,369,379
 10,866,056
 3,036,830
 7,521,383
Total increase (decrease) in net assets 216,272,862 6,629,231 55,085,879 126,159,814 15,007,658 4,487,178 8,903,102
Net assets at beginning of year 305,030,106
 47,067,751
 54,428,521
 168,285,929
 29,630,753
 1,816,999
 3,800,153
Net assets at end of year $521,302,968
 $53,696,982
 $109,514,400
 $294,445,743
 $44,638,411
 $6,304,177
 $12,703,255

See accompanying notes.



Strategic Investor   			203


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1999

NB
Total NB
 Limited Maturity Bond
 Growth
 Partners
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 1,752,701 $ 802,897 $ 382,777 $ 567,027
Net realized gains (losses) on
     investments 557,950 (293,615) 318,964 532,601
Net unrealized gains (losses) on
     investments 3,797,732
 (423,477)
 3,714,218
 506,991
Increase (decrease) in net assets from
     operations 6,108,383
 85,805
 4,415,959
 1,606,619
Changes from principal
     transactions
Net premiums 9,691,552 2,691,658 1,968,259 5,031,635
Cost of insurance and
     administrative charges (2,172,531) (532,487) (382,030) (1,258,014)
Benefit payments - - - -
Surrenders (1,529,928) (1,033,731) (175,255) (320,942)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) (5,513,893) (5,610,959) (1,798,195) 1,895,261
Other 45,648
 22,193
 21,256
 2,199
Increase (decrease) from principal
     transactions 520,848
 (4,463,326)
 (365,965)
 5,350,139
Total increase (decrease) in net assets 6,629,231 (4,377,521) 4,049,994 6,956,758
Net assets at beginning of year 47,067,751
 15,578,349
 9,026,160
 22,463,242
Net assets at end of year $53,696,982
 $11,200,828
 $13,076,154
 $29,420,000

See accompanying notes.



Strategic Investor   			204


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1999

Alger
Total Alger
 American Small Capitalization
 American MidCap Growth
 American Growth
 American Leveraged AllCap
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 6,768,070 $ 2,058,314 $ 1,547,583 $ 2,530,830 $ 631,343
Net realized gains (losses) on
     investments 5,023,269 94,825 322,974 2,007,625 2,597,845
Net unrealized gains (losses) on
     investments 17,500,945
 5,993,398
 2,015,333
 4,584,649
 4,907,565
Increase (decrease) in net assets from
     operations 29,292,284
 8,146,537
 3,885,890
 9,123,104
 8,136,753
Changes from principal
     transactions
Net premiums 19,246,531 4,618,903 3,508,936 7,654,291 3,464,401
Cost of insurance and
     administrative charges (3,837,369) (957,053) (661,896) (1,597,077) (621,343)
Benefit payments - - - - -
Surrenders (3,447,763) (986,740) (286,174) (1,594,894) (579,955)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 13,797,533 1,461,610 1,637,697 4,904,801 5,793,425
Other 34,663
 (6,873)
 (17,173)
 (10,341)
 69,050
Increase (decrease) from principal
     transactions 25,793,595
 4,129,847
 4,181,390
 9,356,780
 8,125,578
Total increase (decrease) in net assets 55,085,879 12,276,384 8,067,280 18,479,884 16,262,331
Net assets at beginning of year 54,428,521
 15,503,371
 9,220,207
 22,903,614
 6,801,329
Net assets at end of year $109,514,400
 $27,779,755
 $17,287,487
 $41,383,498
 $23,063,660

See accompanying notes.



Strategic Investor   			205


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1999

Fidelity
Total Fidelity
 Asset Manager
 Growth
 Overseas
 Money Market
 Index 500
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 6,279,181 $ 714,882 $ 3,199,633 $ 631,807 $ 1,089,493 $ 643,366
Net realized gains (losses) on
     investments 11,358,812 122,474 7,459,882 553,230 - 3,223,226
Net unrealized gains (losses) on
     investments 30,152,442
316,538
3,509,953
8,740,414
-
17,585,537
Increase (decrease) in net assets from
     operations 47,790,435
1,153,894
14,169,468
9,925,451
1,089,493
21,452,129
Changes from principal
     transactions
Net premiums 115,810,413 3,791,052 9,969,268 5,963,624 62,143,060 33,943,409
Cost of insurance and
     administrative charges (11,622,709) (604,489) (1,912,531) (1,071,163) (2,273,369) (5,761,157)
Benefit payments (542,037) - - - (542,037) -
Surrenders (7,887,081) (641,428) (1,308,922) (1,227,419) (1,281,819) (3,427,493)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) (17,535,989) (349,280) 4,285,808 788,107 (42,741,942) 20,481,318
Other 146,782
3,430
54,597
23,794
(8,230)
 73,191
Increase (decrease) from principal
     transactions 78,369,379
2,199,285
11,088,220
4,476,943
15,295,663
45,309,268
Total increase (decrease) in net assets 126,159,814 3,353,179 25,257,688 14,402,394 16,385,156 66,761,397
Net assets at beginning of year 168,285,929
10,237,279
32,900,142
20,581,887
18,412,252
86,154,369
Net assets at end of year $294,445,743
$13,590,458
$58,157,830
$34,984,281
$34,797,408
$152,915,766

See accompanying notes.



Strategic Investor   			206


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1999

INVESCO
Total INVESCO
 Total Return
 Equity Income
 High Yield
 Utilities
 Small
Company Growth
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 911,565 $ 204,816 $ 154,625 $ 553,193 $ 13,269 $ (14,338)
Net realized gains (losses) on
     investments 1,094,239 286,623 506,767 (241,611) 304,911 237,549
Net unrealized gains (losses) on
     investments 2,135,798
 (923,083)
 965,264
 379,005
 179,598
 1,535,014
Increase (decrease) in net assets from
     operations 4,141,602
 (431,644)
 1,626,656
 690,587
 497,778
 1,758,225
Changes from principal
     transactions
Net premiums 12,770,723 4,580,034 4,374,844 1,987,501 1,127,118 701,226
Cost of insurance and
     administrative charges (2,460,819) (764,047) (922,117) (471,532) (198,877) (104,246)
Benefit payments - - - - - -
Surrenders (1,567,128) (239,246) (333,959) (155,182) (820,016) (18,725)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 2,140,348 (854,496) 643,961 (518,177) 1,491,088 1,377,972
Other (17,068)
 (9,279)
 (21,837)
 4,698
 3,264
 6,086
Increase (decrease) from principal
     transactions 10,866,056
 2,712,966
 3,740,892
 847,308
 1,602,577
 1,962,313
Total increase (decrease) in net assets 15,007,658 2,281,322 5,367,548 1,537,895 2,100,355 3,720,538
Net assets at beginning of year 29,630,753
 8,105,328
 10,853,005
 7,882,782
 2,040,960
 748,678
Net assets at end of year $44,638,411
 $10,386,650
 $16,220,553
 $9,420,677
 $4,141,315
 $4,469,216

See accompanying notes.



Strategic Investor   			207


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1999

Van Eck
Total Van Eck
 Worldwide Hard Assets
 Worldwide Bond
 Worldwide Emerging Markets
 Worldwide Real Estate
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 3,012 $ 3,939 $ 9,896 $ (10,886) $ 63
Net realized gains (losses) on
     investments 73,144 (313,009) (25,853) 410,384 1,622
Net unrealized gains (losses) on
     investments 1,374,192
 592,123
 (9,920)
 809,962
 (17,973)
Increase (decrease) in net assets from
     operations 1,450,348
 283,053
 (25,877)
 1,209,460
 (16,288)
Changes from principal
     transactions
Net premiums 1,311,620 441,045 253,322 416,537 200,716
Cost of insurance and
     administrative charges (173,456) (86,064) (17,509) (56,532) (13,351)
Benefit payments - - - - -
Surrenders (33,331) (23,325) - (5,545) (4,461)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 1,919,235 602,367 (80,721) 1,091,100 306,489
Other 12,762
 15,247
 (819)
 (2,117)
 451
Increase (decrease) from principal
     transactions 3,036,830
 949,270
 154,273
 1,443,443
 489,844
Total increase (decrease) in net assets 4,487,178 1,232,323 128,396 2,652,903 473,556
Net assets at beginning of year 1,816,999
 1,073,755
 205,807
 461,156
 76,281
Net assets at end of year $6,304,177
 $2,306,078
 $334,203
 $3,114,059
 $549,837

See accompanying notes.



Strategic Investor   			208


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1999

AIM
Total AIM
 Capital Appreciation
 Government Securities
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 260,755 $ 94,178 $ 166,577
Net realized gains (losses) on
     Investments 84,032 92,256 (8,224)
Net unrealized gains (losses) on
     Investments 1,036,932
 1,257,369
 (220,437)
Increase (decrease) in net assets from
     operations 1,381,719
 1,443,803
 (62,084)
Changes from principal
     transactions
Net premiums 3,211,568 1,497,094 1,714,474
Cost of insurance and
     administrative charges (382,131) (216,619) (165,512)
Benefit payments - - -
Surrenders (601,426) (18,584) (582,842)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 5,284,201 1,391,719 3,892,482
Other 9,171
 7,073
 2,098
Increase (decrease) from principal
     transactions 7,521,383
 2,660,683
 4,860,700
Total increase (decrease) in net assets 8,903,102 4,104,486 4,798,616
Net assets at beginning of year 3,800,153
 1,204,436
 2,595,717
Net assets at end of year $12,703,255
 $5,308,922
 $7,394,333

See accompanying notes.



Strategic Investor   			209


Security Life Separate Account L1

Statement of Changes in Net Assets

Year ended December 31, 1998

Total All Divisions
 Total NB
 Total Alger
 Total Fidelity
 Total INVESCO
 Total Van Eck
 Total AIM
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 16,007,172 $ 3,982,203 $ 4,326,660 $ 5,972,694 $ 1,463,539 $ 178,227 $ 83,849
Net realized gains (losses) on
     investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
     investments 18,766,977
 (2,323,636)
 5,825,800
 15,230,082
 248,681
 (368,037)
 154,087
Increase (decrease) in net assets
     from operations 43,310,423
 2,006,390
 11,837,754
 27,606,124
 2,068,000
 (450,380)
 242,535
Changes from principal
     transactions
Net premiums 128,820,440 12,563,792 13,089,164 92,335,231 8,092,294 875,501 1,864,458
Cost of insurance and
     administrative charges (14,458,798) (2,063,802) (2,525,683) (8,200,381) (1,481,570) (108,634) (78,728)
Benefit payments (306,862) (11,220) (26,492) (259,989) (9,161) - -
Surrenders (10,842,736) (725,767) (859,454) (8,654,377) (586,533) (15,198) (1,407)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) (3,936,799) 8,461,193 4,831,250 (25,231,056) 6,011,967 216,552 1,773,295
Other (41,582)
 (87,331)
 (18,626)
 54,208
 9,107
 1,060
 -
Increase (decrease) from principal
     transactions 99,233,663
 18,136,865
 14,490,159
 50,043,636
 12,036,104
 969,281
 3,557,618
Total increase (decrease) in net assets 142,544,086 20,143,255 26,327,913 77,649,760 14,104,104 518,901 3,800,153
Net assets at beginning of year 162,486,020
 26,924,496
 28,100,608
 90,636,169
 15,526,649
 1,298,098
 -
Net assets at end of year $305,030,106
 $47,067,751
 $54,428,521
 $168,285,929
 $29,630,753
 $1,816,999
 $3,800,153

See accompanying notes.



Strategic Investor   			210


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1998

NB
Total NB
 Limited Maturity Bond
 Growth
 Government Income
 Partners
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 3,982,203 $ 322,085 $1,526,449 $133,352 $ 2,000,317
Net realized gains (losses) on
     investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
     investments (2,323,636)
 59,369
 (81,576)
 (60,954)
 (2,240,475)
Increase (decrease) in net assets
     from operations 2,006,390
 391,457
 1,180,725
 18,504
 415,704
Changes from principal
     transactions
Net premiums 12,563,792 3,839,599 2,578,265 31,593 6,114,335
Cost of insurance and
     administrative charges (2,063,802) (492,782) (393,894) (14,839) (1,162,287)
Benefit payments (11,220) - - - (11,220)
Surrenders (725,767) (15,922) (419,497) (3,243) (287,105)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 8,461,193 5,212,588 513,663 (894,126) 3,629,068
Other (87,331)
 (31,757)
 3,226
 (31,566)
 (27,234)
Increase (decrease) from principal
     transactions 18,136,865
 8,511,726
 2,281,763
 (912,181)
 8,255,557
Total increase (decrease) in net assets 20,143,255 8,903,183 3,462,488 (893,677) 8,671,261
Net assets at beginning of year 26,924,496
 6,675,166
 5,563,672
 893,677
 13,791,981
Net assets at end of year $47,067,751
 $15,578,349
 $9,026,160
 $ -
 $22,463,242

See accompanying notes.



Strategic Investor   			211


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1998

Alger
Total Alger
 American Small Capitalization
 American MidCap Growth
 American Growth
 American Leveraged AllCap
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 4,326,660 $ 1,585,785 $ 539,729 $ 2,083,336 $ 117,810
Net realized gains (losses) on
     investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
     investments 5,825,800
 166,990
 1,022,340
 3,099,428
 1,537,042
Increase (decrease) in net assets
     from operations 11,837,754
 1,939,738
 1,879,001
 6,098,636
 1,920,379
Changes from principal
     transactions
Net premiums 13,089,164 4,154,774 2,573,424 5,298,963 1,062,003
Cost of insurance and
     administrative charges (2,525,683) (803,988) (473,224) (989,260) (259,211)
Benefit payments (26,492) (14,248) (12,244) - -
Surrenders (859,454) (196,345) (376,263) (216,867) (69,979)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 4,831,250 (35,168) 528,261 3,094,366 1,243,791
Other (18,626)
 (504)
 (14,286)
 1,597
 (5,433)
Increase (decrease) from principal
     transactions 14,490,159
 3,104,521
 2,225,668
 7,188,799
 1,971,171
Total increase (decrease) in net assets 26,327,913 5,044,259 4,104,669 13,287,435 3,891,550
Net assets at beginning of year 28,100,608
 10,459,112
 5,115,538
 9,616,179
 2,909,779
Net assets at end of year $54,428,521
 $15,503,371
 $9,220,207
 $22,903,614
 $6,801,329

See accompanying notes.



Strategic Investor   			212


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1998

Fidelity
Total Fidelity
 Asset Manager
 Growth
 Overseas
 Money Market
 Index 500
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 5,972,694 $ 745,317 $ 2,480,616 $ 886,122 $ 713,205 $ 1,147,434
Net realized gains (losses) on
     investments 6,403,348 20,247 1,534,000 298,379 - 4,550,722
Net unrealized gains (losses) on
     investments 15,230,082
 315,702
 4,444,805
 707,398
 -
 9,762,177
Increase (decrease) in net assets
     from operations 27,606,124
 1,081,266
 8,459,421
 1,891,899
 713,205
 15,460,333
Changes from principal
     transactions
Net premiums 92,335,231 2,713,832 8,443,426 5,709,711 55,421,815 20,046,447
Cost of insurance and
     administrative charges (8,200,381) (490,838) (1,358,671) (939,010) (1,769,895) (3,641,967)
Benefit payments (259,989) - (8,890) (8,379) (240,733) (1,987)
Surrenders (8,654,377) (652,157) (2,494,098) (438,536) (2,335,262) (2,734,324)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) (25,231,056) 1,440,884 1,798,160 2,169,798 (48,429,964) 17,790,066
Other 54,208
 7,219
 (14,128)
 (29,375)
 39,827
 50,665
Increase (decrease) from principal
     transactions 50,043,636
 3,018,940
 6,365,799
 6,464,209
 2,685,788
 31,508,900
Total increase (decrease) in net assets 77,649,760 4,100,206 14,825,220 8,356,108 3,398,993 46,969,233
Net assets at beginning of year 90,636,169
 6,137,073
 18,074,922
 12,225,779
 15,013,259
 39,185,136
Net assets at end of year $168,285,929
 $10,237,279
 $32,900,142
 $20,581,887
 $18,412,252
 $86,154,369

See accompanying notes.



Strategic Investor   			213


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1998

INVESCO
Total INVESCO
 Total Return
 Equity Income
 High Yield
 Utilities
 Small
Company Growth
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 1,463,539 $ 271,636 $ 453,496 $ 720,665 $ 18,328 $ (586)
Net realized gains (losses) on
     investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
     investments 248,681
 73,689
 359,519
 (541,125)
 282,500
 74,098
Increase (decrease) in net assets
     from operations 2,068,000
 481,798
 1,155,357
 28,158
 336,073
 66,614
Changes from principal
     transactions
Net premiums 8,092,294 2,104,849 3,170,236 2,297,048 435,105 85,056
Cost of insurance and
     administrative charges (1,481,570) (425,176) (567,563) (389,895) (87,692) (11,244)
Benefit payments (9,161) - (9,161) - - -
Surrenders (586,533) (56,509) (192,220) (329,292) (8,210) (302)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 6,011,967 2,955,200 1,315,595 931,519 201,017 608,636
Other 9,107
 556
 22,617
 (18,840)
 4,856
 (82)
Increase (decrease) from principal
     transactions 12,036,104
 4,578,920
 3,739,504
 2,490,540
 545,076
 682,064
Total increase (decrease) in net assets 14,104,104 5,060,718 4,894,861 2,518,698 881,149 748,678
Net assets at beginning of year 15,526,649
 3,044,610
 5,958,144
 5,364,084
 1,159,811
 -
Net assets at end of year $29,630,753 $8,105,328 $10,853,005 $7,882,782 $2,040,960 $748,678

See accompanying notes.



Strategic Investor   			214


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1998

Van Eck
Total Van Eck
 Worldwide Balanced
 Worldwide Hard Assets
 Worldwide Bond
 Worldwide Emerging Markets
 Worldwide Real Estate
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 178,227 $ 44,624 $ 135,776 $ (212) $ (1,736) $ (225)
Net realized gains (losses) on
     investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on
     investments (368,037)
 (23,403)
 (395,698)
 3,953
 47,140
 (29)
Increase (decrease) in net assets
     from operations (450,380)
 25,903
 (422,032)
 3,871
 (56,032)
 (2,090)
Changes from principal
     transactions
Net premiums 875,501 (1,347) 571,430 129,336 137,102 38,980
Cost of insurance and
     administrative charges (108,634) (9,423) (86,867) (1,544) (7,777) (3,023)
Benefit payments - - - - - -
Surrenders (15,198) (3,105) (11,871) - - (222)
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 216,552 (399,466) 111,286 74,151 387,960 42,621
Other 1,060
 90
 1,059
 (7)
 (97)
 15
Increase (decrease) from principal
     transactions 969,281
 (413,251)
 585,037
 201,936
 517,188
 78,371
Total increase (decrease) in net assets 518,901 (387,348) 163,005 205,807 461,156 76,281
Net assets at beginning of year 1,298,098
 387,348
 910,750
 -
 -
 -
Net assets at end of year $1,816,999
 $ -
 $1,073,755
 $205,807
 $461,156
 $76,281

See accompanying notes.



Strategic Investor   			215


Security Life Separate Account L1

Statement of Changes in Net Assets (continued)

Year ended December 31, 1998

AIM
Total AIM
 Capital Appreciation
 Government Securities
Increase (decrease) in net assets
Operations
Net investment income (loss) $ 83,849 $ 24,053 $ 59,796
Net realized gains (losses) on
     investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
     investments 154,087
 119,225
 34,862
Increase (decrease) in net assets
     from operations 242,535
 139,963
 102,572
Changes from principal
     transactions
Net premiums 1,864,458 329,635 1,534,823
Cost of insurance and
     administrative charges (78,728) (28,940) (49,788)
Benefit payments - - -
Surrenders (1,407) (1,407) -
Net transfers among divisions
     (including the loan division and
     guaranteed interest division in
     the general account) 1,773,295 765,185 1,008,110
Other -
 -
 -
Increase (decrease) from principal
     transactions 3,557,618
 1,064,473
 2,493,145
Total increase (decrease) in net assets 3,800,153 1,204,436 2,595,717
Net assets at beginning of year -
 -
 -
Net assets at end of year $3,800,153
 $1,204,436
 $2,595,717

See accompanying notes.



Strategic Investor   			216


Security Life Separate Account L1

Notes to Financial Statements

December 31, 2000

1. Organization

Security Life Separate Account L1 (the "Separate Account") was established by resolution of the Board of Directors of Security Life of Denver Insurance Company (the "Company") on November 3, 1993. The Separate Account is organized as a unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940.

The Separate Account supports the operations of the FirstLine Variable Universal Life, FirstLine II Variable Universal Life, Strategic Advantage Variable Universal Life, Strategic Advantage II Variable Universal Life, Variable Survivorship Universal Life, Corporate Benefits Variable Universal Life, Strategic Benefits Variable Universal Life, and Estate Designer policies ("Variable Universal Life Policies") offered by the Company. Corporate Benefits Variable Universal Life and Strategic Benefits Variable Universal Life became effective in 2000 and are defined as Class B policies due to their mortality and expense charge structure. All other Variable Universal Life Policies are defined as Class A policies. The Separate Account may be used to support other variable life policies as they are offered by the Company. The assets of the Separate Account are the property of the Company. However, the portion of the Separate Account's assets attributable to the policies will not be used to satisfy liabilities arising out of any other operations of the Company.

As of December 31, 2000, the Separate Account offered 35 investment divisions available to the policyholders, 27 of which invest in an independently managed mutual fund portfolio and eight of which invest in a mutual fund portfolio managed by an affiliate, Direct Services, Inc. (collectively, "Funds"). The Funds are as follows:

Portfolio Managers/Portfolios (Funds)

Neuberger Berman Management Incorporated (NB)
      Neuberger Berman Limited Maturity Bond Portfolio
Neuberger Berman Growth Portfolio
Neuberger Berman Partners Portfolio
     
Fred Alger Management, Inc. (Alger)
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio


Strategic Investor   			217


Security Life Separate Account L1

Notes to Financial Statements (continued)

1. Organization (continued)

Portfolio Managers/Portfolios (Funds) (continued)

Fidelity Management & Research Company (Fidelity)
      Fidelity Investments VIP II Asset Manager Portfolio
Fidelity Investments VIP Growth Portfolio
Fidelity Investments VIP Overseas Portfolio
Fidelity Investments VIP Money Market Portfolio
Fidelity Investments VIP II Index 500 Portfolio
     
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Total Return Portfolio
INVESCO VIF Equity Income Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
INVESCO VIF Small Company Growth Portfolio
     
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Hard Assets Portfolio
Van Eck Worldwide Bond Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Real Estate Portfolio
     
AIM Advisors, Inc. (AIM)
AIM VI - Capital Appreciation Portfolio
AIM VI - Government Securities Portfolio
     
Directed Services, Inc. ("GCG")
The GCG Trust - Equity Income Portfolio
The GCG Trust - Growth Portfolio
The GCG Trust - Hard Assets Portfolio
The GCG Trust - Limited Maturity Bond Portfolio
The GCG Trust - Liquid Asset Portfolio
The GCG Trust - MidCap Growth Portfolio
The GCG Trust - Research Portfolio
The GCG Trust - Total Return Portfolio
     
Janus Aspen Series Funds ("Janus")
Aggressive Growth
Growth
International Growth
Worldwide Growth


Strategic Investor   			218


Security Life Separate Account L1

Notes to Financial Statements (continued)

1. Organization (continued)

Portfolio Managers/Portfolios (Funds) (continued)

Effective February 19, 1998, six new divisions became available to the policyholders for investment in the following funds:

Van Eck Associates Corporation (Van Eck)
      Van Eck Worldwide Bond Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Real Estate Portfolio
     
AIM Advisors, Inc. (AIM)
AIM VI - Capital Appreciation Portfolio
AIM VI - Government Securities Portfolio
     
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Small Company Growth Portfolio

Effective May 1, 2000, eight new divisions became available to the policyholders for investment in the following funds:

Directed Services, Inc. ("GCG")
      GCG Trust - Equity Income Portfolio
GCG Trust - Growth Portfolio
GCG Trust - Hard Assets Portfolio
GCG Trust - Limited Maturity Bond Portfolio
GCG Trust - Liquid Asset Portfolio
GCG Trust - MidCap Growth Portfolio
GCG Trust - Research Portfolio
GCG Trust - Total Return Portfolio

Effective October 13, 2000, four new divisions became available to the policyholders for investment in the following funds:

Janus Aspen Series Funds ("Janus")
      Aggressive Growth
Growth
International Growth
Worldwide Growth


Strategic Investor   			219


Security Life Separate Account L1

Notes to Financial Statements (continued)

1. Organization (continued)

Portfolio Managers/Portfolios (Funds) (continued)

The Variable Universal Life Policies allow the policyholders to specify the allocation of their net premium to the various Funds. They can also transfer their account values among the Funds. The Variable Universal Life Policies also provide the policyholders the option to allocate their net premiums, or to transfer their account values, to a Guaranteed Interest Division ("GID") in the Company's general account. The GID guarantees a rate of interest to the policyholder, and it is not variable in nature. Therefore, it is not included in these Separate Account statements.

2. Summary of Significant Accounting Policies

The accompanying financial statements of the Separate Account have been prepared on the basis of accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The significant accounting principles followed by the Separate Account and the methods of applying those principles are presented below or in the footnotes which follow:

Investment Valuation

The investments in shares of the Funds are valued at the closing net asset value (market value) per share as determined by the Funds on the day of measurement.

Investment Transactions and Related Investment Income

The investments in shares of the Funds are accounted for on the date the order to buy or sell is confirmed. Dividend income and distributions of capital gains are recorded on the ex-dividend date. Realized gains and losses from sales transactions are reported using the first-in, first-out ("FIFO") method of accounting for cost. The difference between cost and current market value of investments owned on the day of measurement is recorded as unrealized gain or loss on investment.



Strategic Investor   			220


Security Life Separate Account L1

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Valuation Period Deductions

For FirstLine, FirstLine II, Strategic Advantage, Strategic Advantage II, Variable Survivorship and Estate Designer policies (Class A Policies), charges are made directly against the assets of the Separate Account divisions and are reflected daily in the computation of the unit values of the divisions.

A daily deduction, at an annual rate of .75% of the daily asset value of the Separate Account divisions, is charged to the Separate Account for mortality and expense risks assumed by the Company. Total mortality and expense charges for the years ended December 31, 2000, 1999 and 1998 were $4,508,171, $2,908,885, and $1,740,661, respectively.

For the Corporate Benefits and Strategic Benefits policies (Class B Policies), mortality and expense charges result in the redemption of units rather than a deduction in the daily computation of unit values.

For Corporate Benefits policies, a monthly deduction, at an annual rate of .20% of the account value, is charged. For Strategic Benefits policies, a monthly deduction, at an annual rate of .85%, .60% and .05% of the account value, is charged during policy years 1 through 10, 11 through 20, and 21 and later, respectively. Total mortality and expense charges for these policies for the year ended December 31, 2000 were $42,000 and are included in the Statement of Changes in Net Assets as cost of insurance and administrative charges.

Policyholder Reserves

Policyholder reserves are recorded in the Separate Account at the aggregate account values of the policyholders invested in the Separate Account divisions. To the extent that benefits to be paid to the policyholders exceed their account values, the Company will contribute additional funds to the benefit proceeds.

3. Investments

Fund shares are purchased at net asset value with net premiums (premium payments, less sales and tax loads charged by the Company) and divisional transfers from other divisions. Fund shares are redeemed for the payment of benefits, for surrenders, for transfers to other divisions, and for charges by the Company for certain cost of insurance and administrative charges. The cost of insurance and administrative charges for the years ended December 31, 2000, 1999 and 1998 were $30,552,382, $20,649,015, and $14,458,798, respectively. Dividends made by the Funds are reinvested in the Funds.



Strategic Investor   			221


Security Life Separate Account L1

Notes to Financial Statements (continued)

3. Investments (continued)

The following is a summary of Fund shares owned as of December 31, 2000:

Fund
 Number of Shares
 Net Asset Value
 Value of Shares at Market
 Cost of Shares
Neuberger Berman Management Inc.:
     Limited Maturity Bond 1,098,479.067 $13.19 $ 14,488,939 $ 14,317,177
     Growth 650,381.500 $30.65 19,934,193 23,675,702
     Partners 1,697,826.869 $16.17 27,453,860 26,760,069
Fred Alger Management, Inc.:
     American Small Capitalization 1,116,503.632 $23.49 26,226,670 29,017,464
     American MidCap Growth 1,087,203.730 $30.62 33,290,178 32,585,413
     American Growth 1,059,757.353 $47.27 50,094,730 57,519,366
     American Leveraged AllCap 627,987.182 $38.80 24,365,903 30,403,675
Fidelity Management & Research Co.:
     Asset Manager 984,639.059 $16.00 15,754,225 16,794,005
     Growth 1,571,275.140 $43.65 68,586,160 76,947,214
     Overseas 2,160,503.810 $19.99 43,188,471 47,778,416
     Money Market 62,301,092.280 $1.00 62,301,092 62,301,092
     Index 500 1,209,792.397 $149.53 180,900,257 171,986,004
INVESCO Funds Group, Inc.:
     Total Return 884,931.109 $13.21 11,689,940 13,758,395
     Equity Income 1,039,790.088 $20.71 21,534,053 20,783,337
     High Yield 1,040,905.170 $10.07 10,481,915 11,975,324
     Utilities 370,959.040 $21.06 7,812,397 7,691,761
     Small Company Growth 648,541.835 $18.07 11,719,151 14,096,290
Van Eck Associates Corporation:
     Worldwide Hard Assets 191,662.125 $12.07 2,313,362 2,041,764
     Worldwide Bond 89,819.082 $10.37 931,424 913,802
     Worldwide Emerging Markets 550,588.884 $8.29 4,564,382 6,215,858
     Worldwide Real Estate 123,569.451 $10.62 1,312,308 1,192,797
AIM Advisors, Inc.:
     Capital Appreciation 1,654,352.662 $30.84 51,020,236 51,815,173
     Government Securities 1,502,187.120 $11.16 16,764,408 16,599,323
Directed Services, Inc. (GCG):
     Equity Income - - - -
     Growth 62.340 $19.78 1,233 1,401
     Hard Assets - - - -
     Limited Maturity Bond 83,266.629 $10.53 876,798 922,084
     Liquid Asset 1,991,502.030 $1.00 1,991,502 1,991,502
     MidCap Growth - - - -
     Research - - - -
     Total Return 619.589 $17.00 10,533 11,083
Janus Funds:
     Growth 9,242.830 $26.36 243,641 258,748
     Aggressive Growth 14,583.894 $35.97 524,583 575,061
     Worldwide Growth 8,686.977 $36.77 319,420 336,173
     International Growth 13,727.681 $30.64 420,616
 437,129
Total $711,116,580
 $741,702,602


Strategic Investor   			222


Security Life Separate Account L1

Notes to Financial Statements (continued)

3. Investments (continued)

For the year ended December 31, 2000, the cost of purchases (plus reinvested dividends) and sales of investments are as follows:

Fund
 Beginning of Year
 Purchases
 Sales
 End of Year
Neuberger Berman Management Inc.:
     Limited Maturity Bond $ 11,380,242 $ 7,233,774 $ (4,296,839) $ 14,317,177
     Growth 8,836,640 20,151,116 (5,312,054) 23,675,702
     Partners 28,931,311 47,152,244 (49,323,486) 26,760,069
Fred Alger Management, Inc.:
     American Small Capitalization 21,103,331 74,629,293 (66,715,160) 29,017,464
     American MidCap Growth 13,903,676 21,597,617 (2,915,880) 32,585,413
     American Growth 32,482,027 31,091,492 (6,054,153) 57,519,366
     American Leveraged AllCap 16,645,127 19,821,075 (6,062,527) 30,403,675
Fidelity Management & Research Co.:
     Asset Manager 12,533,037 7,123,256 (2,862,288) 16,794,005
     Growth 48,588,495 109,439,111 (81,080,392) 76,947,214
     Overseas 25,474,948 31,328,225 (9,024,757) 47,778,416
     Money Market 34,799,038 248,428,475 (220,926,421) 62,301,092
     Index 500 119,231,939 63,143,704 (10,389,639) 171,986,004
INVESCO Funds Group, Inc.:
     Total Return 11,019,270 5,757,584 (3,018,459) 13,758,395
     Equity Income 14,534,380 8,908,214 (2,659,257) 20,783,337
     High Yield 9,910,525 4,917,230 (2,852,431) 11,975,324
     Utilities 3,647,584 4,689,595 (645,418) 7,691,761
     Small Company Growth 2,793,624 13,241,957 (1,939,291) 14,096,290
Van Eck Associates Corporation:
     Worldwide Hard Assets 2,157,787 548,401 (664,424) 2,041,764
     Worldwide Bond 341,712 782,955 (210,865) 913,802
     Worldwide Emerging Markets 2,209,985 4,730,706 (724,833) 6,215,858
     Worldwide Real Estate 567,839 963,776 (338,818) 1,192,797
AIM Advisors, Inc.:
     Capital Appreciation 3,932,316 48,423,913 (541,056) 51,815,173
     Government Securities 7,579,908 13,067,857 (4,048,442) 16,599,323
Directed Services, Inc. (GCG):
     Equity Income
     Growth - 1,401 - 1,401
     Hard Assets - - - -
     Limited Maturity Bond - 922,084 - 922,084
     Liquid Asset - 54,297,849 (52,306,347) 1,991,502
     MidCap Growth - - - -
     Research - - - -
     Total Return - 11,083 - 11,083
Janus Funds:
     Growth - 335,602 (76,854) 258,748
     Aggressive Growth - 575,493 (432) 575,061
     Worldwide Growth - 463,855 (127,682) 336,173
     International Growth -
 446,417
 (9,288)
 437,129
Total $432,604,741
 $844,225,354
 $(535,127,493)
 $741,702,602


Strategic Investor   			223


Security Life Separate Account L1

Notes to Financial Statements (continued)

3. Investments (continued)

Aggregate proceeds from sales of investments for the year ended December 31, 2000 were $540,823,407.

4. Other Policy Deductions

The Variable Universal Life Policies provide for certain deductions for sales and tax loads from premium payments received from the policyholders and for surrender charges and taxes from amounts paid to policyholders. Such deductions are taken before the purchase of divisional units or after the redemption of divisional units of the Separate Account. Such deductions are not included in the Separate Account financial statements.

5. Policy Loans

The Variable Universal Life Policies allow the policyholders to borrow against their policies by using them as collateral for a loan. At the time of borrowing against the policies, an amount equal to the loan amount is transferred from the Separate Account divisions to a Loan Division in the Company's General Account to secure the loan. As payments are made on the policy loan, amounts are transferred back from the Loan Division to the Separate Account divisions. Interest is credited to the balance in the Loan Division at a fixed rate. The Loan Division is not variable in nature and is not included in these Separate Account statements.

6. Federal Income Taxes

The Separate Account is not taxed separately because the operations of the Separate Account are part of the total operations of the Company. The Company is taxed as a life insurance company under the Internal Revenue Code. The Separate Account is not taxed as a "Regulated Investment Company" under subchapter "M" of the Internal Revenue Code. 



Strategic Investor   			224


Security Life Separate Account L1

Notes to Financial Statements (continued)

7. Summary of Changes in Units

The following schedule summarizes the changes in divisional units for the year ended December 31, 2000:

Division
 Outstanding at Beginning of Year
 Increase for Payments Received
 (Decrease) for Withdrawals and Other Deductions
 Outstanding at End of Year
Neuberger Berman Management Inc.:
     Limited Maturity Bond:
          Class A 889,159.604 504,777.566 (308,746.826) 1,085,190.344
          Class B - - - -
     Growth:
          Class A 434,338.368 585,182.288 (264,487.840) 755,032.816
          Class B - - - -
     Partners:
          Class A 1,212,133.448 1,779,259.060 (1,860,035.005) 1,131,357.503
          Class B - 776.829 (49.785) 727.044
Fred Alger Management, Inc.:
     American Small Capitalization:
          Class A 1,055,757.484 2,800,960.511 (2,505,612.904) 1,351,105.091
          Class B - 55,711.543 (42.421) 55,669.122
     American MidCap Growth:
          Class A 576,738.314 560,214.726 (114,004.848) 1,022,948.192
          Class B - 4,663.845 (82.319) 4,581.526
     American Growth:
          Class A 1,257,371.637 778,072.130 (240,385.291) 1,795,058.476
          Class B - 11,643.541 (139.984) 11,503.557
     American Leveraged AllCap:
          Class A 425,281.099 336,729.473 (159,812.806) 602,197.766
          Class B - - - -
Fidelity Management & Research Co.:
     Asset Manager:
          Class A 722,717.906 310,205.974 (154,339.584) 878,584.296
          Class B - - - -
     Growth:
          Class A 1,676,236.646 2,952,178.456 (2,405,547.964) 2,222,867.138
          Class B - 40,990.125 (263.017) 40,727.108
     Overseas:
          Class A 1,716,617.627 1,467,555.053 (597,886.377) 2,586,286.303
          Class B - 83,821.190 (70.622) 83,750.568
     Money Market:
          Class A 2,763,648.297 18,979,254.070 (17,053,332.906) 4,689,569.461
          Class B - - - -
     Index 500:
          Class A 4,772,484.597 1,767,429.327 (514,434.291) 6,025,479.633
          Class B - 714,452.306 (9,500.804) 704,951.502


Strategic Investor   			225


Security Life Separate Account L1

Notes to Financial Statements (continued)

7. Summary of Changes in Units (continued)

Division
 Outstanding at Beginning of Year
 Increase for Payments Received
 (Decrease) for Withdrawals and Other Deductions
 Outstanding at End of Year
INVESCO Funds Group, Inc.:
     Total Return:
          Class A 602,187.614 257,125.735 (161,306.002) 698,007.347
          Class B - - - -
     Equity Income:
          Class A 621,047.937 283,695.785 (121,863.312) 782,880.410
          Class B - 23,229.266 (31.870) 23,197.396
     High Yield:
          Class A 536,863.946 285,666.502 (142,449.650) 680,080.798
          Class B - 2,314.001 (20.866) 2,293.135
     Utilities:
          Class A 189,409.984 190,914.332 (38,376.831) 341,947.485
          Class B - - - -
     Small Company Growth:
          Class A 212,503.210 609,134.460 (163,138.502) 658,499.168
          Class B - 2,483.692 (24.219) 2,459.473
Van Eck Associates Corporation:
     Worldwide Hard Assets:
          Class A 236,972.429 53,067.697 (75,068.462) 214,971.664
          Class B - - - -
     Worldwide Bond:
          Class A 33,114.078 77,355.439 (19,232.793) 91,236.724
          Class B - 51.386 (9.286) 42.100
     Worldwide Emerging Markets:
          Class A 228,819.195 390,868.355 (76,373.129) 543,314.421
          Class B - 36,097.306 (54.040) 36,043.266
     Worldwide Real Estate:
          Class A 64,967.173 103,195.970 (36,955.247) 131,207.896
          Class B - 439.384 (44.011) 395.373
AIM Advisors, Inc.:
     Capital Appreciation:
          Class A 323,846.032 377,520.848 (53,883.069) 647,483.811
          Class B - 3,435,588.521 (164.158) 3,435,424.363
     Government Securities:
          Class A 715,905.149 682,457.548 (376,148.854) 1,022,213.843
          Class B - 469,546.296 (11.016) 469,535.280


Strategic Investor   			226


Security Life Separate Account L1

Notes to Financial Statements (continued)

7. Summary of Changes in Units (continued)

Division
 Outstanding at Beginning of Year
 Increase for Payments Received
 (Decrease) for Withdrawals and Other Deductions
 Outstanding at End of Year
Directed Services, Inc. (GCG):
     Equity Income:
          Class A - - - -
          Class B - - - -
     Growth:
          Class A - - - -
          Class B - 103.679 - 103.679
     Hard Assets:
          Class A - - - -
          Class B - - - -
     Limited Maturity Bond:
          Class A - - - -
          Class B - 80,478.798 - 80,478.798
     Liquid Asset:
          Class A - - - -
          Class B - 5,018,488.796 (4,834,556.175) 183,932.621
     MidCap Growth:
          Class A - - - -
          Class B - - - -
     Research:
          Class A - - - -
          Class B - - - -
     Total Return:
          Class A - - - -
          Class B - 908.365 - 908.365
Janus Aspen Series Funds:
      Growth:
          Class A - 37,656.545 (8,226.269) 29,430.276
          Class B - - - -
      Aggressive Growth:
          Class A - 53,792.856 (40.067) 53,752.789
          Class B - 22,786.649 - 22,786.649
      Worldwide Growth:
          Class A - 33,160.748 (13,450.203) 19,710.545
          Class B - 17,011.166 - 17,011.166
      International Growth:
          Class A - 43,058.359 (952.283) 42,106.076
          Class B - 6,269.387 - 6,269.387


Strategic Investor   			227


Security Life Separate Account L1

Notes to Financial Statements (continued)

7. Summary of Changes in Units (continued)

The following schedule summarizes the changes in divisional units for the year ended December 31, 1999:

Division
 Outstanding at Beginning of Year
 Increase for Payments Received
 (Decrease) for Withdrawals and Other Deductions
 Outstanding at End of Year
Neuberger Berman Management Inc.:
     Limited Maturity Bond 1,245,559.121 421,349.898 (777,749.415) 889,159.604
     Growth 447,486.376 233,319.969 (246,467.977) 434,338.368
     Partners 986,298.018 385,667.451 (159,832.021) 1,212,133.448
Fred Alger Management, Inc.:
     American Small Capitalization 838,692.418 603,898.891 (386,833.825) 1,055,757.484
     American MidCap Growth 402,532.472 225,361.191 (51,155.349) 576,738.314
     American Growth 923,696.066 585,374.403 (251,698.832) 1,257,371.637
     American Leveraged AllCap 221,642.446 410,084.371 (206,445.718) 425,281.099
Fidelity Management & Research Co.:
     Asset Manager 600,255.213 393,745.577 (271,282.884) 722,717.906
     Growth 1,293,480.338 2,233,512.279 (1,850,755.971) 1,676,236.646
     Overseas 1,429,659.907 963,512.218 (676,554.498) 1,716,617.627
     Money Market 1,526,404.399 9,068,762.545 (7,831,518.647) 2,763,648.297
     Index 500 3,215,990.519 1,840,375.191 (283,881.113) 4,772,484.597
INVESCO Funds Group, Inc.:
     Total Return 450,557.216 300,554.107 (148,923.709) 602,187.614
     Equity Income 473,616.752 252,971.948 (105,540.763) 621,047.937
     High Yield 486,858.648 226,071.484 (176,066.186) 536,863.946
     Utilities 110,379.616 140,069.045 (61,038.677) 189,409.984
     Small Company Growth 67,506.441 210,114.805 (65,118.036) 212,503.210
Van Eck Associates Corporation:
     Worldwide Hard Assets 132,513.824 246,466.322 (142,007.717) 236,972.429
     Worldwide Bond 18,656.317 43,237.412 (28,779.651) 33,114.078
     Worldwide Emerging Markets 67,354.295 582,654.548 (421,189.648) 228,819.195
     Worldwide Real Estate 8,765.232 67,514.147 (11,312.206) 64,967.173
AIM Advisors, Inc.:
     Capital Appreciation 105,457.867 263,795.629 (45,407.464) 323,846.032
     Government Securities 246,150.062 723,064.769 (253,309.682) 715,905.149


Strategic Investor   			228


Security Life Separate Account L1

Notes to Financial Statements (continued)

7. Summary of Changes in Units (continued)

The following schedule summarizes the changes in divisional units for the year ended December 31, 1998:

Division
 Outstanding at Beginning of Year
 Increase for Payments Received
 (Decrease) for Withdrawals and
Other Deductions
 Outstanding at End of Year
Neuberger Berman Management Inc.:
     Limited Maturity Bond 552,985.394 801,233.327 (108,659.600) 1,245,559.121
     Growth 316,146.084 250,854.619 (119,514.327) 447,486.376
     Government Income 75,811.559 58.537 (75,870.096) -
     Partners 626,285.721 455,096.290 (95,083.993) 986,298.018
Fred Alger Management, Inc.:
     American Small Capitalization 648,733.740 333,770.247 (143,811.569) 838,692.418
     American MidCap Growth 288,809.482 167,037.228 (53,314.238) 402,532.472
     American Growth 569,990.309 442,313.190 (88,607.433) 923,696.066
     American Leveraged AllCap 148,542.639 102,168.282 (29,068.475) 221,642.446
Fidelity Management & Research Co.:
     Asset Manager 410,906.106 270,972.780 (81,623.673) 600,255.213
     Growth 983,842.388 614,542.294 (304,904.344) 1,293,480.338
     Overseas 950,328.899 861,220.218 (381,889.210) 1,429,659.907
     Money Market 1,303,059.881 5,059,561.984 (4,836,217.466) 1,526,404.399
     Index 500 1,863,056.104 1,617,935.444 (265,001.029) 3,215,990.519
INVESCO Funds Group, Inc.:
     Total Return 184,042.238 307,178.543 (40,663.565) 450,557.216
     Equity Income 297,553.033 216,644.366 (40,580.647) 473,616.752
     High Yield 333,501.857 283,205.205 (129,848.414) 486,858.648
     Utilities 78,118.685 41,701.114 (9,440.183) 110,379.616
     Small Company Growth - 71,535.065 (4,028.624) 67,506.441
Van Eck Associates Corporation:
     Worldwide Balanced 32,139.282 190.627 (32,329.909) -
     Worldwide Hard Assets 77,046.773 68,491.375 (13,024.324) 132,513.824
     Worldwide Bond - 18,882.425 (226.108) 18,656.317
     Worldwide Emerging Markets - 105,064.405 (37,710.110) 67,354.295
     Worldwide Real Estate - 9,848.072 (1,082.840) 8,765.232
AIM Advisors, Inc.:
     Capital Appreciation - 108,895.839 (3,437.972) 105,457.867
     Government Securities - 261,432.015 (15,281.953) 246,150.062


Strategic Investor   			229


Security Life Separate Account L1

Notes to Financial Statements (continued)

8. Net Assets

Net assets at December 31, 2000 consisted of the following:

Division
 Principal Transactions
 Accumulated Investment Income (Loss)
 Accumulated Net Realized Gains (Losses) on Investments
 Net Unrealized Gains (Losses) on Investments
 Net Assets
Neuberger Berman Management Inc.:
     Limited Maturity Bond $ 12,875,450 $ 2,040,309 $ (593,370) $ 171,762 $ 14,494,151
     Growth 16,507,147 3,350,605 3,828,663 (3,741,509) 19,944,906
     Partners 22,990,354 7,470,143 (3,598,509) 693,791 27,555,779
Fred Alger Management, Inc.:
     American Small Capitalization 24,994,589 13,518,183 (9,552,848) (2,790,794) 26,169,130
     American MidCap Growth 25,790,401 4,859,141 1,939,444 704,765 33,293,751
     American Growth 42,065,399 10,516,454 4,961,215 (7,424,636) 50,118,432
     American Leveraged AllCap 22,124,855 2,992,031 5,298,494 (6,037,772) 24,377,608
Fidelity Management & Research Co.:
     Asset Manager 13,593,835 3,007,490 193,073 (1,039,780) 15,754,618
     Growth 52,479,909 12,125,623 12,261,725 (8,361,054) 68,506,203
     Overseas 39,756,895 5,133,376 3,021,551 (4,589,945) 43,321,877
     Money Market 56,817,693 5,197,119 - - 62,014,812
     Index 500 154,623,275 3,154,401 14,248,512 8,914,253 180,940,441
INVESCO Funds Group, Inc.:
     Total Return 11,552,212 2,025,307 185,567 (2,068,455) 11,694,631
     Equity Income 17,049,701 2,143,899 1,591,780 750,716 21,536,096
     High Yield 10,481,018 1,938,615 (429,872) (1,493,409) 10,496,352
     Utilities 6,663,951 338,852 688,493 120,636 7,811,932
     Small Company Growth 12,539,097 260,565 1,425,580 (2,377,139) 11,848,103
Van Eck Associates Corporation:
     Worldwide Hard Assets 2,194,793 156,270 (309,310) 271,598 2,313,351
     Worldwide Bond 929,038 25,274 (40,507) 17,622 931,427
     Worldwide Emerging Markets 5,860,675 (43,813) 396,614 (1,651,476) 4,562,000
     Worldwide Real Estate 1,178,540 7,326 6,931 119,511 1,312,308
AIM Advisors, Inc.:
     Capital Appreciation 50,999,939 326,605 507,069 (794,937) 51,038,676
     Government Securities 15,834,280 707,601 56,932 165,085 16,763,898


Strategic Investor   			230


Security Life Separate Account L1

Notes to Financial Statements (continued)

8. Net Assets (continued)

Division
 Principal Transactions
 Accumulated Investment Income (Loss)
 Accumulated Net Realized Gains (Losses) on Investments
 Net Unrealized Gains (Losses) on Investments
 Net Assets
Directed Services, Inc. (GCG):
     Equity Income $ - $ - $ - $ - $ -
     Growth 1,311 90 - (168) 1,233
     Hard Assets - - - - -
     Limited Maturity Bond 867,803 54,281 - (45,286) 876,798
     Liquid Asset 1,130,199 861,303 - - 1,991,502
     MidCap Growth - - - - -
     Research - - - - -
     Total Return 10,297 786 - (550) 10,533
Janus Aspen Series Funds:
     Growth 260,474 (180) (1,546) (15,107) 243,641
     Aggressive Growth 575,365 (218) (86) (50,478) 524,583
     Worldwide Growth 343,821 (64) (7,584) (16,753) 319,420
     International Growth 437,045 597 (513) (16,513) 420,616
Total $623,529,361
 $82,167,971
 $36,077,498
 $(30,586,022)
 $711,188,808


Strategic Investor   			231


APPENDIX A

Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy

Attained Age Male Female Unisex Attained Age Male Female Unisex Attained Age Male Female Unisex
0 11.727 14.234 12.149
1 11.785 14.209 12.194 34 4.188 4.902 4.314 67 1.617 1.815 1.657
2 11.458 13.815 11.857 35 4.052 4.742 4.173 68 1.583 1.769 1.620
3 11.128 13.417 11.515 36 3.920 4.586 4.037 69 1.550 1.724 1.585
4 10.803 13.023 11.178 37 3.793 4.437 3.906 70 1.518 1.681 1.552
5 10.481 12.635 10.845 38 3.670 4.293 3.780 71 1.488 1.639 1.520
6 10.161 12.253 10.514 39 3.553 4.154 3.658 72 1.459 1.599 1.489
7 9.844 11.875 10.187 40 3.439 4.021 3.541 73 1.432 1.560 1.460
8 9.530 11.505 9.863 41 3.330 3.894 3.429 74 1.406 1.524 1.433
9 9.221 11.141 9.545 42 3.226 3.771 3.322 75 1.382 1.490 1.407
10 8.918 10.784 9.233 43 3.125 3.654 3.218 76 1.359 1.457 1.383
11 8.623 10.436 8.928 44 3.028 3.541 3.119 77 1.338 1.427 1.360
12 8.338 10.098 8.634 45 2.936 3.432 3.023 78 1.318 1.398 1.338
13 8.066 9.771 8.353 46 2.846 3.328 2.931 79 1.299 1.371 1.318
14 7.808 9.455 8.085 47 2.761 3.227 2.843 80 1.281 1.345 1.298
15 7.564 9.150 7.831 48 2.678 3.129 2.758 81 1.264 1.321 1.280
16 7.335 8.857 7.592 49 2.599 3.035 2.676 82 1.248 1.298 1.262
17 7.118 8.575 7.364 50 2.522 2.945 2.597 83 1.233 1.277 1.245
18 6.911 8.302 7.148 51 2.449 2.858 2.522 84 1.218 1.257 1.230
19 6.713 8.038 6.939 52 2.378 2.774 2.449 85 1.205 1.238 1.215
20 6.521 7.782 6.737 53 2.311 2.693 2.379 86 1.193 1.221 1.202
21 6.334 7.534 6.540 54 2.246 2.615 2.312 87 1.181 1.205 1.189
22 6.150 7.293 6.347 55 2.184 2.540 2.248 88 1.171 1.190 1.177
23 5.969 7.059 6.158 56 2.125 2.468 2.187 89 1.160 1.176 1.166
24 5.791 6.831 5.971 57 2.068 2.398 2.128 90 1.151 1.163 1.155
25 5.615 6.611 5.788 58 2.014 2.330 2.071 91 1.141 1.150 1.144
26 5.441 6.396 5.608 59 1.962 2.265 2.017 92 1.131 1.137 1.133
27 5.271 6.188 5.431 60 1.912 2.201 1.965 93 1.120 1.125 1.122
28 5.104 5.986 5.258 61 1.864 2.139 1.915 94 1.109 1.112 1.110
29 4.940 5.791 5.089 62 1.818 2.079 1.867 95 1.097 1.098 1.097
30 4.781 5.601 4.925 63 1.774 2.022 1.821 96 1.083 1.084 1.084
31 4.626 5.418 4.765 64 1.732 1.967 1.777 97 1.069 1.069 1.069
32 4.476 5.241 4.610 65 1.692 1.914 1.735 98 1.054 1.054 1.054
33 4.330 5.069 4.459 66 1.654 1.863 1.695 99 1.040 1.040 1.040
100 1.000 1.000 1.000

 

Strategic Investor   			232

 

APPENDIX A - Enhanced

Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy

Attained Age Male Female Unisex Attained Age Male Female Unisex Attained Age Male Female Unisex
0 11.727 14.234 12.149
1 11.785 14.209 12.194 34 4.188 4.902 4.314 67 1.617 1.815 1.657
2 11.458 13.815 11.857 35 4.052 4.742 4.173 68 1.583 1.769 1.620
3 11.128 13.417 11.515 36 3.920 4.586 4.037 69 1.550 1.724 1.585
4 10.803 13.023 11.178 37 3.793 4.437 3.906 70 1.518 1.681 1.552
5 10.481 12.635 10.845 38 3.670 4.293 3.780 71 1.503 1.655 1.535
6 10.161 12.253 10.514 39 3.553 4.154 3.658 72 1.488 1.631 1.519
7 9.844 11.875 10.187 40 3.439 4.021 3.541 73 1.475 1.607 1.504
8 9.530 11.505 9.863 41 3.330 3.894 3.429 74 1.462 1.585 1.490
9 9.221 11.141 9.545 42 3.226 3.771 3.322 75 1.451 1.565 1.477
10 8.918 10.784 9.233 43 3.125 3.654 3.218 76 1.441 1.544 1.466
11 8.623 10.436 8.928 44 3.028 3.541 3.119 77 1.432 1.527 1.455
12 8.338 10.098 8.634 45 2.936 3.432 3.023 78 1.423 1.510 1.445
13 8.066 9.771 8.353 46 2.846 3.328 2.931 79 1.416 1.494 1.437
14 7.808 9.455 8.085 47 2.761 3.227 2.843 80 1.409 1.480 1.428
15 7.564 9.150 7.831 48 2.678 3.129 2.758 81 1.378 1.440 1.395
16 7.335 8.857 7.592 49 2.599 3.035 2.676 82 1.348 1.402 1.363
17 7.118 8.575 7.364 50 2.522 2.945 2.597 83 1.319 1.366 1.332
18 6.911 8.302 7.148 51 2.449 2.858 2.522 84 1.291 1.332 1.304
19 6.713 8.038 6.939 52 2.378 2.774 2.449 85 1.265 1.300 1.276
20 6.521 7.782 6.737 53 2.311 2.693 2.379 86 1.241 1.270 1.250
21 6.334 7.534 6.540 54 2.246 2.615 2.312 87 1.216 1.241 1.225
22 6.150 7.293 6.347 55 2.184 2.540 2.248 88 1.194 1.214 1.201
23 5.969 7.059 6.158 56 2.125 2.468 2.187 89 1.172 1.188 1.178
24 5.791 6.831 5.971 57 2.068 2.398 2.128 90 1.151 1.163 1.155
25 5.615 6.611 5.788 58 2.014 2.330 2.071 91 1.141 1.150 1.144
26 5.441 6.396 5.608 59 1.962 2.265 2.017 92 1.131 1.137 1.133
27 5.271 6.188 5.431 60 1.912 2.201 1.965 93 1.120 1.125 1.122
28 5.104 5.986 5.258 61 1.864 2.139 1.915 94 1.109 1.112 1.110
29 4.940 5.791 5.089 62 1.818 2.079 1.867 95 1.097 1.098 1.097
30 4.781 5.601 4.925 63 1.774 2.022 1.821 96 1.083 1.084 1.084
31 4.626 5.418 4.765 64 1.732 1.967 1.777 97 1.069 1.069 1.069
32 4.476 5.241 4.610 65 1.692 1.914 1.735 98 1.054 1.054 1.054
33 4.330 5.069 4.459 66 1.654 1.863 1.695 99 1.040 1.040 1.040
100 1.000 1.000 1.000

 

Strategic Investor   			233

 

APPENDIX B

<R>Definition of Life Insurance
Guideline Premium Test/Cash Value Corridor Test
Death Benefit Factors</R>

Attained Age Factor Attained Age Factor Attained Age Factor Attained Age 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.

 

Strategic Investor   			234

 

APPENDIX B - Enhanced

<R>Definition of Life Insurance
Guideline Premium Test/Cash Value Corridor Test
Death Benefit Factors</R>

Attained Age Factor Attained Age Factor Attained Age Factor Attained Age Factor
 
0 2.50 25 2.50 50 1.85 75 1.10
1 2.50 26 2.50 51 1.78 76 1.11
2 2.50 27 2.50 52 1.71 77 1.12
3 2.50 28 2.50 53 1.64 78 1.13
4 2.50 29 2.50 54 1.57 79 1.14
 
5 2.50 30 2.50 55 1.50 80 1.16
6 2.50 31 2.50 56 1.46 81 1.14
7 2.50 32 2.50 57 1.42 82 1.13
8 2.50 33 2.50 58 1.38 83 1.12
9 2.50 34 2.50 59 1.34 84 1.11
 
10 2.50 35 2.50 60 1.30 85 1.10
11 2.50 36 2.50 61 1.28 86 1.09
12 2.50 37 2.50 62 1.26 87 1.08
13 2.50 38 2.50 63 1.24 88 1.07
14 2.50 39 2.50 64 1.22 89 1.06
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 1.14 96 1.00
22 2.50 47 2.03 72 1.13 97 1.00
23 2.50 48 1.97 73 1.12 98 1.00
24 2.50 49 1.91 74 1.11 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.

 

Strategic Investor   			235

 

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 investment portfolio as if a policy had been issued on the date indicated. Each investment portfolio's annual total return is based on the total return calculated for each fiscal year. These annual total return figures reflect the investment portfolio's net 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 $3,750 annual premium, received at the beginning of each year, for a hypothetical policy with a $300,000 stated death benefit, the cash value accumulation test, death benefit option 1, issued to a preferred, tobacco non-user male, age 45. In each case, it is assumed that all premium is allocated to the variable investment option investing in the investment portfolio 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 from premium, current cost of insurance and monthly deductions, and each investment portfolio's charges and expenses. See Charges and Deductions, page 45.

 

Strategic Investor   			236

 

HYPOTHETICAL ILLUSTRATIONS
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
AIM V.I. Capital Appreciation Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/94 2.50% 3,119 2,707 300,000
12/31/95 35.69% 7,704 7,141 300,000
12/31/96 17.58% 11,595 11,183 300,000
12/31/97 13.51% 15,369 15,369 300,000
12/31/98 19.30% 21,057 21,057 300,000
12/31/99 44.61% 33,862 33,862 300,000
12/31/00 -10.91% 32,006 32,006 300,000
 
AIM V.I. Government Securities Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/94 -3.73% 2,940 2,527 300,000
12/31/95 15.56% 6,388 5,826 300,000
12/31/96 2.29% 8,753 8,340 300,000
12/31/97 8.16% 11,569 11,569 300,000
12/31/98 7.73% 14,902 14,902 300,000
12/31/99 -1.32% 16,932 16,932 300,000
12/31/00 10.12% 21,097 21,097 300,000
 
Alger American Growth Portfolio

Year Ended:

Annual Total Return*

Cash Surrender Value

 Account Value Death Benefit
12/31/91 40.39% 4,216 3,803 300,000
12/31/92 12.38% 7,644 7,081 300,000
12/31/93 22.47% 12,004 11,591 300,000
12/31/94 1.45% 14,109 14,109 300,000
12/31/95 36.37% 22,423 22,423 300,000
12/31/96 13.35% 27,992 27,992 300,000
12/31/97 25.75% 38,002 38,002 300,000
12/31/98 48.07% 59,529 59,529 300,000
12/31/99 33.74% 82,326 82,326 300,000
12/31/00 -14.78% 71,568 71,568 300,000
 

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			237

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
Alger American Leveraged AllCap Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/96 12.04% 3,394 2,982 300,000
12/31/97 19.68% 7,148 6,586 300,000
12/31/98 57.83% 14,695 14,282 300,000
12/31/99 78.06% 29,834 29,834 300,000
12/31/00 -24.83% 23,941 23,941 300,000
 
Alger American MidCap Growth Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/94 -1.54% 3,003 2,590 300,000
12/31/95 44.45% 8,021 7,458 300,000
12/31/96 11.90% 11,389 10,976 300,000
12/31/97 15.01% 15,341 15,341 300,000
12/31/98 30.30% 23,003 23,003 300,000
12/31/99 31.85% 33,389 33,389 300,000
12/31/00 9.18% 38,804 38,804 300,000
 
Alger American Small Capitalization Portfolio
Year Ended:

Annual Total Return*

Cash Surrender Value

 Account Value Death Benefit
12/31/91 57.54% 4,715 4,303 300,000
12/31/92 3.55% 7,576 7,013 300,000
12/31/93 13.28% 11,028 10,615 300,000
12/31/94 -4.38% 12,349 12,349 300,000
12/31/95 44.31% 21,229 21,229 300,000
12/31/96 4.18% 24,456 24,456 300,000
12/31/97 11.39% 29,689 29,689 300,000
12/31/98 15.53% 36,773 36,773 300,000
12/31/99 43.42% 55,811 55,811 300,000
12/31/00 -27.20% 41,829 41,829 300,000
 
Fidelity VIP Growth Portfolio (Service Class)
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/98 39.38% 4,187 3,774 300,000
12/31/99 37.29% 9,248 8,686 300,000
12/31/00 -11.05% 10,146 9,734 300,000
 

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			238

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
Fidelity VIP Overseas Portfolio (Service Class)
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/98 12.69% 3,413 3,001 300,000
12/31/99 42.44% 8,493 7,930 300,000
12/31/00 -19.18% 8,617 8,205 300,000
 
Fidelity VIP II Asset Manager Portfolio (Service Class)
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/98 14.82% 3,475 3,062 300,000
12/31/99 11.01% 6,736 6,173 300,000
12/31/00 -4.06% 8,543 8,131 300,000
 
Fidelity VIP II Index 500 Portfolio
Year Ended:

Annual Total Return*

Cash Surrender Value

 Account Value Death Benefit
12/31/93 9.74% 3,328 2,916 300,000
12/31/94 1.04% 6,006 5,443 300,000
12/31/95 37.19% 11,212 10,799 300,000
12/31/96 22.71% 16,179 16,179 300,000
12/31/97 32.82% 24,563 24,563 300,000
12/31/98 28.31% 34,474 34,474 300,000
12/31/99 20.52% 44,182 44,182 300,000
12/31/00 -9.30% 41,865 41,865 300,000
 
The GCG Trust Fully Managed Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/91 28.93% 3,883 3,471 300,000
12/31/92 6.23% 6,887 6,325 300,000
12/31/93 7.59% 9,739 9,326 300,000
12/31/94 -7.27% 10,776 10,776 300,000
12/31/95 20.80% 15,808 15,808 300,000
12/31/96 16.36% 21,085 21,085 300,000
12/31/97 15.27% 26,869 26,869 300,000
12/31/98 5.89% 30,691 30,691 300,000
12/31/99 6.92% 34,997 34,997 300,000
12/31/00 21.97% 45,129 45,129 300,000
 

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			239

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
The GCG Trust Liquid Asset Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/91 5.66% 3,210 2,798 300,000
12/31/92 3.13% 6,004 5,441 300,000
12/31/93 2.64% 8,390 7,978 300,000
12/31/94 3.89% 10,724 10,724 300,000
12/31/95 5.51% 13,699 13,699 300,000
12/31/96 5.01% 16,786 16,786 300,000
12/31/97 5.07% 19,957 19,957 300,000
12/31/98 5.13% 23,231 23,231 300,000
12/31/99 4.74% 26,489 26,489 300,000
12/31/00 6.05% 30,175 30,175 300,000
 
The GCG Trust Mid-Cap Growth Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/99 79.05% 5,343 4,930 300,000
12/31/00 8.18% 8,579 8,016 300,000
 
INVESCO VIF-Equity Income Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/95 29.25% 3,893 3,480 300,000
12/31/96 22.28% 7,904 7,341 300,000
12/31/97 28.17% 12,894 12,481 300,000
12/31/98 15.30% 17,107 17,107 300,000
12/31/99 14.84% 22,239 22,239 300,000
12/31/00 4.87% 25,675 25,675 300,000
 
INVESCO VIF-High Yield Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/95 19.76% 3,618 3,205 300,000
12/31/96 16.59% 7,228 6,666 300,000
12/31/97 17.33% 11,016 10,603 300,000
12/31/98 1.42% 13,108 13,108 300,000
12/31/99 9.20% 16,782 16,782 300,000
12/31/00 -11.68% 16,768 16,768 300,000
 

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			240

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
INVESCO VIF-Small Company Growth Fund
Year Ended:

Annual Total Return*

Cash Surrender Value

 Account Value Death Benefit
12/31/98 16.38% 3,520 3,107 300,000
12/31/99 91.06% 11,531 10,968 300,000
12/31/00 -14.98% 11,630 11,217 300,000
 
INVESCO VIF-Total Return Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/95 22.79% 3,705 3,293 300,000
12/31/96 12.18% 7,061 6,499 300,000
12/31/97 22.91% 11,335 10,923 300,000
12/31/98 9.56% 14,538 14,538 300,000
12/31/99 -3.40% 16,173 16,173 300,000
12/31/00 -2.17% 18,021 18,021 300,000
 
INVESCO VIF-Utilities Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/95 9.08% 3,309 2,896 300,000
12/31/96 12.76% 6,653 6,090 300,000
12/31/97 23.41% 10,880 10,467 300,000
12/31/98 25.48% 16,138 16,138 300,000
12/31/99 19.13% 21,938 21,938 300,000
12/31/00 5.28% 25,462 25,462 300,000
Janus Aspen Aggressive Growth Portfolio Service Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/94 16.19% 3,514 3,102 300,000
12/31/95 27.28% 7,740 7,177 300,000
12/31/96 7.33% 10,624 10,212 300,000
12/31/97 12.29% 14,116 14,116 300,000
12/31/98 33.33% 21,923 21,923 300,000
12/31/99 1.22% 24,450 24,450 300,000
12/31/00 -31.78% 18,025 18,025 300,000

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			241

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
Janus Aspen Growth Portfolio Service Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/94 2.58% 3,122 2,709 300,000
12/31/95 29.92% 7,388 6,826 300,000
12/31/96 17.73% 11,241 10,828 300,000
12/31/97 21.84% 16,096 16,096 300,000
12/31/98 34.71% 24,808 24,808 300,000
12/31/99 42.50% 38,683 38,683 300,000
12/31/00 -14.75% 34,702 34,702 300,000
Janus Aspen International Growth Portfolio Service Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/95 23.15% 3,716 3,303 300,000
12/31/96 34.07% 8,409 7,847 300,000
12/31/97 17.22% 12,382 11,969 300,000
12/31/98 16.14% 16,643 16,643 300,000
12/31/99 78.93% 34,081 34,081 300,000
12/31/00 -16.14% 30,342 30,342 300,000
Janus Aspen Worldwide Growth Portfolio Service Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/94 1.47% 3,090 2,677 300,000
12/31/95 27.25% 7,201 6,638 300,000
12/31/96 28.21% 12,001 11,589 300,000
12/31/97 20.90% 16,883 16,883 300,000
12/31/98 27.13% 24,383 24,383 300,000
12/31/99 62.98% 43,618 43,618 300,000
12/31/00 -15.99% 38,319 38,319 300,000
 

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			242

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
Neuberger Berman Growth Portfolio
Year Ended:

Annual Total Return*

Cash Surrender Value

 Account Value Death Benefit
12/31/91 29.73% 3,906 3,494 300,000
12/31/92 9.54% 7,120 6,557 300,000
12/31/93 6.79% 9,913 9,501 300,000
12/31/94 -4.99% 11,215 11,215 300,000
12/31/95 31.73% 17,852 17,852 300,000
12/31/96 9.14% 21,972 21,972 300,000
12/31/97 29.01% 31,266 31,266 300,000
12/31/98 15.53% 38,587 38,587 300,000
12/31/99 50.40% 61,272 61,272 300,000
12/31/00 -11.66% 55,671 55,671 300,000
 
Neuberger Berman Limited Maturity Bond Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/91 11.34% 3,374 2,962 300,000
12/31/92 5.18% 6,290 5,727 300,000
12/31/93 6.63% 9,018 8,606 300,000
12/31/94 -0.15% 10,916 10,916 300,000
12/31/95 10.94% 14,637 14,637 300,000
12/31/96 4.31% 17,645 17,645 300,000
12/31/97 6.74% 21,194 21,194 300,000
12/31/98 4.39% 24,350 24,350 300,000
12/31/99 1.48% 26,781 26,781 300,000
12/31/00 6.78% 30,696 30,696 300,000
 
Neuberger Berman Partners Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/95 36.47% 4,102 3,690 300,000
12/31/96 29.57% 8,632 8,069 300,000
12/31/97 31.25% 14,153 13,741 300,000
12/31/98 4.21% 16,730 16,730 300,000
12/31/99 7.37% 20,363 20,363 300,000
12/31/00 0.70% 22,759 22,759 300,000
Pilgrim Growth Opportunities Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
This fund is too new for experience to be shown

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			243

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
Pilgrim MagnaCap Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
This fund is too new for experience to be shown
Pilgrim MidCap Opportunities Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
This fund is too new for experience to be shown
Pilgrim SmallCap Opportunities Portfolio
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/95 21.39% 3,665 3,252 300,000
12/31/96 13.61% 7,103 6,540 300,000
12/31/97 15.81% 10,729 10,316 300,000
12/31/98 17.30% 14,885 14,885 300,000
12/31/99 141.03% 41,878 41,878 300,000
12/31/00 1.09% 44,501 44,501 300,000
Putnam VT Growth and Income Fund - Class IB Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/99 1.46% 3,089 2,677 300,000
12/31/00 7.92% 6,142 5,579 300,000
Putnam VT New Opportunities Fund - Class IB Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/99 69.10% 5,052 4,640 300,000
12/31/00 -26.20% 5,723 5,160 300,000
Putnam VT Small Cap Value Fund - Class IB Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/00 24.44% 3,753 3,341 300,000
Putnam VT Voyager Fund - Class IB Shares
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/99 58.01% 4,729 4,316 300,000
12/31/00 -16.54% 6,168 5,605 300,000
 

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			244

 

HYPOTHETICAL ILLUSTRATIONS (continued)
Tobacco Non-user Male Age 45

Cash Value Accumulation Test

Preferred Risk Class

Death Benefit Option 1

Stated Death Benefit $300,000

Annual Premium $3,750

 
Van Eck Worldwide Bond Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/91 18.39% 3,578 3,166 300,000
12/31/92 -5.25% 5,883 5,320 300,000
12/31/93 7.79% 8,680 8,267 300,000
12/31/94 -1.32% 10,452 10,452 300,000
12/31/95 17.30% 14,959 14,959 300,000
12/31/96 2.53% 17,665 17,665 300,000
12/31/97 2.38% 20,332 20,332 300,000
12/31/98 12.75% 25,369 25,369 300,000
12/31/99 -7.82% 25,218 25,218 300,000
12/31/00 1.88% 27,677 27,677 300,000
 
Van Eck Worldwide Emerging Markets Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/96 26.82% 3,822 3,410 300,000
12/31/97 -11.61% 5,720 5,157 300,000
12/31/98 -34.15% 5,220 4,808 300,000
12/31/99 100.28% 14,742 14,742 300,000
12/31/00 -41.87% 9,707 9,707 300,000
 
Van Eck Worldwide Hard Assets Fund
Year Ended:

Annual Total Return*

Cash Surrender Value

 Account Value Death Benefit
12/31/91 -2.93% 2,963 2,550 300,000
12/31/92 -4.09% 5,365 4,803 300,000
12/31/93 64.83% 12,426 12,014 300,000
12/31/94 -4.78% 13,620 13,620 300,000
12/31/95 10.99% 17,630 17,630 300,000
12/31/96 18.04% 23,536 23,536 300,000
12/31/97 -1.67% 25,257 25,257 300,000
12/31/98 -30.93% 18,764 18,764 300,000
12/31/99 21.00% 25,295 25,295 300,000
12/31/00 11.41% 30,402 30,402 300,000
 
Van Eck Worldwide Real Estate Fund
Year Ended: Annual Total Return* Cash Surrender Value Account Value Death Benefit
12/31/98 -11.35% 2,721 2,309 300,000
12/31/99 -2.01% 5,241 4,678 300,000
12/31/00 18.71% 8,799 8,387 300,000
 

The assumptions underlying these values are described in Performance Information, page 236.

* These annual total return figures reflect the investment 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.

 

Strategic Investor   			245

 

 

 

 

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 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

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 expense, 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 expenses actually and reasonably incurred in connection with actions where such persons have been successful on the merits or otherwise in defense of such actions.

Consistent with applicable law, the corporation's bylaws provide as follows:

Section 1. Non-Derivative Actions. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, member of a committee appointed by the Board of Directors, officer, salaried employee, or fiduciary of the corporation or is or was serving at the request of the corporation (whether or not as a representative of the corporation) as a director, officer, employee, (for example, acting in a fiduciary capacity for welfare benefit plans including but not limited to Employees' Retirement Plan, Savings Incentive Plan, Group Medical Plan, Prescription Drug Program, Group Term Life Insurance, Group Dental Plan, Travel Accident Plan or Deferred Compensation Plan, et al.), or fiduciary of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorney fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to in 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. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction or upon a plea of nolo contendere or its equivalent shall not of Itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in the best interests of the corporation and, with respect to any original criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

Section 2. Derivative Actions. The corporation shall indemnify any person who was or is a party or is a party to or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, member of a committee appointed by the Board of Directors, officer, salaried employee, or fiduciary of the corporation or is or was serving at the request of the corporation (whether or not as a representative of the corporation) as a director, officer, employee, (for example, acting in a fiduciary capacity for welfare benefit plans including but not limited to Employees' Retirement Plan, Savings Incentive Plan, Group Medical Plan, Prescription Drug Program, Group Term Life Insurance, Group Dental Plan, Travel Accident Plan or Deferred Compensation Plan, et al.), or fiduciary of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorney fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed, to be in the best interests or the corporation; but no indemnification shall be made in respect of any claim, issue, or matter as to which such person has been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought determines upon application that, despite the adjudication of liability, but in view or all circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which such court deems proper.

Section 3. Expenses. To the extent that a director, member of a committee appointed by the Board of Directors, officer, salaried employee, or fiduciary of the corporation shall be successful on the merits in defense of any action, suit, or proceeding referred to in Section 1 or Section 2 of this Article VIII or in defense of any claim, issue, or matter therein, he shall be indemnified by the corporation against expenses (including attorney fees) actually and reasonably incurred by him in connection therewith.

Section 4. Authorization. Any indemnification under Section 1 or Section 2 of this Article VIII (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, member of a committee appointed by the Board of Directors, officer, salaried employee, or fiduciary is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2. Such determination shall be made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding, or, if such a quorum is not obtainable or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the Stockholder.

Section 5. Advance Payment of Expenses. Expenses (including attorney fees) incurred in defending a civil or criminal action, suit, or proceeding may be paid by the corporation in advance of the final disposition of such action, suit, or proceeding as authorized in Section 4 Of this Article VIII upon receipt of an undertaking by or on behalf of the director, member of a committee appointed by the Board of Directors, officer, salaried employee, or fiduciary to repay such amount unless it is ultimately determined that he is entitled to be indemnified by the corporation as authorized in this Article VIII.

Section 6. Non-Exclusivity and Continuance. The indemnification provided by this Article VIII shall not be deemed exclusive of any other rights to which any person indemnified may be entitled under the Articles of Incorporation, any agreement, insurance policy, vote of the Stockholder or disinterested directors, or otherwise, and any procedure provided for by any of the foregoing, both as to action in his official capacity and as to action in another capacity while holding such office. Any indemnity otherwise payable under this Article VIII on account of any specific loss or expense shall be reduced by the amount of any insurance proceeds paid or payable to the person to be indemnified on account of the same loss or expense if such insurance is provided by the corporation or any of its affiliates. The indemnification provided by this Article VIII shall continue as to a person who has ceased to be a director, member of a committee appointed by the Board of Directors, officer, salaried employee, or fiduciary with regard to acts or omissions of such person occurring or alleged to have occurred while the person was so engaged, and shall inure to the benefit of heirs, executors, and administrators of such a person.

Section 7. Application of this Article. The provisions of this Article VIII shall apply to all actions, suits or proceedings described in Section 1 or Section 2 arising or alleged to arise out of any acts or omissions on the part of any person referred to in Section 1 or Section 2 occurring or alleged to occur prior to the adoption of this Article VIII or at any time while it remains in force.

Section 8. Exclusions. No indemnification is provided under this Article VIII for unsalaried persons under contract with the corporation in sales-capacities such as General Agents, Agents and Brokers. Except as expressly provided in this Article VIII, no indemnity is provided for persons performing services to the corporation as independent contractors.

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 precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

UNDERTAKING REQUIRED BY SECTION 26(e)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED

Security Life of Denver Insurance Company represents that the fees and charges deducted under the Policy, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred and the risks assumed by the Company.

Contents of Registration Statement

This Registration Statement comprises the following papers and documents:
 
      The facing sheet.
 
Cross-Reference table.
 
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:
      J. Neil McMurdie (See Exhibit 2.).
      James L. Livingston, Jr. (See Exhibit 6.A).
Ernst & Young LLP (See Exhibit 7.A).
 
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.3
(2) Not Applicable.
(3) (a) Security Life of Denver Distribution Agreement.3
(i) Amendment to Security Life of Denver Insurance Company Distribution Agreement.5
(ii) Amendment to Security Life of Denver Insurance Company Distribution Agreement.4
(iii) Amendment to Security Life of Denver Insurance Company Distribution Agreement.10
(iv) Amendment to Security Life of Denver Insurance Company Distribution Agreement.11
(b) Specimen Broker/Dealer Supervisory and Selling Agreement for Variable Contracts with Compensation Schedules. 2
(i) Compensation Schedule.
(c) Commission Schedule for Policies.
(d) Specimen Master Sales and Supervisory Agreement with Compensation Schedule.8
(4) Not Applicable.
(5) (a) Specimen Variable Universal Life Insurance Policy (Form No. 2513 (VUL)-1/02).13
(b) Adjustable Term Insurance Rider (Form No. R2023-1/02).13
(c) Waiver of Cost of Insurance Rider (Form No. R-1505).4
(d) Waiver of Specified Premium Total Disability Rider (Form No. R-1506).4
(6) (a) Security Life of Denver's Restated Articles of Incorporation.3
(b-g)Amendments to Articles of Incorporation through June 12, 1987.3
(h) Security Life of Denver's By-Laws.3
(i) Bylaws of Security Life of Denver Insurance Company (Restated with Amendments through September 30, 1997).1
(7) Not Applicable.
(8) (a) Addendum to Sales Agreement.3
(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. 2
(ii) Sales Agreement by and among The Alger American Fund, Fred Alger Management, Inc., and Security Life of Denver Insurance Company. 3
(iii) Sales Agreement by and among Neuberger & Berman Advisers Management Trust, Neuberger & Berman Management Incorporated, and Security Life of Denver Insurance Company. 3
(iv) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company. 3
(v) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company. 3
(vi) Participation Agreement among INVESCO Variable Investment Funds, Inc., INVESCO Funds Group, Inc., and Security Life of Denver Insurance Company. 3
(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. 3
(viii) Participation Agreement among Security Life of Denver Insurance Company, The GCG Trust and Directed Services, Inc.10
(ix) Participation Agreement among M Fund, Inc., M Financial Advisers, Inc. and Security Life of Denver Insurance Company.11
(x) Form of Participation Agreement among Security Life of Denver Insurance Company and Southland Life Insurance Company, Pilgrim Variable Products Trust and ING Pilgrim Investments, LLC. 11
(xi) Participation Agreement among Security Life of Denver Insurance Company and Southland Life Insurance Company, Putnam Variable Trust and Putnam Retail Management, Inc.13
(b) (i) First Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Investment Trust and Van Eck Associates Corporation. 2
(ii) Second Amendment to Participation Agreement between Security Life of Denver, Van Eck Worldwide Insurance Trust and Van Eck Associates Corporation. 2
(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. 2
(iv) First Amendment to Participation Agreement by and among The Alger American Fund, Fred Alger Management, Inc., Security Life of Denver Insurance Company. 3
(v) First Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company. 3
(vi) Second Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company. 3
(vii) First Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company. 3
(viii) Second Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company. 3
(ix) First Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc. 3
(x) Third Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.4
(xi) Third Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.4
(xii) Fourth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.1
(xiii) Fourth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.1
(xiv) Amendment No. 2 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc.1
(xv) Fourth Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc.3
(xvi) Amendment No. 3 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc.3
(xvii) Fifth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.3
(xviii) Fifth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.3
(xix) Amendment No. 4 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc.7
(xx) Sixth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.7
(xxi) Sixth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.7
(xxii) Fifth Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc.7
(xxiii) Seventh Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.6
(xxiv) Seventh Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.9
(xxv) Eighth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.9
(xxvi) Addendum to Fund Participation Agreement among Security Life of Denver Insurance Company, Neuberger Berman Advisers Management Trust, Advisers Managers Trust and Neuberger Berman Management Inc.9
(xxvii) Fund Participation Agreement between Janus Aspen Series and Security Life of Denver Insurance Company.9
(xxviii) Amendment to Janus Aspen Series Fund Participation Agreement.10
(xxix) Amendment No. 5 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc.10
(xxx) Amendment to Participation Agreement among Security Life of Denver Insurance Company, The GCG Trust and Directed Services, Inc.10
(xxxi) Sixth Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc.10
(xxxii) Eighth Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.11
(xxxiii) Ninth Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.11
(xxxiv) Amendment to Participation Agreement among M Fund, Inc., M Financial Advisers, Inc. and Security Life of Denver Insurance Company.11
(xxxv) Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.13
(xxxvi) Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.13
(xxxvii) Form of Amendment to Participation Agreement among Security Life of Denver Insurance Company, The GCG Trust and Directed Services, Inc.11
(xxxviii) Amendment to Participation Agreement among M Fund, Inc., M Financial Advisers, Inc. and Security Life of Denver Insurance Company.11
(xxxix) Amendment No. 6 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc.
(xxxx) Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.
(xxxxi) Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.
(xxxxii) Seventh Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc.
(xxxxiii) Amendment to Janus Aspen Series Fund Participation Agreement.
(xxxxiv) Amendment to Participation Agreement among Security Life of Denver Insurance Company, Pilgrim Variable Products Trust and ING Pilgrim Securities, Inc.
(c) (i) Service Agreement between Fred Alger Management, Inc. and Security Life of Denver Insurance Company.3
(ii) Expense Allocation Agreement between A I M Advisors, Inc., A I M Distributors, Inc. and Security Life of Denver.4
a. Amendment No. 1 to Expense Allocation Agreement between A I M Advisors, Inc., A I M Distributors, Inc. and Security Life of Denver.
(iii) Service Agreement between INVESCO Funds Group, Inc. and Security Life of Denver Insurance Company.4
(iv) Service Agreement between Neuberger & Berman Management Incorporated and Security Life of Denver Insurance Company.4
(v) Service Agreement between Fidelity Investments Institutional Operations Company, Inc. and Security Life of Denver Insurance Company.4
(vi) Side Letter between Van Eck Worldwide Insurance Trust and Security Life of Denver.4
(vii) Distribution and Shareholder Services Agreement between Janus Distributors, Inc. and Security Life of Denver Insurance Company.9
(viii) Administrative and Shareholder Service Agreement between Directed Services, Inc. and Security Life of Denver Insurance Company.11
(ix) Administrative and Shareholder Service Agreement between ING Pilgrim Investments, LLC and Security Life of Denver Insurance Company.
(x) Letter of Agreement between Security Life of Denver and Janus Capital Corporation
(d) Administrative Services Agreement between Security Life of Denver and Financial Administrative Services Corporation. 3
(e) Amendment to Administrative Services Agreement between Security Life of Denver and Financial Administrative Services Corporation. 3
(9) Not Applicable.
(10) Specimen Application for Life Insurance Fixed and Variable Products (Form No. 110945).13
(a) Investment Feature Selection Form (Form No. V-166-00 Rev. 5/1/01). 7
(11) Issuance, Transfer and Redemption Procedures Memorandum.
 
2. Opinion and Consent of J. Neil McMurdie as to securities being registered.13
 
3. Not Applicable.
 
4. Not Applicable.
 
5. Not Applicable.
 
6.A Opinion and Consent of James L. Livingston, Jr.13
 
7.A Consent of Ernst & Young, LLP.
 
8. Not Applicable.
 
10. Powers of Attorney.13
 
11. Issuance, Transfer and Redemption Memorandum13

_______________

1 Incorporated herein by reference to Post-Effective Amendment No. 3 to the form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on October 29, 1997 (File No. 33-88148).
 
2 Incorporated herein by reference to Post-Effective Amendment No. 4 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 18, 1998 (File No. 33-88148).
 
3 Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 17, 1998 (File No. 33-88148).
 
4 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 L1, filed with the Securities and Exchange Commission on April 23, 1999 (File No. 33-74190).
 
5 Incorporated herein by reference to Post-Effective Amendment No. 7 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 29, 1999 (File No. 33-74190).
 
6 Incorporated herein by reference to the Post-Effective Amendment No. 12 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 25, 2000 (File No. 33-74190).
 
7 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).
 
8 Incorporated herein by reference to the Post-Effective Amendment No. 8 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 29, 1999 (File No. 33-88148).
 
9 Incorporated herein by reference to the Post-Effective Amendment No. 13 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on October 13, 2000 (File No. 33-74190).
 
10 Incorporated herein by reference to the Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on January 30, 2001 (File No. 333-50278).
 
11 Incorporated herein by reference to the Post-Effective Amendment No. 14 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 19, 2001 (File No. 33-74190).
 
12      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 April 19, 2001 (File No. 333-50278).
 
13 Incorporated herein by reference to the Initial Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on November 15, 2001 (File No. 333-73464).
 

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Security Life of Denver Insurance Company and the Registrant, Security Life Separate Account L1, have duly caused this Registration Statement to be signed on their behalf by the undersigned, hereunto duly authorized, and their seal to be hereunto fixed and attested, all in the City and County of Denver and the State of Colorado on the 18th day of December, 2001.

                                                  SECURITY LIFE OF DENVER INSURANCE COMPANY
                                                  (Depositor)

                                                  BY: /s/ James L. Livingston, Jr.
                                                       James L. Livingston, Jr.
                                                       Executive Vice President

(Seal)

ATTEST:

/s/ Rita J. Kummer
Rita J. Kummer

                                                  SECURITY LIFE SEPARATE ACCOUNT L1
                                                  (Registrant)

                                                  BY: /s/ James L. Livingston, Jr.
                                                       James L. Livingston, Jr.
                                                       Executive Vice President

(Seal)

ATTEST:

/s/ Rita J. Kummer
Rita J. Kummer



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/ James L. Livingston, Jr.
James L. Livingston, Jr.
Executive Vice President

/s/ Douglas W. Campbell
Douglas W. Campbell
Senior Vice President

 

CHIEF FINANCIAL OFFICER:

/s/ Wayne R. Huneke*
Wayne R. Huneke
Chief Financial Officer and Director

DIRECTORS:

/s/ Robert C. Salipante*
Robert C. Salipante

/s/ P. Randall Lowery*
P. Randall Lowery


BY: /s/ J. Neil McMurdie
       J. Neil McMurdie
      Attorney-in-Fact
      December 18, 2001



EXHIBIT INDEX

Exhibit No. Description of Exhibit
 
1.A(3)(b)(i) Compensation Schedule.
1.A(3)(c) Commission Schedule for Policies.
1.A(8)(b)(xxxix) Amendment No. 6 to Participation Agreement among AIM Variable Insurance Funds, Inc., Security Life of Denver Insurance Company and ING America Equities, Inc.
1.A(8)(b)(xxxx)     Amendment to Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.
1.A(8)(b)(xxxxi)     Amendment to Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors Corporation and Security Life of Denver Insurance Company.
1.A(8)(b)(xxxxii)     Seventh Amendment to Participation Agreement among Security Life of Denver Insurance Company, INVESCO Variable Investment Funds, Inc. and INVESCO Funds Group, Inc.
1.A(8)(b)(xxxxiii)     Amendment to Janus Aspen Series Fund Participation Agreement.
1.A(8)(b)(xxxxiv)     Amendment to Participation Agreement among Security Life of Denver Insurance Company, Pilgrim Variable Products Trust and ING Pilgrim Securities, Inc.
1.A(8)(c)(ii)a. Amendment No. 1 to Expense Allocation Agreement between A I M Advisors, Inc., A I M Distributors, Inc. and Security Life of Denver.
1.A(8)(c)(ix) Administrative and Shareholder Service Agreement between ING Pilgrim Investments, LLC and Security Life of Denver Insurance Company.
1.A(8)(c)(x) Letter of Agreement between Security Life of Denver and Janus Capital Corporation
 
7.A Consent of Ernst & Young, LLP.
 
11. Issuance, Transfer and Redemption Memorandum