-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QAztOB0s6AXKQjmFEneCrsBxcKTPxAHz/BNixMRbso3rXy9a0++5wV4pcRE8Gcgh SH04pefWXvyXdhJNSab3hQ== 0000927356-97-001234.txt : 19971030 0000927356-97-001234.hdr.sgml : 19971030 ACCESSION NUMBER: 0000927356-97-001234 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19971029 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SECURITY LIFE SEPARATE ACCOUNT L1 CENTRAL INDEX KEY: 0000917677 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 840499703 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-74190 FILM NUMBER: 97703077 BUSINESS ADDRESS: STREET 1: 1290 BROADWAY STREET 2: C/O SECURITY LIFE CENTER CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038601290 MAIL ADDRESS: STREET 1: 1290 BROADWAY STREET 2: 1290 BROADWAY CITY: DENVER STATE: CO ZIP: 80203-5699 485APOS 1 SECURITY LIFE FIRSTLINE POS AM NO. 5 As filed with the Securities and Exchange Commission on October 29, 1997 Registration No. 33-74190 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________ FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 Post-Effective Amendment No. 5 _________________ SECURITY LIFE SEPARATE ACCOUNT L1 (Exact Name of Trust) SECURITY LIFE OF DENVER INSURANCE COMPANY (Name of Depositor) 1290 Broadway Denver, Colorado 80203-5699 (Address of Depositor's Principal Executive Offices) Copy to: GARY W. WAGGONER, ESQ. DIANE E. AMBLER, ESQ. Security Life of Denver Insurance Company Mayer, Brown & Platt 1290 Broadway 2000 Pennsylvania Avenue, N.W. Denver, Colorado 80203-5699 Washington, D.C. 20006-1882 (202) 778-0641 (Name and Address of Agent for Service) _________________ It is proposed that this filing will become effective: ___ on (date) pursuant to paragraph (a) of Rule 485 [X]__60 days after filing pursuant to paragraph (a) of Rule 485 [___] on May 1, 1997 pursuant to paragraph (b) of Rule 485 ___ immediately upon filing pursuant to paragraph (b) of Rule 485 ___ this post-effective amendment designates a new effective date for a previously filed post-effective amendment Title and amount of securities being registered: Interests under variable life insurance policies. Approximate Date of Proposed Public Offering: As soon as practical after the effective date. Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant has registered an indefinite amount of securities. Registrant filed its Form 24f-2 on March 3, 1997 for its most recent fiscal year ending December 31, 1996. SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 33-74190) Cross-Reference Table Form N-8B-2 Item No. Caption in Prospectus - -------------------- ---------------------- 1, 2 Cover; Security Life of Denver Insurance Company; Security Life Separate Account L1 3 Inapplicable 4 Security Life of Denver Insurance Company 5, 6 Security Life Separate Account L1 7 Inapplicable 8 Financial Statements 9 Inapplicable 10(a), (b), (c), (d), (e) Policy Summary; Policy Values, Determining the Value of Amounts in the Divisions of the Variable Account; Charges, Deductions and Refunds; Surrender; Partial Withdrawals; The Guaranteed Interest Division; Transfers of Account Values; Right to Exchange Policy; Lapse; Reinstatement; Premiums 10(f) Voting Privileges; Right to Change Operations 10(g), (h) Right to Change Operations 10(i) Tax Considerations; Detailed Information about the FirstLine Variable Universal Life Policy; Other General Policy Provisions; The Guaranteed Interest Division 11, 12 Security Life Separate Account L1 13 Policy Summary; Charges, Deductions and Refunds; Corporate Purchasers and Group or Sponsored Arrangements ii Form N-8B-2 Item No. Caption in Prospectus - -------------------- --------------------- 14, 15 Policy Summary; Free Look; Other General Policy Provisions; Applying for a Policy 16 Premiums; Allocation of Net Premiums; How We Calculate Accumulation Unit Values for Each Division 17 Payment; Surrender; Partial Withdrawal 18 Policy Summary; Tax Considerations; Detailed Information about the FirstLine Variable Universal Life Policy; Security Life Separate Account L1; Persistency Refund 19 Reports to Policy Owners; Notification and Claims Procedures; Performance Information 20 See 10(g) & 10(a) 21 Policy Loans 22 Policy Summary; Premiums; Grace Period; Security Life Separate Account L1; Detailed Information about the FirstLine Variable Universal Life Policy 23 Inapplicable 24 Inapplicable 25 Security Life of Denver Insurance Company 26 Inapplicable 27, 28, 29, 30 Security Life of Denver Insurance Company 31, 32, 33, 34 Inapplicable 35 Inapplicable 36 Inapplicable iii Form N-8B-2 Item No. Caption in Prospectus - -------------------- --------------------- 37 Inapplicable 38, 39, 40, 41(a) Other General Policy Provisions; Distribution of the Policies; Security Life of Denver Insurance Company 41(b), 41(c), 42, 43 Inapplicable 44 Determining the Value in the Divisions of the Variable Account; How We Calculate Accumulation Unit Values for Each Division 45 Inapplicable 46 Partial Withdrawals; Detailed Information about the FirstLine Variable Universal Life Policy 47, 48, 49, 50 Inapplicable 51 Detailed Information about the FirstLine Variable Universal Life Policy 52 Determining the Value in the Divisions of the Variable Account; Right to Change Operations 53(a) Tax Considerations 53(b), 54, 55 Inapplicable 56, 57, 58 Inapplicable 59 Financial Statements iv FIRSTLINE VARIABLE UNIVERSAL LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY issued by SECURITY LIFE OF DENVER INSURANCE COMPANY AND SECURITY LIFE SEPARATE ACCOUNT L1 This prospectus describes FirstLine, an individual flexible premium variable universal life insurance policy (the "Policy" or collectively, "Policies") issued by Security Life of Denver Insurance Company ("Security Life"). The Policy is designed to provide insurance coverage with flexibility in death benefits and premium payments. The Policy is funded by Security Life Separate Account L1 (the "Variable Account"). Seventeen Divisions of the Variable Account are available under the Policy. On or before May 1, 1998, six additional Divisions of the Variable Account will become available. A Guaranteed Interest Division, which guarantees a minimum fixed rate of interest, is also available. Purchasers may utilize both the Divisions of the Variable Account and the Guaranteed Interest Division simultaneously. The Loan Division represents amounts we set aside as collateral for any Policy Loan taken. The Owner may utilize a maximum of 18 Divisions for investment over the lifetime of the Policy until current administrative systems are enhanced. The Divisions include the Divisions of the Variable Account and the Guaranteed Interest Division, but exclude the Loan Division. For example, if the Owner has allocated or transferred funds to 17 Divisions of the Variable Account and to the Guaranteed Interest Division (or to 18 Divisions of the Variable Account), those will be the only Divisions to which the Owner can subsequently allocate or transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the early years of the Policy so as to leave open the option to invest in other Divisions in the future. An Owner who has used 18 Variable Divisions will no longer have the Guaranteed Interest Division available for future use. We will pay the Death Proceeds when the Insured dies if the Policy is still in force. The Death Proceeds will equal the death benefit, reduced by any outstanding Policy Loan, accrued loan interest, and any charges incurred prior to the date of the Insured's death, but not deducted. The death benefit consists of two elements: the Base Death Benefit and any amount added by Rider. The Policy will remain in force as long as the Net Cash Surrender Value remains positive. The Policy is guaranteed not to lapse, regardless of its Net Cash Surrender Value if, on each Monthly Processing Date during the first three Policy years, the sum of premiums paid, less the sum of Partial Withdrawals and Policy Loans taken including accrued loan interest, is greater than or equal to the sum of the applicable minimum monthly premiums for each Policy Month starting with the first Policy Month to and including the Policy Month which begins on the current Monthly Processing Date. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE. A PROSPECTUS FOR THE PORTFOLIO OR PORTFOLIOS BEING CONSIDERED MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH. IN THIS PROSPECTUS "WE," "US" AND "OUR" REFER TO SECURITY LIFE OF DENVER INSURANCE COMPANY. THIS POLICY IS NOT AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. THE FEATURES OF ANY POLICY ISSUED MAY VARY DEPENDING ON THE STATE IN WHICH THE CONTRACT IS ISSUED. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED SUPPLEMENT HERETO DATE OF PROSPECTUS: DECEMBER 31, 1997 Form V-55-97 The minimum monthly premium is equal to one twelfth of the Minimum Annual Premium. If the Guaranteed Minimum Death Benefit Provision is elected, the Stated Death Benefit portion of the Policy will remain in force for the Guarantee Period. To continue the Guarantee Period, the required premiums must be paid and the Net Account Value must remain diversified. The Policy permits a choice of two death benefit options, which may increase the Base Death Benefit above the Stated Death Benefit: Option 1, a fixed benefit that equals the Stated Death Benefit, and Option 2, a benefit that equals the Stated Death Benefit plus the Account Value. The Base Death Benefit in force as of any Valuation Date will not be less than the amount necessary to qualify the Policy as a life insurance contract under the Internal Revenue Code in existence at the time the Policy is issued. When applying for the Policy, the Owner irrevocably chooses which of two tests for compliance with the Federal income tax law definition of life insurance we will apply to the Policy. These tests are the Cash Value Accumulation Test and the Guideline Premium/Cash Value Corridor Test. If the Guideline Premium/Cash Value Corridor Test is chosen, the premium payments will be limited. We will not allocate funds to the Policy until we receive the Initial Premium, and we have approved the Policy for issue. Thereafter, the timing and amount of premium payments may vary, within specified limits. A higher premium level may be required to keep the Guaranteed Minimum Death Benefit in force. After certain deductions have been made, the Net Premiums may be allocated to one or more of the Divisions of the Variable Account and to the Guaranteed Interest Division. A Policy may be returned according to the terms of the Right to Examine Policy Period (also called the Free Look Period). Net Premiums allocated to the Variable Account will be held in the Division investing in the Fidelity VIP Money Market Portfolio of the Variable Account during the Free Look Period. The assets of the Divisions of the Variable Account will be used to purchase, at net asset value, shares of designated Portfolios of various investment companies. The Account Value is the sum of the amounts in the Divisions of the Variable Account plus the amount in the Guaranteed Interest Division and the amount in the Loan Division. The value of the amounts allocated to the Divisions of the Variable Account will vary with the investment experience of the corresponding Portfolios; there is no minimum guaranteed cash value for amounts allocated to the Divisions of the Variable Account. The value of amounts allocated to the Guaranteed Interest Division will depend on the interest rates we declare. The Account Value will also reflect deductions for the cost of insurance and expenses, as well as increases for additional Net Premiums. A Surrender Charge may be incurred if the policy is surrendered, allowed to lapse, a Partial Withdrawal is taken or the Stated Death Benefit is reduced. Replacing existing insurance coverage with the Policy described in this prospectus may not be advantageous. ISSUED BY: Security Life of Denver BROKER-DEALER: ING America, Inc. Insurance Company 1290 Broadway Security Life Center Attn: Variable 1290 Broadway Denver, CO 80203-5699 Denver, CO 80203-5699 (303)860-2000 (800) 525-9852 THROUGH ITS: Security Life Separate Account L1 ADMINISTERED AT: Customer Service Center P.O. Box 173763 Denver, CO 80217-3763 (800) 933-5858 PROSPECTUS DATED: December 31, 1997 _______________________________________________________________________________ FirstLine 2 TABLE OF CONTENTS DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS.............................. [7] POLICY SUMMARY................................................................... [10] General Information.............................................................. [10] Death Benefits................................................................... [10] Benefits at Maturity............................................................. [10] Additional Benefits.............................................................. [10] Premiums......................................................................... [10] Allocation of Net Premiums....................................................... [10] Maximum Number of Investment Divisions........................................... [11] Policy Values.................................................................... [11] Determining the Value in the Divisions of the Variable Account................... [11] How We Calculate Accumulation Unit Values For Each Division...................... [11] Transfers of Account Values...................................................... [11] Dollar Cost Averaging............................................................ [12] Automatic Rebalancing............................................................ [12] Loans............................................................................ [12] Partial Withdrawals.............................................................. [12] Surrender........................................................................ [12] Right to Exchange Policy......................................................... [12] Lapse............................................................................ [12] Reinstatement.................................................................... [12] Persistency Refund............................................................... [13] Tax Considerations............................................................... [14] INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS AND THE GUARANTEED INTEREST DIVISION Security Life of Denver Insurance Company........................................ [14] Security Life Separate Account L1................................................ [14] Maximum Number of Investment Divisions........................................... [15] Investment Objectives of the Portfolios.......................................... [15] The Guaranteed Interest Division................................................. [18] DETAILED INFORMATION ABOUT THE FIRSTLINE VARIABLE UNIVERSAL LIFE POLICY.......... [19] Applying for a Policy............................................................ [19] Premiums......................................................................... [20] Scheduled Premiums........................................................ [20] Unscheduled Premium Payments.............................................. [20] Minimum Annual Premium.................................................... [20] Special Continuation Period............................................... [20] Premium Payments Affect the Continuation of Coverage...................... [20] Choice of Definitional Tests.............................................. [21] Choice of Guaranteed Minimum Death Benefit Provisions..................... [21] Modified Endowment Contracts.............................................. [21] Allocation of Net Premiums....................................................... [21] Death Benefits................................................................... [22] Death Benefit Options..................................................... [22] Changes in Death Benefit Option........................................... [23] Guaranteed Minimum Death Benefit Provision................................ [23]
_______________________________________________________________________________ FirstLine 3 Requirements to Maintain the Guarantee Period............................. [24] Changes in Death Benefit Amounts.......................................... [24] Benefits at Maturity............................................................. [25] Additional Benefits.............................................................. [25] Accidental Death Benefit Rider............................................ [25] Adjustable Term Insurance Rider........................................... [25] Additional Insured Rider.................................................. [26] Children's Insurance Rider................................................ [26] Right to Exchange Rider................................................... [26] Guaranteed Insurability Rider............................................. [27] Waiver of Cost of Insurance Rider......................................... [27] Waiver of Specified Premium Rider......................................... [27] Policy Values.................................................................... [27] Account Value............................................................. [27] Cash Surrender Value...................................................... [27] Net Cash Surrender Value.................................................. [27] Net Account Value......................................................... [27] Determining the Value in the Divisions of the Variable Account................................................................. [27] How We Calculate Accumulation Unit Values for Each Division......................................................................... [28] Transfers of Account Values...................................................... [28] Dollar Cost Averaging............................................................ [29] Automatic Rebalancing............................................................ [29] Policy Loans..................................................................... [31] Partial Withdrawals.............................................................. [31] Surrender........................................................................ [32] Right to Exchange Policy......................................................... [32] Lapse............................................................................ [32] If the Guaranteed Minimum Death Benefit Provision Is Not in Effect............................................................. [33] If the Guaranteed Minimum Death Benefit Provision Is in Effect................................................................. [33] Grace Period..................................................................... [33] Reinstatement.................................................................... [33] CHARGES, DEDUCTIONS AND REFUND................................................... [34] Deductions from Premiums......................................................... [34] Tax Charges................................................................ [34] Sales Charge.............................................................. [34] Daily Deductions from the Variable Account....................................... [34] Mortality and Expense Risk Charge......................................... [35] Monthly Deductions from the Account Value........................................ [35] Initial Policy Charge..................................................... [35] Monthly Administrative Charge............................................. [35] Cost of Insurance Charges.................................................. [35] Charges for Additional Benefits........................................... [36] Guaranteed Minimum Death Benefit Charge................................... [36] Changes in Monthly Charges................................................ [36] Policy Transaction Fees.......................................................... [36] Partial Withdrawal........................................................ [36] Transfers................................................................. [36] Allocation Changes........................................................ [36] Illustrations............................................................. [36] Persistency Refund............................................................... [36] Surrender Charge................................................................. [37] Administrative Surrender Charge........................................... [37] Sales Surrender Charge.................................................... [38]
_______________________________________________________________________________ FirstLine 4 Examples of the Calculation of Surrender Charge.................................. [39] Charges From Portfolios.......................................................... [39] Portfolio Annual Expenses................................................. [40] Group or Sponsored Arrangements or Corporate Purchasers....................................................................... [42] Other Charges.................................................................... [42] TAX CONSIDERATIONS............................................................... [42] Life Insurance Definition........................................................ [42] Diversification Requirements..................................................... [43] Modified Endowment Contracts..................................................... [43] Tax Treatment of Premiums........................................................ [44] Loans, Lapses, Surrenders and Withdrawals........................................ [44] If the Policy Is Not a Modified Endowment Contract........................ [44] If the Policy Is a Modified Endowment Contract................................... [44] Alternative Minimum Tax.......................................................... [45] Section 1035 Exchanges........................................................... [45] Tax-exempt Policy Owners......................................................... [45] Changes to Comply with Law....................................................... [45] Other............................................................................ [45] ADDITIONAL INFORMATION ABOUT THE POLICY.......................................... [46] Voting Privileges................................................................ [46] Right to Change Operations....................................................... [47] Reports to Owners................................................................ [47] OTHER GENERAL POLICY PROVISIONS.................................................. [47] Free Look Period................................................................. [47] The Policy....................................................................... [47] Age.............................................................................. [48] Ownership........................................................................ [48] Beneficiary...................................................................... [48] Collateral Assignment............................................................ [48] Incontestability................................................................. [48] Misstatements of Age or Sex...................................................... [48] Suicide.......................................................................... [49] Payment.......................................................................... [49] Notification and Claims Procedures............................................... [49] Telephone Privileges............................................................. [49] Non-participating................................................................ [50] Distribution of the Policies..................................................... [50] Settlement Provisions............................................................ [50] ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND SURRENDER VALUES, AND ACCUMULATED PREMIUMS........................................................ [52] ADDITIONAL INFORMATION........................................................... [60] Directors and Officers........................................................... [60] State Regulation................................................................. [63] Legal Matters.................................................................... [63] Legal Proceedings................................................................ [63] Experts.......................................................................... [63] Registration Statement........................................................... [63]
_______________________________________________________________________________ FirstLine 5 FINANCIAL STATEMENTS............................................................. [64] APPENDIX A....................................................................... [138] APPENDIX B....................................................................... [146] APPENDIX C....................................................................... [147] PERFORMANCE INFORMATION.......................................................... [147]
_______________________________________________________________________________ FirstLine 6 DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS AS USED IN THIS PROSPECTUS, THE FOLLOWING TERMS HAVE THE INDICATED MEANINGS. THERE ARE OTHER CAPITALIZED TERMS WHICH ARE EXPLAINED OR DEFINED IN OTHER PARTS OF THIS PROSPECTUS. ACCOUNT VALUE -- The sum of the amounts allocated to the Divisions of the Variable Account and to the Guaranteed Interest Division, as well as any amount set aside in the Loan Division to secure a Policy Loan. ACCUMULATION UNIT -- A unit of measurement which we use to calculate the Account Value in each Division of the Variable Account. ACCUMULATION UNIT VALUE -- The value of an Accumulation Unit of each Division of the Variable Account. The Accumulation Unit Value is determined as of each Valuation Date. ADJUSTABLE TERM INSURANCE RIDER -- The Adjustable Term Insurance Rider is available to add death benefit coverage to the Policy. The Adjustable Term Insurance Rider allows the Owner to schedule the pattern of death benefits appropriate for anticipated needs. The Adjustable Term Insurance Rider is not guaranteed under the Guaranteed Minimum Death Benefit provision. AGE -- The Insured's Age at any time is his or her age on the birthday nearest the Policy Date increased by the number of full Policy years elapsed since the Policy Date. BASE DEATH BENEFIT -- The Base Death Benefit will vary according to which death benefit option is chosen: Under Option 1, the Base Death Benefit equals the Stated Death Benefit of the Policy. Under Option 2, the Base Death Benefit equals the Stated Death Benefit of the Policy plus the Account Value. Under Option 3, which is available only on policies delivered on or before December 31, 1997, the Base Death Benefit equals the Stated Death Benefit of the Policy plus the sum of all premiums paid minus Partial Withdrawals taken under the Policy. The Base Death Benefit may be greater than the amount described to comply with the Federal income tax law definition of life insurance. BENEFICIARY(IES)-- The person or persons designated to receive the Death Proceeds in the case of the death of the Insured. CASH SURRENDER VALUE -- The amount of the Account Value minus the Surrender Charge, if any. CUSTOMER SERVICE CENTER -- Our administrative office at P.O. Box 173763, Denver, CO 80217-3763. DEATH PROCEEDS -- The amount payable on the death of the Insured. It equals the Base Death Benefit plus any Riders, if applicable, reduced by any outstanding Policy Loan and accrued loan interest, further reduced by any Policy charges incurred prior to the date of the Insured's death but not yet deducted. DIVISION(S) -- The Loan Division and the investment options available: The Divisions of the Variable Account, each of which invests in shares of one of the Portfolios and the Guaranteed Interest Division. FREE LOOK PERIOD -- The period of time within which the Owner may examine the Policy and return it for a refund. This is also called the Right to Examine Policy Period. GENERAL ACCOUNT -- The account which contains all of our assets other than those held in the Variable Account or our other separate accounts. GUARANTEE PERIOD -- The period during which the Stated Death Benefit is guaranteed under the Guaranteed Minimum Death Benefit provision. The two available Guarantee Periods are (i) to the Insured's Age 65 or 10 years from the Policy Date, whichever is later, or (ii) the lifetime of the Insured. The Guarantee Period will end prior to the selected date any time the Guarantee Period Annual Premium has not been paid or on any Monthly Processing Date that the Net Account ________________________________________________________________________________ FirstLine 7 Value is not diversified according to our requirements. GUARANTEE PERIOD ANNUAL PREMIUM -- The premium payment level required to maintain the Guarantee Period. GUARANTEED INTEREST DIVISION -- Part of our General Account to which a portion of the Account Value may be allocated and which provides guarantees of principal and interest. GUARANTEED MINIMUM DEATH BENEFIT -- The optional provision in the Policy which guarantees that the Stated Death Benefit will remain in force for the Guarantee Period regardless of the amount of the Net Cash Surrender Value, provided certain conditions are met. INITIAL PREMIUM -- The premium which is required to be paid and received by our Customer Service Center in order for coverage to begin. Initial Premium is equal to the scheduled modal premiums which fall due from the Policy effective date through the Investment Date. INSURED -- The person on whose life this Policy is issued and upon whose death the Death Proceeds are payable. INVESTMENT DATE -- The date we allocate funds to the Policy. We will allocate the Initial Net Premium to the Policy on the Valuation Date immediately following the latest of the date we have received Initial Premium, we have approved the Policy for issue, and all issue requirements have been met and received in our Customer Service Center LOAN DIVISION -- Part of our General Account in which funds are set aside to secure any outstanding Policy Loan and accrued loan interest when due. MATURITY DATE -- The date the Policy matures. This is the Policy anniversary on which the Insured's Age is 100. MINIMUM ANNUAL PREMIUM -- This premium must be paid during the first three policy years in order to maintain the requirements of the special continuation period. MONTHLY PROCESSING DATE -- The date each month on which the monthly deductions from the Account Value are due. The first Monthly Processing Date will be the Policy Date or the Investment Date, if later. Subsequent Monthly Processing Dates will be the same date as the Policy Date each month thereafter unless this is not a Valuation Date, in which case the Monthly Processing Date occurs on the next Valuation Date. NASD -- The National Association of Securities Dealers, Inc. NET ACCOUNT VALUE -- The amount of the Account Value minus any Policy Loan and accrued loan interest. NET AMOUNT AT RISK -- The difference between the current Base Death Benefit and the amount of the Account Value. NET CASH SURRENDER VALUE -- The amount available if the Policy is surrendered, which is equal to the Cash Surrender Value minus any Policy Loan and accrued loan interest. NET PREMIUM -- Premium amounts paid less the sales and tax charges. These charges are deducted from the premiums before the premium is applied to the Account Value. OWNER -- The individual, entity, partnership, representative or party who can exercise all rights over and receive the benefits of the Policy during the Insured's lifetime. PARTIAL WITHDRAWAL -- The withdrawal of a portion of the Net Cash Surrender Value from the Policy. The Partial Withdrawal may cause a Surrender Charge to be incurred, and it may reduce the amount of Base Death Benefit and Target Death Benefit in force. ________________________________________________________________________________ FirstLine 8 POLICY -- The Policy consists of the basic Policy, any applications and any Riders or endorsements. POLICY LOAN -- The sum of amounts borrowed from the Policy, increased by any Policy Loan interest capitalized when due, and reduced by any Policy Loan repayments. POLICY DATE -- The date upon which the Policy becomes effective. The Policy Date is used to determine the Monthly Processing Date, Policy months, Policy years, and Policy monthly, quarterly, semi-annual and annual anniversaries. Unless otherwise indicated, the term Policy anniversary refers to the annual anniversary of the Policy. PORTFOLIOS -- The investment options available to the Divisions of the Variable Account. Each Portfolio has a defined investment objective. PREMIUM CLASS -- The underwriting class into which the Insured is categorized. This includes factors such as smoking status of the Insured as well as any substandard ratings which may apply. The Premium Class for the Policy is listed in the Schedule. RIDER -- A Rider adds benefits to the Policy. SCHEDULE -- The pages contained in the Policy which include the information specific to the Policy, such as the Insured's Age, the Policy Date, etc. SCHEDULED PREMIUM -- The premium amount specified by the Owner on the application as the amount which is intended to be paid at fixed intervals over a specified period of time. Premiums may be paid on a monthly, quarterly, semiannual, or annual basis, as specified. The Scheduled Premium need not be paid, and may be changed at any time. Also, within limits, the Owner may pay less or more than the Scheduled Premium. SEC -- The United States Securities and Exchange Commission. SEGMENT -- The Stated Death Benefit on the Policy Date is the initial Segment, or Segment 1. Each increase in the Stated Death Benefit (other than an option change) is a new Segment. The first year for a Segment begins on the effective date of the Segment and ends one year later. Each subsequent year begins at the end of the prior segment year. Each new Segment may be subject to a new Minimum Annual Premium, new sales charge, new surrender charges, new cost of insurance charges, new incontestability and suicide exclusion periods. STATED DEATH BENEFIT -- The sum of the Segments under the Policy. The Stated Death Benefit changes when there is an increase or a decrease or when a transaction on the Policy causes it to change. SURRENDER CHARGE -- The charge made against the Account Value in the event of surrender, Policy lapse, requested reductions in the Stated Death Benefit, or certain Partial Withdrawals. The Surrender Charge consists of the Administrative Surrender Charge and the sales Surrender Charge. TARGET DEATH BENEFIT -- When an Adjustable Term Insurance Rider is added to the Policy, the Target Death Benefit and Stated Death Benefit are specified in the application for the Policy; the Adjustable Term Insurance Rider Death Benefit is the difference between the Target Death Benefit and the Base Death Benefit provided by the Policy. In no event will the Adjustable Term Insurance Rider Death Benefit be less than zero. The Adjustable Term Insurance Rider automatically adjusts over time for changes in the Base Death Benefit to comply with the Federal income tax law definition of life insurance to keep the Target Death Benefit at the desired amount. The Target Death Benefit for each year will be shown in the Schedule of the Policy when an Adjustable Term Insurance Rider exists on the Policy. TARGET PREMIUM -- The premium on which the maximum Sales Surrender Charge is calculated. TRANSACTION DATE -- The date we receive a premium or an acceptable written or telephone request at our Customer Service Center. If the premium or request reaches our Customer Service Center on a day which is not a Valuation Date, or after the close of business on a Valuation Date (that is, after 4:00 p.m. Eastern Time), the Transaction Date will be the next succeeding Valuation Date. VALUATION DATE -- Each date as of which the net asset value of the shares of the Portfolios and unit values of the Divisions are determined. Valuation Dates currently occur on each day on which the New York Stock ________________________________________________________________________________ FirstLine 9 Exchange and Security Life's Customer Service Center are open for business or as may be required by law, except for days that a Division's corresponding Portfolio does not value its shares. VALUATION PERIOD -- The period which begins at 4:00 p.m. Eastern Time on a Valuation Date and ends at 4:00 p.m. Eastern Time on the next succeeding Valuation Date. VARIABLE ACCOUNT -- Security Life Separate Account L1 established by Security Life to segregate the assets funding the Policy from the assets in our General Account. The Variable Account is divided into Divisions, each of which invests in shares of one of the Portfolios. ________________________________________________________________________________ FirstLine 10 POLICY SUMMARY THE PURPOSE OF THIS POLICY SUMMARY IS TO PROVIDE A BRIEF OVERVIEW OF THE POLICY. FURTHER DETAIL IS PROVIDED IN THE POLICY AND IN THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. THE DISCUSSION IN THIS PROSPECTUS ASSUMES THAT ANY STATE VARIATION WILL BE COVERED IN A SPECIAL PROSPECTUS SUPPLEMENT OR IN THE FORM OF POLICY APPROVED IN THAT STATE, AS APPROPRIATE. THE TERMS UNDER WHICH THE POLICIES ARE ISSUED MAY ALSO VARY FROM THOSE DESCRIBED IN THIS PROSPECTUS BASED ON PARTICULAR CIRCUMSTANCES. THE DESCRIPTION OF THE POLICY IN THIS PROSPECTUS IS SUBJECT TO THE TERMS OF THE POLICY PURCHASED BY AN OWNER OR ANY RIDER TO IT. AN APPLICANT MAY REVIEW A COPY OF THE POLICY AND ANY RIDER TO IT ON REQUEST. GENERAL INFORMATION The Policy provides life insurance protection on the life of the Insured. So long as the Policy remains in force, we will pay a death benefit when the Insured dies. We will pay a maturity benefit in lieu of a death benefit when the Policy reaches the Maturity Date during the lifetime of the Insured. DEATH BENEFITS We will pay the Death Proceeds to the Beneficiary upon the death of the Insured while the Policy remains in force. The Death Proceeds will be equal to the Base Death Benefit plus any amounts payable from any additional benefits provided by Rider, reduced by the amount of any outstanding Policy Loan and any accrued loan interest. See Death Benefits, page 22. When we issue the Policy, the death benefit is equal to the Stated Death Benefit for which you have applied plus any amount added by Adjustable Term Insurance Rider. The minimum Stated Death Benefit for which we will issue a Policy is $50,000; however, we may lower the minimum Stated Death Benefit for group or sponsored arrangements or corporate purchasers. Generally, the Policy will remain in force only as long as the Net Cash Surrender Value is sufficient to pay all the monthly deductions. However if the special continuation period is in effect (during the first three policy years) and minimum premiums have been paid as specified in the section on Lapse (see Lapse, page 32) then the Policy and all Riders are guaranteed not to lapse, regardless of the Net Cash Surrender Value. The Stated Death Benefit of the Policy may also remain in force after the first three policy years (special continuation period) even if the Net Cash Surrender Value is insufficient to pay all the monthly deductions if the Guaranteed Minimum Death Benefit provision is in effect and the requirements have been met. See Guaranteed Minimum Death Benefit Provisions, page 21. ________________________________________________________________________________ FirstLine 11 BENEFITS AT MATURITY If the Insured is still living on the Maturity Date, we will pay the Net Account Value. The Policy will then end. See Benefits at Maturity, page 25. ADDITIONAL BENEFITS The Owner may wish to include additional benefits, which are also attached to the Policy by Rider. The charge for these additional benefits is deducted monthly from the Account Value. We offer a variety of additional benefits. See Additional Benefits, page 25. PREMIUMS The Policy is a flexible premium Policy, so the amount and frequency of the premiums may vary, within limits. There are no required premium payments other than payments required to keep the Policy in force or payments required to maintain certain benefits as described below. The Initial Premium must be paid in order for us to issue the Policy. The Minimum Annual Premium must be paid in order to meet the requirements for the three year special continuation period. If the Owner purchases one of two Guaranteed Minimum Death Benefit provisions, the Guarantee Period Annual Premium must be paid to maintain the Guarantee Period. The Scheduled Premium is selected by the Owner and specified when application is made for the Policy. The Scheduled Premium may not necessarily be sufficient to maintain the Guarantee Period for one of the Guaranteed Minimum Death Benefit provisions or to keep the Policy in force. ________________________________________________________________________________ FirstLine 12 Since this is a flexible premium life insurance Policy, the amount of premiums paid will affect the length of time the Policy will stay in force. See Premium Payments Affect The Continuation of Coverage, page 20. ALLOCATION OF NET PREMIUMS After certain premium-based charges are deducted from the premiums, the balance, called the Net Premium, is added to the Account Value based on the premium allocation instructions. Net Premiums may be allocated to one or more of the Divisions of the Variable Account, or to the Guaranteed Interest Division, or both. However, amounts can be allocated to no more than 18 Divisions over the life of the Policy. Amounts allocated to the Divisions of the Variable Account will be held in the Division investing in the Fidelity VIP Money Market Portfolio until the end of the Free Look Period. Amounts allocated to the Guaranteed Interest Division will be held in that Division. At the end of the Free Look Period, the funds held in the Fidelity VIP Money Market Division will be reallocated to other Divisions of the Variable Account according to the most recent premium allocation instructions. The amounts held in the Guaranteed Interest Division will remain in that Division.. Net Premiums received after the Free Look Period will be allocated upon receipt according to the most recent premium allocation instructions. Allocation percentages must be in whole numbers. The sum must equal 100%. See Allocation of Net Premiums, page 21. MAXIMUM NUMBER OF INVESTMENT DIVISIONS The owner may utilize a maximum of 18 Divisions for investment over the lifetime of the Policy until current administrative systems are enhanced. See Maximum Number of Investment Divisions, page 15. POLICY VALUES The Policy Account Value is equal to the sum of the amounts in the Guaranteed Interest Division and in the Divisions of the Variable Account. It also includes any amount we set aside in the Loan Division as collateral for any outstanding Policy Loan. The Account Value reflects Net Premiums paid, as well as deductions for charges. It will also reflect the investment experience of amounts allocated to the Divisions of the Variable Account, and interest earned on amounts allocated to the Guaranteed Interest Division and the Loan Division. Any Partial Withdrawal, plus a service fee, will be deducted from the Account Value. The Cash Surrender Value of the Policy is equal to the Account Value less any Surrender Charge. The Net Cash Surrender Value of the Policy is equal to the Cash Surrender Value less the amount of any outstanding Policy Loan and accrued loan interest. The Net Account Value of the Policy is equal to the Account Value less the amount of any outstanding Policy Loan and accrued loan interest. DETERMINING THE VALUE IN THE DIVISIONS OF THE VARIABLE ACCOUNT The amounts in the Divisions of the Variable Account are measured in terms of Accumulation Units and Accumulation Unit Values. On any given day, the value of the amount in a Division of the Variable Account is equal to the Accumulation Unit Value times the number of Accumulation Units credited to that Division. The Accumulation Units of each Division of the Variable Account will have different Accumulation Unit Values. See Determining the Value in the Divisions of the Variable Account, page 27. HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION We determine Accumulation Unit Values for each Division of the Variable Account as of each Valuation Date. All Policy transactions are effective as of a Valuation Date. The Accumulation Unit Value of each Division reflects the investment experience of the underlying Portfolio for the Valuation Period as well as asset based charges deducted in connection with the Policy and the expenses of the Portfolio. See How we Calculate Accumulation Unit Values for Each Division, page 28. ________________________________________________________________________________ FirstLine 13 TRANSFERS OF ACCOUNT VALUES After the Free Look Period, the Owner may make up to 12 transfers among Divisions of the Variable Account or to the Guaranteed Interest Division in each Policy year without charge. There will be a $25 charge for each transfer over 12 in a Policy year. Transfers due to the operation of Automatic Rebalancing or Dollar Cost Averaging are not included in determining the limit on transfers without a charge. The minimum amount we will transfer is $100. Once during the first 30 days of each Policy year, amounts from the Guaranteed Interest Division may be transferred. Transfer amounts from the Guaranteed Interest Division to the Divisions of the Variable Account are limited. Transfers of the Account Value to the Guaranteed Interest Division are not limited to this 30-day period. See Transfers of Account Values, page 28. DOLLAR COST AVERAGING Dollar Cost Averaging is available by electing this feature at the time of application, by completing the appropriate form or by telephoning us, if the proper telephone authorization is on file with us. We offer Dollar Cost Averaging to Owners who have at least $10,000 in either the Division investing in the Fidelity VIP Money Market Portfolio or the Division investing in the Neuberger & Berman AMT Limited Maturity Bond Portfolio of the Variable Account. There is no charge for this feature. See Dollar Cost Averaging, page 29. AUTOMATIC REBALANCING Automatic Rebalancing is available by electing this feature at the time of application, by completing the appropriate form or by telephoning us, if the proper telephone authorization is on file with us. Automatic Rebalancing allows the Owner to match the Account Value allocations over time to the allocation percentages specified. We will charge a fee of $25 each time the allocation is changed more often than five times per policy year; otherwise, there is no charge for this feature. See Automatic Rebalancing, page 29. ________________________________________________________________________________ FirstLine 14 LOANS Loans may be taken against the Policy's Cash Surrender Value. Unless otherwise required by state law, the loan must be at least $100. Loan interest accrues at an annualized rate of 3.75%. The Loan Division earns a guaranteed rate of interest equal to 3% on an annualized basis. See Policy Loans, page 31. PARTIAL WITHDRAWALS A portion of the Net Cash Surrender Value may be withdrawn any time after the first Policy year, within limits. Only one Partial Withdrawal may be taken per Policy year. See Partial Withdrawals, page 31. SURRENDER The Owner may surrender the Policy for its Net Cash Surrender Value at any time while the Insured is living. The Net Cash Surrender Value of the Policy equals the Cash Surrender Value minus any Policy Loan and accrued loan interest. We will compute the Net Cash Surrender Value as of the date we receive the request and the Policy at our Customer Service Center, and all insurance coverage will end on that date. See Surrender, page 32. RIGHT TO EXCHANGE POLICY At any time during the first 24 months following the Policy Date or a requested increase to the Stated Death Benefit, the Owner may exercise the right to exchange the Policy from one in which the Account Value is not guaranteed into a guaranteed Policy unless required differently by state law. See Right to Exchange Policy, page 32. LAPSE Insurance coverage will continue as long as the Net Cash Surrender Value of the Policy is sufficient to pay all the deductions that are taken out of the Account Value each month. In addition, during the first three Policy years if the conditions of the special continuation period have been met the Policy and all attached Riders are guaranteed not to lapse, regardless of the Net Cash Surrender Value. Also, if the Guaranteed Minimum Death Benefit provision has been elected and the requirements to maintain the Guarantee Period have been met, the Stated Death Benefit portion of the Policy will remain in effect after the first three policy years (special continuation period) regardless of the amount of the Net Account Value. However, if the requirements to maintain the Guarantee Period have not been met, the Guaranteed Minimum Death Benefit provision will lapse. See Lapse, page 32. REINSTATEMENT A lapsed Policy and its Riders may be reinstated within five years of its lapse if it has not been surrendered for its Net Cash Surrender Value. However, the Guaranteed Minimum Death Benefit cannot be reinstated. This will require new ________________________________________________________________________________ FirstLine 15 evidence of insurability and payment of certain reinstatement premiums. We will also reinstate any Policy Loan which existed when coverage ended, with accrued loan interest to the date of lapse. See Reinstatement, page 33. CHARGES AND DEDUCTIONS Deductions From Premiums: The following charges are deducted from each premium before it is applied to the Account Value: (i) Tax Charges-- A charge currently equal to 2.5% of premiums is deducted for state and local premium taxes. A charge currently equal to 1.5% of each premium is deducted to cover our estimated cost of the Federal income tax treatment of deferred acquisition costs. We reserve the right to increase or decrease the premium expense charges for taxes due to any change in tax law. We further reserve the right to increase or decrease the premium expense charge for the Federal deferred acquisition cost due to any change in the cost to us. (ii) Sales Charge -- A charge equal to a percentage of each premium based on the Insured's Age on the Policy Date or the date of an increase in coverage is deducted to cover a portion of our expenses in issuing this Policy. Age of Insured Sales Charge Percentage - -------------- ----------------------- 0-49 2.25% 50-59 3.25% 60-85 4.25% These deductions from premiums are only a portion of the total sales charge that will be assessed against the Account Value in the event of surrendering the Policy during the 14 Policy Years following the Policy Date or 14 years following the addition of a new Segment. See Sales Surrender Charge, page 38. See Deductions from Premiums, page34 . Deductions From The Variable Account: A mortality and expense risk charge is assessed against the Divisions of the Variable Account in the amount of 0.75% per annum (0.002055% per day). We assess the mortality and expense risk charge to compensate us for assuming mortality and expense risks under the Policies. See Daily Deductions from the Variable Account, page 34. Monthly Deductions From The Account Value: The following charges are deducted from the Account Value at the beginning of each Policy month: (i) Initial Policy Charge -- $10 per month (ii) Monthly Administrative Charge -- $3 per month plus $0.0125 per thousand of Stated Death Benefit (or Target Death Benefit if greater). The per thousand charge is limited to $15 per month. (iii) Cost of Insurance Charge -- A monthly charge based on the Net Amount at Risk on the life of the Insured. The amount of this charge differs for Base Death Benefit and Adjustable Term Insurance Rider, if any, as well as for multiple Segments. (iv) Charges for Additional Benefits -- The cost of any additional benefits added by Rider, other than the Adjustable Term Insurance Rider. (v) Guaranteed Minimum Death Benefit Charge -- currently $0.005 per thousand of the Stated Death Benefit during the Guarantee Period. This charge is guaranteed to never be greater than $.01 per thousand of the Stated Death Benefit. See Monthly Deductions from the Account Value, page 35. Policy Transaction Fees: Policy Transaction Fees are deducted from the Divisions of the Variable Account and Guaranteed Interest Division in the same proportion that the Account Value in each Division bears to the total Net Account Value immediately following the transaction. See Policy Transaction Fees, page 36. Surrender Charges: During the first 14 Policy years, or during the first 14 Policy years of each additional Segment, we assess a Surrender Charge if the Owner surrenders the Policy, reduces the Stated Death Benefit (other than by changing death benefit option), or lets the Policy lapse. A Surrender Charge may also be assessed if a Partial Withdrawal is taken. The charge consists of the administrative Surrender Charge and the sales Surrender Charge. The administrative Surrender Charge equals a fixed dollar amount per thousand dollars of Stated Death Benefit and depends upon the Insured's Age at the Policy Date or the ________________________________________________________________________________ FirstLine 16 effective date of each additional Segment. The Sales Surrender Charge will never be more than 50% of one Base Standard Target Premium. See Surrender Charge, page 37. Charges from Portfolios: Shares of the Portfolios are purchased at net asset value, which reflects investment management and other direct expenses that have already been deducted from the assets of the Portfolio. See Charges from Portfolios, page 39. PERSISTENCY REFUND The Account Value will be credited with a Persistency Refund each Monthly Processing Date after the 10th Policy anniversary. See Persistency Refund, page 36. 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 of the death benefit to apply, the Policy must qualify as a life insurance contract. The tax code provides for two tests to qualify a contract as a life insurance policy. The Owner irrevocably selects which of these tests will apply to the Policy in the application. After the Policy Date, the Policy will reflect the test which was chosen. See Life Insurance Definition, page 42. Generally, under current Federal income tax law, Account Value earnings are not subject to income tax as long as they remain within the Policy. Loans, Partial Withdrawals, surrender, lapse or an exchange of Insured may result in recognition of ordinary income for tax purposes and may result in penalties if the Policy is considered a Modified Endowment Contract as explained in Modified Endowment Contracts, page 43. INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS AND THE GUARANTEED INTEREST DIVISION SECURITY LIFE OF DENVER INSURANCE COMPANY Security Life of Denver Insurance Company ("Security Life") is a stock life insurance company organized under the laws of the State of Colorado in 1929. Our headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699. We are admitted to do business in the District of Columbia and all states except New York. As of the end of 1996, Security Life and its consolidated subsidiaries had over $139.9 billion of life insurance in force. Our total assets exceeded $7.1 billion and our shareholder's equity exceeded $778 million, on a generally accepted accounting principles basis as of December 31, 1996. We offer a complete line of life insurance and retirement products, including annuities, individual and group life and pension products, and market life reinsurance. Security Life actively manages its General Account investment portfolio to meet both long-term and short-term contractual obligations. The General Account portfolio invests primarily in investment-grade bonds and low-risk loans. Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING"), one of the world's three largest diversified financial services organizations. ING is headquartered in Amsterdam, Netherlands, and has consolidated assets exceeding $277.9 billion on a Dutch (modified U.S.) generally accepted accounting principles basis as of December 31, 1996. The principal underwriter and distributor for the Policies is ING America Equities, Inc. ("ING America Equities"), a wholly owned subsidiary of Security Life. ING America Equities is registered as a broker-dealer with the SEC and is a member of the NASD. The current address for ING America Equities is 1290 Broadway, Denver, Colorado 80203-5699. SECURITY LIFE SEPARATE ACCOUNT L1 Security Life Separate Account L1 (the "Variable Account"), established on November 3, 1993 under the Insurance Law of the State of Colorado, is a unit investment trust registered with the SEC under the Investment Company Act of 1940. Such registration does not involve any supervision by the SEC of the management of the Variable Account or Security Life. The Variable Account is a separate investment account of Security Life used to support our variable life insurance policies and for other purposes as permitted by applicable laws and regulations. The assets of the Variable Account are ________________________________________________________________________________ FirstLine 17 kept separate from our General Account and any other separate accounts we may have. We may offer other variable life insurance contracts that will invest in the Variable Account which are not discussed in this prospectus. The Variable Account may also invest in other securities which are not available to the Policy described in this prospectus. We own all the assets in the Variable Account. Income and realized and unrealized gains or losses from assets in the Variable Account are credited to or charged against the Variable Account without regard to other income, gains or losses in our other investment accounts. In accordance with and under the provisions of Section 10-3-501(2) of the Colorado Revised Statutes, that portion of the assets of the Variable Account which is equal to the reserves and other Policy liabilities with respect to the Variable Account is not chargeable with liabilities arising out of any other business we conduct. This means that in the event Security Life were ever to become insolvent, the assets of the Variable Account are to be used first to pay Variable Account policy claims. Only if assets remain in the Variable Account after those claims have been satisfied can those assets be used to pay other policy Owners and creditors of Security Life. The Variable Account may, however, be subject to liabilities arising from Divisions of the Variable Account whose assets are attributable to other variable life policies offered by the Variable Account. If the assets exceed the required reserves and other policy liabilities, we may transfer the excess to our General Account. If the assets in the Variable Account are insufficient to satisfy Variable Account Policy owner claims, Section 10-3-541 provides that under certain circumstances the amount of those claims which are not satisfied are to be treated as Policy owner claims against the general account assets of the insurance company. The Variable Account has several Divisions, each of which invests in shares of a corresponding Portfolio of a mutual fund. Therefore, the investment experience of a Policy depends on the experience of the Portfolios designated. These Portfolios are available only to serve as the underlying investment for variable annuity and variable life insurance contracts issued through separate accounts of Security Life as well as other life insurance companies and may be available to certain pension accounts. They are not available directly to individual investors. Each of the Portfolios is a separate series of an open-end management investment company which receives investment advice from a registered investment adviser not otherwise affiliated with Security Life. The Neuberger & Berman Advisers Management Trust has organized its Portfolio to a master feeder structure. See the prospectus for the Neuberger & Berman Advisers Management Trust for more details. The Portfolios as well as their investment policies are described below. Shares of these Portfolios are sold to separate accounts of insurance companies, which may or may not be affiliated with Security Life or each other, a practice known as "shared funding." They may also sell shares to separate accounts to serve as the underlying investment for both variable annuity contracts and variable life insurance policies, known as "mixed funding." As a result, there is a possibility that a material conflict may arise between the interests of Owners of Policies in which Account Values are allocated to the Variable Account and of owners of policies in which account values are allocated to one or more other separate accounts investing in any one of the Portfolios. Shares of these Portfolios may also be sold to certain qualified pension and retirement plans qualifying under Section 401 of the Code that include cash or deferred arrangements under Section 401(k) of the Code. As a result, there is a possibility that a material conflict may arise between the interests of owners generally, or certain classes of owners, and such retirement plans or participants in such retirement plans. In the event of a material conflict, Security Life will consider what action may be appropriate, including removing the Portfolio from the Variable Account. There are certain risks associated with mixed and shared funding and with the sale of shares to qualified pension and retirement plans, as disclosed in each Portfolio's prospectus. The Divisions of the Variable Accounts investing in the Neuberger & Berman Advisers Management Trust Government Income Portfolio and the Van Eck Worldwide Balanced Fund will no longer accept new investments, including through transfers, automatic rebalancing or dollar cost averaging. Existing investments in these Funds will not need to be moved at this time, however, Security Life encourages investors in these Portfolios to consider making a voluntary exchange to another Division. Transfers of account values from the Government Income Portfolio Division or the Worldwide Balanced Fund Division to another Division of the Variable Account or to the Guaranteed Interest Division will not count against the 12 transfers permitted annually without charge under the Contract. MAXIMUM NUMBER OF INVESTMENT DIVISIONS The Owner may utilize a maximum of 18 Divisions for investment over the lifetime of the Policy until current administrative systems are enhanced. The Divisions include the Divisions of the Variable Account and the Guaranteed ________________________________________________________________________________ FirstLine 18 Interest Division, but exclude the Loan Division. For example, if the Owner has allocated or transferred funds to 17 Divisions of the Variable Account and to the Guaranteed Interest Division (or to 18 Divisions of the Variable Account), those will be the only Divisions to which the Owner can subsequently allocate or transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the early years of the Policy so as to leave open the option to invest in other Divisions in the future. An Owner who has used 18 Variable Divisions will no longer have the Guaranteed Interest Division available for future use. INVESTMENT OBJECTIVES OF THE PORTFOLIOS Each Portfolio has a different investment objective that it tries to achieve by following its investment strategy. The objectives and policies of each Portfolio will affect its return and its risks. A summary of the investment objectives is contained in the description of each Portfolio below. More detailed information may be found in the current prospectus for each Portfolio. A prospectus for the Portfolios being considered must accompany this prospectus and should be read in conjunction with it. NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST The Neuberger & Berman Advisers Management Trust (the "Trust") is a registered, open-end management investment company organized as a Delaware business trust pursuant to a Trust Instrument dated May 23, 1994. The Trust is comprised of separate Portfolios, each of which invests all of its net investable assets in a corresponding series of Advisers Managers Trust ("Managers Trust"), a diversified, open-end management investment company organized as of May 24, 1994 as a New York common law trust. This master feeder structure is different from that of many other investment companies which directly acquire and manage their own portfolios of securities. Neuberger & Berman Management Incorporated acts as investment manager to Managers Trust and Neuberger & Berman, L.L.C. as sub- adviser. Limited Maturity Bond Portfolio -- seeks the highest current income consistent with low risk to principal and liquidity. As a secondary objective, it also seeks to enhance its total return. The Limited Maturity Bond Portfolio pursues its investment objectives by investing in a diversified portfolio of U.S. Government and Agency securities and investment grade debt securities issued by financial institutions, corporations and others. The Limited Maturity Bond Portfolio may invest up to 10% of its net assets, measured at the time of investment, in fixed income securities rated below investment grade or in comparable unrated securities. The Limited Maturity Bond Portfolio's dollar weighted average portfolio duration may range up to four years. Government Income Portfolio -- (no longer available for new investments) seeks a high level of current income and total return, consistent with safety of principal. The Portfolio invests at least 65% of its total assets in U.S. Government and Agency securities, with an emphasis on U.S. Government mortgage backed securities. In addition, the Portfolio invests at least 25% of its total assets in mortgage backed securities (including U.S. Government mortgage backed securities) and asset backed securities. The investment manager follows a flexible investment strategy depending on market conditions and interest rate trends. Growth Portfolio -- seeks capital appreciation without regard to income and invests in small-, medium-, and large-, capitalization securities believed to have maximum potential for long-term capital appreciation. The portfolio is managed using a growth-oriented investment approach. A growth-oriented approach seeks stocks of companies that are projected to grow at above- average rates and faster than others expect. Partners Portfolio -- seeks capital growth through an investment approach that is designed to increase capital with reasonable risk. Its investment program seeks securities believed to be undervalued based on strong fundamentals such as low price to earnings ratio, consistent cash flow, and the Company's track record through all points of the market cycle. Up to 15% of the series' net assets, measured at the time of investment, may be invested in corporate debt securities rated below investment grade or comparable unrated securities. THE ALGER AMERICAN FUND The Alger American Fund is a registered investment company organized on April 6, 1988 as a multi-series Massachusetts business trust. The Fund's investment manager is Fred Alger Management, Inc., which has been in the business of providing investment advisory services since 1964. Alger American Small Capitalization Portfolio -- seeks to obtain long term capital appreciation. Except during temporary defensive periods, the Portfolio invests at least 65% of its total assets in equity securities of companies that, at the time of purchase of the securities, have total ________________________________________________________________________________ FirstLine 19 market capitalization within the range of companies included in the Russell 2000 Growth Index ("Russell Index") or the S&P SmallCap 600 Index ("S&P Index"), updated quarterly. Both indexes are broad indexes of small capitalization stocks. As of June 30, 1997, the range of market capitalization of the companies in the Russell Index was $13 million to $1.56 billion; the range of market capitalization of the companies in the S&P Index at that date was $35 million to $3.025 billion. The combined range was $13 million to $ 3.025 billion. Alger American MidCap Growth Portfolio -- seeks long-term capital appreciation. Except during temporary defensive periods, the Portfolio invests at least 65% of its total assets in equity securities of companies that, at the time of purchase of the securities, have total market capitalization within the range of companies included in the S&P MidCap 400 Index, updated quarterly. The S&P MidCap 400 Index is designed to track the performance of medium capitalization companies. As of June 30, 1997, the range of market capitalization of these companies was $100 million to $9.149 billion. Alger American Growth Portfolio -- seeks to obtain long-term capital appreciation. The Portfolio will invest its assets primarily in companies whose securities are traded on domestic stock exchanges or in the over-the- counter market. Except during temporary defensive periods, the Portfolio will invest at least 65% of its total assets in the securities of companies that, at the time of purchase of the securities, have a total market capitalization of $1 billion or greater. Alger American Leveraged AllCap Portfolio -- seeks long-term capital appreciation. The Portfolio may purchase put and call options and sell (write) covered call and put options on securities and securities indexes to increase gain and to hedge against the risk of unfavorable price movements, and may enter into futures contracts on securities indexes and purchase and sell call and put options on these futures. The Portfolio may also borrow money for the purchase of additional securities. The Portfolio may borrow only from banks and may not borrow in excess of one third of the market value of its assets, less liabilities other than such borrowing. Except during temporary defensive periods, the Portfolio will invest 85% of its net assets in equity securities of companies of any size. FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II Fidelity Variable Insurance Products Fund and Variable Insurance Products Fund II are open-end, diversified, management investment companies organized as Massachusetts business trusts on November 13, 1981 and March 21, 1988, respectively. The funds are managed by Fidelity Management & Research Company ("FMR") which handles the Funds' business affairs, with the exception of the VIP II Index 500 Portfolio which is sub-advised by Bankers Trust Company. FMR is the management arm of Fidelity Investments, which was established in 1946 and is now America's largest mutual fund manager. VIP Growth Portfolio -- seeks capital appreciation by investing in common stocks, although the Portfolio is not limited to any one type of security. VIP Overseas Portfolio -- seeks long term growth of capital primarily through investments in foreign securities. The Overseas Portfolio provides a means for investors to diversify their own portfolios by participating in companies and economies outside of the United States. VIP Money Market Portfolio -- seeks as high a level of current income as is consistent with preserving capital and providing liquidity. The Portfolio will invest only in high quality U.S. dollar-denominated money market securities of domestic and foreign issuers. VIP II Asset Manager Portfolio -- seeks high total return with reduced risk over the long-term by allocating its assets among domestic and foreign stocks, bonds, and short-term fixed-income instruments. VIP II Index 500 Portfolio -- seeks to provide investment results that correspond to the total return (i.e., the combination of capital changes and income) of common stocks publicly traded in the United States. In seeking this objective, the Portfolio attempts to duplicate the composition and total return of the Standard & Poor's Composite Index of 500 Stocks while keeping transaction costs and other expenses low. The Portfolio is designed as a long-term investment option. INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO Variable Investment Funds, Inc. is a registered, open-end management investment company that was organized as a Maryland corporation on August 19, 1993, and is currently comprised of five diversified investment Portfolios, described below. INVESCO Funds Group, Inc., the Funds' investment adviser, is primarily responsible for providing the Portfolios with various administrative services and supervising the Fund's daily business affairs. INVESCO Distributors, Inc. ("IDI"), provides distribution services for the INVESCO Variable ________________________________________________________________________________ FirstLine 20 Investment Funds, Inc. Portfolio management is provided to each Portfolio by its sub-adviser. INVESCO Trust Company serves as sub-adviser to the Industrial Income, High Yield and Utilities Portfolios. INVESCO Capital Management, Inc. serves as sub-adviser to the Total Return Portfolio. INVESCO VIF Total Return Portfolio -- seeks a high total return on investment through capital appreciation and current income. The Total Return Portfolio seeks to achieve its investment objective by investing in a combination of equity securities (consisting of common stocks and, to a lesser degree, securities convertible into common stock) and fixed income securities. INVESCO VIF Industrial Income Portfolio -- seeks the best possible current income, while following sound investment practices. Capital growth potential is an additional consideration in the selection of portfolio securities. The Portfolio normally invests at least 65% of its total assets in dividend-paying common stocks. Up to 10% of the Portfolio's total assets may be invested in equity securities that do not pay regular dividends. The remaining assets are invested in other income-producing securities, such as corporate bonds. The Portfolio also has the flexibility to invest in other types of securities. INVESCO VIF High Yield Portfolio -- seeks a high level of current income by investing substantially all of its assets in lower rated bonds and debt securities and in preferred stock. Under normal circumstances, at least 65% of the Portfolio's total assets will be invested in debt securities having maturities at the time of issuance of at least three years. Potential capital appreciation is a factor in the selection of investments, but is secondary to the Portfolio's primary objective. This Portfolio may not be appropriate for all Owners due to the higher risk of lower rated bonds commonly known as "junk bonds." See the prospectus for the INVESCO VIF High Yield Portfolio for more information concerning these risks. INVESCO VIF Utilities Portfolio -- seeks capital appreciation and income through investments primarily in equity securities of companies principally engaged in the public utilities business. INVESCO VIF Small Company Growth Fund -- (will become available for investment on or before May 1, 1998) seeks long-term capital growth through the investment of 65% or more of its total assets in equity securities of companies with market capitalization of $1 billion or less at the time of purchase ("small-cap companies"). The balance of the Fund's assets may be invested in the equity securities of companies with market capitalizations in excess of $1 billion, debt securities and short term investments. VAN ECK WORLDWIDE INSURANCE TRUST Van Eck Worldwide Insurance Trust is an open-end management investment company organized as a "business trust" under the laws of the Commonwealth of Massachusetts on January 7, 1987. Van Eck Associates Corporation serves as investment adviser and manager to the Worldwide Hard Assets Fund, Worldwide Real Estate Fund, Worldwide Emerging Markets Fund, Worldwide Bond Fund, and Worldwide Balanced Fund. Fiduciary International Inc. does not currently serve as sub- investment adviser to the Worldwide Balanced Fund, but it is expected to do so when the fund's assets reach a point at which it is appropriate to utilize the sub-investment adviser's services. On April 30, 1997, the Van Eck Gold and Natural Resources Fund was renamed the Worldwide Hard Assets Fund to reflect the Fund's new investment objective and concentration policy approved by shareholders on April 9, 1997. The Fund's new investment objective is described below. Van Eck Worldwide Hard Assets Fund -- seeks long-term capital appreciation by investing globally, primarily in "Hard Assets Securities." Hard Assets are tangible, finite assets, such as real estate, energy, timber, and industrial and precious metals. Income is a secondary consideration. Van Eck Worldwide Real Estate Fund -- (will become available for investment on or before May 1, 1998) seeks to maximize total return by investing primarily in equity securities of domestic and foreign companies which are principally engaged in the real estate industry or which own significant real estate assets. Van Eck Worldwide Bond Fund -- (will become available for investment on or before May 1, 1998) seeks high total return through a flexible policy of investing globally, primarily in debt securities. Van Eck Worldwide Emerging Markets Fund -- (will become available for investment on or before May 1, 1998) seeks long term capital appreciation by investing primarily in equity securities in emerging markets around the world. Peregrine Asset Management (Hong Kong) Limited serves as sub-investment adviser to this Fund. Van Eck Worldwide Balanced Fund -- (no longer available for new investments) seeks long term capital appreciation together with current income by investing in stocks, ________________________________________________________________________________ FirstLine 21 bonds and money market instruments worldwide. AIM VARIABLE INSURANCE FUNDS, INC. AIM Variable Insurance Funds, Inc. is a registered, open-end, series, management investment company. AIM Advisors, Inc., ("AIM") manages each Fund's assets pursuant to a master investment advisory agreement dated February 28, 1997. AIM was organized in 1976 and is a wholly-owned subsidiary of AIM Management Group, Inc., an indirect subsidiary of AMVESCAP PLC, (formerly INVESCO PLC). AIM VI Capital Appreciation Portfolio -- (will become available for investment on or before May 1, 1998) seeks to provide capital appreciation through investments in common stocks, with emphasis on medium-sized and smaller emerging growth companies. AIM will be particularly interested in companies that are likely to benefit from new or innovative products, services or processes that should enhance such companies prospects for future growth in earnings. AIM VI Government Securities Portfolio -- (will become available for investment on or before May 1, 1998) seeks to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed of otherwise backed by the U.S. Government. THE GUARANTEED INTEREST DIVISION All or a portion of the Net Premiums and transfers of the Net Account Value may be made to the Guaranteed Interest Division, which is part of our General Account and which pays interest at a declared rate. The General Account supports our non-variable insurance and annuity obligations. Because of exemptive and exclusionary provisions, interests in the Guaranteed Interest Division have not been registered under the Securities Act of 1933, and neither the Guaranteed Interest Division nor the General Account has been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the General Account, the Guaranteed Interest Division nor any interests therein are generally subject to regulation under these Acts. As a result, the staff of the SEC has not reviewed the disclosures included in this prospectus which relate to the General Account and the Guaranteed Interest Division. These disclosures, however, may be subject to certain provisions of the Federal securities law relating to the accuracy and completeness of statements made in this prospectus. For more details regarding the General Account, see the Policy. The amount in the Guaranteed Interest Division at any time is the sum of all Net Premiums allocated to that Division, all transfers to the Guaranteed Interest Division and earned interest. This amount is reduced by amounts transferred out of or withdrawn from the Guaranteed Interest Division and deductions from the Account Value allocated to the Guaranteed Interest Division. Amounts may be accumulated in the Guaranteed Interest Division by (i) allocating Net Premiums, (ii) transferring amounts from the Divisions of the Variable Account, (iii) earning interest on amounts in the Guaranteed Interest Division, and (iv) repaying a Policy Loan to release amounts from the Loan Division. We pay a declared interest rate on all amounts in the Guaranteed Interest Division. From time to time, we declare the rates that will apply to amounts in the Guaranteed Interest Division. These annual interest rates will never be less than the minimum guaranteed interest rate of 3% and will be in effect for at least 12 months. Interest is credited daily at an effective annual rate that equals the declared rate. The interest is credited as of each Valuation Date to the amount in the Guaranteed Interest Division. This interest will be paid regardless of the actual investment experience of the General Account; we bear the full amount of the investment risk for the amount allocated to the Guaranteed Interest Division. DETAILED INFORMATION ABOUT THE FIRSTLINE VARIABLE UNIVERSAL LIFE POLICY This prospectus describes our standard FirstLine Variable Universal Life Policy. There may be differences in the Policy because of the requirements of the state where the Policy is issued; any such changes will be defined in the Policy. The illustrations beginning on page 19 are intended to provide an idea of how the key financial elements of FirstLine work. The illustrations show Premiums, Account Values, Cash Surrender Values and Death Benefits. APPLYING FOR A POLICY Any individual wishing to purchase a Policy may submit an application to us. On the Policy Date, the Insured must be no more than Age 85. Before issuing any Policy or applying Net Premium to the Variable Account or the Guaranteed Interest Division, we require satisfactory evidence of insurability, which may include a medical examination, completion of all underwriting requirements, and satisfaction of issue ________________________________________________________________________________ FirstLine 22 requirements. The Investment Date is the date we allocate funds to the Policy. We will allocate the Initial Net Premium to the Policy on the Valuation Date immediately following the latest of the date we receive the Initial Premium, approve the Policy for issue, and all issue requirements have been met and received in our Customer Service Center. The Policy is generally available with a minimum Stated Death Benefit of $50,000; however, we may reduce this amount for group or sponsored arrangements or corporate purchasers. The maximum Stated Death Benefit will be limited by our underwriting and reinsurance procedures in effect at the time of application. The Policy Date is the date upon which the Policy becomes effective. The Policy Date is the date used to determine Policy years and Policy months regardless of when the Policy is delivered. In the case of certain payroll deduction plans or other automatic investment plans, the Policy Date may be different from the date the first premium payment is received. If the Policy Date is prior to the Investment Date, we will charge monthly deductions from the Policy Date. If a premium payment in an amount not less than the Scheduled Premium is received with the application and there has been no material misrepresentation in the application, temporary insurance equal to the face amount applied for up to a maximum amount as described in the binding limited life insurance coverage form will be in force. Coverage will begin when the binding limited life insurance coverage form has been completed and signed, a premium has been accepted by us, and Part I of the application has been completed. Binding limited life insurance coverage will end on the earliest of the date: (i) premiums are returned; (ii) five days after notice of termination is mailed to the Owner's address on the application; (iii) coverage starts under the Policy resulting from the application; (iv) a policy resulting from the application is refused by us; or (v) 90 days after the date the binding limited life insurance coverage form is signed. In no event will a death benefit be provided under the temporary insurance agreement if there was a material misrepresentation in the answers to the questions in the binding limited life insurance coverage form or any question or statement in the application, a proposed Insured dies by suicide or intentional self-inflicted injury, or the premium check is not honored. PREMIUMS The Owner may choose the amount and frequency of premium payments, as long as they are within the limits described below. SCHEDULED PREMIUMS Even though the premiums are flexible, the Schedule pages of the Policy will show a "Scheduled" Premium. The Owner may select the Scheduled Premium within our limits when applying for the Policy. The Scheduled Premium is the amount chosen to pay over a specified period of time and may not necessarily be sufficient to keep the Policy in force. The Owner may receive premium reminder notices for the Scheduled Premium on a quarterly, semiannual, or annual basis. Alternatively, premiums other than the Initial Premium requirement may be paid by having us withdraw them via Electronic Funds Transfer each month. The financial institution making the Electronic Funds Transfer may impose a charge for this service. The Owner is not required to pay the Scheduled Premium, and it can be changed at any time subject to the maximum and minimum limits we may set. If one of the Guaranteed Minimum Death Benefit provisions described below has been chosen, the Scheduled Premium should not be less than the amount required to maintain the Guarantee Period. UNSCHEDULED PREMIUM PAYMENTS Generally, unscheduled premium payments may be made at any time. We reserve the right to limit the amount of unscheduled premiums if the payment would result in an increase in the amount of the Base Death Benefit required by the Federal income tax law definition of life insurance, or to require suitable evidence of the insurability of the Insured at the time of the unscheduled premium payment. Evidence of insurability may also be required if the net amount at risk is increased as a result of an unscheduled premium payment. We will return premium payments which exceed the "seven-pay" limit for the Policy if we determine the payment would cause the Policy to immediately become a Modified Endowment Contract. After the Owner has signed a form acknowledging that the Owner understands the Policy will be a Modified Endowment Contract, we will accept the excess premium payments. See Modified Endowment Contracts, page 43 and Changes to Comply with Law, page 45. If a Policy Loan is outstanding, any payment which is not a ________________________________________________________________________________ Firstline 23 Scheduled Premium payment received before the Maturity Date is considered a loan repayment, unless indicated otherwise. Applicable tax and sales charges are not deducted from a loan repayment but are deducted from any payment which constitutes a premium. MINIMUM ANNUAL PREMIUM The Minimum Annual Premium must be paid during the first three policy years in order to maintain the requirements for the three year special continuation period. We determine the applicable Minimum Annual Premium based on the Age, sex and Premium Class of the Insured, the Stated Death Benefit of the Policy and any additional benefits selected. We may reduce the Minimum Annual Premium for group or sponsored arrangements or corporate purchasers. The Minimum Annual Premium for the Policy is shown in the Schedule pages of the Policy. SPECIAL CONTINUATION PERIOD The Policy is guaranteed not to lapse, regardless of its Net Cash Surrender Value if, on each Monthly Processing Date during the first three Policy years, the sum of premiums paid, less the sum of Partial Withdrawals and Policy Loans taken including accrued loan interest, is greater than or equal to the sum of the applicable minimum monthly premiums for each Policy month starting with the first Policy month to and including the Policy month which begins on the current Monthly Processing Date. The minimum monthly premium is equal to one twelfth of the Minimum Annual Premium. See Lapse, page 32. PREMIUM PAYMENTS AFFECT THE CONTINUATION OF COVERAGE If premium payments are discontinued either temporarily or permanently, the Policy will continue in effect until the Net Cash Surrender Value can no longer cover the monthly deductions from the Account Value for the benefits selected and the Policy will lapse. See Lapse, page 32. If the Minimum Annual Premium requirements are satisfied, the Policy is guaranteed not to lapse during the first three Policy years, regardless of the Policy's Net Cash Surrender Value. See Special Continuation Period, page 20. If one of the Guaranteed Minimum Death Benefit provisions is elected, the Stated Death Benefit portion of the Policy will remain in effect until the end of the Guarantee Period so long as the conditions of the guarantee are met. See Guaranteed Minimum Death Benefit Provision, page 23. CHOICE OF DEFINITIONAL TESTS When applying for the Policy, the Owner will irrevocably choose which of the two tests for compliance with the Federal income tax law definition of life insurance will apply to the Policy. These tests are the Cash Value Accumulation Test and the Guideline Premium/Cash Value Corridor Test. See Life Insurance Definition, page 42. If the Guideline Premium/Cash Value Corridor Test is chosen, the premium payments that may be made relative to the death benefit of the Policy will be limited. CHOICE OF GUARANTEED MINIMUM DEATH BENEFIT PROVISIONS When applying for the Policy, the Owner will also have the opportunity to choose from one of two Guaranteed Minimum Death Benefit provisions, which may extend the period that the Stated Death Benefit of the Policy will remain in effect if the Divisions of the Variable Account suffer adverse investment experience. These provisions require premium payment levels, the Guarantee Period Annual Premium, which are higher than the Minimum Annual Premium and will incur an extra charge from the Account Value each month during the Guarantee Period. In addition, the Owner must diversify the Net Account Value according to our requirements. See Guaranteed Minimum Death Benefit Provision, page 23. The Guarantee Period Annual Premium depends on which of the two Guarantee Periods is chosen, as well as the Stated Death Benefit of the Policy, the Insured's Age, sex, and Premium Class, the death benefit option chosen, and Rider coverage. For Policies with no other Rider coverage, the Guarantee Period Annual Premium for the Lifetime Guarantee Period will be equal to the guideline annual premium determined in accordance with the Federal income tax law definition of life insurance; the Guarantee Period Annual Premium for the Ten Year/Age 65 Guarantee Period will be the greater of the Target Premium or Minimum Annual Premium for each Segment. The Guarantee Period Annual Premium for the Lifetime Guarantee Period will be greater than that required for the Ten Year/Age 65 Guarantee Period. Adding additional ________________________________________________________________________________ FirstLine 24 benefits to the Policy will increase the Guarantee Period Annual Premium above those indicated above. It is important to consider the Guaranteed Minimum Death Benefit Provision when setting the Scheduled Premium. MODIFIED ENDOWMENT CONTRACTS Regardless of which test for compliance with the Federal income tax law definition of life insurance is chosen, Federal income tax law provides special rules for the income taxation of distributions from life insurance policies which are defined as "Modified Endowment Contracts." These rules apply to distributions such as Policy Loans, surrenders and Partial Withdrawals. The application of these rules depends upon whether premiums have been paid which exceed a defined "seven-pay" limit. See Modified Endowment Contracts, page 43. If we determine that the Scheduled Premium chosen will cause the Policy to be a Modified Endowment Contract on the Policy Date, we will issue the Policy based on the Scheduled Premium selected, but we will require the Owner to sign a form acknowledging that the Policy is a Modified Endowment Contract. Alternatively, the Scheduled Premium may be reduced to a level which will not cause the Policy to become a Modified Endowment Contract, and we will issue the Policy based on the revised Scheduled Premium. ALLOCATION OF NET PREMIUMS After certain premium-based charges are deducted from each premium, the balance, called the Net Premium, is added to the Account Value based on the Owner's instructions. Net Premium amounts allocated to the Guaranteed Interest Division will be allocated to that Division upon receipt. During the Free Look Period, Net Premiums allocated to the Divisions of the Variable Account will be allocated to the Division investing in the Fidelity VIP Money Market Portfolio of the Variable Account. At the end of the Free Look Period, this portion of the Account Value will be automatically allocated according to the most recent premium allocation instructions. Net Premiums received after the Free Look Period will be allocated upon receipt, according to the allocation instructions stated in the application or the most recent instructions. Allocation percentages must be in whole numbers. The sum for all Divisions must equal 100%. The premium allocation may be changed five times per Policy year without charge. If the Owner changes premium allocations more than five times in a Policy year, there will be a $25 charge for each additional change. The Owner may utilize a maximum of 18 Divisions for investment over the lifetime of the Policy until current administrative systems are enhanced. The Divisions include the Divisions of the Variable Account and the Guaranteed Interest Division, but exclude the Loan Division. For example, if the Owner has allocated or transferred funds to 17 Divisions of the Variable Account and to the Guaranteed Interest Division (or to 18 Divisions of the Variable Account), those will be the only Divisions to which the Owner can subsequently allocate or transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the early years of the Policy so as to leave the option open to invest in other Divisions in the future. An Owner who has used 18 Variable Divisions will no longer have the Guaranteed Interest Division available for future use. DEATH BENEFITS FirstLine offers the flexibility to determine the amount of insurance coverage needed, both now and in the future. It does this by combining the long-term advantages of permanent life insurance coverage with the flexibility and short- term advantages of term life insurance. Both permanent and term life insurance are available in this single Policy, FirstLine. When the Policy is issued, an initial amount of insurance coverage is determined according to the instructions included in the application. The death benefit initially consists of a Stated Death Benefit and, if desired, an additional amount of insurance coverage which is added by Adjustable Term Insurance Rider. The Stated Death Benefit is the long-term element of the Policy; the Adjustable Term Insurance Rider is the term insurance element of the Policy. As described below, the Base Death Benefit may vary from the Stated Death Benefit. This may result from choice of death benefit option, increases to comply with the Federal income tax law definition of life insurance, changes in the death benefit option, partial withdrawals, requested increases and decreases, or when a transaction on the Policy causes the Base Death Benefit to change. The Adjustable Term Insurance Rider provides term insurance coverage which adjusts automatically to fill the difference between the Target Death Benefit chosen and the Base Death Benefit. The Adjustable Term Insurance Rider does not have an externally defined premium; the cost is included in the monthly cost of insurance charges discussed below. See Adjustable Term Insurance Rider, page 25. So long as the Policy remains in force, we will pay an amount equal to the Death Proceeds to the Beneficiary of this Policy when the Insured dies. The Death Proceeds will consist of the Base Death Benefit as of the date of the Insured's death, ________________________________________________________________________________ FirstLine 25 reduced by any outstanding Policy Loan and accrued loan interest (and, if in the grace period or 3 year special continuation period, further reduced by any unpaid charges incurred prior to the date of the Insured's death). The Death Proceeds will also include any amount provided by Rider on the primary Insured. DEATH BENEFIT OPTIONS The Owner may choose from two death benefit options: Option 1 or Option 2. These options may result in a Base Death Benefit under the Policy which exceeds the Stated Death Benefit. The death benefit option may be changed on any Policy anniversary. See Changes In Death Benefit Option, page 23. Under Option 1, the Base Death Benefit is the greater of: (a) the Stated Death Benefit on the date of the Insured's death; or (b) the Account Value on the date of the Insured's death multiplied by the appropriate factor from the Definition of Life Insurance Factors shown in Appendix A or B Under Option 2, the Base Death Benefit is the greater of: (a) the Stated Death Benefit plus the Account Value on the date of the Insured's death; or (b) the Account Value on the date of the Insured's death multiplied by the appropriate factor from the Definition of Life Insurance Factors shown in Appendix A or B. Owners who prefer to have any favorable investment experience reflected in increased insurance coverage should choose Option 2. Owners who prefer to have insurance coverage that does not vary in amount, and lower cost of insurance charges, should choose Option 1. If the policy was delivered on or before December 31, 1997 the Owner may also choose Option 3. Under Option 3 the Base Death Benefit is the greater of: (a) the Stated Death Benefit of the Policy plus the sum of all premiums paid minus Partial Withdrawals taken under the Policy; or (b) the Account Value on the date of the Insured's death multiplied by the appropriate factor from the Definition of Life Insurance Factors shown in Appendix A or B. Therefore, the Base Death Benefit generally will increase as the premiums are paid, and decrease as Partial Withdrawals are taken. In no event will the Base Death Benefit be less than the Stated Death Benefit. Federal income tax law requires the death benefit to be at least as great as the Account Value times a factor which is defined in the law. The factors are determined based upon the Age and possibly Premium Class and sex at any point in time as well as the test for compliance chosen in the original application for this Policy. See Life Insurance Definition, page 42, for a description of the tests and these factors. We will adjust the Policy if necessary to continue to qualify as life insurance under the applicable provisions of the Federal income tax laws in existence at the time the Policy is issued. CHANGES IN DEATH BENEFIT OPTION A change in the Death Benefit Option may be requested at least 30 days prior to a Policy anniversary. The change will be effective as of the Policy anniversary. Changes which involve Option 3 are available on policies delivered on or before December 31, 1997. The death benefit option change applies to the entire Stated Death Benefit. For us to approve a change in the death benefit option from Option 1 to Option 2, or from Option 1 to Option 3, evidence that the Insured is insurable according to our normal rules of underwriting for that class of policy must be submitted to us. We may not allow any change if it would reduce the Stated Death Benefit below the minimum we require to issue this Policy. After the effective date of the change, the Stated Death Benefit will be changed according to the following table: ________________________________________________________________________________ FirstLine 26 OPTION CHANGE STATED DEATH BENEFIT FROM TO FOLLOWING CHANGE EQUALS: Option 1 Option 2 Stated Death Benefit prior to such change minus the Account Value as of the effective date of the change. Option 2 Option 1 Stated Death Benefit prior to such change plus the Account Value as of the effective date of the change. Option 1 Option 3 Stated Death Benefit prior to such change minus (i) the sum of the premiums paid, plus (ii) Partial Withdrawals taken as of the effective date of the change. Option 3 Option 1 Stated Death Benefit prior to such change plus (i) the sum of the premiums paid, minus (ii) Partial Withdrawals taken as of the effective date of the change. Option 2 Option 3 Stated Death Benefit prior to such change plus(i) the Account Value as of the effective date of the change, minus (ii) the sum of premiums paid minus Partial Withdrawals taken as of the effective date of the change. Option 3 Option 2 Stated Death Benefit prior to such change (i) the sum of the premiums paid minus Withdrawals taken as of the effective date of the change, minus (ii) the Account Value as of the effective date of the change. For purposes of a death benefit option change, the Account Value will be allocated to each Segment in the same proportion that the Segment bears to the Stated Death Benefit. See Changes In Death Benefit Amounts, page 24. We do not charge a Surrender Charge for any decrease in Stated Death Benefit when this type of change is made, nor is there an adjustment to the Target Premium. See Surrender Charge, page 37. These increases and decreases in Stated Death Benefit are made so that the amount of the Base Death Benefit remains the same on the date of the change. When the Base Death Benefit remains the same, there is no immediate change in the Net Amount at Risk, which is the amount on which our cost of insurance charges are based. See Cost of Insurance Charges, page 35. In addition, there will be no change to the amount of term insurance if the Adjustable Term Insurance Rider has been added. Any changes in the death benefit option of the Policy will go into effect as of the Policy anniversary on or following the date we approve the request for the change. A request for a change must be received at our Customer Service Center at least 30 days prior to the Policy anniversary. After the request is approved, we will send a new policy schedule page. This schedule should be attached to the Policy. We may also ask that the Policy be returned to our Customer Service Center so that we can note the change in the Schedule. GUARANTEED MINIMUM DEATH BENEFIT PROVISION Generally, the length of time the Policy remains in force depends on the Net Cash Surrender Value of the Policy. Because the charges that maintain the Policy are deducted monthly from the Account Value, coverage will last as long as the Net Cash Surrender Value is sufficient to pay these charges. The investment experience of any amounts in the Divisions of the Variable Account and the interest earned in the Guaranteed Interest Division will affect the amount of the Account Value and, as a result, the length of time the Policy remains in force without the payment of additional premiums. When applying for the Policy, one of two Guaranteed Minimum Death Benefit provisions may be chosen, which may extend the period that the Stated Death Benefit of the Policy will remain in effect if the Divisions of the Variable Account suffer adverse investment experience. The two options vary primarily by the length of time which they cover, the Guarantee Period. The first option has a Guarantee Period of 10 Policy years or to the Insured's Age 65, whichever is later; that is, it protects the Stated Death Benefit of the Policy for a limited number of Policy years. The second option has a Lifetime Guarantee Period; it protects the Stated Death Benefit for the life of the Insured to the Maturity Date. See Choice of Guaranteed Minimum Death Benefit Provisions, page 21. However, the Guaranteed Minimum Death Benefit provision does not apply to the Adjustable Term Insurance Rider or to any other Riders. Therefore, if the Net Cash Surrender Value is insufficient to pay all of the deductions as they come due, only the Stated Death Benefit portion of the Policy will be guaranteed to stay in force under the Guaranteed Minimum Death Benefit provisions; any attached Riders will lapse. See Lapse, page 32. ________________________________________________________________________________ FirstLine 27 The Guaranteed Minimum Death Benefit provision is not available in Texas, Maryland, or Massachusetts. REQUIREMENTS TO MAINTAIN THE GUARANTEE PERIOD The Guaranteed Minimum Death Benefit provisions require premium payment levels, the Guarantee Period Annual Premium, that are higher than the Minimum Annual Premium. Although the required Guarantee Period Annual Premium are different, the mechanics of the Guaranteed Minimum Death Benefit provisions are similar. As of each Monthly Processing Date we will perform a test to see if sufficient premiums have been paid to keep the guarantee in place. If (i) actual premiums paid, minus the amount of any Partial Withdrawals and any Policy Loan and accrued loan interest, equals or exceeds (ii) the sum of the Guarantee Period Monthly Premiums for each Policy Month starting with the first Policy Month to and including the Policy Month that begins on the current Monthly Processing Date, the Guarantee Period will remain in effect regardless of the investment experience of the Divisions of the Variable Account. If the Policy fails to meet this test on any Monthly Processing Date, the Guarantee Period and therefore the Guaranteed Minimum Death Benefit provision will terminate. The Guarantee Period Annual Premium will be listed in the Schedule of the Policy. If the policy benefits are increased, the Guarantee Period Annual Premium is increased. The Guarantee Period Monthly Premium is one twelfth of the Guarantee Period Annual Premium. Each of these resulting amounts is summed and the total is used in (ii) above. The Guarantee Period will also be terminated if the Net Account Value on any Monthly Processing Date is not diversified according to the following rules: a) No more than 35% of the Net Account Value may be invested in any one division, and b) The Net Account Value must be invested in at least five Divisions. These diversification requirements will be satisfied if the Automatic Rebalancing Feature has been elected and conditions a) and b) above are met. The Policy will also be deemed to satisfy the requirements for diversification if Dollar Cost Averaging is elected and the resulting transfers are directed into at least four other Divisions with no more than 35% of any transfer directed to any one Division. See Dollar Cost Averaging, page 29, and Automatic Rebalancing, page 29. Once terminated, the Guaranteed Minimum Death Benefit provision cannot be reinstated. There is a charge for the Guaranteed Minimum Death Benefit. See Guaranteed Minimum Death Benefit Charge, page 36. This charge will end at the conclusion of the Ten Year/Age 65 Guarantee Period if that option is chosen, and it will end for either option if the Policy fails the monthly premium test or the diversification test. CHANGES IN DEATH BENEFIT AMOUNTS An increase or a decrease in the death benefit of the Policy may be requested by the Owner. This request must be received by our Customer Service Center at least 30 days prior to the Policy anniversary. Any change in coverage may not be for an amount less than $1,000. Any changes in the death benefit of the Policy will go into effect as of the Policy anniversary on or following the date we approve the request for the change. After the request is approved, we will send a new Schedule which will include the Stated Death Benefit, the benefit under any Riders, if applicable, the guaranteed cost of insurance rates, the guideline annual premium and the new Surrender Charge. This notice should be attached to the Policy. We may also ask that the Policy be returned to our Customer Service Center so that we can note the change in the Schedule. While the Policy is in force, increases in its Target or Stated Death Benefit may be made prior to the Policy anniversary on which the Insured is Age 86. The Stated Death Benefit may be decreased if the request occurs at least two years from the Policy Date or at least two years after a Segment is added. Decreases in the death benefit may not decrease the Stated Death Benefit below $50,000; (however, we may allow decreases below $50,000 for group or sponsored arrangements or corporate purchasers). There may be tax consequences to the decrease, See Life Insurance Definition, page 42, and Modified Endowment Contracts, page 43. If the death benefit is increased, satisfactory evidence must be provided that the Insured is still insurable. ________________________________________________________________________________ FirstLine 28 Unless indicated otherwise, any request for an increase to the Target Death Benefit will be assumed to also be a request for an increase to the Stated Death Benefit so that the amount of the Adjustable Term Insurance Rider, if it is included with the Policy at the time of the increase, will not change. The Target Death Benefit may be changed only once each Policy year. A requested increase in the Stated Death Benefit will create a new Segment. (Increases in Stated Death Benefit resulting from death benefit option changes do not create new Segments, rather, they merely increase the size of the existing Segment(s)) As discussed below, once created, a new Segment can never be entirely eliminated unless required differently by state law. If an increase creates a new Segment of Stated Death Benefit, premiums paid after the increase will be allocated to the original and the new Segments in the same proportion that the guideline annual premiums defined by the Federal income tax laws for each Segment bear to the sum of the guideline annual premiums for all Segments. The guideline annual premiums will be shown in the Schedule for each coverage segment. Net Amount at Risk will be allocated to each Segment in the same proportion that the Segment bears to the total Stated Death Benefit. Requested reductions in the death benefit or an option change that causes a reduction, will first be applied to reduce the Target Death Benefit. The Stated Death Benefit will be decreased only after Adjustable Term Insurance Rider coverage has been reduced to zero. If more than one Segment exists, any subsequent reduction in Stated Death Benefit will be allocated among Segments in the same proportion that each Segment bears to the total Stated Death Benefit prior to the reduction unless required differently by state law. If the reduction decreases the Stated Death Benefit during the Surrender Charge period, the Surrender Charge on the remaining Stated Death Benefit will be reduced; however, we will deduct an amount equal to the reduction in the Surrender Charge from the Account Value. See Surrender Charge, page 37. In some cases, we may not approve a change requested because it would disqualify the Policy as life insurance under applicable Federal income tax law. If we do not approve a change, we will provide notification of our decision about making the change. See Tax Considerations, page 42. BENEFITS AT MATURITY If the Insured is still living on the Maturity Date, we will pay the Net Account Value to the Policy Owner. The Net Account Value is the Account Value reduced by any outstanding Policy Loan and accrued loan interest. The Policy will then end. The Maturity Date is the Policy anniversary date on which the Insured attains Age 100. ADDITIONAL BENEFITS The Policy may include additional benefits, which are also attached to the Policy by Rider. A charge will be deducted monthly from the Account Value for each additional benefit chosen. These benefits may be canceled at any time. See Modified Endowment Contracts, page 43, for information on the tax effect of adding or canceling these benefits. More details will be included in the Policy if any of these benefits are chosen. From time to time we may make available Riders other than those listed below. Contact your Registered Representative for a complete list of the Riders available. Certain Riders may not be available for all Policies. ACCIDENTAL DEATH BENEFIT RIDER This rider will pay the benefit amount selected if the Insured dies as a result of an accident or if the Insured dies within 90 days of an injury sustained in an accident and the death occurs prior to the Insured's Age 70. ADJUSTABLE TERM INSURANCE RIDER ________________________________________________________________________________ FirstLine 29 The Death Proceeds may be increased by adding the Adjustable Term Insurance Rider on the life of the Insured. As the name suggests, the Adjustable Term Insurance Rider adjusts over time. At issue, a schedule of death benefits called the Target Death Benefit is specified at levels to meet projected needs in the future. The Target Death Benefit may be set to vary as often as each Policy year. The Target Death Benefit will be listed in the Schedule. Subject to our rules, the Target Death Benefit schedule may be changed after issue. See Changes In Death Benefit Amounts, page 24. If at any time a scheduled change is canceled or the Owner asks for an unscheduled decrease to the Target Death Benefit, we may deny any future scheduled increases to the Target Death Benefit. The amount of Adjustable Term Insurance Rider in force at any time is the amount needed to fill the difference between the Target Death Benefit selected and the Base Death Benefit in effect. The Adjustable Term Insurance Rider is dynamic in that it adjusts daily for variations in the Base Death Benefit resulting from compliance with the Federal income tax law definition of life insurance test you have chosen. For example, assume the Base Death Benefit increases due to compliance with the Federal income tax law definition of life insurance. The Adjustable Term Insurance Rider will adjust to provide Death Proceeds equal to the Target Death Benefit in each year:
Base Death Target Death Adjustable Term Benefit Benefit Insurance Rider Amount ------- ------- ---------------------- 201,500 250,000 48,500 202,500 250,000 47,500 202,250 250,000 47,750
Since the Adjustable Term Insurance Rider is dynamic, it is possible that the Adjustable Term Insurance Rider amount may be eliminated entirely as a result of increases in the Base Death Benefit due to the Federal income tax law definition of life insurance requirements. Using the example outlined above, if the Base Death Benefit under the Policy grew to $250,000, the Adjustable Term Insurance Rider amount would be reduced to zero. (It can never be reduced below zero.) Even though the Adjustable Term Insurance Rider amount is reduced to zero, the Rider will remain in effect until it is removed from the Policy. Therefore, if the Base Death Benefit under the Policy is subsequently reduced below the Target Death Benefit, the Adjustable Term Insurance Rider amount will reappear as needed to maintain the Target Death Benefit at the requested level. Partial Withdrawals and Base decreases may reduce the amount of the Target Death Benefit. See Partial Withdrawals, page 31. We generally restrict the amount of the Target Death Benefit to an amount not more than ten times the Stated Death Benefit. For example, if the Stated Death Benefit is $100,000 then the maximum amount of Target Death Benefit we will allow will be $1,000,000. Given the flexible nature of the Adjustable Term Insurance Rider, there is no defined premium for the amount of coverage. Instead, a cost of insurance charge is deducted monthly from the Account Value for the Adjustable Term Insurance Rider amount in effect. The cost of insurance charge may be lower than the rates applicable to the Base Death Benefit in the early Policy years, and may be higher in the later Policy years. See Cost of Insurance Charges, page 35. Since there is no defined premium related to the Adjustable Term Insurance Rider, there are no sales or Surrender Charges associated with this coverage; therefore, any increase in the Target Death Benefit which does not increase the Stated Death Benefit will not increase the total Surrender Charge for the Policy; any decrease in the Adjustable Term Insurance Rider coverage will not cause a Surrender Charge to be incurred. See Changes In Death Benefit Amounts, page 24. ADDITIONAL INSURED RIDER This Rider provides for death benefits upon the death of immediate family members other than the Insured. A maximum of nine Additional Insured Riders may be added to the Policy. The minimum amount of coverage for each Rider is $10,000 and the maximum coverage for all Additional Insured Riders combined equals five times the Stated Death Benefit of the Policy. CHILDREN'S INSURANCE RIDER This Rider will allow the addition of death benefit coverage on children. It also provides for coverage for children by birth or legal adoption upon attainment of 15 days of age without presenting evidence of insurability. RIGHT TO EXCHANGE RIDER This Rider allows the Owner to change the person insured under the Policy. A change of the Insured may have Federal ________________________________________________________________________________ FirstLine 30 income tax consequences. If an exchange of Insured occurs, the cost of insurance charges in the future may change but the Account Value will remain unchanged as of the exchange date. There is no charge for this Rider. GUARANTEED INSURABILITY RIDER This Rider will allow increases in the Stated Death Benefit without providing us with evidence that the Insured remains insurable. Increases are limited in amount and timing. WAIVER OF COST OF INSURANCE RIDER This Rider provides that during the total disability of the Insured, while the Policy remains in force, the monthly expense charges, cost of insurance charges and Rider charges will be waived and therefore not deducted from the Account Value. If this rider is added to the Policy, the Waiver of Specified Premium Rider may not also be added. WAIVER OF SPECIFIED PREMIUM RIDER This Rider provides that during the total disability of the Insured, while the Policy remains in force, a specified premium will be credited monthly to the Policy. In the application the amount of premium is selected, within limits, that will be waived. If this Rider is added to your Policy, the Waiver of Cost of Insurance Rider may not also be added. POLICY VALUES ACCOUNT VALUE The Account Value is the sum of the amounts in the Guaranteed Interest Division and in the various Divisions of our Variable Account. It also includes any amount we have set aside in the Loan Division to secure any outstanding Policy Loan. The Account Value therefore reflects all premiums paid, charges made, Loans and Partial Withdrawals taken, investment experience of the Variable Account and earnings accrued in the Guaranteed Interest and Loan Divisions. CASH SURRENDER VALUE The Cash Surrender Value of the Policy equals the Account Value less any Surrender Charge. NET CASH SURRENDER VALUE The Net Cash Surrender Value of the Policy is equal to the Cash Surrender Value less the amount of any outstanding Policy Loan and any accrued loan interest. NET ACCOUNT VALUE The Net Account Value of the Policy is equal to the Account Value less the amount of any outstanding Policy Loan and any accrued loan interest. DETERMINING THE VALUE IN THE DIVISIONS OF THE VARIABLE ACCOUNT The amounts included in the Divisions of the Variable Account are measured in terms of Accumulation Units and Accumulation Unit Values. On any given day, the value of the amount in a Division of the Variable Account is equal to the Accumulation Unit Value times the number of Accumulation Units credited in that Division. The Accumulation Units of each Division of the Variable Account will have different Accumulation Unit Values. Accumulation Units of a Division are purchased whenever premiums are allocated or amounts are transferred to that Division (including transfers from the Loan Division). Accumulation Units are redeemed when Partial Withdrawals are taken or amounts are transferred from a Division of the Variable Account (including transfers to the Loan Division) and to pay the death benefit when the Insured dies. We also redeem Accumulation Units for the monthly deductions from the Account Value, for Policy transaction charges and Surrender Charges, if any. The number of Accumulation Units purchased or redeemed in a Division of the Variable Account as of any Valuation Date is calculated by dividing the dollar amount of the transaction by the Division's Accumulation Unit Value calculated after the close of business that day. The Accumulation Unit Value of each Division fluctuates with the investment experience of the corresponding Portfolio and reflects the investment income, realized and unrealized capital gains and losses and expenses of the Portfolio. The Accumulation Unit Values also reflect the mortality and expense risk charges we make each day to the Variable Account. See How We Calculate Accumulation Unit Values for Each Division, page 28. ________________________________________________________________________________ FirstLine 31 Transactions are processed as of the Transaction Date. The Transaction Date is the date we receive a premium or an acceptable written or telephone request at our Customer Service Center. If the premium or request reaches our Customer Service Center on a day which is not a Valuation Date, or after the close of business on a Valuation Date (that is, after 4:00 p.m. Eastern Time), the Transaction Date will be the next succeeding Valuation Date. Monthly deductions against the Account Value are made as of the Monthly Processing Date. Transaction charges or Surrender Charges are made as of the effective date of the transaction. The value of any amount allocated to a Division of our Variable Account will go up or down depending on the investment experience of that Division. For amounts allocated to the Divisions of the Variable Account, there is no guaranteed minimum cash value. HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION We determine Accumulation Unit Values for the Divisions of the Variable Account as of each Valuation Date. All Policy transactions are performed as of a Valuation Date. The Accumulation Unit Value for each Division will generally be set at $10 on the first Valuation Date that there are Policy transactions in that Division of the Variable Account. After that, the Accumulation Unit Value as of any Valuation Date is equal to the Accumulation Unit Value for the preceding Valuation Date multiplied by the Accumulation Experience Factor for that Division for the Valuation Period. We calculate an Accumulation Experience Factor for each Division every Valuation Date as follows: 1. We take the value of the shares belonging to the Division in the corresponding Portfolio as of the close of business that Valuation Date (before giving effect to any Policy transactions for that day, such as premium payments or surrenders). For this purpose, we use the share value reported to us by the managers of the Portfolio. 2. We add any dividends or capital gains distributions declared and reinvested by the Portfolio during the Valuation Period. We subtract from this amount a charge for taxes, if any. 3. We divide this amount by the value of the shares belonging to the Division in the corresponding Portfolio as of the close of business on the preceding Valuation Date. This amount represents the gross experience factor per Accumulation Unit, before reduction for the expenses of the Variable Account. 4. We subtract a charge for the mortality and expense risk assumed by us under the Policy. The daily charge is .002055% of the Accumulation Unit Value, which is equivalent to an annual rate of .75% of the Accumulation Unit Value. If the previous day was not a Valuation Date, then the charge is adjusted for the additional days between valuations. The resulting amount is the Accumulation Experience Factor for the Valuation Period. TRANSFERS OF ACCOUNT VALUES After the Free Look Period, up to 12 transfers between Divisions of the Variable Account or to the Guaranteed Interest Division may be made in each Policy year without charge. There is no limit on the number of transfers, but we charge a fee of $25 for each additional transfer beyond the first 12. Transfers due to the operation of Automatic Rebalancing or Dollar Cost Averaging are not included in determining the limit on transfers without a charge. To make a transfer, write to our Customer Service Center. The transfer will take effect as of the Valuation Date we receive the request. The minimum amount we will transfer on any date is $100. This minimum need not come from any one Division or be transferred to any one Division as long as the total amount requested to be transferred equals at least the minimum. However, we will transfer the entire amount in any Division of the Variable Account from which a transfer is requested, if the amount remaining in that Division is less than $100. We reserve the right to limit excessive trading activity, which can disrupt Portfolio management strategy and increase Portfolio expenses. For example, we may refuse to accept or may place certain restrictions on transfers made by third-party agents acting on behalf of multiple Owners or made pursuant to market timing services when we determine, at our sole discretion, that such transfers will be detrimental to the Portfolios and the Owners as a whole. Such transfers may cause increased trading and transaction costs, disruption of planned investment strategies, forced and unplanned portfolio turnover, and lost opportunity costs, and may subject the Portfolios to large asset swings that diminish the Portfolios' ability to provide maximum investment return to all Owners. Transfers to or from the Guaranteed Interest Division are described below. Once during the first 30 days of each Policy year, amounts may be transferred from the Guaranteed Interest Division. Transfer requests received within 30 days ________________________________________________________________________________ FirstLine 32 prior to the Policy anniversary will be deemed to occur as of the Policy anniversary. Transfer requests received on the Policy anniversary or within the following 30 days will be processed. Transfer requests received at any other time will not be processed. Transfers of the Account Value to the Guaranteed Interest Division are not limited to this 30-day period. Transfer amounts from the Guaranteed Interest Division to the Divisions of the Variable Account are limited to the greatest of (i) 25% of the balance in the Guaranteed Interest Division at the time of the first transfer or withdrawal in that Policy year, (ii) the sum of the amounts transferred and withdrawn from the Guaranteed Interest Division in the prior Policy year or, (iii) $100. The Owner may utilize a maximum of 18 Divisions for investment over the lifetime of the Policy until current administrative systems are enhanced. The Divisions include the Divisions of the Variable Account and the Guaranteed Interest Division, but exclude the Loan Division. For example, if the Owner has allocated or transferred funds to 17 Divisions of the Variable Account and to the Guaranteed Interest Division (or to 18 Divisions of the Variable Account), those will be the only Divisions to which the Owner can subsequently allocate or transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the early years of the Policy so as to leave open the option to transfer Account Values to other Divisions in the future. An Owner who has used 18 Variable Divisions will no longer have the Guaranteed Interest Division available for future use. If telephone privileges have been elected in an application or sent by written notice to our Customer Service Center, transfers may be made by telephoning our Customer Service Center. See Telephone Privileges, page 49. DOLLAR COST AVERAGING We offer a feature called Dollar Cost Averaging to Owners who have at least $10,000 of Account Value invested in either the Division investing in the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio of the Variable Account. The main objective of Dollar Cost Averaging is to protect Policy values from short-term price fluctuations. Since the same dollar amount is transferred to other Divisions each period, more units are purchased in a Division if the value per unit is low, and fewer units are purchased if the value per unit is high. This plan of allocating Policy values reduces the risk of investing too much when the price of a Portfolio's shares is high and too little when the price of a Portfolio's shares is low. With Dollar Cost Averaging, a designated dollar amount of Account Value will be transferred automatically each period from the selected Division to one or more other Divisions of the Variable Account. Dollar Cost Averaging transfers may not be made to the Guaranteed Interest Division. Dollar Cost Averaging allocations must be designated as whole percentages. If the Owner elects to transfer to a particular Division, the minimum percentage that may be transferred to that Division is 1% of the total amount transferred. The transfer amount under Dollar Cost Averaging may be no less than $100. The first Dollar Cost Averaging date must be at least 30 days after our receipt of the request for Dollar Cost Averaging. However, in no event will Dollar Cost Averaging begin before the end of the Free Look Period. Dollar Cost Averaging will take place monthly, on the Monthly Processing Date. If on any Dollar Cost Averaging date, the amount in the Division from which transfers are to be made is equal to or less than the amount to be transferred, the entire remaining amount will be transferred, and Dollar Cost Averaging will end. Changes to the Dollar Cost Averaging program may be made once each Policy year or Dollar Cost Averaging may be canceled completely by sending satisfactory notice to our Customer Service Center at least seven days before the next Dollar Cost Averaging date. If telephone privileges are in effect, changes to the Dollar Cost Averaging program can be made by telephoning our Customer Service Center. See Telephone Privileges, page 49. A date for Dollar Cost Averaging to terminate may be specified. A dollar amount may be specified so that when the balance remaining in either the Division investing in the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio reaches this dollar amount, Dollar Cost Averaging will terminate. ________________________________________________________________________________ FirstLine 33 If both Dollar Cost Averaging and Automatic Rebalancing are elected, Dollar Cost Averaging will take place first. After Dollar Cost Averaging has terminated, Automatic Rebalancing will begin. On or before May 1, 1998, the following additional options will be made available under the Dollar Cost Averaging program: . A designated dollar amount or a percentage of the Account Value of the Division investing in the Fidelity VIP Money Market Portfolio or the Neuberger Berman AMT Limited Maturity Bond Portfolio may be transferred automatically to other Divisions of the Variable Account. . Periodic transfers may occur either monthly, quarterly, semi-annually, or annually; beginning on the date requested by the Owner. Unless specified otherwise, Dollar Cost Averaging will take place monthly, on the Monthly Processing Date . A Dollar Cost Averaging Program and an Automatic Rebalancing Program may run at the same time AUTOMATIC REBALANCING The Automatic Rebalancing feature provides a method for maintaining a balanced approach to investing Account Values and for simplifying the process of asset allocation over time. During the operation of Automatic Rebalancing, transfers among Divisions may be accomplished only by changing premium allocation percentages. The Automatic Rebalancing feature may be elected with the application or at any subsequent time by completing the appropriate form. Automatic Rebalancing matches Account Value allocations over time to the allocation percentages set by the Owner. Automatic Rebalancing will take place on the First Valuation Date of each calendar quarter. This will automatically rebalance the amounts in each of the Divisions to match the current premium allocation percentages. This will rebalance the amounts in Divisions that may be out of line with the allocation percentages, which may result, for example, from Divisions which underperform the other Divisions in certain periods. If this feature is elected we will transfer amounts among the Divisions so that, after the transfers, the ratio of the Account Value in each Division to the total Account Value matches the allocation percentage for that Division. If Automatic Rebalancing is elected with the Policy application, the first transfer will occur following the end of first transfer will be processed as of the first Valuation Date of the next calendar quarter after we receive notification at our Customer Service Center and the Free Look Period has ended. The allocation percentages for Automatic Rebalancing may be changed at any time and the Account Value will be reallocated as of the Valuation Date that we receive the allocation instructions at our Customer Service Center. Any reduction in the allocation to the Guaranteed Interest Division, however, will be considered a transfer from the Division and, therefore, must comply with the maximum transfer amount and time limitations on transfers from the Guaranteed Interest Division, as described in Transfers of Account Values on page 28. If we receive an Automatic Rebalancing request which is in conflict with these provisions, we will ask for revised instructions. The Automatic Rebalancing feature may be terminated at any time, so long as we receive notice of the termination at least seven days prior to the next Automatic Rebalancing. If the Guarantee Period is in effect and the Automatic Rebalancing feature is terminated, diversification of the Net Account Value must be maintained for the Guarantee Period to continue. If the Automatic Rebalancing feature is active, and the Guarantee Period is in effect on a Policy and a request is received for an allocation which does not meet the diversification Requirements to Maintain the Guarantee Period, we will notify the Owner that the allocation must be changed. See Guaranteed Minimum Death Benefit Provision, page 23. ________________________________________________________________________________ FirstLine 34 Any transfers that are a result of the Automatic Rebalancing feature are not counted toward the limit of 12 transfers that can be made each Policy year without a transfer charge. However, we will charge a fee of $25 each time the premium allocation is changed more often than five times per Policy year. Otherwise, there is no charge for this feature. If both dollar Cost Averaging and Automatic Rebalancing have been elected, Dollar Cost Averaging will take place first. After Dollar Cost Averaging has terminated, Automatic Rebalancing will begin. On or before May 1, 1998, the following additional options will be made available under the Automatic Rebalancing program: . During the operation of the Automatic Rebalancing feature, transfers among the Divisions may occur monthly, quarterly, semi-annually, or annually as specified by the Owner. Unless specified otherwise, Automatic Rebalancing will take place on the last Valuation Date of each quarter. . If Automatic Rebalancing is elected with the Policy application, the first transfer will occur on the date specified by the Owner, following the end of the Free Look Period. If this feature is elected after the Policy Date, the first transfer will be processed as of the date requested by the Owner after we receive notification at our Customer Service Center and the Free Look Period has ended. . Automatic Rebalancing allocations may be different than premium allocations. Automatic Rebalancing allocations may be specified for all or some of the Divisions in which the Account Value is invested. We will transfer amounts among the Divisions so that, after the transfers, the ratio of Account Value in each Division to the total Account Value of all Divisions included in Automatic Rebalancing matches the Automatic Rebalancing allocation percentage for that Division. . An Automatic Rebalancing program may be run simultaneously with a Dollar Cost Averaging program. . We will charge a fee of $25 each time the Automatic Rebalancing allocation is changed more than five times per Policy year. Otherwise there is no charge for this feature. POLICY LOANS At any time after the first Policy anniversary or as otherwise required by law, the Owner may borrow against the Policy by using it as security for a loan. The amount borrowed is called a Policy Loan. Unless otherwise required by state law, any new Policy Loan must be at least $100. The maximum amount which can be borrowed as of any Valuation Date equals the Net Cash Surrender Value less monthly deductions to the next Policy anniversary. Maximum loan amount may be different if required by state law. Requests for a Policy Loan may be made by contacting our Customer Service Center. Loan interest charges on a Policy Loan accrue daily at a compound annual interest rate of 3.75%. Interest is due in arrears on each Policy anniversary. If the interest is not paid when it is due, it will be added to the Policy Loan as of the Policy anniversary. If an additional loan is requested, the amount requested will be added to the outstanding Policy Loan so only one loan is outstanding at any time. Repayment of all or part of the Policy Loan may be made at any time while the Policy is in force. Unless otherwise indicated, we will assume that any payments, other than Scheduled Premiums, constitute Policy Loan repayments and not premiums. When a Policy Loan is taken, or if the loan interest is not paid on the Policy anniversary, an amount equal to the Policy Loan amount or interest due is transferred from the Divisions of the Variable Account and the Guaranteed Interest Division to the Loan Division to secure the loan. The Loan Division is part of our General Account, separate from the Guaranteed Interest Division. When transfers are made to the Loan Division, units of the Variable Account Divisions are redeemed sufficient to cover the amount of the loan which is taken from the Variable Account. We will deduct the amount transferred from each Division in the same proportion that the Account Value in that Division bears to the Net Account Value immediately prior to the loan transaction or as otherwise specified by the Owner's instructions. The amounts in each Division will be determined as of the Valuation Date we receive the request for a loan. The Loan Division is credited at a compound annual rate of 3% in all Policy years. ________________________________________________________________________________ FirstLine 35 On Policy anniversaries, the amount of interest credited to the Loan Division for the Policy year will be transferred from the Loan Division according to premium allocation instructions. When a loan repayment is made, an amount equal to the payment is transferred from the Loan Division. Amounts transferred from the Loan Division will be allocated to the Divisions of the Variable Account and the Guaranteed Interest Division in the same proportion as the current premium allocation unless a different allocation is requested. A Loan against the Policy will have a permanent effect on the Account Value and, therefore, on the benefits under this Policy, even if the Loan is repaid. When borrowing against the Policy, an amount equal to the Policy Loan is set aside in the Loan Division where it earns a guaranteed rate of interest. Premiums may not be allocated to or amounts transferred to the Loan Division other than by borrowing additional amounts. If not repaid, the Policy Loan and accrued loan interest will be deducted from the amount of the Death Proceeds paid, the Cash Surrender Value paid on surrender, or the Account Value upon maturity. It may also have an effect on the Guarantee Period and on the length of time the Policy remains in force, since in many cases the Policy will lapse when the Cash Surrender Value minus Policy Loans and accrued loan interest is insufficient to cover the monthly deductions against the Policy's Account Value. If telephone privileges have been elected in an application or written notice sent to our Customer Service Center requesting this privilege, a Policy Loan may be requested by telephoning our Customer Service Center. Any telephone request for a Policy Loan must be for an amount less than $25,000. See Telephone Privileges, page 49. Loans may have adverse Tax Consequences. See Modified Endowment Contracts, page 43. PARTIAL WITHDRAWALS A Partial Withdrawal may be requested on any Monthly Processing Date after the first Policy anniversary contacting our Customer Service Center. Only one Partial Withdrawal per Policy year is allowed. The minimum Partial Withdrawal is $100. The maximum Partial Withdrawal is the amount which will leave $500 as the Net Cash Surrender Value. If a withdrawal of more than this maximum is requested, we will require a full surrender of this Policy. When a Partial Withdrawal is taken, the amount of the withdrawal plus a service fee is deducted from the Account Value. In addition, a Surrender Charge will be deducted from the Account Value if the Partial Withdrawal causes a reduction in the Stated Death Benefit. See Surrender Charge, page 37. The Stated Death Benefit is not reduced by a Partial Withdrawal taken when the Base Death Benefit has been increased to qualify the Policy as life insurance under the Federal income tax laws (see Life Insurance Definition, page 42) and the amount withdrawn is no greater than that amount which reduces the Account Value to the level which no longer requires the Base Death Benefit to be increased for Federal income tax law purposes. For a Policy under an Option 1 death benefit, the Stated Death Benefit is not reduced by a Partial Withdrawal in the circumstances described above. In addition, if no more than 15 years have elapsed since the Policy Date and the Insured is not yet Age 81, a Partial Withdrawal of an amount up to 10% of the Account Value or, if greater, 5% of the Stated Death Benefit, calculated immediately before the Partial Withdrawal is taken will not reduce the Stated Death Benefit. Any additional amount withdrawn reduces the Stated Death Benefit by that additional amount. For a Policy under an Option 2 death benefit, a Partial Withdrawal does not reduce the Stated Death Benefit. No Partial Withdrawal will be allowed if the Stated Death Benefit remaining in force after the Partial Withdrawal would be reduced below $50,000. This minimum may be lowered for group or sponsored arrangements or corporate purchasers. See Group or Sponsored Arrangements or Corporate Purchasers, page 42. A Partial Withdrawal may also reduce the Target Death Benefit. Unless otherwise indicated, we will make the withdrawal from the Guaranteed Interest Division and the Divisions of the Variable Account in the same proportion that each Division bears to the Net Account Value immediately prior to the withdrawal. Withdrawals from the Guaranteed Interest Division may not exceed an amount that is greater than the total withdrawal times the ratio of the Account Value in the Guaranteed Interest Division to the total Net Account Value ________________________________________________________________________________ FirstLine 36 immediately prior to the withdrawal. We will send a new Schedule to reflect the effect of the withdrawal if there is a change to the Stated Death Benefit or to the Target Death Benefit. We may ask that the Policy be returned to our Customer Service Center to make this change. The withdrawal and any reductions in death benefits will be effective as of the Valuation Date after we receive the request. If telephone privileges have been elected Partial Withdrawals may be requested by telephoning our Customer Service Center. Any telephone request for a Partial Withdrawal must be for an amount less than $25,000. See Telephone Privileges, page 49. Partial Withdrawals may have adverse tax consequences. See Modified Endowment Contracts, page 43. SURRENDER During the first 14 Policy years, the Cash Surrender Value is the amount of the Account Value minus the Surrender Charge. A new 14 year Surrender Charge period will apply to each additional Segment of the Policy which is created upon a requested increase in the Stated Death Benefit. See Surrender Charge, page 37. The Policy may be surrendered for its Net Cash Surrender Value at any time while the Insured is living. This may be done by sending a written request and the Policy to our Customer Service Center. The Net Cash Surrender Value of the Policy equals the Cash Surrender Value minus any Policy Loan and accrued loan interest. We will compute the Net Cash Surrender Value as of the Valuation Date we receive the request and the Policy at our Customer Service Center, and all insurance coverage will end as of that date. A surrender of the Policy for its Net Cash Surrender Value may have adverse tax consequences. See Modified Endowment Contracts, page 43. RIGHT TO EXCHANGE POLICY During the first 24 months following the date we issue the Policy or add a coverage segment, the Policy provides a right to exchange the Policy from one in which the investment experience is not guaranteed into a guaranteed Policy unless required differently by state law. This is accomplished by the transfer of the entire amount in the Divisions of the Variable Account to the Guaranteed Interest Division, and the allocation of all future premium payments to the Guaranteed Interest Division. This will, in effect, serve as an exchange of the Policy for the equivalent of a flexible premium universal life insurance policy. No charge will be imposed on the transfer in exercising this exchange privilege. See The Guaranteed Interest Division, page 18. When this right is exercised, we will not allow allocation of future premium payments or transfers to the Divisions of the Variable Account. LAPSE Insurance coverage will continue as long as the Net Cash Surrender Value of the Policy is sufficient to pay all the deductions that are taken out of the Account Value each month. The Policy is guaranteed not to lapse, regardless of its Net Cash Surrender Value if, on each Monthly Processing Date during the first three Policy years, the sum of premiums paid, less the sum of Partial Withdrawals and Policy Loans taken including accrued loan interest, is greater than or equal to the sum of the applicable minimum monthly premiums for each Policy month starting with the first Policy Month to and including the Policy Month which begins on the current Monthly Processing Date. The minimum monthly premium is equal to one twelfth of the Minimum Annual Premium. IF THE GUARANTEED MINIMUM DEATH BENEFIT PROVISION IS NOT IN EFFECT Unless the Guaranteed Minimum Death Benefit provision is in effect or the special continuation period is in effect and its requirements have been met, the Policy including all attached Riders will lapse in its entirety on any Monthly Processing Date that the Net Cash Surrender Value of the Policy is not sufficient to pay all the monthly deductions from the Account Value. A 61-day grace period will begin on that Monthly Processing Date. See Grace Period, page 33. If we do not receive payment of the requested amount in full within the 61 days, the Policy and all Riders attached will ________________________________________________________________________________ FirstLine 37 lapse without value. We will withdraw any remaining balance of the Account Value from the Divisions of the Variable Account and the Guaranteed Interest Division. We will apply any deductions owed to us against the Account Value, including any applicable Surrender Charge. We will inform the Owner that the Policy has ended without value. If the Insured dies during the grace period, we will pay the Death Proceeds to the Beneficiary that reflect reductions for Policy Loans, accrued loan interest and any monthly deductions due. IF THE GUARANTEED MINIMUM DEATH BENEFIT PROVISION IS IN EFFECT After the special continuation period if the Guaranteed Minimum Death Benefit provision is in effect, the Stated Death Benefit of the Policy will not lapse during the Guarantee Period even if the Net Cash Surrender Value is not sufficient to cover all the deductions from the Account Value on any Monthly Processing Date. (See Guaranteed Minimum Death Benefit Provision, page 23. The benefits provided by Riders attached to the Policy and any amount by which the Base Death Benefit exceeds the Stated Death Benefit are not protected by the Guaranteed Minimum Death Benefit Provision. Therefore, these portions of the benefits will lapse if the Net Cash Surrender Value is not sufficient to cover all the deductions from the Account Value on any Monthly Processing Date (unless the Policy is in the 3 year special continuation period). While the Guaranteed Minimum Death Benefit provision applies, unless the Policy is in the three year special continuation period, the Account Value may be reduced by monthly deductions, but not below zero. Any monthly deductions during the Guarantee Period which would reduce the Account Value below zero will be permanently waived. The Guaranteed Minimum Death Benefit provision will be terminated if the Policy does not meet the monthly premium test or if the Net Account Value is not diversified according to our requirements as explained in Requirements to Maintain the Guaranteed Period, page 24. If the Guaranteed Minimum Death Benefit provision is terminated the normal test for lapse will resume. GRACE PERIOD If the following conditions occur as of a Monthly Processing Date, the Policy will enter into the 61-day Grace Period: (i) The Net Cash Surrender Value is zero or less; (ii) The Guarantee Period has expired or been terminated; and (iii) The three year special continuation period has expired or the required premium has not been paid. We will, at least 30 days before the end of a grace period, notify the Owner or any assignee in writing at the last known address on our records that the grace period has begun. The notification will include the amount of premium payment necessary to reinstate the Policy and all Riders attached. The premium required to reinstate the Policy is generally the amount of past due charges plus the amount that will cover estimated monthly deductions for the Policy and all attached Riders for the following two months. If we receive payment of this amount before the end of the grace period, we will use the amount sent to make the overdue deductions. Any balance remaining will be applied to the Account Value in the same manner as other premium payments. REINSTATEMENT If the Policy owner fails to pay sufficient premiums prior to the end of the Grace Period, the Policy and its Riders other than the Guaranteed Minimum Death Benefit Provision may be reinstated within five years after the Grace Period. Unless otherwise required by state law, we will reinstate the Policy and any Riders if: (i) The Policy has not been surrendered for its Net Cash Surrender Value; (ii) Evidence satisfactory to us that the Insured and the Insureds under any Riders are still insurable according to our normal rules of underwriting for this type of Policy is provided to us; and (iii) A premium payment sufficient to keep the Policy and any Riders in force from the beginning of the grace period to the end of the expired grace period and for two months following the date of the reinstatement is made (unless required differently by state law). The reinstatement will be effective as of the Monthly Processing Date following our approval of the reinstatement application. Upon reinstatement of the Policy, the Surrender Charges will be reinstated for the amount and duration remaining at the time the Policy lapsed. We will also reinstate _______________________________________________________________________________ FirstLine 38 any Policy Loan which existed when coverage ended, with accrued loan interest to the date of lapse. Net Premiums received after reinstatement will be allocated according to the premium allocation instructions in effect at the start of the grace period or as otherwise directed. CHARGES, DEDUCTIONS AND REFUND DEDUCTIONS FROM PREMIUMS Unless a loan is outstanding (see Policy Loans, page 31), any payment received before the Maturity Date is considered a premium. Certain expenses are deducted from the premium payments. The remainder of each premium (the Net Premium) is then added to the Account Value. The expenses which are deducted from the premium include the Tax Charges and the Sales Charge. TAX CHARGES All states levy taxes on life insurance premium payments. The amount of these taxes vary from state to state, and may vary from jurisdiction to jurisdiction within a state. We currently deduct an amount equal to 2.5% of each premium to pay applicable premium taxes. The 2.5% rate approximates the average tax rate we expect to pay on premiums from all states. A charge currently equal to 1.5% of each premium payment is deducted to cover our estimated cost for the Federal income tax treatment of deferred acquisition costs determined solely by the amount of life insurance premiums we receive. This charge for deferred acquisition costs is reasonable in relation to Security Life's increased Federal income tax burden under Internal Revenue Code Section 848 resulting from the receipt of premium payments. Except as limited by state law, we reserve the right to increase or decrease the premium expense charge for taxes due to any change in tax law. We further reserve the right to increase or decrease the premium expense charge for the Federal income tax treatment of deferred acquisition costs due to any change in the cost to us. SALES CHARGE A percentage of each premium is deducted to compensate us for a portion of the cost of selling the Policy. The percentage deducted is determined by the Insured's Age on the Policy Date or the date of an increase in coverage: Age of Insured Sales Charge Percentage -------------- ----------------------- 0 - 49 2.25% 50 - 59 3.25% 60 - 85 4.25% These deductions from premiums are only a portion of the total sales charge that will be assessed against the Account Value in the event the Policy is surrendered during the 14 Policy years following the Policy Date or 14 Policy years following an increase to the Stated Death Benefit. See Surrender Charge, page 37. For a Policy with multiple Segments, premiums paid are allocated to the Segments in the same proportion that the guideline annual premium (as defined by the Federal income tax law) for each segment bears to the total guideline annual premium for the Stated Death Benefit. The sales charge covers the cost of distribution, costs of preparing our sales literature, other promotional expenses, and other direct and indirect expenses. The amount of this charge cannot be specifically related to sales expenses in a particular year since we recover these costs over the period the Policies remain in effect. We pay the sales expenses from our own resources, including this sales charge, any sales Surrender Charge we may collect and any profit we may earn on the other charges deducted under the Policy. The sales charge may be reduced or waived for certain group or sponsored arrangements or corporate purchasers. DAILY DEDUCTIONS FROM THE VARIABLE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE Each day a charge is deducted for mortality and expense risks we assume. This charge is equal to 0.002055% per day of the amount in the Divisions of the Variable Account, which is equivalent to an annual rate of 0.75% of the portion of the Account Value allocated to the Variable Account. We assess the mortality and expense risk charge to compensate us for assuming mortality and expense risks under the Policies. The mortality risk we assume is that Insureds, as a group, may live for a shorter period of time than estimated and, therefore, the cost of insurance charges _______________________________________________________________________________ FirstLine 39 specified in the Policy will be insufficient to meet our actual claims. The expense risk we assume is that other expenses we incur in issuing and administering the Policies and operating the Variable Account will be greater than the amount we estimated when setting the charges for these expenses. We will realize a profit from this fee to the extent it is not needed to provide benefits and pay expenses under the Policies. We may use this profit for other purposes, including any distribution expenses not covered by the sales charge or sales Surrender Charge. This charge is not assessed against the amount of the Account Value which is allocated to the Guaranteed Interest Division, nor to amounts in the Loan Division. We credit the Account Value with a persistency refund equivalent to 0.5% per year for each Segment that has been in force for at least 10 Policy years, which effectively reduces the charge for mortality and expense risks. See Persistency Refund, page 36. MONTHLY DEDUCTIONS FROM THE ACCOUNT VALUE The following charges are deducted from the Account Value on each Monthly Processing Date. These deductions are taken from the Divisions of the Variable Account and the Guaranteed Interest Division in the same proportion that the Account Value in each Division bears to the total Net Account Value as of the Monthly Processing Date. INITIAL POLICY CHARGE The initial Policy charge is $10 per month for the first three Policy years. This charge covers the costs of setting up the Policy, other than sales expenses, such as application processing, medical examinations, establishment of Policy records and insurance underwriting costs. This charge is designed to reimburse us for expenses and we do not expect to gain from it. MONTHLY ADMINISTRATIVE CHARGE This charge is comprised of a per Policy charge of $3 per month plus a charge of $0.0125 per thousand of Stated Death Benefit (or Target Death Benefit, if greater), and is guaranteed never to exceed this amount. The per thousand charge is limited to $15 per month. This charge is designed to cover the ongoing costs of maintaining the Policy, such as premium billing and collections, claim processing, Policy transactions, record keeping, reporting and other communications with Owners, and other expenses and overhead. This charge is designed to reimburse us for expenses and we do not expect to gain from it. COST OF INSURANCE CHARGES The cost of insurance charges compensate us for the anticipated cost of paying the amount of the Death Proceeds that exceeds the Account Value upon the death of the Insured. The cost of insurance charges are calculated monthly, and equal our current monthly cost of insurance rate times the Net Amount at Risk for each portion of the death benefit. Net Amount at Risk for each portion of the death benefit is calculated at the beginning of the Policy month. The Net Amount at Risk for the Base Death Benefit is equal to the difference between the current Base Death Benefit and the amount of the Account Value. For this purpose, the amount of the Account Value is determined after deduction of charges and Rider charges due on that date, other than cost of insurance charges for the Base Death Benefit, any Adjustable Term Insurance Rider and Waiver of Cost of Insurance Rider. The Net Amount at Risk for the Adjustable Term Insurance Rider is equal to the amount of the benefit provided. If the Base Death Benefit at the beginning of the month is increased due to the requirements of Federal income tax law definition of life insurance, Net Amount at Risk for the Base Death Benefit that month will also increase, and the Net Amount at Risk for the Adjustable Term Insurance Rider will be reduced. Therefore, the amount of the cost of insurance charges will vary from month to month with changes in the Net Amount at Risk, changes in the relative makeup of the death benefit, and with increasing Age of the Insured. The cost of insurance rates are based on the Age, sex and Premium Class of the Insured on the Policy Date or at the time a Base coverage segment is added. Unisex rates are used where appropriate under applicable law, currently including the state of Montana and any Policies purchased by employers and employee organizations in connection with employment-related insurance or benefit programs. Net Amount at Risk is allocated to Segments in the same proportion that each Segment bears to the total Stated Death Benefit for all coverage segments as of the Monthly Processing Date. Separate cost of insurance rates apply to the Base Death Benefit, the Adjustable Term Insurance Rider and any additional Segments. In addition, rates are greater for Policies with Stated Death Benefit (or Target Death Benefit, if any) that is less than $100,000 on the Policy Date. We may change these rates from time to time, but they will never be more than the guaranteed maximum rates set forth in the Policy, which are based on the 1980 Commissioner's Standard Ordinary Mortality Tables. The maximum rates for the new Segment will be printed in the Schedule which we will provide. _______________________________________________________________________________ FirstLine 40 CHARGES FOR ADDITIONAL BENEFITS The cost of any additional benefits added by Rider will be deducted monthly on the Monthly Processing Date. We may change these charges, but the Schedule contains tables showing the guaranteed maximum rates. See Additional Benefits, 25. GUARANTEED MINIMUM DEATH BENEFIT CHARGE If the Guaranteed Minimum Death Benefit is elected, we currently charge $0.005 per thousand of Stated Death Benefit each month during the Guarantee Period. This charge is guaranteed never to exceed $0.01 per thousand of Stated Death Benefit each month. CHANGES IN MONTHLY CHARGES Any changes in the cost of insurance charges, charges for additional benefits, or guaranteed minimum death benefit charge will be made by class of Insured and will be based on changes in future expectations about such things as investment earnings, mortality, the length of time policies will remain in effect, expenses and taxes. In no event will they exceed the guaranteed maximum rates defined in the Policy. POLICY TRANSACTION FEES In addition to the deductions described above, we charge fees for certain Policy transactions. Transaction fees are taken from the Divisions of the Variable Account and the Guaranteed Interest Division in the same proportion that the Account Value in each Division bears to the Net Account Value immediately after the transaction. PARTIAL WITHDRAWAL A service fee equal to the lesser of $25 or 2% of the amount requested will be charged against the Account Value for each Partial Withdrawal. In addition, a Surrender Charge may be deducted from the Account Value. See Partial Withdrawals, page 31. TRANSFERS We charge a fee of $25 for each additional transfer beyond the first twelve in a Policy year. See Transfer of Account Values, page 28. All transfers included in one transfer request count as a single transfer when we calculate the fee. There will not be a transfer fee if transferring the Account Value into the Guaranteed Interest Division pursuant to the Exchange Right provided by this Policy. See Right to Exchange Policy, page 12. ALLOCATION CHANGES We charge a fee of $25 each time the premium allocation is changed beyond five times per Policy year. ILLUSTRATIONS We reserve the right to charge a fee, not to exceed $25, for Policy illustrations in excess of one per Policy year. PERSISTENCY REFUND Long term Owners of FirstLine will receive a persistency refund. Each month the Policy or a Segment remains in force after its tenth Policy anniversary, we will credit the Account Value with a refund equivalent to 0.5% of the Account Value on an annual basis for that Segment (0.04167% monthly). The Account Value will be allocated to each Segment based upon the number of completed Policy years that Segment has been in force and the size of the guideline annual premium as defined by the Federal income tax law definition of life insurance. The Persistency refund will be added to the Divisions of the Variable Account and the Guaranteed Interest Division in the same proportion that the Account Value in each Division bears to the Net Account Value as of the Monthly Processing Date. The following is an example of how the persistency refund affects the Account Value each month if the policy has no loan: Account Value = $10,000 (all in the Variable Divisions) Monthly persistency refund Rate = .0004167 Persistency refund = 10,000 x .0004167 = $4.17 _______________________________________________________________________________ FirstLine 41 Before After Persistency Persistency Refund Refund ------ ------ Variable $10,000.00 $10,004.17 Divisions The following is an example of how the persistency refund affects the Account Value each month if the Policy has a loan: Account Value = $10,000 Account Value in the Variable Divisions = $5,000 Account Value in the Loan Division = $5,000 Monthly persistency refund Rate = .0004167 Persistency refund = 10,000 x .0004167 = $4.17 Before After Persistency Persistency Refund Refund ------ ------ Variable $5,000.00 $5,004.17 Divisions Loan Division $5,000.00 $5,000.00 SURRENDER CHARGE We assess a Surrender Charge against the Account Value upon a surrender, reduction in Stated Death Benefit or lapse of the Policy in the first 14 Policy years, or the 14 Policy years following an addition of a new Segment. The Surrender Charge is designed to recover our expenses in issuing and distributing Policies. The Surrender Charge consists of two charges: an administrative Surrender Charge and a sales Surrender Charge. During the first 14 years of the Policy or within 14 years of adding a Segment, if the Owner requests a decrease to the Stated Death Benefit of the Policy or takes a Partial Withdrawal which decreases the Stated Death Benefit, we will deduct a portion of the Surrender Charge from the Account Value. The amount of the Surrender Charge which will be deducted from the Account Value will equal the Surrender Charge in effect before the reduction minus the Surrender Charge in effect after the reduction. A decrease to the Stated Death Benefit as a result of a change to the death benefit option does not result in a Surrender Charge deduction from the Account Value and future Surrender Charges will not be reduced. An increase to the Stated Death Benefit as a result of a change to the death benefit option does not result in an increase in the maximum sales Surrender Charge. All other increases in Stated Death Benefit will increase the maximum sales and administrative Surrender Charges. If the maximum Surrender Charge is changed, we will send a new Schedule that shows the new maximum Surrender Charge. Maximum Surrender Charges apply only if the Policy is surrendered or lapses (after paying enough premiums to reach the maximum Surrender Charge). ADMINISTRATIVE SURRENDER CHARGE The administrative Surrender Charge is equal to a dollar amount for each $1,000 of Stated Death Benefit. This dollar amount is based on the Insured's Age at the Policy Date or the time that a new Stated Death Benefit coverage segment is added:
Administrative Surrender Charge Per Insured's Age Thousand of Stated Death Benefit - ------------- --------------------------------- 0 - 39 $2.50 40 - 49 $3.50 50 - 59 $4.50 60 - 69 $5.50 70 and above $6.50
For example, the administrative Surrender Charge will be $350 for a Policy with a Stated Death Benefit of $100,000 if the Insured is 40 on the Policy Date. The amount of the charge stays level for the first seven Policy years following the effective date of a coverage segment, then decreases at the beginning of each Policy year by 12.5% of the amount in effect at the end of the seventh Policy year until it reaches zero at the beginning of the 15th year or the year in which the Insured reaches Age 98, whichever is earlier. During the first 14 Policy years or within 14 Policy years of adding a Segment, if a decrease to the Stated Death Benefit is requested or a Partial Withdrawal is taken which causes the Stated Death Benefit to decrease, the administrative Surrender Charge will decrease in the same proportion that the Stated Death Benefit decreases. The amount by which the Administrative Surrender charge decreases will be deducted ________________________________________________________________________________ FirstLine 42 from the Account Value. The administrative Surrender Charge is designed to partially cover the administrative expenses associated with setting up the Policy (other than sales expenses), such as application processing, establishment of Policy records and insurance underwriting costs. It also includes costs associated with the development and operation of our systems for administering the policies. We do not expect to profit from the administrative Surrender Charge. SALES SURRENDER CHARGE The sales Surrender Charge is calculated for each Segment. It is calculated by allocating premiums paid to Segments in the same proportion that the guideline annual premium as defined by the Federal income tax laws for each Segment bear to the sum of the guideline annual premiums for all Segments. The sales Surrender Charge is equal to 25% of paid premiums up to the Target Premium for the Segment without any substandard ratings (Base Standard Target Premium) plus 5% of any premiums paid in the first seven Policy years following the effective date of a coverage Segment in excess of the Base Standard Target Premium for the Segment. The sales Surrender Charge will not exceed 50% of the Base Standard Target Premium. Target Premiums are not based on the Scheduled Premium determined when the Policy was purchased. Target Premiums are actuarially determined based on the Age and sex of the Insured. The Target Premium for the Policy and any Segments added since the Policy Date will be listed in the Schedule. The maximum sales Surrender Charge for the Stated Death Benefit will be shown in the Schedule attached to the Policy. The maximum sales Surrender Charge for a Segment remains level for the first seven Policy years following the effective date of the Segment, then decreases at the beginning of each Policy year by 12.5% of the amount in effect at the end of the seventh Policy year until it reaches zero at the beginning of the 15th Policy year or the year in which the Insured reaches Age 98, whichever is earlier. Upon a decrease in the Stated Death Benefit other than due to a change in the death benefit option, the Target Premium for each Segment will be reduced in the same proportion that the Stated Death Benefit is reduced. If the new Target Premium for each Segment is greater than or equal to the sum of the paid premiums which are allocated to the Segment, the maximum sales Surrender Charge in the future will be reduced, but a sales Surrender Charge will not be deducted from the Account Value. If the new Target Premium for each Segment is less than the sum of the paid premiums which are allocated to the Segment, the maximum sales Surrender Charge in the future will be reduced and a sales Surrender Charge will be deducted from the Account Value. The new sales Surrender Charge will be recalculated as if the new Target Premium was always in effect for the Segment. A deduction equal to the difference between the sales Surrender Charge prior to the decrease less the sales Surrender Charge after the decrease will be taken from the Account Value. If a decrease to the Stated Death Benefit, or a Partial Withdrawal which causes the Stated Death Benefit to be reduced is requested, more than seven years following the Policy Date or the date a Segment is added, the maximum sales Surrender Charge in the future will be reduced in the same proportion that the Stated Death Benefit is reduced. The amount of the sales Surrender Charge in a Policy year is not necessarily related to our actual sales expenses in that year. To the extent sales expenses are not covered by the sales Surrender Charge, we will cover them from other funds. _______________________________________________________________________________ FirstLine 43 EXAMPLES OF THE CALCULATION OF SURRENDER CHARGE FOLLOW: If the Stated Death Benefit is $100,000 for an Insured Age 45 on the Policy Date and the Target Premium on this Policy is $1,500, the actual Surrender Charge assuming that a $1,000 premium is paid each Policy year is shown in the table below:
Policy Year Administrative Sales Surrender Charge Actual Surrender Surrender Charge Charge 1 $350.00 $250.00 $ 600.00 2 350.00 400.00 750.00 3 350.00 450.00 800.00 4 350.00 500.00 850.00 5 350.00 550.00 900.00 6 350.00 600.00 950.00 7 350.00 650.00 1000.00 8 306.25 568.75 875.00 9 262.50 487.50 750.00 10 218.75 406.25 625.00 11 175.00 325.00 500.00 12 131.25 243.75 375.00 13 87.50 162.50 250.00 14 43.75 81.25 125.00 15 0.00 0.00 0.00
If the Stated Death Benefit is reduced on the third Policy anniversary to $90,000, the Target Premium will be reduced proportionately and will then equal $1,350 (90% of $1,500). A sales Surrender Charge in the amount of $30 (the difference between the sales Surrender Charge immediately prior to the decrease and the sales Surrender Charge calculated assuming the new Target Premium was always in effect for the Policy) and an administrative Surrender Charge in the amount of $35 ($350 - $315 where $315 is equal to 90% of the original administrative Surrender Charge of $350) will be deducted from the Account Value. The resulting actual Surrender Charge for each Policy year is shown below:
Policy Year Administrative Sales Surrender Charge Actual Surrender Surrender Charge Charge 1 $350.00 $250.00 $600.00 2 350.00 400.00 750.00 3 350.00 450.00 800.00 4 315.00 470.00 785.00 5 315.00 520.00 835.00 6 315.00 570.00 885.00 7 315.00 620.00 935.00 8 275.63 542.50 818.13 9 236.25 465.00 701.25 10 196.88 387.50 584.38 11 157.50 310.00 467.50 12 118.13 232.50 350.63 13 78.75 155.00 233.75 14 39.38 77.50 116.88 15 0.00 0.00 0.00
CHARGES FROM PORTFOLIOS The Variable Account purchases shares of the Portfolios at net _______________________________________________________________________________ FirstLine 44 asset value. The price reflect investment management fees and other direct expenses that have already been deducted from the assets of the Portfolio. The following table describes these investment management fees and other direct expenses of the Portfolios. PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS) /1/
Investment Portfolio ---------- Total Portfolio --------- Management --------------- Fees Other Expenses Expenses ---------- --------------- --------------- NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST /2/ Limited Maturity Bond Portfolio 0.65% 0.13% 0.78% Growth Portfolio 0.83% 0.09% 0.92% Partners Portfolio 0.84% 0.11% 0.95% Government Income Portfolio/12/ 0.00% 1.02% 1.02% THE ALGER AMERICAN FUND Alger American Small Capitalization Portfolio 0.85% 0.03% 0.88% Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84% Alger American Growth Portfolio 0.75% 0.04% 0.79% Alger American Leveraged AllCap Portfolio 0.85% 0.24% 1.09/3/ FIDELITY VARIABLE INSURANCE PRODUCTS FUND VIP Growth Portfolio 0.61% 0.08% 0.69%/4/ VIP Overseas Portfolio 0.76% 0.17% 0.93%/4/ VIP Money Market Portfolio 0.21% 0.09% 0.30% FIDELITY VARIABLE INSURANCE PRODUCTS FUND II VIP II Asset Manager Portfolio 0.64% 0.10% 0.74%/4/ VIP II Index 500 Portfolio 0.13% 0.15% 0.28%/5/ INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO VIF - Total Return Portfolio 0.75% 0.19% 0.94%/6,7/ INVESCO VIF - Industrial Income Portfolio 0.75% 0.20% 0.95%/6,8/ INVESCO VIF - High Yield Portfolio 0.60% 0.27% 0.87%/6.9/ INVESCO VIF - Utilities Portfolio 0.60% 0.56% 1.16%/6,10/ INVESCO VIF - Small Company Growth Fund/13/ 0.75% 0.25% 1.00% VAN ECK WORLDWIDE INSURANCE TRUST Worldwide Hard Assets Fund (formerly Gold and Natural Resources 1.00% 0.11% 1.11% Fund) Worldwide Real Estate Fund/13/ 1.00% 0.25% 1.25% Worldwide Emerging Markets Fund/13/ 1.00% 0.27% 1.27% Worldwide Bond Fund/13/ 1.00% 0.12% 1.12% Worldwide Balanced Fund/12/ 0.00%/11/ 0.00%//11/ 0.00%/11/ AIM VARIABLE INSURANCE FUNDS, INC.
_______________________________________________________________________________ FirstLine 45 AIM VI - Capital Appreciation/13/ 0.64% 0.09% 0.73% AIM VI - Government Securities/13/ 0.50% 0.41% 0.91%
__________________ /1/ The preceding Portfolio expense information was provided to us by the Portfolios, and we have not independently verified such information. These Portfolio expenses are not direct charges against Division assets or reduction from Contract values; rather these Portfolio expenses are taken into consideration in computing each underlying Portfolio's net asset value, which the share price used to calculate the unit values of the Divisions. For a more complete description of the Portfolios' costs and expenses, see the prospectuses for the Portfolios. /2/ Neuberger & Berman Advisers Management Trust (the "Trust") is divided into portfolios ("Portfolios"), each of which invests all of its net investable assets in a corresponding series ("Series") of Advisers Managers Trust. The figures reported under "Investment Management and Administration Fees" include the aggregate of the administration fees paid by the Portfolio and the management fees paid by its corresponding Series. Similarly, the "other Expenses" includes all other expenses of the Portfolio and its corresponding series. See "Expenses" in the Trust's Prospectus. Expenses reflect expense reimbursement. NBMI has voluntarily undertaken to limit the Portfolios' compensation of NBMI and excluding taxes, interest, extraordinary expense, brokerage commissions and transaction costs, that exceed 1% of the Portfolios' average daily net asset value. These expense reimbursement policies are subject to termination upon 60 days written notice to the Portfolios. /3/ The Alger American Leverage AllCap Portfolio's "Other Expenses" includes 0.03% of interest expense. /4/ A portion of the brokerage commissions the Portfolio paid was used to reduce its expenses. In addition, certain funds have entered into arrangements with their custodian and transfer agent expenses. Including these reductions, the total operating expenses presented in the table would have been 0.67% for Growth Portfolio, 0.92% for Overseas Portfolio, and 0.73% for Asset Manager Portfolio. /5/ FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during the period. Without this reimbursement, the funds' management fee, other expenses and total expenses would have been 0.28%, 0.15% and 0.43% respectively for Index 500 Portfolio on a annualized basis. /6/ The Portfolios' custodian fees were reduced under an expense offset arrangement. In addition, certain expenses of the Portfolio's are being absorbed voluntarily by INVESCO Funds Group, Inc. ("IFG"). The above ratios reflect total expenses, less expenses absorbed by IFG, prior to any expense offset. /7/ Various expenses of the Portfolio were voluntarily absorbed by IFG for the years ended December 31, 1996 and 1995 and the period December 31, 1994. If such expenses had not been voluntarily absorbed, ratio expenses to average net assets would have been 1.30%, 2.51% and 16.44%, respectively, and ratio of net investment income to average net assets would have been 3.08%, 2.41% and (11.72%), respectively. /8/ Various expenses of the Portfolio were voluntarily absorbed by IFG for the years ended December 31, 1996 and 1995 and the period ended December 31, 1994. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 1.19%, 2.31% and 32.55%, respectively, and ratio of net investment income to average net assets would have been 2.63%, 2.22% and (30.07%), respectively. /9/ Various expenses of the Portfolio were voluntarily absorbed by IFG for the years ended December 31, 1996 and 1995 and the period ended December 31, 1994. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been 1.32%, 2.71% and 30.38% respectively, and ratio of net investment income to average net assets would have been 8.74%, 7.05% and (26.92%), respectively. /10/ Various expenses of the Portfolio were voluntarily absorbed by IFG for the years ended December 31, 1996 and 1995. If such expenses had not been voluntarily absorbed, ratio expenses to average net assets would have been 5.36%, and 57.13%, respectively, and ratio of net investment income to average net assets would have been (1.28%), and (52.86), respectively. /11/ The Portfolio's expenses were voluntarily reduced by the Portfolio's investment manager. Absent such reimbursement, "Management Fees", "Other Expenses" and "Total Portfolio Expenses" would have been 0.75%, 0.60% and 1.35%, respectively. "Other Expenses" of 0.60% are based on a net asset estimation of $30 million. /12/ No longer available for new investors. /13/ Will become available on or before May 1, 1998. _______________________________________________________________________________ FirstLine 46 GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS This Policy is available for purchase by individuals, corporations and other institutions. For group or sponsored arrangements (including home office employees of Security Life) and for corporate purchases or special exchange programs which Security Life may offer from time to time, we may reduce or eliminate the Surrender Charge, the length of time a Surrender Charge applies, the administrative charge, the minimum Stated Death Benefit, the maximum Target Death Benefit, the Minimum Annual Premium, the Target Premium, the sales charges, cost of insurance charges, or other charges normally assessed to reflect the expected economies resulting from a group or sponsored arrangement or a corporate purchaser. We may also allow Partial Withdrawals to be taken without a Surrender Charge. Group arrangements include those in which a trustee, an employer or an association either purchases Policies covering a group of individuals on a group basis or endorses the 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. Our costs for sales, administration and mortality generally vary with the size and stability of the group, among other factors. We take all these factors into account when reducing charges. To qualify for reduced charges, a group or sponsored arrangement must meet certain requirements. We will make any reductions according to our rules in effect when an application form for a Policy is approved. We may change these rules from time to time. Any variation in the Surrender Charge, administrative charge or other charges, fees and privileges will reflect differences in costs or services and will not be unfairly discriminatory. OTHER CHARGES Under current law we pay no tax on investment income and capital gains reflected in variable life insurance policy reserves (except to the extent the Federal deferred acquisition cost may be considered such a tax). Consequently, no charge is currently being made to any Division of our Variable Account for our Federal income taxes. We reserve the right, however, to make such a charge in the future if the tax law changes and we incur Federal income tax which is attributable to the Variable Account. We must pay state and local taxes (in addition to applicable taxes based on premiums) in several states. At the present time, these taxes are not substantial. However, if these taxes increase, we also reserve the right to make charges for such taxes when they are attributable to our Variable Account. TAX CONSIDERATIONS The following discussion provides a general description of the Federal income tax consequences of the Policy, based on our understanding of the present Federal income tax laws as they are currently interpreted by the Internal Revenue Service ("IRS"). No representation is made as to the likelihood of continuation of the present Federal income tax laws or of the current interpretations by the IRS. This discussion is general in nature, and should not be considered tax advice. Further, it is not intended to present an exhaustive survey of all the tax issues that might arise under the Policy. Because of the complexity of the laws and the fact that tax results will vary according to the particular circumstances of the Owner, a legal or tax adviser should be consulted prior to purchasing the Policy. LIFE INSURANCE DEFINITION Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") sets forth the definition of a life insurance contract for Federal tax purposes. The entire death benefit of a life insurance contract is excludable from gross income of the beneficiary under Section 101(a)(l) of the Code. However, there are exceptions to this general rule such as transfers for value and distributions from a policy owned by a qualified plan. The Secretary of the Treasury (the "Treasury") is authorized to prescribe regulations implementing Section 7702. While proposed regulations and other interim guidance has been issued, final regulations have not been adopted. In short, guidance as to how Section 7702 is to be adopted is limited. If a Policy were determined not to be a life insurance contract for purposes of Section 7702, such Policy would not qualify for the favorable tax treatment normally provided to a life insurance policy. Section 7702 provides that if one of two alternate tests are 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 _______________________________________________________________________________ Firstline 47 times. The death benefit at all times must be at least equal to an actuarially determined factor, depending on the Insured's Age, sex and Premium Class at any point in time, times the Account Value. See Appendix A, page 137, 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 146, for a table of the Guideline Premium/Cash Value Corridor Test factors. This Policy allows the Owner to choose, at the time of application, which of these tests will always apply to the Policy. A choice of tests is irrevocable. Regardless of which test is chosen, we will at all times assure that the Policy meets the statutory definition which qualifies the Policy as life insurance for Federal income tax purposes. In addition, so long as the Policy remains in force, increases in Account Value as a result of interest or investment experience will not be subject to Federal income tax unless and until there is a distribution from the Policy, such as a Partial Withdrawal or loan. The favorable tax treatment of Section 101(a) will not apply to benefits paid at maturity of the Policy (age 100). See Benefits at Maturity page 25. Also, any interest payment accrued on Death Proceeds paid either as a lump sum or other than in one lump sum may be subject to tax. See Settlement Provisions, page 50. The Federal government has in the past and may in the future consider new legislation or regulations that, if enacted, could change the Federal income tax treatment of life insurance policy income or death benefits. Any such change could have a retroactive effect. Such concerns should be addressed by a legal or tax adviser. DIVERSIFICATION REQUIREMENTS In addition to meeting the tests required under Section 7702, Section 817(h) of the Code requires that the investments of separate accounts such as the Variable Account be adequately diversified. Regulations issued by the Secretary of the Treasury set the standards for measuring the adequacy of this diversification. To be adequately diversified, each Division of the Variable Account must meet certain tests. A variable life policy that is not adequately diversified under these regulations would not be treated as life insurance under Section 7702 of the Code. If this were to occur, the Owner would be subject to Federal income tax on the income under the Policy as it is earned. The Portfolios in which the Variable Account invests have provided certain assurances that they will meet the applicable diversification standards. In certain circumstances, owners of variable life insurance contracts may be considered the owners, for Federal income tax purposes, of the assets of the separate account used to support their contracts. In those circumstances, income and gains from the separate account assets would be includable in the variable contract owner's gross income. The IRS has stated in published rulings that a variable contract owner will be considered the owner of separate account assets if the contract owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury also announced, in connection with the issuance of temporary regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the policy owner), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular subaccounts without being treated as owners of the underlying assets." The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policy holders were not owners of separate account assets. For example, the Owner has additional flexibility in allocating premium payments and Policy values. These differences could result in an Owner being treated as the owner of a pro rata portion of the assets of the Variable Account. In addition, Security Life does not know what standards will be set forth, if any, in the regulations or rulings which the Treasury has stated it expects to issue. Security Life therefore reserves the right to modify the Policy as necessary to attempt to prevent an Owner from being considered the owner of a pro rata share of the assets of the Variable Account or to otherwise qualify the Policy for favorable tax treatment. MODIFIED ENDOWMENT CONTRACTS Code Section 7702A establishes a class of life insurance contracts designated as "Modified Endowment Contracts", which applies to Policies entered into or materially changed after June 20, 1988. Due to the Policy's flexibility, classification as a Modified Endowment Contract will depend on the individual circumstances of each Policy. In general, a Policy will be a ________________________________________________________________________________ FirstLine 48 Modified Endowment Contract if the accumulated premiums paid at any time during the first seven Policy years exceeds the sum of the net level premiums which would have been paid on or before such time if the Policy provided for paid-up future benefits after the payment of seven level annual premiums. The determination of whether a Policy will be a Modified Endowment Contract after a material change generally depends upon the relationship of the death benefit and the Account Value at the time of such change and the additional premiums paid in the seven years following the material change. The rules relating to whether a Policy will be treated as a Modified Endowment Contract are extremely complex and cannot be fully described in the limited confines of this summary. Therefore, a current or prospective Owner should consult with a competent adviser to determine whether a policy transaction will cause the Policy to be treated as a Modified Endowment Contract. Security Life will, however, monitor Policies and will attempt to notify an Owner on a timely basis if the Owner's Policy becomes a Modified Endowment Contract. TAX TREATMENT OF PREMIUMS No deduction is allowed for premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any business carried on by the taxpayer, when the taxpayer is a beneficiary (directly or indirectly) under such policy. Consult your tax adviser for advice on the availability of deductions. LOANS, LAPSES, SURRENDERS AND WITHDRAWALS IF THE POLICY IS NOT A MODIFIED ENDOWMENT CONTRACT If a Policy is not a Modified Endowment Contract, as long as it remains in force, a loan under the Policy will be treated as indebtedness and no part of the loan will be subject to current Federal income tax. Interest paid (or accrued by an accrual basis taxpayer) on the loan may or may not be tax deductible. Consult your tax adviser for advice on the availability of deductions. Any time a Policy is surrendered or lapses, the excess, if any, of the Cash Surrender Value over the Owner's "investment in the Policy" will be subject to Federal income tax as ordinary income. ("investment in the Policy" means (i) the aggregate amount of any premiums or other consideration paid for a Policy, minus (ii) the aggregate amount received under the Policy which is excluded from gross income of the Owner(except that the amount of any loan from,or secured by a Policy that is Modified Endowment Contract, to the extent such amount is excluded from gross income, will be disregarded), plus (iii) the amount of any loan from, or secured by a Policy that is a Modified Endowment Contract to the extent that such amount is included in the gross income of the Owner.) It is important to note that for this calculation, if the Policy terminates while a Policy Loan is outstanding, the total amount of the loan and accrued loan interest will be treated as a distribution and could be subject to tax under the above rules. As a result, in certain circumstances this may result in taxable income to the Owner even though the Policy has no Net Cash Surrender Value. Proceeds received on a Withdrawal may or may not be taxable depending on the Owner's particular circumstances. During the first 15 Policy years, the proceeds from a Partial Withdrawal could be subject to Federal income tax to the extent the Cash Surrender Value exceeds investment in the Policy. The portion subject to tax will depend upon the ratio of the death benefit to Account Value under the Policy and the Age of the Insured at the time of the withdrawal. After the first 15 Policy years, the proceeds from a Partial Withdrawal will not be subject to Federal income tax except to the extent such proceeds exceed investment in the Policy. IF THE POLICY IS A MODIFIED ENDOWMENT CONTRACT If a Policy is a Modified Endowment Contract, any pre-death distribution from the Policy will be taxed on an "income-first" basis, similar to the treatment of annuities for individuals. Distributions for this purpose include a surrender, Partial Withdrawal or Policy Loan, including any increase in a loan amount to pay interest on an existing loan or an assignment or a pledge to secure a loan. Any such distributions will be considered taxable income to the Owner to the extent the Account Value exceeds investment in the Policy immediately before the distribution. All Modified Endowment Contracts that are issued by Security Life (and its affiliates) to the same Owner during any calendar year are treated as one Modified Endowment Contract for purposes of determining the amount includable in the gross income under Code section 72(c). A 10% penalty tax will also apply to the taxable portion of a distribution from a Modified Endowment Contract, unless an exception applies. The penalty tax will not apply to distributions (i) when the taxpayer is at least 59 1/2 years of age, (ii) in the case of a disability (as defined in the Code) or (iii) received as part of a series of substantially equal periodic payments, made at least annually for the life (or life expectancy) of the taxpayer or the joint lives (or joint life _______________________________________________________________________________ FirstLine 49 expectancies) of the taxpayer and his or her beneficiary. Since these exclusions do not apply to corporations or other business entities, the 10% penalty tax would always apply to these types of owners. If the Policy is surrendered, the excess, if any, of the Cash Surrender Value over investment in the Policy will be subject to Federal income tax and, unless one of the above exceptions applies, the 10% penalty tax. If a Policy was not originally a Modified Endowment Contract but later becomes one, distributions that occur during the Policy year it becomes a Modified Endowment Contract and any subsequent Policy year will be taxed as described in the two preceding paragraphs. In addition, any distributions from the Policy made within two years before it becomes a Modified Endowment Contract will be treated as having been made in anticipation of the change and will be subject to tax in this manner. This means that a distribution made from a Policy that is not a modified endowment could later become taxable as a distribution from a Modified Endowment Contract. The Treasury has been authorized to prescribe rules which would address this issue. ALTERNATIVE MINIMUM TAX For purposes of the alternative minimum tax adjusted current earnings adjustment, special rules apply with respect to life insurance contracts. Under these rules, death benefit proceeds are taken into account, increases in cash value attributable to investment performance are taken into account currently and the distribution tax rules apply in a modified form. SECTION 1035 EXCHANGES Section 1035 of the Internal Revenue Code 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. Special rules and procedures apply to Section 1035 transactions. Prospective owners wishing to take advantage of Section 1035 should consult their tax adviser. TAX-EXEMPT POLICY OWNERS Special rules may apply in the case of a Policy owned by a tax-exempt entity. Accordingly, tax-exempt entities should consult with a tax adviser regarding the consequences of purchasing and owning a Policy, including the effect, if any, on the tax-exempt status of the entity and the application of the unrelated business income tax. CHANGES TO COMPLY WITH LAW To assure that the Policy continues to qualify as life insurance under the Code, we reserve the right to decline to accept all or part of any premium payments, to decline to change death benefits, or to decline to make Partial Withdrawals that would cause the Policy to fail to qualify. We may also make changes in the Policy or its Riders, require additional premium payments or make distributions from the Policy to the extent we deem necessary to qualify the Policy as life insurance for tax purposes. Any such change will apply uniformly to all policies that are affected. The Policy Owner will be given advance notice of such changes. The tax law limits the allowable charges for mortality costs and other expenses that may be used in making calculations to determine whether a Policy qualifies as life insurance for Federal income tax purposes. These calculations must be based upon reasonable mortality charges and other charges reasonably expected to be paid. The Treasury has issued proposed regulations on the reasonableness standards for mortality charges. Security Life believes that the charges used for this purpose in the Policy should meet the current requirement for reasonableness. Security Life reserves the right to make modifications to the mortality charges if future regulations contain standards which make modification necessary in order to continue qualification of the Policy as life insurance for Federal income tax purposes. In addition, assuming that the Policy is not intended by the Owner to be or become a Modified Endowment Contract, we will include an endorsement to the Policy whereby we reserve the right to amend the Policy, including any Rider, to assure that the Policy continues to comply with the seven-pay test for Federal income tax purposes. If at any time the premium paid under the Policy exceeds the seven-pay limit, we reserve the right to remove such excess premium or make any appropriate adjustments to the Policy's Account Value and death benefits. Any death benefit increase will cause an increase in the cost of insurance charges. OTHER The Policies may be used in various arrangements, including qualified plans, non-qualified deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if the Owner is contemplating the use of the Policies in any arrangement the value of which depends in part on its tax consequences, the Owner should be sure to consult a qualified tax adviser ________________________________________________________________________________ Firstline 50 regarding the tax attributes of the particular arrangement. We are required to withhold income taxes from any portion of the amounts received by individuals in a taxable transaction, unless an election is made in writing not to have withholding apply. If the election not to have withholding is made, or if the amount withheld is insufficient, income taxes, and possibly penalties, may have to be paid later. Federal estate and gift taxes and state and local inheritance, estate, and other tax consequences of ownership or receipt of Policy benefits depend on the particular jurisdiction and the circumstances of each Owner and Beneficiary. QUALIFIED LEGAL OR TAX ADVISERS SHOULD BE CONSULTED FOR COMPLETE INFORMATION ON FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS. ADDITIONAL INFORMATION ABOUT THE POLICY VOTING PRIVILEGES We invest the assets in the Divisions of the Variable Account in shares of the corresponding Portfolios. See Investment Objectives of the Portfolios, page 15. Security Life is the legal owner of the shares held in the Variable Account and, as such, has the right to vote on certain matters. Among other things, we may vote on any matters described in the Fund's current prospectus or requiring a vote by shareholders under the Investment Company Act of 1940. Even though we own the shares, to the extent required by the interpretations of the SEC, we give Owners the opportunity to tell us how to vote the number of shares that are attributable to their Policy. We will vote those shares at meetings of Portfolio shareholders according to their instructions. We will also vote any Portfolio shares that are not attributable to the Policies and shares for which instructions from Owners were not received, in the same proportion that Owners vote. If the Federal securities laws or regulations or interpretations of them change so that we are permitted to vote shares of a Portfolio in our own right or to restrict Owner voting, we reserve the right to do so. Owners may participate in voting only on matters affecting the Portfolios in which the Owner's assets have been invested. We determine the number of Portfolio shares in each Division that are attributable to the Policy by dividing the amount in the Account Value allocated to that Division by the net asset value of one share of the corresponding Portfolio. The number of shares as to which instructions may be given will be determined as of the record date set by the Portfolio's Board for the Portfolio's shareholders meeting. We count fractional shares. Owners having a voting interest will be sent proxy material and a form for giving us voting instructions. All Portfolio shares are entitled to one vote. The votes of all Portfolios are cast together on an aggregate basis, except on matters where the interests of the Portfolios differ. In such cases, voting is on a portfolio-by-portfolio basis. In these cases, the approval of the shareholders in one Portfolio is not needed in order to make a decision in another Portfolio. Examples of matters that would require a portfolio-by-portfolio vote are changes in the fundamental investment policy of a particular Portfolio or approval of an investment advisory agreement. Shareholders in a Portfolio not affected by a particular matter generally would not be entitled to vote on it. The Boards of the Portfolios and Security Life and any other insurance companies participating in the Portfolios are required to monitor events to identify any material conflicts that may arise from the use of the Portfolios for variable life and variable annuity separate accounts. Conflict might arise as a result of changes in state insurance law or Federal income tax law, changes in investment management of any Portfolio, or differences in voting instructions given by owners of variable life insurance policies and variable annuity contracts. Shares of these Portfolios may also be sold to certain qualified pension and retirement plans qualifying under Section 401 of the Code that include cash or deferred arrangements under Section 401(k) of the Code. As a result, there is a possibility that a material conflict may arise between the interests of owners generally or certain classes of owners, and such retirement plans or participants in such retirement plans. If there is a material conflict, we will have an obligation to determine what action should be taken including the removal of the affected Portfolios from eligibility for investment by the Variable Account. We will consider taking other action to protect Owners. However, there could be unavoidable delays or interruptions of operations of the Variable Account that we may be unable to remedy. In certain cases, when required by state insurance regulatory authorities, we may disregard instructions relating to changes in the Portfolio's adviser or the investment policies of the Portfolios. In the event we do disregard voting instructions, we will include a summary of our actions and give our reasons in the next semi-annual report to Owners. Under the Investment Company Act of 1940, certain actions affecting the Variable Account (such as some of those described under Right To Change Operations) may require Owner approval. In that case, Owners will be entitled to one vote for every $100 of value they have in the Divisions of the _______________________________________________________________________________ Firstline 51 Variable Account. We will cast votes attributable to amounts in the Divisions of the Variable Account not attributable to Policies in the same proportions as votes cast by Owners. RIGHT TO CHANGE OPERATIONS Subject to state limitations, the Company may from time to time, change the investment objective of, or make the following changes to, the Variable Account: (i) Make additional Divisions available. These Divisions will invest in Portfolios we find suitable for the Policy. (ii) Eliminate Divisions from the Variable Account, combine two or more Divisions, or substitute a new Portfolio for the Portfolio in which a Division invests. A substitution may become necessary if, in our judgment, a Portfolio no longer suits the purposes of the Policy. This may also happen due to a change in laws or regulations, or a change in a Portfolio's investment objectives or restrictions, or because the Portfolio is no longer available for investment, or for some other reason, such as a declining asset base. (iii) Transfer assets of the Variable Account, which we determine to be associated with the class of policies to which an Owner's Policy belongs, to another Variable Account. (iv) Withdraw the Variable Account from registration under the 1940 Act. (v) Operate the Variable Account as a management investment company under the 1940 Act. (vi) Cause one or more Divisions to invest in a mutual fund other than or in addition to the Portfolios. (vii) Discontinue the sale of Policies. (viii) Terminate any employer or plan trustee agreement with us pursuant to its terms. (ix) Restrict or eliminate any voting rights as to the Variable Account. (x) Make any changes required by the 1940 Act or the rules or regulations thereunder. No such changes will be made until it becomes effective with the SEC, or without any necessary approval of the applicable state insurance departments. Owners will be notified of any changes. If Owners then wish to transfer the amount they have in that Division to another Division of the Variable Account or to the Guaranteed Interest Division, they may do so, without charge, by notifying us. At the same time, they may also change how their Net Premiums and deductions are allocated. REPORTS TO OWNERS At the end of each Policy year we will send a report that shows the Total Policy Death Benefit (Base Death Benefit plus Adjustable Term Insurance Rider Death Benefit, if any), the Account Value, the Policy Loan plus accrued Loan Interest and Net Cash Surrender Value. We will also include information about the Divisions of the Variable Account. The report also shows any transactions involving the Account Value that occurred during the year such as deductions, and any loans or withdrawals in that year. We will also send semi-annual reports with financial information on the Portfolios, including a list of the investments held by each Portfolio. Confirmation notices will be sent during the year for certain Policy transactions. OTHER GENERAL POLICY PROVISIONS FREE LOOK PERIOD Owners have the right to examine the Policy. If for any reason the Owner is not satisfied with the Policy when issued, the Policy may be returned to us or the Registered Representative within the time limit described below and it will be deemed void as of the Policy Date. A request to cancel this Policy must be postmarked no later than 10 days after it is received, or as otherwise specified by state law. The Policy will be deemed to have been received by the Owner 5 days after it is mailed from our Customer Service Center. If the Policy is canceled under this provision, we will refund an amount equal to the full amount of any premiums paid or as otherwise specified by state law. Insurance coverage ends when the request is sent. ________________________________________________________________________________ FirstLine 52 THE POLICY This Policy is a contract between the Owner and us. The Policy, including a copy of the original application and any applications for an increase, Riders, endorsements, Schedule pages, and any reinstatement applications make up the entire contract between us. A copy of any application as well as a new Schedule will be attached or furnished for attachment to the Policy at the time of any change in coverage. In the absence of fraud, all statements made in any application will be considered representations and are not warranties. No statement will be used to deny a claim unless it is in an application. All changes or amendments to this Policy made by us must be signed by a president or an officer of the Company and by our secretary or assistant secretary. No other person is authorized to change the terms or conditions of this policy. AGE This Policy is issued at the Age stated in the Schedule. This is the Insured's Age nearest birthday, calculated as of the Policy Date. The Age of the Insured at any time is calculated by adding the number of completed Policy years to the Age shown in the Schedule. OWNERSHIP The original Owner is the person named in the application. The Owner can exercise all rights and receive the benefits during the Insured's lifetime before the Maturity Date. This includes the right to change the Owner, Beneficiaries, and methods for the payment of proceeds. All rights of the Owner are subject to the rights of any assignee and any irrevocable Beneficiary. An Owner may name a new Owner by giving us written notice. The effective date of the change to the new Owner will be the date the Owner signs the notice. The change will not affect any payment made or action taken by us before recording the change at our Customer Service Center. A change in ownership may cause recognition of taxable income on gain, if any, to the old owner. BENEFICIARY The Owner names the Beneficiary when applying for the Policy. The primary Beneficiary surviving the Insured will receive any Death Proceeds which become payable. Surviving contingent Beneficiaries are paid Death Proceeds only if no primary Beneficiary has survived the Insured. If more than one Beneficiary survives the Insured, they will share the Death Proceeds equally, unless the designation provides otherwise. If there is no designated Beneficiary surviving, the Owner or Owner's estate will be paid the Death Proceeds. The Beneficiary designation will be on file with us or at a location designated by us. The Owner may name a new Beneficiary during the Insured's lifetime. We will pay the proceeds to the most recent Beneficiary designation on file. We will not be subject to multiple payments. COLLATERAL ASSIGNMENT The Owner may assign this Policy as collateral security by sending written notice to us. Once it is recorded with us, the rights of the Owner and the Beneficiary are subject to the assignment, unless the Beneficiary was designated as an irrevocable Beneficiary prior to the assignment. It is the Owner's responsibility to make sure the assignment is valid. INCONTESTABILITY . We can challenge the validity of the insurance Policy if it appears that there have been material misstatements in the application. However, there are limits as to how and when we can challenge the Policy . . We will not contest the statements in the application attached at issue after the Policy has been in effect, during the Insured's lifetime, for two years from the Policy Date or the date specified by State Law. . We will not contest the statements in the application for any reinstatement after the reinstatement has been in effect, during the Insured's lifetime, for two years from the effective date of such reinstatement. . We will not contest the statements in the application for any coverage change that creates a new Segment or increases any benefit with respect to the Insured (such as an increase in Stated Death Benefit) after the change has been in effect, during the Insured's lifetime, for two years from the effective date of the new Segment or increase. We have the right to rescind this policy if we issued or ________________________________________________________________________________ FirstLine 53 reinstated the Policy based on a statement in an application, including a reinstatement application, that was false or misleading. MISSTATEMENTS OF AGE OR SEX If the Age or sex of the Insured has been misstated, the death benefit will be adjusted. The death benefit will be adjusted to the amount which would have been purchased for the Insured's correct Age and sex based on the cost of insurance charges which were deducted from the Account Value on the last Monthly Processing Date prior to the Insured's death or as otherwise required by state law. If unisex cost of insurance rates apply, we will not make an adjustment for a misstatement of sex. SUICIDE If the Insured commits suicide within two years of the Policy Date or date of reinstatement, the death benefit will be limited to the total of all premiums that have been paid to the time of death minus the amount of any outstanding Policy Loan and accrued loan interest and minus any withdrawals, unless otherwise required by law. If the Insured has been changed and the new Insured dies by suicide within two years of the exchange date, the death benefit will be limited to the Net Cash Surrender Value as of the exchange date, plus the premiums paid since that date, less the sum of any increases in Policy Loan, accrued loan interest and any Withdrawals since the exchange date. If the Insured commits suicide, while sane or insane, within two years of the effective date of a new Segment or of an increase in any other benefit, we will make a limited payment to the beneficiary for the new Segment or other increase. The payment will equal the cost of insurance and any applicable monthly expense charges deducted for such increase. PAYMENT We will pay the Death Proceeds, Net Cash Surrender Value upon surrender, Partial Withdrawals, and loan proceeds within seven days after we receive the information required to process the payment. We will also execute a transfer among Divisions of the Variable Account as of the Valuation Date on or next following receipt of the request at our Customer Service Center. Transfers from the Guaranteed Interest Division to the Divisions of the Variable Account will be made only within the time periods indicated in this prospectus. See Transfers of Account Values, page 28. We may, however, postpone the processing of any such transactions for any of the following reasons: . When the NYSE is closed for trading; . When trading on the NYSE is restricted by the SEC; . When an emergency exists such that it is not reasonably practical to dispose of securities in the applicable Division of the Variable Account or to determine the value of its assets; or . When a governmental body having jurisdiction over the Variable Account permits such suspension by order. Rules and regulations of the SEC, if any, are applicable and will govern the determination as to whether the above conditions exist. Death Proceeds are determined as of the Valuation Date we receive due proof of death of the Insured. Once we determine this amount, the Death Proceeds will not be affected by subsequent changes in the values of the Divisions of the Variable Account. We will pay interest at the rate declared by us or at any higher rate required by law from the date we determine the amount of the Death Proceeds to the date of payment. Death Proceeds are not subject to deferment. However, we may defer for up to six months payment of any surrender proceeds, withdrawal amounts, or loan amounts from our Guaranteed Interest Division, unless otherwise required by law. We will pay interest at the rate declared by us or at any higher rate required by law from the date we receive the request if we delay payment more than 30 days. NOTIFICATION AND CLAIMS PROCEDURES We must receive in writing any election, designation, change, assignment, or request made by the Owner. It must be on a form acceptable to us. We are not liable for any action we take before we receive and record the written notice. We may require that the Policy be returned for any Policy change or upon its surrender. In the event of an Insured's death while the Policy is in force please let us or the Registered Representative know as soon as possible. Claim procedure instructions will be sent immediately. As due proof of death, we may require proof of Age and a certified copy of a death certificate. We may also ________________________________________________________________________________ FirstLine 54 require the Beneficiary and the Insured's next of kin to sign authorizati ons as part of this process. These authorization forms allow us to obtain information about the Insured, including but not limited to medical records of physicians and hospitals used by the Insured. TELEPHONE PRIVILEGES If telephone privileges have been elected in a form required by us, transfers, changes in Dollar Cost Averaging and Automatic Rebalancing, or requests for Partial Withdrawals and Policy Loans may be made by telephoning our Customer Service Center. Our Customer Service Center will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures may include, among others, requiring some form of personal identification prior to acting upon instructions received by telephone, providing written confirmation of such transactions, and/or tape recording of telephone instructions. A request for telephone privileges authorizes us to record telephone calls. If reasonable procedures are not used in confirming instructions, we may be liable for any losses due to unauthorized or fraudulent instructions. We reserve the right to discontinue this privilege at any time. NON-PARTICIPATING The Policy does not participate in Security Life's surplus earnings. DISTRIBUTION OF THE POLICIES The principal underwriter (distributor) for the policies is ING America Equities, a wholly owned subsidiary of Security Life. ING America Equities is registered as a broker-dealer with the SEC and is a member of the NASD. We pay ING America Equities for acting as the principal underwriter under a Distribution Agreement. We sell our Policies through Registered Representatives of other broker-dealers, including VESTAX Securities Corporation, a subsidiary of ING America Insurance Holdings, Inc., and Locust Street Securities, Inc., an affiliate of Security Life of Denver Insurance Company, which have entered into selling agreements with us. These Registered Representatives are also licensed by state insurance officials to sell our variable life policies. Each of the broker-dealers we enter into selling agreements with are registered with the SEC and are members of the NASD. Under these selling agreements, we pay a distribution allowance to the other broker-dealers, which in turn pay commissions to the Registered Representative who sells this Policy. During the first Policy year, the distribution allowance may equal an amount up to 95% of the first Target Premium paid and 4% of premiums paid in excess of the first Target Premium. For Policy years 2 through 10, the allowance may equal an amount up to 4% of premiums paid in excess of the first Target Premium, and for subsequent Policy years 2% of premiums paid. Broker-dealers may also receive annual renewal compensation of up to 0.10% of the Net Account Value beginning in the tenth Policy year or after the Owner pays more than the guideline single premium determined in accordance with the Federal income tax law definition of life insurance, whichever is earlier. Compensation arrangements may vary among broker-dealers and depend on particular circumstances. In addition, we may also pay override payments, expense allowances, bonuses, special marketing fees, wholesaler fees, and training allowances. Registered Representatives who meet specified production levels may qualify, under our sales incentive programs, to receive non-cash compensation such as expense-paid trips, expense-paid educational seminars and merchandise. We pay the distribution allowance from our own resources (including any sales charges deducted from premiums and Surrender Charges we might collect). SETTLEMENT PROVISIONS During the Insured's lifetime, the Owner may elect that the Beneficiary receive the Death Proceeds other than in one sum. If an election has not been made, the Beneficiary may do so within 60 days after the Insured's death. The Owner may also elect to take the Net Cash Surrender Value other than in one sum. Payments under these options are not affected by the investment experience of any Division of our Variable Account. Instead, interest accrues pursuant to the options chosen. Payment options will also be subject to our rules at the time of selection. Currently, these alternate payment options are only available if the proceeds applied are $2000 or more and any periodic payment will be at least $20. The following payment options are available: Option I: Payouts for a Designated Period: Payouts will be made in 1, 2, 4 or 12 installments per year as elected for a designated period, which may be 5 to 30 years. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of Account Value applied is shown in _______________________________________________________________________________ FirstLine 55 Settlement Option Table I in the Policy. Option II: Life Income with Payouts Guaranteed for a Designated Period: Payouts will be made in 1, 2, 4 or 12 installments per year throughout the payee's lifetime, or if longer, for a period of 5, 10, 15, or 20 years as elected. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of Account Value applied is shown in Settlement Option Table II in the Policy. This option is not available for ages not shown in this Table . Option III: Hold at Interest: Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4 or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. Option IV: Payouts of a Designated Amount: Payouts will be made until proceeds, together with interest, which will be at the rate declared by us or at any higher rate required by law, are exhausted. Payouts will be made in 1, 2, 4, or 12 equal installments per year, as elected. Option V: Other: The Owner may ask us to apply the money under any option that we make available at the time the benefit is paid. The Beneficiary or any other person who is entitled to receive payment may name a successor to receive any amount that we would otherwise pay to that person's estate if that person died. The person who is entitled to receive payment may change the successor at any time. We must approve any arrangements that involve a payee who is not a natural person (for example, a corporation), or a payee who is a fiduciary. Also, the details of all arrangements will be subject to our rules at the time the arrangements take effect. This includes rules on the minimum amount we will pay under an option, minimum amounts for installment payments, withdrawal or commutation rights (the right to receive payments over time, for which we may offer a lump sum payment), the naming of people who are entitled to receive payment and their successors, and the ways of proving Age and survival. _______________________________________________________________________________ FirstLine 56 ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND SURRENDER VALUES, AND ACCUMULATED PREMIUMS The following tables illustrate how the key financial elements of the Policy work, specifically, how the death benefits, Account Values and Cash Surrender Values could vary over an extended period of time. In addition, each table compares these values with premiums paid accumulated with interest. The Policies illustrated include the following:
Definition Death of Life Stated Target Smoker Benefit Insurance Death Death Sex Age Status Option Test Benefit Premium Benefit Page - ------ --- --------- ------- ---------- ------- ------- ------- ---- Male 45 Nonsmoker 1 CVAT 200,000 $4,500 200,000 54 Male 45 Nonsmoker 1 CVAT 100,000 $4,500 200,000 56 Male 45 Nonsmoker 1 GP 200,000 $4,500 200,000 58
The tables show how death benefits, Account Values and Cash Surrender Values of a hypothetical Policy could vary over an extended period of time if the Divisions of the Variable Account had constant hypothetical gross annual investment returns of 0%, 6% or 12% over the periods indicated in each table. The values will differ from those shown in the tables if the annual investment returns are not absolutely constant. That is, the death benefits, Account Values and Cash Surrender Values will be different if the returns averaged 0%, 6% or 12% over a period of years but went above or below those figures in individual Policy years. These illustrations assume that no Policy Loan has been taken. The amounts shown would differ if female or unisex rates were used. The third column of each table shows what would happen if an amount equal to the premiums were invested to earn interest, after taxes, of 5% compounded annually. All premium payments are illustrated as if they were made at the beginning of the year. The amounts shown for death benefits, Account Values and Cash Surrender Values sections reflect the fact that the net investment return on the Policy is lower than the gross investment return on the Divisions of the Variable Account. This results from the charges levied against the Divisions of the Variable Account (i.e., the mortality and expense risk charge) as well as the premium loads, administrative charges and Surrender Charges. The difference between the Account Value and the Cash Surrender Value in the first 14 years is the Surrender Charge. The tables illustrate cost of insurance and expense charges at both our current rates (which are described under Monthly Deductions from the Account Value, page 35) and at the maximum rates we guarantee in the Policies. The amounts shown at the end of each Policy year reflect a daily charge against the Variable Account Divisions. This charge includes the charge against the Variable Account for mortality and expense risks and the effect on each Division's investment experience of the charge to Portfolio assets for investment management and direct expenses. The mortality and expense risk fee is 0.75% annually on a guaranteed basis; illustrations showing current rates reflect a guaranteed persistency refund equivalent to 0.5% of the Account Value annually beginning after the 10th Policy anniversary. The tables also reflect a daily investment advisory fee equivalent to an annual rate of .6886% of the aggregate average daily net assets of the Portfolios. This hypothetical rate is representative of the average maximum investment advisory fee applicable to the Divisions of the Variable Account. Other expenses of the Portfolios are assumed at the rate of .1598% of the average daily net assets of the Portfolio, which is an average of all the Portfolios' other expenses, including interest expenses. This amounts to .8484% of the average daily net assets of an investment division including the investment advisory fee. Actual fees vary by Portfolio and may be subject to agreements by the sponsor to waive or otherwise reimburse each investment Division for operating expenses which exceed certain limits. There can be no assurance that the expense reimbursement arrangements will continue in the future, and any unreimbursed expenses would be reflected in the values included on the tables. The effect of these investment management, direct expenses and mortality and expense risk charges on a 0% gross rate of return would result in a net rate of return of (1.59)%, on 6% it would be 4.36%, and on 12% it would be 10.32%. _______________________________________________________________________________ FirstLine 57 The tables assume the deduction of charges including administrative and sales charges. The tables reflect the fact that we do not currently make any charge against the Variable Account for state or Federal taxes. If such a charge is made in the future, it will take a higher gross rate of return than the rates shown to produce death benefits, Account Values, and Cash Surrender Values shown. We will furnish, upon request, a comparable illustration based on the Age and sex of the proposed Insured, standard Premium Class assumptions and an initial Stated Death Benefit, death benefit option and Scheduled Premiums chosen and consistent with the Policy form. If the Owner purchases a Policy, we will deliver an individualized illustration reflecting the Scheduled Premium chosen and the Insured's actual risk class. After issuance we will provide upon request an illustration of future Policy benefits based on both guaranteed and current cost factor assumptions and actual Account Value. ________________________________________________________________________________ FirstLine 58 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $ 200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $ 4500.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- -----------6.00%---------- PREMIUM CASH CASH CASH YEAR PREMIUMS ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 3322 1797 200000 3772 2247 200000 3547 2022 200000 2 4500 9686 6551 4801 200000 7893 6143 200000 7208 5458 200000 3 4500 14896 9685 7710 200000 12397 10422 200000 10986 9011 200000 4 4500 20365 12842 10642 200000 17453 15253 200000 15009 12809 200000 5 4500 26109 15899 13699 200000 22988 20788 200000 19160 16960 200000 6 4500 32139 18855 16655 200000 29054 26854 200000 23445 21245 200000 7 4500 38471 21700 19500 200000 35703 33503 200000 27861 25661 200000 8 4500 45120 24426 22501 200000 42992 41067 200000 32406 30481 200000 9 4500 52101 27027 25377 200000 50989 49339 200000 37083 35433 200000 10 4500 59431 29491 28116 200000 59768 58393 200000 41887 40512 200000 15 4500 101959 40429 40429 200000 111675 111675 227593 60351 60351 200000 20 4500 156237 46611 46611 200000 174385 174385 310579 64182 64182 200000 25 4500 225510 44825 44825 200000 267975 267975 423133 60994 60994 200000 30 4500 313923 28130 28130 200000 404146 404146 574696 40749 40749 200000 AGE 65 4500 168773 47017 47017 200000 190281 190281 330328 64292 64292 200000
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE WHICH WERE USED TO CALCULATE THE ABOVE VALUES. THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR WITHDRAWALS ARE TAKEN. ________________________________________________________________________________ FirstLine 59 PROSPECT: INSURED'S NAME: MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $ 200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $ 4500.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
--------0.00%------ ---------12.00%--------- ----------6.00%--------- PREMIUM CASH CASH CASH YEAR PREMIUMS ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 3530 2005 200000 3993 2468 200000 3762 2237 200000 2 4500 9686 6860 5110 200000 8247 6497 200000 7539 5789 200000 3 4500 14896 9990 8015 200000 12790 10815 200000 11333 9358 200000 4 4500 20365 13144 10944 200000 17888 15688 200000 15373 13173 200000 5 4500 26109 16198 13998 200000 23470 21270 200000 19541 17341 200000 6 4500 32139 19150 16950 200000 29589 27389 200000 23845 21645 200000 7 4500 38471 22022 19822 200000 36326 34126 200000 28311 26111 200000 8 4500 45120 24824 22899 200000 43759 41834 200000 32957 31032 200000 9 4500 52101 27582 25932 200000 51991 50341 200000 37819 36169 200000 10 4500 59431 30274 28899 200000 61089 59714 200000 42885 41510 200000 15 4500 101959 44073 44073 200000 116490 116490 237407 64571 64571 200000 20 4500 156237 55014 55014 200000 186943 186943 332945 74739 74739 200000 25 4500 225510 61234 61234 200000 296921 296921 468839 83646 83646 200000 30 4500 313923 59103 59103 200000 464731 464731 660847 87750 87750 200000 AGE 65 4500 168773 56695 56695 200000 205246 205246 356307 76679 76679 200000
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY. THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL GROSS INVESTMENTS RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0.00%. 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR WITHDRAWALS ARE TAKEN. ________________________________________________________________________________ FirstLine 60 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $ 100000 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $ 100000 ANNUAL PREMIUM: $ 4500.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
--------0.00%---------- ----------12.00%-------- -------6.00%-------------- PREMIUM CASH CASH CASH YEAR PREMIUMS ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 3322 2447 200000 3772 2897 200000 3547 2672 200000 2 4500 9686 6550 5450 200000 7892 6792 200000 7207 6107 200000 3 4500 14896 9684 8584 200000 12396 11296 200000 10985 9885 200000 4 4500 20365 12841 11741 200000 17451 16351 200000 15007 13907 200000 5 4500 26109 15898 14798 200000 22986 21886 200000 19158 18058 200000 6 4500 32139 18853 17753 200000 29052 27952 200000 23443 22343 200000 7 4500 38471 21699 20599 200000 35701 34601 200000 27859 26759 200000 8 4500 45120 24425 23462 200000 42989 42027 200000 32405 31442 200000 9 4500 52101 27026 26201 200000 50986 50161 200000 37081 36256 200000 10 4500 59431 29491 28804 200000 59766 59078 200000 41887 41199 200000 15 4500 101959 40438 40438 200000 111672 111672 227588 60358 60358 200000 20 4500 156237 46660 46660 200000 174381 174381 310573 64229 64229 200000 25 4500 225510 45010 45010 200000 267970 267970 423124 61207 61207 200000 30 4500 313923 28777 28777 200000 404138 404138 574684 41574 41574 200000 AGE 65 4500 168773 47081 47081 200000 190277 190277 330321 64356 64356 200000
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE WHICH WERE USED TO CALCULATE THE ABOVE VALUES. THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR WITHDRAWALS ARE TAKEN. ________________________________________________________________________________ FirstLine 61 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $ 100000 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $ 100000 ANNUAL PREMIUM: $ 4500.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
--------0.00%---------- ----------12.00%-------- ------6.00%-------------- PREMIUM CASH CASH CASH YEAR PREMIUMS ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 3698 2823 200000 4172 3297 200000 3935 3060 200000 2 4500 9686 7243 6143 200000 8676 7576 200000 7945 6845 200000 3 4500 14896 10640 9540 200000 13554 12454 200000 12038 10938 200000 4 4500 20365 14065 12965 200000 19031 17931 200000 16399 15299 200000 5 4500 26109 17401 16301 200000 25049 23949 200000 20921 19821 200000 6 4500 32139 20651 19551 200000 31671 30571 200000 25613 24513 200000 7 4500 38471 23825 22725 200000 38973 37873 200000 30494 29394 200000 8 4500 45120 26933 25970 200000 46997 46035 200000 35583 34621 200000 9 4500 52101 29980 29155 200000 55816 54991 200000 40896 40071 200000 10 4500 59431 32950 32262 200000 65502 64815 200000 46402 45715 200000 15 4500 101959 47433 47433 200000 124032 124032 252778 69832 69832 200000 20 4500 156237 58425 58425 200000 199074 199074 354551 81796 81796 200000 25 4500 225510 64715 64715 200000 316217 316217 499307 93348 93348 200000 30 4500 313923 62866 62866 200000 494959 494959 703832 101929 101929 200000 AGE 65 4500 168773 60111 60111 200000 218569 218569 379436 84176 84176 200000
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY. THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR WITHDRAWALS ARE TAKEN. ________________________________________________________________________________ FirstLine 62 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $ 200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $ 4500.00 GUIDELINE PREMIUM TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-------- 0.00%------- --------12.00%-------- --------6.00%-------- PREMIUM CASH CASH CASH YEAR PREMIUMS ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 3322 1797 200000 3772 2247 200000 3547 2022 200000 2 4500 9686 6551 4801 200000 7893 6143 200000 7208 5458 200000 3 4500 14896 9685 7710 200000 12397 10422 200000 10986 9011 200000 4 4500 20365 12842 10642 200000 17453 15253 200000 15009 12809 200000 5 4500 26109 15899 13699 200000 22988 20788 200000 19160 16960 200000 6 4500 32139 18855 16655 200000 29054 26854 200000 23445 21245 200000 7 4500 38471 21700 19500 200000 35703 33503 200000 27861 25661 200000 8 4500 45120 24426 22501 200000 42992 41067 200000 32406 30481 200000 9 4500 52101 27027 25377 200000 50989 49339 200000 37083 35433 200000 10 3030 57887 28125 26750 200000 58237 56862 200000 40439 39064 200000 15 3933 91361 32518 32518 200000 108623 108623 200000 59248 59248 200000 20 3933 139423 35811 35811 200000 201282 201282 245564 85123 85123 200000 25 3933 200764 30368 30368 200000 354132 354132 410793 114583 114583 200000 30 3933 279052 8110 8110 200000 604612 604612 646935 150272 150272 200000 AGE 65 3933 150524 35568 35568 200000 226234 226234 271480 90679 90679 200000
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE WHICH WERE USED TO CALCULATE THE ABOVE VALUES. THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR WITHDRAWALS ARE TAKEN. ________________________________________________________________________________ FirstLine 63 PROSPECT: INSURED'S NAME: MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $ 200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $ 4500.00 GUIDELINE PREMIUM TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-------0.00%------- --------12.00%-------- --------6.00%-------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 3530 2005 200000 3993 2468 200000 3762 2237 200000 2 4500 9686 6860 5110 200000 8247 6497 200000 7539 5789 200000 3 4500 14896 9990 8015 200000 12790 10815 200000 11333 9358 200000 4 4500 20365 13144 10944 200000 17888 15688 200000 15373 13173 200000 5 4500 26109 16198 13998 200000 23470 21270 200000 19541 17341 200000 6 4500 32139 19150 16950 200000 29589 27389 200000 23845 21645 200000 7 4500 38471 22022 19822 200000 36326 34126 200000 28311 26111 200000 8 4500 45120 24824 22899 200000 43759 41834 200000 32957 31032 200000 9 4500 52101 27582 25932 200000 51991 50341 200000 37819 36169 200000 10 3030 57887 28910 27535 200000 59560 58185 200000 41438 40063 200000 15 3933 91361 36291 36291 200000 113582 113582 200000 63570 63570 200000 20 3933 139423 44643 44643 200000 212042 212042 258692 95405 95405 200000 25 3933 200764 47886 47886 200000 375012 375012 435013 134588 134588 200000 30 3933 279052 41723 41723 200000 643905 643905 688979 185749 185749 200000 AGE 65 3933 150524 45773 45773 200000 238508 238508 286209 102554 102554 200000
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY. THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE HYPOTHETICAL GROSS INVESTMENTS RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0.00%. 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR WITHDRAWALS ARE TAKEN. ________________________________________________________________________________ FirstLine 64 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 an asterisk (*), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The business address of each person denoted with an asterisk (*) is ING North America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of each person denoted with two asterisks (**) is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273. Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- R. Glenn Hilliard* Chairman, & CEO Stephen M. Christopher Director, President and Chief Operating Officer Catherine T. Fitzgerald* Executive Vice President Keith T. Glover* Executive Vice President Thomas F. Conroy Director and President, Security Life Reinsurance and Institutional Markets Michael W. Cunningham* Director, Executive Vice President Linda B. Emory* Director, Vice President and Appointed Actuary John R. Barmeyer Senior Vice President and Chief Legal Officer Wayne D. Bidelman Senior Vice President Eugene L. Copeland Senior Vice President and General Counsel, Security Life Reinsurance and Institutional Markets Michael Fisher Senior Vice President, Litigation Carol D. Hard Senior Vice President Philip R. Kruse Senior Vice President, Sales & Marketing Charles LeDoyen** Senior Vice President, Structured Settlements James L. Livingston, Jr. Senior Vice President and Chief Actuary Timothy P. McCarthy Senior Vice President, Marketing Services ________________________________________________________________________________ FirstLine 65 Jeffery W. Seel* Senior Vice President and Chief Investment Officer Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- Jess A. Skriletz Senior Vice President, Institutional Markets Louis N. Trapolino Senior Vice President, Distribution William D. Tyler Senior Vice President and Chief Information Officer William H. Alexander Vice President and Medical Director Katherine Anderson Vice President, Chief Product Actuary, Security Life Reinsurance Carole A. Baumbush Vice President, Reinsurance Operations Evelyn A. Bentz Vice President, M Financial Sales Thomas Kirby Brown Vice President, Institutional Markets Daniel S. Clements Vice President and Chief Underwriter Denise S. Dumont Vice President, Utility Services Linda Elliott Vice President, CIO Information Technology Larry D. Erb Vice President, Information Technology Martha K. Evans Vice President, Variable Operations Deborah B. Holden Vice President, Human Resources Brian Holland Vice President, Sales and International Risk Management Kenneth Kiefer** Vice President, Operations, Structured Settlements Richard D. King Vice President and Medical Director Greg McGreevey Vice President, Marketing, Institutional Markets ________________________________________________________________________________ FirstLine 66 C. Lynn McPherson* Vice President Sue A. Miskie Vice President, Corporate Services Donna T. Mosely Vice President, Valuation Daniel G. Patsey Vice President, Strategic Technology Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- David S. Pendergrass Vice President and Treasury Officer Steve Pryde Vice President, Administration, Security Life Reinsurance Christiaan M. Rutten Vice President, Structured Reinsurance Casey J. Scott Vice President, Sales Operations Alan C. Singer Vice President, Customer Relations and Regulatory Compliance Mark A. Smith Vice President, Insurance Services Jerome M. Strop Vice President, Strategic Marketing Larry D. Taylor Vice President, Product Development Gary W. Waggoner Vice President, General Counsel and Secretary William Wojciechowski Vice President, Business Consulting and Financial Markets Stephen J. Yarina Vice President, Treasurer and Chief Financial Officer Roger O. Beebe Actuarial Officer Eric Banta Assistant Secretary Marsha K. Crest Agency Administration Officer John B. Dickinson Actuarial Officer ________________________________________________________________________________ FirstLine 67 Relda A. Fleshman Deputy General Counsel Sandra J. Forte Assistant Secretary Shirley A. Knarr Actuarial Officer Lisa K. Smith Multi-Life Officer Glen E. Stark Actuarial Officer William J. Wagner Actuarial Officer Amy L. Winsor Tax and Finance Officer STATE 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, on our operations and finances to the Insurance Departments of the various jurisdictions in which we do business to determine solvency and compliance with state insurance laws and regulations. We are also subject to various Federal securities laws and regulations. LEGAL MATTERS The legal matters in connection with the Policy described in this prospectus have been passed on by the General Counsel of Security Life and Mayer, Brown & Platt. LEGAL PROCEEDINGS Security Life, as an insurance company, is ordinarily involved in litigation. We do not believe that any current litigation is material to Security Life's ability to meet its obligations under the Policy or to the Variable Account, and we do not expect to incur significant losses from such actions. ING America Equities, Inc., the principal underwriter and distributor of the Policy, is not engaged in any litigation of any material nature. EXPERTS The consolidated financial statements of Security Life of Denver Insurance Company and Subsidiaries at December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and the financial statements of the Separate Account L1 at December 31, 1996, and for each of the two years in the period ended December 31, 1996, 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 in the registration statement, and are included in reliance upon such reports given upon the authority of such ________________________________________________________________________________ FirstLine 68 firm as experts in accounting and auditing. Actuarial matters in this prospectus have been examined by Shirley A. Knarr, F.S.A., M.A.A.A., who is the Variable Products Portfolio Manager and Actuarial Officer of Security Life. Her 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 Variable 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. You will have to pay a fee for the material. ________________________________________________________________________________ FirstLine 69 FINANCIAL STATEMENTS The consolidated financial statements of Security Life of Denver Insurance Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, are prepared in accordance with generally accepted accounting principles and start on page 65. The financial statements included for the Security Life Separate Account L1 at December 31, 1996 and for each of the two years in the period ended December 31, 1996, are prepared in accordance with generally accepted accounting principles and represent those Divisions that had commenced operations by that date. The consolidated financial statements of Security Life and Subsidiaries referred to above have been audited by Ernst & Young LLP. The consolidated financial statements of Security Life and Subsidiaries should be distinguished from the financial statements of the Security Life Separate Account L1 and should be considered only as bearing upon the ability of Security Life and Subsidiaries to meet its obligations under the Policies. They should not be considered as bearing upon the investment experience of the Divisions of Security Life Separate Account L1. The most current financial statements are those as of the end of the most recent fiscal year. The Company does not prepare financial statements more often than annually and believes that any incremental benefit to prospective policy holders that may result from preparing and delivering more current financial statements, though unaudited, does not justify the additional cost that would be incurred. In addition, the Company represents that there have been no significant adverse changes in the financial condition or operations of the Company between the end of the most current fiscal year and the date of this prospectus. ________________________________________________________________________________ FirstLine 70 Consolidated Financial Statements Security Life of Denver Insurance Company and Subsidiaries Years ended December 31, 1996, 1995 and 1994 with Report of Independent Auditors ________________________________________________________________________________ FirstLine 71 Security Life of Denver Insurance Company and Subsidiaries Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 CONTENTS
Report of Independent Auditors................................67 Audited Consolidated Financial Statements Consolidated Balance Sheets...................................68 Consolidated Statements of Income.............................70 Consolidated Statements of Stockholder's Equity...............71 Consolidated Statements of Cash Flows.........................72 Notes to Consolidated Financial Statements....................74
________________________________________________________________________________ FirstLine 72 Report of Independent Auditors Board of Directors and Stockholder Security Life of Denver Insurance Company We have audited the accompanying consolidated balance sheets of Security Life of Denver Insurance Company (a wholly-owned subsidiary of ING America Insurance Holdings, Inc.) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Security Life of Denver Insurance Company and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Denver, Colorado April 11, 1997 - -------------------------------------------------------------------------------- 73 Security Life of Denver Insurance Company and Subsidiaries Consolidated Balance Sheets (Dollars in Thousands) DECEMBER 31 1996 1995 ------------------------- ASSETS Investments (Note 3) Fixed maturities, at fair value (amortized cost; 1996--$2,765,488; 1995--$2,318,038) $2,875,084 $2,470,944 Equity securities, at fair value (cost: 1996-- $4,899; 1995--$8,593) 5,345 8,369 Mortgage loans on real estate 452,795 285,544 Investment real estate, at cost, less accumulated depreciation (1996--$628; 1995--$640) 1,769 2,908 Policy loans 795,311 754,240 Other long-terms investments 11,063 11,870 Short-term investments 7,019 10,946 ------------------------- Total investments 4,148,386 3,544,821 Cash 13,821 32,044 Accrued investment income 45,426 38,132 Reinsurance recoverable: Paid benefits 10,188 11,096 Unpaid benefits 19,703 13,581 Prepaid reinsurance premiums (Note 9) 1,951,012 1,614,959 Deferred policy acquisition costs (DPAC) 673,560 595,232 Property and equipment, at cost, less accumulated depreciation (1996--$21,407; 1995--$19,556) 38,848 40,418 Federal income tax recoverable (Note 10) - 62,990 Indebtedness of related parties 5,383 33,418 Other assets 99,683 64,314 Separate account assets (Note 7) 124,986 31,825 ------------------------- Total assets $7,130,996 $6,082,830 ========================= ________________________________________________________________________________ 74 FirstLine Security Life of Denver Insurance Company and Subsidiaries Consolidated Balance Sheets (Dollars in Thousands)
DECEMBER 31 1996 1995 ------------------------ LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits (Note 9): Life and annuity reserves $3,834,140 $3,328,405 Guaranteed investment contracts 1,911,201 1,520,926 Policyholders' funds 81,273 75,809 Advance premiums 236 231 Accrued dividends and dividends on deposit 20,338 19,886 Unpaid claims 88,074 79,821 Funds held under reinsurance treaties 18,967 32,793 ------------------------ Total future policy benefits 5,954,229 5,057,871 Accounts payable and accrued expenses 75,790 75,019 Indebtedness to related parties 5,427 16,224 Long-term debt to related parties (Note 11) 75,000 50,032 Accrued interest on long-term debt to related parties (Note 11) 3,700 24 Other liabilities 53,311 60,443 Federal income taxes payable (Note 10) 11,883 - Deferred federal income taxes (Note 10) 48,541 44,746 Separate account liabilities (Note 7) 124,986 31,825 Total liabilities 6,352,867 5,336,184 Commitments and contingent liabilities (Notes 8, 9 and 14) Stockholder's equity (Note 12): Common stock, $20,000 par value: Authorized - 149 shares Issued and outstanding - 144 shares 2,880 2,880 Additional paid-in capital 302,722 297,422 Net unrealized gains on investments 58,718 72,973 Retained earnings 413,809 373,371 ------------------------ Total stockholder's equity 778,129 746,646 Total liabilities and stockholder's equity $7,130,996 $6,082,830 ========================
See accompanying notes. ________________________________________________________________________________ 75 FirstLine Security Life of Denver Insurance Company and Subsidiaries Consolidated Statements of Income (Dollars in Thousands)
YEAR ENDED DECEMBER 31 1996 1995 1994 ----------------------------------- Revenues: Traditional life insurance premiums $ 118,200 $ 124,619 $ 140,633 Universal life and investment product charges 202,081 202,908 164,526 Reinsurance premiums assumed 333,851 321,731 299,632 ----------------------------------- 654,132 649,258 604,791 Reinsurance premiums ceded (117,880) (117,061) (101,459) ----------------------------------- 536,252 532,197 503,332 Net investment income 312,121 256,065 209,605 Net realized gains (losses) on investments 4,770 6,564 (7,245) Miscellaneous income 526 1,941 6,313 ----------------------------------- 853,669 796,767 712,005 Benefits and expenses: Benefits: Traditional life insurance: Death benefits 235,828 217,136 231,018 Other benefits 71,939 88,326 72,298 Universal life and investment contracts: Interest credited to account balances 186,908 164,536 139,942 Death benefits incurred in excess of account balances 54,004 63,672 73,869 Increase in policy reserves and other funds 121,946 23,895 97,723 Reinsurance recoveries (80,276) (74,305) (73,379) Product conversions 16,379 74,291 - ----------------------------------- 606,728 557,551 541,471 Expenses: Commissions 20,362 46,605 12,359 Insurance operating expenses 69,580 52,414 50,309 Amortization of deferred policy acquisition costs 94,685 71,450 65,393 791,355 728,020 669,532 ----------------------------------- Income before federal income taxes 62,314 68,747 42,473 Federal income taxes (Note 10) 21,876 24,296 14,921 ----------------------------------- Net income before cumulative effect of accounting changes 40,438 44,451 27,552 Cumulative effect of change in accounting for postemployment benefits (net of tax) (Note 6) - - (1,381) Net income $ 40,438 $ 44,451 $ 26,171 ===================================
See accompanying notes. ________________________________________________________________________________ 76 FirstLine Security Life of Denver Insurance Company and Subsidiaries Consolidated Statements of Stockholder's Equity (Dollars in Thousands)
YEAR ENDED DECEMBER 31 1996 1995 1994 --------------------------------- Common stock: Balance at beginning and end of year $ 2,880 $ 2,880 $ 2,880 ================================= Additional paid-in capital: Balance at beginning of year $297,422 $150,792 $ 150,792 Capital contributions 5,300 146,630 - Balance at end of year $302,722 $297,422 $ 150,792 ================================= Net unrealized gains on investments: Balance at beginning of year $ 72,973 $ 6,862 $ (131) Adjustment to beginning balance for change in accounting method, net of income taxes of $46,916 (Note 1) - - 87,630 Effect on DPAC of change in accounting method, net of income taxes of $10,117 - - (18,790) Net change in unrealized gains (losses), net of tax (27,716) 118,654 (106,911) Effect on DPAC of unrealized gains and losses on fixed maturities, net of tax 13,461 (52,543) 45,064 --------------------------------- Balance at end of year $ 58,718 $ 72,973 $ 6,862 ================================= Retained earnings: Balance at beginning of year $373,371 $329,640 $ 306,349 Net income 40,438 44,451 26,171 Dividends paid to stockholder - (720) (2,880) Balance at end of year $413,809 $373,371 $ 329,640 ================================= Total stockholder's equity $778,129 $746,646 $ 490,174 =================================
See accompanying notes. ________________________________________________________________________________ 77 FirstLine Security Life of Denver Insurance Company and Subsidiaries Consolidated Statements of Cash Flows (Dollars in Thousands)
YEAR ENDED DECEMBER 31 1996 1995 1994 --------------------------------------- OPERATING ACTIVITIES Net income $ 40,438 $ 44,451 $ 26,171 Adjustments to reconcile net income to net cash provided by operating activities: Increase in future policy benefits 585,581 471,331 621,578 Net decrease (increase) in federal income taxes 78,668 33,232 (25,506) Increase (decrease) in accounts payable and accrued expenses (6,845) 26,751 3,771 Increase in accrued interest on long-term debt 3,676 24 - Increase in accrued investment income (7,294) (5,739) (5,651) Increase in reinsurance recoverable (5,214) (24) (1,767) Increase in prepaid reinsurance premiums (336,053) (253,968) (397,463) Net realized investment (gains) losses (4,770) (6,564) 7,245 Depreciation and amortization expense 3,857 4,036 3,500 Policy acquisition costs deferred (152,299) (127,069) (127,305) Amortization of deferred policy acquisition costs 94,685 71,450 65,393 Cumulative effect of accounting changes - 1,381 Increase in accrual for postretirement benefits 484 623 851 Other, net (10,055) (9,784) (4,894) --------------------------------------- Net cash provided by operating activities 284,859 248,750 167,304 INVESTING ACTIVITIES Securities available-for-sale: Sales: Fixed maturities 334,482 357,059 731,460 Equity securities 4,198 4,730 148,176 Maturities--fixed maturities 727,937 280,581 237,586 Purchases: Fixed maturities (1,522,369) (935,210) (1,202,024) Equity securities (428) (1,300) (130,856) Securities held-to-maturity: Maturities--fixed maturities - 14,156 1,665 Purchases--fixed maturities - - (42,454) Sale, maturity or repayment of investments: Mortgage loans on real estate 18,102 16,061 17,570 Investment real estate 1,354 215 1,534 Other long-term investments - 1,064 -
________________________________________________________________________________ 78 FirstLine Security Life of Denver Insurance Company and Subsidiaries Consolidated Statements of Cash Flows (continued) (Dollars in Thousands)
YEAR ENDED DECEMBER 31 1996 1995 1994 ------------------------------------ INVESTING ACTIVITIES (CONTINUED) Purchase or issuance of investments: Mortgage loans on real estate $(186,228) $(136,218) $ (91,410) Investment real estate - 14 (156) Policy loans, net (41,071) (63,746) (72,017) Other long-term investments 809 (2,169) (399) Short-term investments, net 3,942 (9,154) 4,099 Additions to property and equipment (4,482) (1,812) (2,280) Disposals of property and equipment 2,389 79 (177) ------------------------------------ Net cash used by investing activities (661,365) (475,650) (399,683) FINANCING ACTIVITIES Increase (decrease) in indebtedness to related parties 42,206 (17,011) 52,231 Cash contributions from parent 5,300 - 15,000 Receipts from interest sensitive products credited to policyholder account balances 434,726 387,904 250,396 Return of policyholder account balances on interest sensitive policies (123,949) (128,948) (89,532) Dividends paid to stockholder - (720) (2,880) ------------------------------------ Net cash provided by financing activities 358,283 241,225 225,215 ------------------------------------ Net (decrease) increase in cash (18,223) 14,325 (7,164) Cash at beginning of year 32,044 17,719 24,883 Cash at end of year $ 13,821 $ 32,044 $ 17,719 ====================================
Noncash transaction: In 1995, the Company received a capital contribution of $124,630,000 in fixed maturities and equity securities. The Company's parent also contributed $22,000,000 in cash to additional paid-in capital. As of December 31, 1995, the cash representing the capital contribution had not been received, and the amount is presented as indebtedness of related parties in the accompanying consolidated balance sheet. The cash was received by the Company in January 1996. See accompanying notes. ________________________________________________________________________________ 79 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements December 31, 1996 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts and operations, after intercompany eliminations, of Security Life of Denver Insurance Company (Security Life) and its wholly-owned subsidiaries: Midwestern United Life Insurance Company (Midwestern United); First ING Life Insurance Company of New York, formerly the Urbaine Life Reinsurance Company (First ING); First Secured Mortgage Deposit Corporation; and ING America Equities, Inc., formerly SLD Equities, Inc. NATURE OF OPERATIONS Security Life of Denver Insurance Company and its subsidiaries (the Company) is a wholly-owned subsidiary of ING America Insurance Holdings, Inc. (ING America). The Company focuses on two markets, the advanced market and reinsurance to other insurers. 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, variable annuity 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 Virgin Islands. In the reinsurance market, the Company focuses on automatic reinsurance coverages provided to other insurance companies. The significant accounting policies followed by the Company that materially affect the financial statements are summarized below: BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) which, as to the insurance companies included in the consolidation, differ from statutory accounting practices prescribed or permitted by state insurance regulatory authorities. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ________________________________________________________________________________ 80 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCOUNTING CHANGES Effective January 1, 1994, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 112, Employers' Accounting for Postemployment Benefits, in accounting for disability benefits. The cumulative effect as of January 1, 1994 of this change in accounting was to decrease net income by $1,381,000 (net of tax of $743,000). The effect of the change on 1994 income before the cumulative effect of the change was not material. Prior to January 1, 1994, the Company recognized the cost of providing these benefits on a cash basis. Under the new method of accounting, the Company accrues the benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. In May 1993, the Financial Accounting Standards Board issued FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities (FASB 115). The Company adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. The cumulative effect as of January 1, 1994 of adopting FASB 115 had no impact on income. The opening balance of stockholder's equity was increased by $68,840,000 (net of tax of $36,799,000) to reflect the net unrealized holding gains on securities classified as available-for-sale previously carried at amortized cost less an adjustment to deferred policy acquisition costs for the change in expected future gross margins. Because of the numerous questions that arose during the implementation of FASB 115, the Financial Accounting Standards Board issued A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities in November 1995. This Special Report provided interpretive guidance to the implementation of FASB 115 and provided companies with a one-time period until December 31, 1995 to reassess the appropriateness of the classifications of all securities held at the time and account for any resulting reclassifications at fair value. Reclassifications from the held-to-maturity category that result from this one-time reassessment do not call into question the intent of an enterprise to hold other debt securities to maturity in the future. As a result of this reassessment, the Company reclassified all held-to- maturity securities to the available-for-sale category effective December 26, 1995. The book value of these securities at the date of transfer was $98,818,000. At transfer, an unrealized gain of $4,082,000 (net of tax of $2,198,000) was recognized as a direct increase to stockholder's equity. ________________________________________________________________________________ 81 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Beginning in 1995, the Company adopted FASB Statement No. 114, Accounting by Creditors for Impairment of a Loan, and Statement No. 118, which amends Statement 114. Under the amended statement, the 1996 and 1995 allowances for credit losses related to loans that are identified for evaluation in accordance with Statement 114 are based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Adoption of this standard resulted in an insignificant impact to net income and stockholder's equity. Effective January 1, 1996, the Company adopted FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. Adoption of this standard resulted in an insignificant impact to net income and stockholder's equity. INVESTMENTS Investments are presented on the following bases: The carrying value of fixed maturities depends on the classification of the security: securities held-to-maturity, securities available-for-sale, and trading securities. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities not classified as held-to-maturity and marketable equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of tax and deferred acquisition cost adjustments, reported in a separate component of stockholder's equity. The Company does not hold any securities classified as held-to-maturity or trading securities. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. Interest and dividends are included in net investment income as earned. ________________________________________________________________________________ 82 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Mortgage loans are carried at the unpaid balances. Investment real estate is carried at cost, less accumulated depreciation. Policy loans are carried at unpaid balances. Short-term investments are carried at cost, which approximates fair value. Derivatives are accounted for on the same basis as the asset hedged. Realized gains and losses, and declines in value judged to be other-than- temporary are included in net realized gains (losses) on investments. The cost of securities sold is based on the specific identification method. RECOGNITION OF PREMIUM REVENUES Premiums for traditional life insurance products, which include those products with fixed and guaranteed premiums and benefits and consist principally of whole life insurance policies, are recognized as revenue when due. Revenues for universal life insurance policies and for investment products consist of policy charges for the cost of insurance, policy administration charges, and surrender charges assessed against policyholder account balances during the year. DEFERRED POLICY ACQUISITION COSTS Commissions, reinsurance allowances, and other costs of acquiring traditional life insurance including reinsurance assumed, universal life insurance (including interest sensitive products) and investment products that vary with and are primarily related to the production of new and renewal business have been deferred. Traditional life insurance acquisition costs are being amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance and investment products, acquisition costs are being amortized generally in proportion to the present value (using the assumed crediting rate) of expected gross margins from surrender charges, investments, mortality, and expenses. This amortization is adjusted retrospectively when estimates of current or future gross margins to be realized from a group of products are revised. Deferred policy acquisition costs are adjusted to reflect changes that would have been necessary if unrealized investment gains and losses related to available-for-sale securities had been realized. The Company has reflected those adjustments in the asset balance with the offset as a direct adjustment to stockholder's equity. ________________________________________________________________________________ 83 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FUTURE POLICY BENEFITS Benefit reserves for traditional life insurance products (other than reinsurance assumed) are computed using a net level premium method including assumptions as to investment yields, mortality, withdrawals and other assumptions based on the Company's and industry experience, modified as necessary to reflect anticipated trends to include provisions for possible unfavorable deviations. Reserve interest assumptions are those deemed appropriate at the time of policy issue, and range from 2% to 10%. Policy benefit claims are charged to expense in the year that the claims are incurred. Benefit reserves for reinsurance assumed are computed using pricing assumptions with provisions for adverse deviation. Benefits for level-term reinsurance assumed are computed to recognize profits in proportion with premiums. Benefit reserves for all other reinsurance assumed are computed to recognize profits in proportion to the coverage provided. Benefit reserves for universal life-type policies (including interest sensitive products) and investment products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred during the year in excess of related policy account balances. Interest crediting rates for universal life and investment products range from 4.60% to 7.45% during 1996, 4.60% to 8.10% during 1995, and 6.15% to 8.10% during 1994. Included in life and annuity reserves is an unearned revenue reserve that reflects the unamortized balance of excess first year policy service fees over renewal period policy service fees on universal life and investment products. These excess fees have been deferred and are being recognized in income over the periods benefited, using the same assumptions and factors used to amortize deferred policy acquisition costs. UNPAID CLAIMS The liabilities for unpaid claims include estimates of amounts due on reported claims and claims that have been incurred but were not reported as of December 31. Such estimates are based on actuarial projections applied to historical claim payment data and are considered reasonable and adequate to discharge the Company's obligations for claims incurred but unpaid as of December 31. ________________________________________________________________________________ 84 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) HOME OFFICE PROPERTY AND EQUIPMENT Home office property and equipment are carried at cost less accumulated depreciation. Depreciation for major classes of assets is calculated on a straight-line basis. PARTICIPATING INSURANCE The Company accrues a liability for earnings on participating policies that cannot inure to the benefit of the Company's stockholder. The liability is determined based on earnings on participating policies in excess of 10% of profits on participating business before payment of policyholder dividends. The liability for these undistributed earnings was $6,211,000 and $6,218,000 at December 31, 1996 and 1995, respectively. Participating business approximates .4% of the Company's ordinary life insurance in force and 1.4% of premium income. Earnings for participating insurance are based on the actual earnings of the participation block of policies. Expenses and taxes are allocated based on the amount of participating insurance in force. Investment income is allocated based on the yield of the participating investment portfolio. 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 $3,307,000, $2,964,000, and $3,683,000 were incurred in 1996, 1995, and 1994, respectively. FEDERAL INCOME TAXES Deferred federal income taxes have been provided or credited to reflect significant temporary differences between income reported for tax and financial reporting purposes using reasonable assumptions. CASH FLOW INFORMATION Cash includes cash on hand and demand deposits. Included as a component of operating activities is interest paid of $1,016,000, $4,861,000, and $538,000 for 1996, 1995, and 1994, respectively. ________________________________________________________________________________ 85 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. PENDING ACCOUNTING STANDARD During 1996, the FASB issued Statement No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which requires an entity to recognize the financial and servicing assets it controls and the liabilities it has incurred and to derecognize financial assets when control has been surrendered in accordance with the criteria provided in the Statement. The Company will apply the new rules prospectively to transactions beginning in the first quarter of 1997. Based on current circumstances, the Company believes the application of the new rules will not have a material impact on the financial statements. RECLASSIFICATIONS Certain amounts in the 1994 and 1995 financial statements have been reclassified to conform to the 1996 presentation. 2. ACQUISITION During 1994, Security Life contributed capital of $317,000 in creation of ING America Equities, Inc., a wholesale broker/dealer incorporated September 27, 1993 and approved for membership in the National Association of Securities Dealers on August 18, 1994. The business of ING America Equities, Inc. consists only of distribution of variable life and annuity contracts. ING America Equities, Inc. does not hold customer funds or securities. ________________________________________________________________________________ 86 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. INVESTMENTS The amortized cost and fair value of investments in fixed maturities and equity securities are as follows at December 31, 1996 and 1995:
DECEMBER 31, 1996 ------------------------------------------------ COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------ (Dollars in Thousands) Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 88,526 $ 1,035 $ 858 $ 88,703 States, municipalities and political subdivisions 71,857 984 1,058 71,783 Public utilities securities 105,110 1,130 748 105,492 Debt securities issued by foreign governments 3,272 - - 3,272 Corporate securities 921,565 20,095 5,646 936,014 Mortgage-backed securities 1,273,251 108,367 18,924 1,362,694 Other asset-backed securities 299,809 8,186 1,286 306,709 Derivatives hedging fixed maturities (Note 4) 2,098 292 1,973 417 ------------------------------------------------ Total fixed maturities 2,765,488 140,089 30,493 2,875,084 Preferred stocks (nonredeemable) 2,112 66 301 1,877 Common stocks 2,787 756 75 3,468 ------------------------------------------------ Total $2,770,387 $140,911 $30,869 $2,880,429 ================================================
________________________________________________________________________________ 87 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. INVESTMENTS (CONTINUED)
DECEMBER 31, 1995 ------------------------------------------------ COST OR GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------ (Dollars in Thousands) Available-for-sale: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 99,780 $ 3,503 $ 154 $ 103,129 States, municipalities and political subdivisions 74,126 1,760 234 75,652 Public utilities securities 76,470 2,841 50 79,261 Debt securities issued by foreign governments 3,272 - - 3,272 Corporate securities 659,902 34,246 911 693,237 Mortgage-backed securities 1,230,943 123,306 18,690 1,335,559 Other asset-backed securities 169,847 10,946 2,174 178,619 Derivatives hedging fixed maturities (Note 4) 3,698 909 2,392 2,215 ------------------------------------------------ Total fixed maturities 2,318,038 177,511 24,605 2,470,944 Preferred stocks (nonredeemable) 6,196 275 443 6,028 Common stocks 2,397 13 69 2,341 ------------------------------------------------ Total $2,326,631 $177,799 $25,117 $2,479,313 ================================================
________________________________________________________________________________ 88 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. INVESTMENTS (CONTINUED) The amortized cost and fair value of investments in fixed maturities at December 31, 1996, by contractual maturity, are shown in the following table (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
AMORTIZED COST FAIR VALUE ---------------------------- Available for sale: Due in one year or less $ 25,893 $ 26,250 Due after one year through five years 349,962 354,031 Due after five years through ten years 466,457 472,014 Due after ten years 350,116 353,386 ---------------------------- 1,192,428 1,205,681 Mortgage-backed securities 1,273,251 1,362,694 Other asset-backed securities 299,809 306,709 Total available-for-sale $2,765,488 $2,875,084 ============================
Changes in unrealized gains (losses) on investments in available-for-sale securities for the years ended December 31, 1996, 1995 and 1994 are summarized as follows (in thousands):
DECEMBER 31, 1996 -------------------------------- FIXED EQUITY TOTAL -------------------------------- Gross unrealized gains $140,089 $ 822 $140,911 Gross unrealized losses 30,493 376 30,869 -------------------------------- Net unrealized gains (losses) 109,596 446 110,042 Deferred income tax (expense) benefit (38,359) (157) (38,516) -------------------------------- Net unrealized gains (losses) after taxes 71,237 289 71,526 Less: Balance at beginning of year 99,389 (147) 99,242 -------------------------------- Change in net unrealized gains (losses) $(28,152) $ 436 $(27,716) ================================
________________________________________________________________________________ 89 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. INVESTMENTS (CONTINUED)
DECEMBER 31, 1995 -------------------------------- FIXED EQUITY TOTAL -------------------------------- Gross unrealized gains $ 177,511 $ 288 $ 177,799 Gross unrealized losses 24,605 512 25,117 Net unrealized gains (losses) 152,906 (224) 152,682 Deferred income tax (expense) benefit (53,517) 77 (53,440) -------------------------------- Net unrealized gains (losses) after taxes 99,389 (147) 99,242 Less: Balance at beginning of year (18,854) (558) (19,412) -------------------------------- Change in net unrealized gains (losses) $ 118,243 $ 411 $ 118,654 ================================ DECEMBER 31, 1994 -------------------------------- FIXED EQUITY TOTAL -------------------------------- Gross unrealized gains $ 94,846 $ 262 $ 95,108 Gross unrealized losses 123,843 1,120 124,963 -------------------------------- Net unrealized gains (losses) (28,997) (858) (29,855) Deferred income tax (expense) benefit 10,143 300 10,443 -------------------------------- Net unrealized gains (losses) after taxes (18,854) (558) (19,412) Less: Balance at beginning of year - (131) (131) Adjustment for change in accounting method (net of tax of $46,916) 87,630 - 87,630 -------------------------------- Change in net unrealized gains (losses) $(106,484) $ (427) $(106,911) ================================
As part of its overall investment management strategy, the Company has entered into agreements to purchase $21,538,000 in mortgage loans as of December 31, 1996. These agreements were settled during 1997. The Company had no agreements to sell securities at December 31, 1996. ________________________________________________________________________________ 90 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. INVESTMENTS (CONTINUED) Major categories of investment income for the years ended December 31 are summarized as follows (in thousands):
1996 1995 1994 -------------------------------- Fixed maturities $240,931 $190,327 $153,777 Mortgage loans on real estate 29,143 16,601 12,221 Policy loans 52,205 55,438 42,456 Other investments 2,197 4,360 5,654 -------------------------------- 324,476 266,726 214,108 Investment expenses (12,355) (10,661) (4,503) -------------------------------- Net investment income $312,121 $256,065 $209,605 ================================
Net realized gains (losses) on investments for the years ended December 31 are summarized as follows (in thousands):
1996 1995 1994 -------------------------------- Fixed maturities $ 4,540 $ 6,538 $ (3,847) Equity securities 79 5 (1,761) Real estate and other 151 21 (1,637) -------------------------------- Net realized gains (losses) on investments $ 4,770 $ 6,564 $ (7,245) ================================
During 1996, 1995 and 1994, debt and marketable equity securities available-for- sale were sold with fair values at the date of sale of $334,482,000, $306,219,000 and $292,483,000, respectively. Gross gains of $7,248,000, $9,691,000, and $6,125,000 and gross losses of $2,629,000, $3,148,000 and $11,733,000 were realized on those sales in 1996, 1995, and 1994, respectively. At December 31, 1996 and 1995, bonds with an amortized cost of $26,140,000 and $26,730,000, respectively, were on deposit with various state insurance departments to meet regulatory requirements. ________________________________________________________________________________ 91 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING The Company enters into interest rate 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, 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. 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 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 assets. Gains and 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. 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 contacts. ________________________________________________________________________________ 92 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING (CONTINUED) The table below summarizes the Company's interest rate contracts at December 31, 1996 and 1995 (in thousands):
DECEMBER 31, 1996 ------------------------------------------- NOTIONAL AMORTIZED FAIR BALANCE AMOUNT COST VALUE SHEET ------------------------------------------- Interest rate contracts: Swaps $ 794,520 $ - $(1,452) $(1,452) Swaps-affiliates 774,520 - 1,272 1,272 ------------------------------------------- Total swaps 1,569,040 - (180) (180) Caps owned 400,000 2,073 592 592 Caps owned-affiliates - - - - ------------------------------------------- Total caps owned 400,000 2,073 592 592 Floors owned 100,000 25 5 5 Floors owned-affiliates - - - - ------------------------------------------- Total floors owned 100,000 25 5 5 Options owned 212,000 3,330 3,772 3,772 Options owned-affiliates 212,000 (3,330) (3,772) (3,772) ------------------------------------------- Total options owned 424,000 - - - ------------------------------------------- Total derivatives $2,493,040 $ 2,098 $ 417 $ 417 ===========================================
________________________________________________________________________________ 93 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING (CONTINUED)
DECEMBER 31, 1995 --------------------------------------------- NOTIONAL AMORTIZED FAIR BALANCE AMOUNT COST VALUE SHEET --------------------------------------------- Interest rate contracts: Swaps $ 884,632 $ 448 $ 4,034 $ 4,034 Swaps-affiliates 864,632 (448) (3,453) (3,453) --------------------------------------------- Total swaps 1,749,264 - 581 581 Caps owned 400,000 3,580 1,308 1,308 Caps owned-affiliates 40,000 61 - - --------------------------------------------- Total caps owned 440,000 3,641 1,308 1,308 Floors owned 100,000 57 326 326 Floors owned-affiliates - - - - --------------------------------------------- Total floors owned 100,000 57 326 326 Options owned 152,000 2,848 2,255 2,255 Options owned-affiliates 152,000 (2,848) (2,255) (2,255) --------------------------------------------- Total options owned 304,000 - - - --------------------------------------------- Total derivatives $2,593,264 $ 3,698 $ 2,215 $ 2,215 =============================================
5. CONCENTRATIONS OF CREDIT RISK At December 31, 1996, the Company held less-than-investment-grade bonds classified as available-for-sale with a carrying value and market value of $74,964,000. These holdings amounted to 3% of the Company's investments in fixed maturity securities and 1% of total assets. The holdings of less-than- investment-grade bonds are widely diversified and of satisfactory quality based on the Company's investment policies and credit standards. At December 31, 1996, the Company's commercial mortgages involved a concentration of properties located in Florida (18%), Texas (13%), and Georgia (10%). The remaining commercial mortgages relate to properties located in 23 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 $13,517,000. ________________________________________________________________________________ 94 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. EMPLOYEE BENEFIT PLANS PENSION PLAN The Company has a qualified noncontributory defined benefit retirement plan as well as a non-qualified unfunded Supplemental Employees Retirement Plan (SERP) covering substantially all employees. The benefits are based on final average earnings from the time of eligibility for the plan, subject to minimum benefits based on career earnings. The Company's funding policy for the qualified plan is to contribute amounts annually to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus additional amounts as may be determined to be appropriate. The funded status and the amounts recognized in the balance sheets for the defined benefit plan are as follows (in thousands):
DECEMBER 31 1996 1995 ------------------------------------------- QUALIFIED QUALIFIED PLAN SERP PLAN SERP ------------------------------------------- Actuarial present value of accumulated benefit obligation: Vested $(26,058) $(6,725) $(21,032) $(5,637) Nonvested (733) (132) (1,656) - ------------------------------------------- (26,791) (6,857) (22,688) (5,637) Effect of projected future compensation (5,479) (951) (5,355) (1,297) ------------------------------------------- Projected benefit obligation (32,270) (7,808) (28,043) (6,934) Less plan assets at fair value 33,682 - 31,074 - ------------------------------------------- Plan assets in excess of projected benefit obligation 1,412 (7,808) 3,031 (6,934) Unrecognized net asset (1,316) - (1,601) - Unrecognized prior service benefit cost (97) 236 (109) 267 Unrecognized net loss (gain) 1,930 4,622 998 4,507 ------------------------------------------- Net pension asset (liability) $ 1,929 $(2,950) $ 2,319 $(2,160) ===========================================
As of December 31, 1996 and 1995, the Company recognized an additional liability on the SERP of $3,671,000 and $3,210,000, respectively, as this plan is unfunded and the actuarial present value of accumulated benefit obligation exceeds the net pension liability. ________________________________________________________________________________ 95 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. EMPLOYEE BENEFIT PLANS (CONTINUED) The net periodic pension cost for the defined benefit plans includes the following components (in thousands):
1996 1995 1994 ------------------------------------------------------------- QUALIFIED QUALIFIED QUALIFIED PLAN SERP PLAN SERP PLAN SERP ------------------------------------------------------------- Service cost $ 1,320 $ 388 $ 1,147 $ 285 $ 1,369 $248 Interest cost 2,262 463 1,856 517 1,521 219 Return on plan assets (4,075) 258 (3,497) - (1,900) - Net amortization and deferral 883 - 553 239 (659) 200 ------------------------------------------------------------- Net periodic pension expense $ 390 $1,109 $ 59 $1,041 $ 331 $667 =============================================================
Assumptions used in accounting for the defined benefit plans as of December 31, 1996, 1995, and 1994 were as follows:
1996 1995 1994 ----------------------------------- Weighted-average discount rate 7.50% 7.25% 8.00% Rate of increase in compensation level 4.50% 4.25% 6.00% Expected long-term rate of return on assets 9.50% 9.50% 8.50%
Plan assets of the defined benefit plans at December 31, 1996 are invested primarily in U.S. government securities, corporate bonds, mutual funds, mortgage loans and money market funds. 401(K) PLAN The Security Life of Denver Insurance Company Savings Incentive Plan (the Savings Plan) is a defined contribution-individual account plan which is available to substantially all full-time home office employees to provide a savings program for additional retirement benefits, qualifying as a 401(k) plan. As a 401(k) plan, participants may make contributions to the plan through salary reductions up to a maximum of $9,500 in 1996 and $9,240 in 1995 and 1994. Such contributions are not currently taxable to the participants. The Company matches 100% of the first 3% of participants' contributions, plus 50% of contributions which exceed 3% of participants' compensation, subject to a ________________________________________________________________________________ 96 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. EMPLOYEE BENEFIT PLANS (CONTINUED) percentage of 4 1/2% of the individual's salary. Company matching contributions were $1,143,000 for 1996, $1,071,000 for 1995, and $1,042,000 for 1994. Plan assets of the Savings Plan at December 31, 1996 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 a policyholder liability of the Company and had a balance of $25.5 million and $23.9 million at December 31, 1996 and 1995, respectively. POSTRETIREMENT BENEFITS In addition to providing pension and profit sharing plans, the Company provides certain health care and life insurance benefits for retired employees. Under the current plans, all employees become eligible for these benefits if they achieve a minimum of 120 months of service prior to retirement. The plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductible amounts and coinsurance. The following table presents the amounts recognized in the Company's balance sheets (in thousands):
DECEMBER 31 1996 1995 ------------------------------------------------------------------- LIFE LIFE MEDICAL INSURANCE MEDICAL INSURANCE PLAN PLAN TOTAL PLAN PLAN TOTAL ------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $(1,315) $(1,226) $ (2,541) $(1,234) $(1,140) $ (2,374) Fully eligible active plan participants (409) (392) (801) (383) (364) (747) Other active plan participants (2,038) (1,220) (3,258) (1,913) (1,134) (3,047) ------------------------------------------------------------------- (3,762) (2,838) (6,600) (3,530) (2,638) (6,168) Plan assets at fair value - - - - - - ------------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets (3,762) (2,838) (6,600) (3,530) (2,638) (6,168) Unrecognized prior service cost 355 32 387 463 42 505 Unrecognized net gains (losses) (5,870) 1,271 (4,599) (6,114) 1,449 (4,665) ------------------------------------------------------------------- Accrued postretirement benefit cost $(9,277) $(1,535) $(10,812) $(9,181) $(1,147) $(10,328) ===================================================================
________________________________________________________________________________ 97 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. EMPLOYEE BENEFIT PLANS (CONTINUED) Net periodic postretirement benefit cost for 1996, 1995, and 1994 includes the following components (in thousands):
1996 1995 1994 ---------------------------------------------------------------------------------------------- LIFE LIFE LIFE MEDICAL INSURANCE MEDICAL INSURANCE MEDICAL INSURANCE PLAN PLAN TOTAL PLAN PLAN TOTAL PLAN PLAN TOTAL ---------------------------------------------------------------------------------------------- Service cost $ 236 $151 $ 387 $ 359 $175 $ 534 $436 $30 $ 466 Interest cost 268 200 468 291 112 403 448 39 487 Net amortization and deferral (275) 89 (186) (209) 65 (144) (93) (8) (101) ------------------------------------------------------------------------------------------ Net periodic postretirement benefit cost $ 229 $440 $ 669 $ 441 $352 $ 793 $791 $61 $ 852 ==========================================================================================
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 11.25% graded to 5% over 12.5 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, 1996 by $656,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1996 by $81,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.50% at December 31, 1996 and 7.25% at December 31, 1995. 7. SEPARATE ACCOUNTS Separate account assets and liabilities represent funds segregated by the Company for the benefit of certain policyholders who bear the investment risk. The separate account assets and liabilities are carried at fair value. Revenues and expenses on the separate account assets and related liabilities equal the benefits paid to the separate account policyholders and are excluded from the amounts reported in the Consolidated Statements of Income except for fees charged for administration services and mortality risk. ________________________________________________________________________________ 98 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. LEASES The Company is committed under various noncancellable long-term operating leases relating to electronic data processing equipment that provide for annual rentals as follows (in thousands):
1997 $2,985 1998 2,278 1999 35 2000 - 2001 - ---------- $5,298 ==========
These leases expire between 1997 and 2000. Rental expense for all equipment leases was approximately $6,151,000, $4,344,000, and $5,620,000 for the years ended December 31, 1996, 1995, and 1994, respectively. 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, 1996, the Company's retention limit for acceptance of risk on life insurance policies had been set at various levels up to $1,500,000. Reinsurance premiums, commissions, and expense reimbursements 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. ________________________________________________________________________________ 99 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. REINSURANCE (CONTINUED) To the extent that the assuming companies become unable to meet their obligations under these treaties, the Company remains contingently liable to its policyholders for the portion reinsured. Consequently, allowances are established for amounts deemed uncollectible. To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of the reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers. The Company assumes and cedes, on a coinsurance basis, guaranteed investment contracts (GICs) to and from affiliates under common ownership. In 1995, the Company ceded a block of GIC business issued in prior years to an affiliate. No gain or loss was recognized on the transaction. The Company does not hold any collateral under these agreements. These transactions are summarized as follows (in thousands):
1996 1995 --------------------------------------------------- PREMIUMS RESERVES PREMIUMS RESERVES --------------------------------------------------- Direct (nonaffiliated) $ 767,312 $ 1,785,689 $ 556,571 $ 1,380,951 Assumed from Life Insurance Company of Georgia 50,000 125,512 25,000 128,137 Assumed from Southland Life Insurance Company - - 8,000 11,838 Ceded to Columbine Life Insurance Company (484,512) (1,425,545) (530,291) (1,328,950) Ceded to Life Insurance Company of Georgia (282,800) (435,586) (78,200) (191,976) --------------------------------------------------- Net $ 50,000 $ 50,070 $ (18,920) $ - ===================================================
Ceded GIC reserves totaling $1,861 and $1,521 million as of December 31, 1996 and 1995, respectively, are classified as part of prepaid reinsurance premiums. GIC reserves are reflected at their gross value of $1,911 and $1,521 million as of December 31, 1996 and 1995. ________________________________________________________________________________ 100 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. REINSURANCE (CONTINUED) As of December 31, 1996 and 1995, the Company has ceded blocks of insurance under reinsurance treaties to provide funds for financial and other purposes. These reinsurance transactions, generally known as "surplus relief reinsurance," represent financial arrangements and, in accordance with generally accepted accounting principles, are not reflected in the accompanying financial statements except for the risk fees paid to or received from reinsurers. Surplus relief reinsurance has the effect of increasing current statutory surplus while reducing future statutory surplus as amounts are recaptured from reinsurers. During 1995, most of the agreements were recaptured as part of an overall capital restructuring plan. This capital restructuring also resulted in a capital contribution from the Company's parent of $146,630,000 to replace the reduction in statutory surplus that resulted from the recapture. 10. INCOME TAXES The Company files a consolidated federal income tax return with its parent and other U.S. affiliates and subsidiaries, with the exception of First ING. The affiliated companies that join in the filing of the consolidated federal income tax return have an agreement for the allocation of taxes between members that join in the consolidated return. The agreement specifies that the separate return payable or the separate return receivable of each member will be the federal income tax liability or receivable that the member would have had for the period had it filed a separate return. ________________________________________________________________________________ 101 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31 1996 1995 --------------------------- Deferred tax liabilities: Deferred policy acquisition costs $(236,445) $(197,355) Unrealized gains/losses (38,516) (53,440) ---------------------------- Total deferred tax liabilities (274,961) (250,795) Deferred tax assets: Benefit reserves and surplus relief 123,410 120,439 Tax-basis deferred acquisition costs 60,727 48,945 Investment income 11,037 12,060 Unearned investment income 8,705 9,383 Nonqualified deferred compensation 10,649 8,785 Postretirement employee benefits 3,784 3,615 Other, net 8,108 2,822 --------------------------- Net deferred tax assets 226,420 206,049 --------------------------- Net deferred tax (liabilities) assets $ (48,541) $ (44,746) ===========================
The components of federal income tax expense consist of the following (in thousands):
DECEMBER 31 1996 1995 1994 -------------------------------- Current $10,340 $ (48,136) $ 44,121 Deferred 11,536 72,870 (29,200) Current year change in valuation allowance - (438) - -------------------------------- Federal income tax expense $21,876 $ 24,296 $ 14,921 ================================
________________________________________________________________________________ 102 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. INCOME TAXES (CONTINUED) The Company's effective income tax rate did not vary significantly from the statutory federal income tax rate. Prior to 1995 a valuation allowance had been established by the Company to account for the fact that the full benefit of the deferred tax asset established by First ING for tax-basis deferred acquisition costs more than likely would not be fully realized. In 1995, a change in judgment about the realization of the deferred tax asset occurred and the valuation allowance was removed. The Company had net income tax payments (receipts) of $(61,467,000) during 1996, $25,875,000 during 1995, and $41,278,000 during 1994 for current income tax payments and settlements of prior year returns. The Policyholder's Surplus Account is an accumulation of certain special deductions for income tax purposes and a portion of the "gains from operations" which were not subject to current taxation under the Life Insurance Tax Act of 1959. At December 31, 1984, the balance in this account for tax return purposes was approximately $70,800,000. The Tax Reform Act of 1984 provides that no further accumulations will be made in this account. If amounts accumulated in the Policyholder's Surplus Account exceed certain limits, or if distributions to the shareholder exceed amounts in the Shareholder's Surplus Account, to the extent of such excess amount or excess distributions, as determined for income tax purposes, amounts in the Policyholder's Surplus Account would become subject to income tax at rates in effect at that time. Should this occur, the maximum tax which would be paid at the current tax rate is $24,780,000. The Company does not anticipate any such action or foresee any events which would result in such tax; accordingly, a deferred tax liability has not been established. 11. LONG-TERM DEBT Long-term indebtedness to related parties for $75,000,000 represents the cumulative cash draws on a $100,000,000 commitment from ING America Insurance Holdings, Inc. through December 31, 1996. Additional draws may be made by the Company at its option through December 1, 2004. This subordinated note bears interest at a variable rate equal to the prevailing rate for 10 year U.S. Treasury Bonds plus 1/4% adjusted annually. ________________________________________________________________________________ 103 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. LONG-TERM DEBT (CONTINUED) The repayment of this note requires approval of the Commissioner of Insurance of the State of Colorado and is 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. The principal and interest is scheduled to be repaid in five annual installments beginning December 31, 1999 and continuing through December 31, 2003, with the option of prepaying any outstanding principal and accrued interest. As of December 31, 1996, the Company accrued interest of $3,700,000. No payments of principal or interest were made in 1996. Future minimum payments, assuming a current effective interest rate of 6.55%, are as follows (in thousands):
YEAR TOTAL PAYMENTS --------------------------------------- 1999 $ 21,518 2000 21,518 Subsequent years 64,552 Total 107,588 Less imputed interest (32,588) Present value of payments $ 75,000 ===========
12. STATUTORY ACCOUNTING INFORMATION AND PRACTICES Security Life and its insurance subsidiaries prepare their statutory basis financial statements in accordance with accounting practices prescribed or permitted by their state of domicile. "Prescribed" statutory accounting practices include state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, from company to company within the state, and may change in the future. The NAIC is currently in the process of codifying statutory accounting practices, the result of which is expected to constitute the only source of "prescribed" statutory accounting practices. Accordingly, that project, which is expected to be completed in 1998, will likely change, to some extent, prescribed statutory accounting. ________________________________________________________________________________ 104 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED) practices, and may result in changes to the accounting practices that insurance companies use to prepare their statutory financial statements. 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 UL 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. The NAIC prescribes Risk-Based Capital (RBC) requirements for life/health insurance companies. At December 31, 1996, the Company exceeded all minimum RBC requirements. Combined capital and surplus, determined in accordance with statutory accounting practices (SAP), was $366,451,000 and $333,686,000 at December 31, 1996 and 1995, respectively. Combined net income, determined in accordance with SAP, was $9,141,000, $11,771,000, and $9,383,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Security Life is required to maintain a minimum total statutory capital and surplus in the state of domicile of $1,500,000. Midwestern United is required to maintain minimum statutory capital of $200,000 and surplus of $250,000 in the state of domicile. First ING is required to maintain minimum statutory capital of $1,000,000 and paid-in surplus of at least 50% of paid-in capital in the state of domicile. Each Company exceeded its respective minimum statutory capital and surplus requirements at December 31, 1996. Additionally, the amount of dividends which can be paid by each company to its stockholder without prior approval of the various state insurance departments is generally limited to the greater of 10% of statutory surplus or the statutory net gain from operations. 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 ________________________________________________________________________________ 105 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) flows. In that regards, 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 instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. Life insurance liabilities that contain mortality risk and all nonfinancial instruments are excluded from disclosure requirements. However, the fair values a 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. The carrying amounts and fair values of the Company's financial instruments at December 31, 1996 and 1995 are summarized below (in thousands):
DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ---------------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------------------- ---------------------------- ASSETS Fixed maturities (Note 3) $2,875,084 $2,875,084 $2,470,944 $2,470,944 Equity securities (Note 3) 5,345 5,345 8,369 8,369 Commercial mortgages 445,073 461,777 276,552 304,442 Residential mortgages 7,722 7,589 8,992 9,172 Policy loans 795,311 795,311 754,240 754,240 Short-term investments 7,019 7,019 10,946 10,946 LIABILITIES Guaranteed investment contracts, net of reinsurance $ 50,070 $ 50,070 $ $ - - Supplemental contracts without life contingencies 3,023 3,023 3,033 3,033 Other policyholder funds left on deposit 98,824 98,824 92,893 92,893 Individual and group annuities, net of reinsurance 45,576 45,228 49,020 48,457
________________________________________________________________________________ 106 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying values of all other financial instruments approximate their fair value. The following methods and assumptions were used by the Company in estimating the "fair value" disclosures for financial instruments: FIXED MATURITIES AND EQUITY SECURITIES: The fair values for fixed maturities -------------------------------------- (including redeemable preferred stocks) are based on quoted market prices, where available. For fixed maturities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements and collateralized mortgage obligations and other mortgage derivative investments, are estimated by discounting expected future cash flows. The discount rates used vary as a function of factors such as yield, credit quality and maturity which fall within a range between 2% - 12% over the total portfolio. The fair values of equity securities are based on quoted market prices. MORTGAGE LOANS: Estimated market values for commercial real estate loans are -------------- generated using a discounted cash flow approach. Loans in good standing are discounted using interest rates determined by U.S. Treasury yields on December 31 and spreads 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 are discounted at a greater spread to reflect increased risk. All residential loans are valued at their outstanding principal balances, which approximate their fair values. POLICY LOANS: The carrying amounts reported in the balance sheets for these ------------ financial instruments approximate their fair values. 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. ________________________________________________________________________________ 107 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) 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. OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the Company's ----------------------------------------- deferred annuity contracts are estimated based on the cash surrender value. The carrying values of other liabilities, including immediate annuities, dividend accumulations, supplementary contracts without life contingencies and premium deposits, approximate their fair values. OFF-BALANCE-SHEET INSTRUMENTS: The Company had synthetic guaranteed ----------------------------- investment contract sales in the amounts of $55,780,000 and $10,358,000 in 1996 and 1995, respectively, to 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 $637,151,000 and $695,288,000 at December 31, 1996 and 1995, 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 85% 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. LETTERS OF CREDIT ----------------- The Company is the beneficiary of letters of credit totaling $93,252,000 which have a market value to the Company of $0 and two lines of credit totaling $205,274,000 which have a market value to the Company of $0 (see Note 15). 14. COMMITMENTS AND CONTINGENT LIABILITIES 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 material adverse effect on the Company's financial position or interfere with its operations. ________________________________________________________________________________ 108 FirstLine Security Life of Denver Insurance Company and Subsidiaries Notes to Consolidated Financial Statements (continued) 15. FINANCING ARRANGEMENTS The Company has a $105,274,000 line of credit issued by the Company's parent to provide short-term liquidity. The Company has an additional non-affiliated line of credit of $100,000,000 also to provide short-term liquidity which expires June 30, 1997. The amount of funds available under this line is reduced by borrowings of certain affiliates also party to the agreement. There were no outstanding borrowings under either of these agreements at December 31, 1996 or 1995. The average balance of short-term debt was $23.4 million during 1996. The weighted average interest rate paid on this debt during 1996 was 5.46%. The Company is the beneficiary of letters of credit totaling $93,252,000 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 cancelled or terminated by either party to the financing. The letters were unused during both 1996 and 1995. ________________________________________________________________________________ 109 FirstLine Financial Statements Security Life Separate Account L1 Year ended December 31, 1996 with Report of Independent Auditors ________________________________________________________________________________ FirstLine 110 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 (comprising, respectively, the Neuberger & Berman Advisers Management Trust (comprising the Limited Maturity Bond, Growth, Government Income and Partners Portfolios) ("N&B"), the Alger American Fund (comprising the American Small Capitalization, American MidCap Growth, American Growth and American Leveraged AllCap Portfolios) ("Alger"), the Fidelity Variable Insurance Products Fund and Variable Insurance Products Fund II (comprising the Asset Manager, Growth, Overseas, Money Market and Index 500 Portfolios) ("Fidelity"), the INVESCO Variable Investment Funds, Inc. (comprising the Total Return, Industrial Income, High Yield and Utilities Portfolios) ("INVESCO") and Van Eck Worldwide Trust (comprising the Worldwide Balanced and Gold and Natural Resources Portfolios) ("Van Eck") Divisions) as of December 31, 1996, and the related statements of operations for the year then ended and changes in net assets for each of the two years in the period then ended. These financial statements are the responsibility of the Separate Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1996, by correspondence with the transfer agent. 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, 1996, and the results of its operations for the year then ended and changes in its net assets for each of the two years in the period then ended, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Denver, Colorado April 9, 1997 ________________________________________________________________________________ 111 FirstLine Security Life Separate Account L1 Statement of Net Assets December 31, 1996
TOTAL ALL TOTAL TOTAL TOTAL TOTAL TOTAL DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK ----------------------------------------------------------------------------------- ASSETS Investments in mutual funds at market value; combined cost $54,275,545 (See Note C) $57,137,579 $10,501,407 11,470,216 $30,788,682 $ 3,783,021 $594,253 ----------------------------------------------------------------------------------- Total assets 57,137,579 10,501,407 11,470,216 30,788,682 3,783,021 594,253 ----------------------------------------------------------------------------------- LIABILITIES Due to (from) Security Life of Denver (1,613,713) (35,546) (35,976) (1,508,299) (35,750) 1,858 Due to (from) other divisions 894,465 (2,393) 150,103 897,366 (148,975) (1,636) Total liabilities (719,248) (37,939) 114,127 (610.933) (184,725) 222 ----------------------------------------------------------------------------------- Net assets $57,856,827 $10,539,346 11,356,089 $ 31,399,615 $3,967,746 $594,031 =================================================================================== CONTRACT OWNER RESERVES Reserves for redeemable annuity contracts (See Note B) $57,856,827 $10,539,346 11,356,089 $ 31,399,615 $3,967,746 $594,031 =================================================================================== TOTAL CONTRACT OWNER RESERVES $57,856,827 $10,539,346 11,356,089 $ 31,399,615 $3,967,746 $594,031 ===================================================================================
See accompanying notes. ________________________________________________________________________________ 112 FirstLine Security Life Separate Account L1 Statement of Net Assets (continued) December 31, 1996
N & B ------------------------------------------------------------------------- TOTAL LIMITED GOVERNMENT N&B MATURITY BOND GROWTH INCOME PARTNERS ------------------------------------------------------------------------- ASSETS Investments in mutual funds at market value $10,501,407 $ 2,493,707 $ 1,797,629 $ 1,549,039 $ 4,661,032 Total assets 10,501,407 2,493,707 1,797,629 1,549,039 4,661,032 ------------------------------------------------------------------------- LIABILITIES Due to (from) Security Life of Denver (35,546) 1,631 (36,173) 1,096 (2,100) Due to (from) other divisions (2,393) - (1,912) (371) (110) -------------------------------------------------------------------------- Total liabilities (37,939) 1,631 (38,085) 725 (2,210) ------------------------------------------------------------------------- Net assets $10,539,346 $ 2,492,076 $ 1,835,714 $ 1,548,314 $ 4,663,242 ========================================================================= CONTRACT OWNER RESERVES Reserves for redeemable annuity contracts (See Note B) $10,539,346 $ 2,492,076 $ 1,835,714 $ 1,548,314 $ 4,663,242 ------------------------------------------------------------------------- TOTAL CONTRACT OWNER RESERVES $10,539,346 $ 2,492,076 $ 1,835,714 $ 1,548,314 $ 4,663,242 ========================================================================= Number of division units outstanding (See Note G) 218,725.891 133,567.983 142,773.403 275,892.457 ============================================================ Value per divisional unit $ 11.39 $ 13.74 $ 10.84 $ 16.90 ============================================================
See accompanying notes. ________________________________________________________________________________ 113 FirstLine Security Life Separate Account L1 Statement of Net Assets (continued) December 31, 1996
ALGER -------------------------------------------------------------------------- AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP -------------------------------------------------------------------------- ASSETS Investments in mutual funds at market value $11,470,216 $ 4,480,399 $ 2,308,724 $ 3,808,543 $ 872,550 Total assets 11,470,216 4,480,399 2,308,724 3,808,543 872,550 -------------------------------------------------------------------------- LIABILITIES Due to (from) Security Life of Denver (35,976) (4,356) (25,479) (4,982) (1,159) -------- ------- -------- ------- ------- Due to (from) other divisions 150,103 152,647 (852) (653) (1,039) Total liabilities 114,127 148,291 (26,331) (5,635) (2,198) -------------------------------------------------------------------------- Net assets $11,356,089 $4,332,108 $2,335,055 $3,814,178 $874,748 ========================================================================== CONTRACT OWNER RESERVES Reserves for redeemable annuity contracts (See Note B) $11,356,089 $4,332,108 $2,335,055 $3,814,178 $874,748 -------------------------------------------------------------------------- TOTAL CONTRACT OWNER RESERVES $11,356,089 $4,332,108 $2,335,055 $3,814,178 $874,748 ========================================================================== Number of division units outstanding (See Note G) 297,073.322 150,480.473 282,175.287 53,044.470 ============================================================= Value per divisional unit $ 14.58 $ 15.52 $ 13.52 $ 16.49 =============================================================
See accompanying notes. ________________________________________________________________________________ 114 FirstLine Security Life Separate Account L1 Statement of Net Assets (continued) December 31, 1996
FIDELITY ---------------------------------------------------------------------------------------- TOTAL ASSET MONEY FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500 ---------------------------------------------------------------------------------------- ASSETS Investments in mutual funds at market value $30,788,682 $1,513,317 $6,998,086 $4,266,432 $7,785,143 $10,225,704 Total assets 30,788,682 1,513,317 6,998,086 4,266,432 7,785,143 10,225,704 ---------------------------------------------------------------------------------------- LIABILITIES Due to (from) Security Life of Denver (1,508,299) (32,020) (29,464) (7,782) (1,438,819) (214) Due to (from) other divisions 897,366 - (21,869) (915) 928,296 (8,146) ---------------------------------------------------------------------------------------- Total liabilities (610,933) (32,020) (51,333) (8,697) (510,523) (8,360) ---------------------------------------------------------------------------------------- Net assets $31,399,615 $ 1,545,337 $ 7,049,419 $ 4,275,129 $ 8,295,666 $ 10,234,064 ======================================================================================== CONTRACT OWNER RESERVES Reserves for redeemable annuity contracts (See Note B) $31,399,615 $ 1,545,337 $ 7,049,419 $ 4,275,129 $ 8,295,666 $ 10,234,064 ---------------------------------------------------------------------------------------- TOTAL CONTRACT OWNER RESERVES $31,399,615 $ 1,545,337 $ 7,049,419 $ 4,275,129 $ 8,295,666 $ 10,234,064 ======================================================================================== Number of division units outstanding (See Note G) 123,908.168 470,285.667 367,948.109 753,707.969 640,890.650 =========================================================================== Value per divisional unit $ 12.47 $ 14.99 $ 11.62 $ 11.01 $ 15.97 ===========================================================================
See accompanying notes. ________________________________________________________________________________ 115 FirstLine Security Life Separate Account L1 Statement of Net Assets (continued) December 31, 1996
INVESCO ---------------------------------------------------------------- TOTAL TOTAL INDUSTRIAL ----- ----- ---------- INVESCO RETURN INCOME HIGH YIELD UTILITIES ---------------------------------------------------------------- ASSETS Investments in mutual funds at market value 3,783,021 $841,651 $1,371,266 $1,351,726 $218,378 Total assets 3,783,021 841,651 1,371,266 1,351,726 218,378 -------------------------------------------------------------- LIABILITIES Due to (from) Security Life of (35,750) (38,816) 2,037 879 150 Denver Due to (from) other divisions (148,975) 6,000 (388) (154,554) (33) Total liabilities (184,725) (32,816) 1,649 (153,675) 117 -------------------------------------------------------------- Net assets $3,967,746 $874,467 $1,369,617 $1,505,401 $218,261 ============================================================== CONTRACT OWNER RESERVES Reserves for redeemable annuity contracts (See Note B) 3,967,746 $874,467 $1,369,617 $1,505,401 $218,261 -------------------------------------------------------------- TOTAL CONTRACT OWNER RESERVES 3,967,746 $874,467 $1,369,617 $1,505,401 $218,261 ============================================================== Number of division units outstanding (See Note G) 64,490.483 87,035.356 108,999.107 18,008.490 ==================================================== Value per divisional unit $13.56 $15.74 $13.81 $12.12 ====================================================
See accompanying notes. ________________________________________________________________________________ 116 FirstLine Security Life Separate Account L1 Statement of Net Assets (continued) December 31, 1996
VAN ECK -------------------------------------- GOLD AND TOTAL WORLDWIDE NATURAL VAN ECK BALANCED RESOURCES -------------------------------------- ASSETS Investments in mutual funds at market value $594,253 $327,886 $266,367 -------------------------------------- Total assets 594,253 327,886 266,367 -------------------------------------- LIABILITIES Due to (from) Security Life of Denver 1,858 1,181 677 Due to (from) other divisions (1,636) (1,100) (536) Total liabilities 222 81 141 -------------------------------------- Net assets $594,031 $327,805 $266,226 ====================================== CONTRACT OWNER RESERVES Reserves for redeemable annuity contracts (See Note B) $594,031 $327,805 $266,226 -------------------------------------- TOTAL CONTRACT OWNER RESERVES $594,031 $327,805 $266,226 ====================================== Number of division units outstanding (See Note G) 29,808.787 21,966.093 ============================ Value per divisional unit $11.00 $12.12 ============================
See accompanying notes. ________________________________________________________________________________ 117 FirstLine Security Life Separate Account L1 Statement of Operations Year Ended December 31, 1996
TOTAL ----- ALL TOTAL TOTAL TOTAL TOTAL TOTAL --- ----- ----- ----- ----- ----- DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK ---------------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $1,183,779 $292,143 $56,842 $593,973 $238,653 $ 2,168 Less: Valuation period deductions (See Note B) 241,127 50,116 44,898 128,637 14,752 2,724 ---------------------------------------------------------------- Net investment income (loss) 942,652 242,027 11,944 465,336 223,901 (556) ---------------------------------------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 401,852 86,478 62,058 97,833 143,358 12,125 Net unrealized gains (losses) on investments 2,675,307 557,274 396,915 1,736,167 (43,084) 28,035 ------------------------------------------------------------- Net realized and unrealized gains (losses) on investments 3,077,159 643,752 458,973 1,834,000 100,274 40,160 ------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $4,019,811 $885,779 $470,917 $2,229,336 $324,175 $39,604 ==============================================================
See accompanying notes. ________________________________________________________________________________ 118 FirstLine Security Life Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1996
N & B ----------------------------------------------------------- TOTAL LIMITED GOVERNMENT ----- ------- ---------- N&B MATURITY GROWTH INCOME PARTNERS -------- ------ ------ -------- BOND ----------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $292,143 $127,305 $ 76,287 $35,420 $ 53,131 Less: Valuation period deductions (See Note B) 50,116 13,218 9,400 8,882 18,616 ----------------------------------------------------------- Net investment income (loss) 242,027 114,087 66,887 26,538 34,515 ----------------------------------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 86,478 (16,561) (22,601) 3,867 121,773 Net unrealized gains (losses) on investments 557,274 (29,330) 65,061 443 521,100 ----------------------------------------------------------- Net realized and unrealized gains (losses) on investments 643,752 (45,891) 42,460 4,310 642,873 ----------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $885,779 $ 68,196 $109,347 $30,848 $677,388 ===========================================================
See accompanying notes. ________________________________________________________________________________ 119 FirstLine Security Life Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1996
ALGER ---------------------------------------------------------- AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP ---------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $56,842 $7,668 $10,435 $37,109 $1,630 Less: Valuation period deductions (See Note B) 44,898 18,457 7,398 16,087 2,956 ---------------------------------------------------------- Net investment income (loss) 11,944 (10,789) 3,037 21,022 (1,326) ---------------------------------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 62,058 8,187 9,936 22,907 21,028 Net unrealized gains (losses) on investments 396,915 58,340 89,398 227,107 22,070 ---------------------------------------------------------- Net realized and unrealized gains (losses) on investments 458,973 66,527 99,334 250,014 43,098 ---------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $470,917 $55,738 $102,371 $271,036 $41,772 ==========================================================
See accompanying notes. ________________________________________________________________________________ 120 FirstLine Security Life Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1996
FIDELITY --------------------------------------------------------------- TOTAL ASSET MONEY FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500 --------------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $593,973 $9,800 $109,786 $27,966 $246,349 $200,072 Less: Valuation period deductions (See Note B) 128,637 3,818 25,455 16,972 35,006 47,386 --------------------------------------------------------------- Net investment income (loss) 465,336 5,982 84,331 10,994 211,343 152,686 --------------------------------------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 97,833 7,905 9,661 34,235 - 46,032 Net unrealized gains (losses) on investments 1,736,167 63,068 273,435 238,529 - 1,161,135 --------------------------------------------------------------- Net realized and unrealized gains (losses) on investments 1,834,000 70,973 283,096 272,764 - 1,207,167 --------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,299,336 $76,955 $367,427 $283,758 $211,343 $1,359,853 ===============================================================
See accompanying notes. ________________________________________________________________________________ 121 FirstLine Security Life Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1996
INVESCO --------------------------------------------------------- TOTAL TOTAL INDUSTRIAL INVESCO RETURN INCOME HIGH YIELD UTILITIES --------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $238,653 $25,285 $ 93,816 $114,676 $ 4,876 Less: Valuation period deductions (See Note B) 14,752 3,402 4,272 6,357 721 --------------------------------------------------------- Net investment income (loss) 223,901 21,883 89,544 108,319 4,155 --------------------------------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 143,358 28,264 30,929 82,830 1,335 Net unrealized gains (losses) on investments (43,084) 10,956 (7,082) (53,402) 6,444 --------------------------------------------------------- Net realized and unrealized gains (losses) on investments 100,274 39,220 23,847 29,428 7,779 --------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $324,175 $61,103 $113,391 $137,747 $11,934 =========================================================
See accompanying notes. ________________________________________________________________________________ 122 FirstLine Security Life Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1996
VAN ECK --------------------------------- GOLD AND TOTAL WORLDWIDE NATURAL VAN ECK BALANCED RESOURCES --------------------------------- INVESTMENT INCOME Dividends from mutual funds $ 2,168 $ 169 $ 1,999 Less: Valuation period deductions (See Note B) 2,724 1,304 1,420 --------------------------------- Net investment income (loss) (556) (1,135) 579 --------------------------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 12,125 2,984 9,141 Net unrealized gains (losses) on investments 28,035 19,343 8,692 --------------------------------- Net realized and unrealized gains (losses) on investments 40,160 22,327 17,833 --------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $39,604 $21,192 $18,412 =================================
See accompanying notes. ________________________________________________________________________________ 123 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets Year Ended December 31, 1996
TOTAL ALL TOTAL TOTAL TOTAL TOTAL TOTAL DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK ---------------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 942,652 $ 242,027 $ 11,944 $ 465,336 $ 223,901 $ (556) Net realized gains (losses) on investments 401,852 86,478 62,058 97,833 143,358 12,125 Net unrealized gains (losses) on investments 2,675,307 557,274 396,915 1,736,167 (43,084) 28,035 ---------------------------------------------------------------------------------- Increase in net assets from operations 4,019,811 885,779 470,917 2,299,336 324,175 39,604 ---------------------------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 44,534,972 2,246,849 2,646,310 38,833,137 609,861 198,815 Cost of insurance and administrative expenses (2,843,666) (378,501) (531,589) (1,733,703) (158,637) (41,236) Benefit payments (9,641) - (9,457) (184) - - Surrenders (139,851) (10,863) (32,300) (89,374) (5,730) (1,584) Net transfers among divisions (including the guaranteed interest division in the general account) (905,917) 3,446,134 6,535,350 (13,409,127) 2,217,943 303,783 Other (25,415) 4,193 (1,186) (29,113) 1,108 (417) ---------------------------------------------------------------------------------- Increase from principal transactions 40,610,482 5,307,812 8,607,128 23,571,636 2,664,545 459,361 ---------------------------------------------------------------------------------- Total increase in net assets 44,630,293 6,193,591 9,078,045 25,870,972 2,988,720 498,965 Net assets at beginning of year 13,226,534 4,345,755 2,278,044 5,528,643 979,026 95,066 ---------------------------------------------------------------------------------- Net assets at end of year $57,856,827 $10,539,346 11,356,089 $31,399,615 $3,967,746 $594,031 ==================================================================================
See accompanying notes. ________________________________________________________________________________ 124 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1996
N & B -------------------------------------------------------------------- TOTAL LIMITED GOVERNMENT N&B MATURITY BOND GROWTH INCOME PARTNERS -------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 242,027 $ 114,087 $ 66,887 $ 26,538 $ 34,515 Net realized gains (losses) on investments 86,478 (16,561) (22,601) 3,867 121,773 Net unrealized gains (losses) on investments 557,274 (29,330) 65,061 443 521,100 -------------------------------------------------------------------- Increase in net assets from operations 885,779 68,196 109,347 30,848 677,388 -------------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 2,246,849 317,539 634,087 372,680 922,543 Cost of insurance and administrative expenses (378,501) (74,422) (101,596) (56,065) (146,418) Benefit payments - - - - - Surrenders (10,863) (1,157) (2,385) (48) (7,273) Net transfers among divisions (including the guaranteed interest division in the general account) 3,446,134 398,684 433,683 368,389 2,245,378 Other 4,193 (272) (579) 41 5,003 -------------------------------------------------------------------- Increase from principal transactions 5,307,812 640,372 963,210 684,997 3,019,233 -------------------------------------------------------------------- Total increase in net assets 6,193,591 708,568 1,072,557 715,845 3,696,621 Net assets at beginning of year 4,345,755 1,783,508 763,157 832,469 966,621 -------------------------------------------------------------------- Net assets at end of year $10,539,346 $2,492,076 $1,835,714 $1,548,314 $4,663,242 ====================================================================
See accompanying notes. ________________________________________________________________________________ 125 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1996
ALGER -------------------------------------------------------------------- AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP -------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 11,944 $ (10,789) $ 3,037 $ 21,022 $ (1,326) Net realized gains (losses) on investments 62,058 8,187 9,936 22,907 21,028 Net unrealized gains (losses) on investments 396,915 58,340 89,398 227,107 22,070 -------------------------------------------------------------------- Increase in net assets from operations 470,917 55,738 102,371 271,036 41,772 -------------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 2,646,310 792,375 410,528 1,189,559 253,848 Cost of insurance and administrative expenses (531,589) (209,010) (92,306) (193,812) (36,461) Benefit payments (9,457) (4,658) - - (4,799) Surrenders (32,300) (7,839) (10,926) (9,795) (3,740) Net transfers among divisions (including the guaranteed interest division in the general account) 6,535,350 2,581,122 1,649,714 1,717,965 586,549 Other (1,186) (3,605) 587 1,213 619 -------------------------------------------------------------------- Increase from principal transactions 8,607,128 3,148,385 1,957,597 2,705,130 796,016 -------------------------------------------------------------------- Total increase in net assets 9,078,045 3,204,123 2,059,968 2,976,166 837,788 Net assets at beginning of year 2,278,044 1,127,985 275,087 838,012 36,960 -------------------------------------------------------------------- Net assets at end of year $11,356,089 $4,332,108 $2,335,055 $3,814,178 $874,748 ====================================================================
See accompanying notes. ________________________________________________________________________________ 126 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1996
FIDELITY ---------------------------------------------------------------------------------- TOTAL ASSET MONEY FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500 ---------------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 465,336 $ 5,982 $ 84,331 $ 10,994 $ 211,343 $ 152,686 Net realized gains (losses) on investments 97,833 7,905 9,661 34,235 - 46,032 Net unrealized gains (losses) on investments 1,736,167 63,068 273,435 238,529 - 1,161,135 ---------------------------------------------------------------------------------- Increase in net assets from operations 2,299,336 76,955 367,427 283,758 211,343 1,359,853 ---------------------------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 38,833,137 202,285 1,158,382 537,007 36,012,540 922,923 Cost of insurance and administrative expenses (1,733,703) (59,703) (298,466) (145,781) (938,219) (291,534) Benefit payments (184) - - - - (184) Surrenders (89,374) (973) (9,215) (8,511) (56,983) (13,692) Net transfers among divisions (including the guaranteed interest division in the general account) (13,409,127) 1,199,005 4,485,230 2,637,971 (28,785,556) 7,054,223 Other (29,113) 277 (47) (13) (27,783) (1,547) ---------------------------------------------------------------------------------- Increase from principal transactions 23,571,636 1,340,891 5,335,884 3,020,673 6,203,999 7,670,189 ---------------------------------------------------------------------------------- Total increase in net assets 25,870,972 1,417,846 5,703,311 3,304,431 6,415,342 9,030,042 Net assets at beginning of year 5,528,643 127,491 1,346,108 970,698 1,880,324 1,204,022 ---------------------------------------------------------------------------------- Net assets at end of year $ 31,399,615 $1,545,337 $7,049,419 $4,275,129 $ 8,295,666 $10,234,064 ==================================================================================
See accompanying notes. ________________________________________________________________________________ 127 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1996
INVESCO ------------------------------------------------------------- TOTAL TOTAL INDUSTRIAL INVESCO RETURN INCOME HIGH YIELD UTILITIES ------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 223,901 $ 21,883 $ 89,544 $ 108,319 $ 4,155 Net realized gains (losses) on investments 143,358 28,264 30,929 82,830 1,335 Net unrealized gains (losses) on investments (43,084) 10,956 (7,082) (53,402) 6,444 ------------------------------------------------------------- Increase in net assets from operations 324,175 61,103 113,391 137,747 11,934 ------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 609,861 199,674 243,848 121,818 44,521 Cost of insurance and administrative expenses (158,637) (45,283) (55,233) (48,934) (9,187) Benefit payments - - - - - Surrenders (5,730) (2,038) (2,171) (1,386) (135) Net transfers among divisions (including the guaranteed interest division in the general account) 2,217,943 506,505 810,269 750,404 150,765 Other 1,108 943 (126) 277 14 ------------------------------------------------------------- Increase from principal transactions 2,664,545 659,801 996,587 822,179 185,978 ------------------------------------------------------------- Total increase in net assets 2,988,720 720,904 1,109,978 959,926 197,912 Net assets at beginning of year 979,026 153,563 259,639 545,475 20,349 ------------------------------------------------------------- Net assets at end of year $3,967,746 $874,467 $1,369,617 $1,505,401 $218,261 =============================================================
See accompanying notes. ________________________________________________________________________________ 128 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1996
VAN ECK ---------------------------------- GOLD AND TOTAL WORLDWIDE NATURAL VAN ECK BALANCED RESOURCES ---------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ (556) $ (1,135) $ 579 Net realized gains (losses) on investments 12,125 2,984 9,141 Net unrealized gains (losses) on investments 28,035 19,343 8,692 ---------------------------------- Increase in net assets from operations 39,604 21,192 18,412 ---------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 198,815 135,181 63,634 Cost of insurance and administrative expenses (41,236) (29,480) (11,756) Benefit payments - - - Surrenders (1,584) (1,584) - Net transfers among divisions (including the guaranteed interest division in the general account) 303,783 126,152 177,631 Other (417) (468) 51 ---------------------------------- Increase from principal transactions 459,361 229,801 229,560 ---------------------------------- Total increase in net assets 498,965 250,993 247,972 Net assets at beginning of year 95,066 76,812 18,254 ---------------------------------- Net assets at end of year $594,031 $327,805 $266,226 ==================================
See accompanying notes. ________________________________________________________________________________ 129 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets Year Ended December 31, 1995
TOTAL ALL TOTAL TOTAL TOTAL TOTAL TOTAL DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK --------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 97,403 $ (11,173) (5,428) $ 60,063 $ 53,712 $ 229 Net realized gains (losses) on investments 76,547 25,418 17,143 28,840 4,788 358 Net unrealized gains (losses) on investments 186,727 144,429 (54,571) 102,924 (6,574) 519 --------------------------------------------------------------------------- Increase (decrease) in net assets from operations 360,677 158,674 (42,856) 191,827 51,926 1,106 --------------------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 13,329,581 39,552 255,704 12,996,026 28,034 10,265 Cost of insurance and administrative expenses (515,616) (94,109) (72,491) (327,795) (17,857) (3,364) Net transfers among divisions (including the guaranteed interest division in the general account) - 4,235,249 2,130,456 (7,368,518) 915,744 87,069 Other 19,851 6,389 7,231 5,062 1,179 (10) --------------------------------------------------------------------------- Increase from principal transactions 12,833,816 4,187,081 2,320,900 5,304,775 927,100 93,960 --------------------------------------------------------------------------- Total increase in net assets 13,194,493 4,345,755 2,278,044 5,496,602 979,026 95,066 Net assets at beginning of year 32,041 - - 32,041 - - --------------------------------------------------------------------------- Net assets at end of year $13,226,534 $4,345,755 2,278,044 $5,528,643 $979,026 $95,066 ===========================================================================
See accompanying notes. ________________________________________________________________________________ 130 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1995
N & B --------------------------------------------------------------- TOTAL LIMITED GOVERNMENT N&B MATURITY BOND GROWTH INCOME PARTNERS --------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ (11,173) $ (4,559) $ (1,683) $ (2,366) $ (2,565) Net realized gains (losses) on investments 25,418 8,399 4,077 2,729 10,213 Net unrealized gains (losses) on investments 144,429 54,564 (1,928) 33,629 58,164 --------------------------------------------------------------- Increase (decrease) in net assets from from operations 158,674 58,404 466 33,992 65,812 --------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 39,552 4,133 13,771 12,086 9,562 Cost of insurance and administrative expenses (94,109) (25,947) (23,846) (15,635) (28,681) Net transfers among divisions (including the guaranteed interest division in the general account) 4,235,249 1,745,908 770,482 801,675 917,184 Other 6,389 1,010 2,284 351 2,744 --------------------------------------------------------------- Increase from principal transactions 4,187,081 1,725,104 762,691 798,477 900,809 --------------------------------------------------------------- Total increase in net assets 4,345,755 1,783,508 763,157 832,469 966,621 Net assets at beginning of year - - - - - --------------------------------------------------------------- Net assets at end of year $4,345,755 $1,783,508 $763,157 $832,469 $966,621 ===============================================================
See accompanying notes. ________________________________________________________________________________ 131 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1995
ALGER --------------------------------------------------------------- AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP --------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ (5,428) $ (2,496) $ (548) $ (2,242) $ (142) Net realized gains (losses) on investments 17,143 19,457 3,402 1,513 (7,229) Net unrealized gains (losses) on investments (54,571) (57,427) 3,400 (1,664) 1,120 --------------------------------------------------------------- Increase (decrease) in net assets from operations (42,856) (40,466) 6,254 (2,393) (6,251) --------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 255,704 224,681 18,375 9,493 3,155 Cost of insurance and administrative expenses (72,491) (24,235) (8,062) (38,073) (2,121) Net transfers among divisions (including the guaranteed interest division in the general account) 2,130,456 963,613 257,593 866,852 42,398 Other 7,231 4,392 927 2,133 (221) --------------------------------------------------------------- Increase from principal transactions 2,320,900 1,168,451 268,833 840,405 43,211 --------------------------------------------------------------- Total increase in net assets 2,278,044 1,127,985 275,087 838,012 36,960 Net assets at beginning of year - - - - - --------------------------------------------------------------- Net assets at end of year $2,278,044 $1,127,985 $275,087 $838,012 $36,960 ===============================================================
See accompanying notes. ________________________________________________________________________________ 132 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1995
FIDELITY ---------------------------------------------------------------------------- TOTAL ASSET MONEY FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500 ---------------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 60,063 $ (257) $ (3,373) $ (2,080) $ 68,179 $ (2,406) Net realized gains (losses) on investments 28,840 632 13,932 2,684 - 11,592 Net unrealized gains (losses) on investments 102,924 6,607 (11,822) 28,250 - 79,889 ---------------------------------------------------------------------------- Increase (decrease) in net assets from operations 191,827 6,982 (1,263) 28,854 68,179 89,075 ---------------------------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 12,996,026 18,939 37,113 24,037 12,848,110 67,827 Cost of insurance and administrative expenses (327,795) (5,716) (45,365) (17,969) (242,041) (16,704) Net transfers among divisions (including the guaranteed interest division in the general account) (7,368,518) 107,141 1,355,450 935,792 (10,830,183) 1,063,282 Other 5,062 145 173 (16) 4,218 542 ---------------------------------------------------------------------------- Increase from principal transactions 5,304,775 120,509 1,347,371 941,844 1,780,104 1,114,947 ---------------------------------------------------------------------------- Total increase in net assets 5,496,602 127,491 1,346,108 970,698 1,848,283 1,204,022 Net assets at beginning of year 32,041 - - - 32,041 - ---------------------------------------------------------------------------- Net assets at end of year $ 5,528,643 $127,491 $1,346,108 $970,698 $ 1,880,324 $1,204,022 ============================================================================
See accompanying notes. ________________________________________________________________________________ 133 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1995
INVESCO ----------------------------------------------------------- TOTAL TOTAL INDUSTRIAL INVESCO RETURN INCOME HIGH YIELD UTILITIES ----------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 53,712 $ 2,850 $ 8,653 $ 42,118 $ 91 Net realized gains (losses) on investments 4,788 2,380 1,156 1,237 15 Net unrealized gains (losses) on investments (6,574) 2,264 12,495 (22,224) 891 ----------------------------------------------------------- Increase (decrease) in net assets from operations 51,926 7,494 22,304 21,131 997 ----------------------------------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 28,034 3,844 12,548 8,941 2,701 Cost of insurance and administrative expenses (17,857) (4,401) (5,390) (6,776) (1,290) Net transfers among divisions (including the guaranteed interest division in the general account) 915,744 145,676 230,040 522,094 17,934 Other 1,179 950 137 85 7 ----------------------------------------------------------- Increase from principal transactions 927,100 146,069 237,335 524,344 19,352 ----------------------------------------------------------- Total increase in net assets 979,026 153,563 259,639 545,475 20,349 Net assets at beginning of year - - - - - ----------------------------------------------------------- Net assets at end of year $979,026 $153,563 $259,639 $545,475 $20,349 ===========================================================
See accompanying notes. ________________________________________________________________________________ 134 FirstLine Security Life Separate Account L1 Statement of Changes in Net Assets (continued) Year Ended December 31, 1995
VAN ECK --------------------------------- GOLD AND TOTAL WORLDWIDE NATURAL VAN ECK BALANCED RESOURCES --------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 229 $ 245 $ (16) Net realized gains (losses) on investments 358 (5) 363 Net unrealized gains (losses) on investments 519 (62) 581 --------------------------------- Increase (decrease) in net assets from operations 1,106 178 928 --------------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 10,265 6,352 3,913 Cost of insurance and administrative expenses (3,364) (2,360) (1,004) Net transfers among divisions (including the guaranteed interest division in the general account) 87,069 72,661 14,408 Other (10) (19) 9 --------------------------------- Increase from principal transactions 93,960 76,634 17,326 --------------------------------- Total increase in net assets 95,066 76,812 18,254 Net assets at beginning of year - - - --------------------------------- Net assets at end of year $95,066 $76,812 $18,254 =================================
See accompanying notes. ________________________________________________________________________________ 135 FirstLine Security Life Separate Account L1 Notes to Financial Statements December 31, 1996 NOTE A. 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 and Strategic Advantage Variable Universal Life ("FirstLine and Strategic Advantage") policies offered by the Company. 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 chargeable with liabilities arising out of any other operations of the Company. The Separate Account currently consists of nineteen investment divisions available to the policyholders, each of which invests in an independently managed mutual fund portfolio ("Fund"). The Funds are as follows: PORTFOLIO MANAGERS/PORTFOLIOS (FUNDS) Neuberger & Berman (N&B) Neuberger & Berman Limited Maturity Bond Portfolio Neuberger & Berman Growth Portfolio Neuberger & Berman Government Income Portfolio Neuberger & Berman Partners Portfolio
________________________________________________________________________________ 136 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE A. ORGANIZATION (CONTINUED) 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 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 Industrial Income Portfolio INVESCO VIF High Yield Portfolio INVESCO VIF Utilities Portfolio
Van Eck Investment Trust (Van Eck) Van Eck Worldwide Balanced Portfolio Van Eck Gold and Natural Resources Portfolio
The FirstLine and Strategic Advantage 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 FirstLine and Strategic Advantage products 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. Effective May 1, 1997, the Divisions of the Separate Account investing in the Neuberger & Berman Government Income Portfolio and the Van Eck Worldwide Balanced Fund will no longer be accepting new investments. ________________________________________________________________________________ 137 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the Separate Account have been prepared on the basis of generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The 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 security 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--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. For FirstLine and Strategic Advantage policies, 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 year ended December 31, 1996 were $241,127. ________________________________________________________________________________ 138 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. NOTE C. 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 were $2,843,666 for the year ended December 31, 1996. Distributions made by the Funds are reinvested in the Funds. ________________________________________________________________________________ 139 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE C. INVESTMENTS (CONTINUED) The following is a summary of fund shares owned as of December 31, 1996:
NUMBER NET VALUE OF ASSET OF SHARES COST OF FUND SHARES VALUE AT MARKET SHARES - ------------------------------------------------------------------------------------- Neuberger & Berman: Limited Maturity Bond 177,488.06 $14.05 $ 2,493,707 $ 2,468,473 Growth 69,729.59 25.78 1,797,629 1,734,496 Government Income 145,723.35 10.63 1,549,039 1,514,968 Partners 282,829.62 16.48 4,661,032 4,081,769 Fred Alger Management, Inc.: American Small Capitalization 109,518.40 40.91 4,480,399 4,479,487 American MidCap Growth 108,136.97 21.35 2,308,724 2,215,923 American Growth 110,939.21 34.33 3,808,543 3,583,100 American Leveraged AllCap 45,069.71 19.36 872,550 849,359 Fidelity Management & Research Co.: Asset Manager 89,386.84 16.93 1,513,317 1,443,642 Growth 224,729.85 31.14 6,998,086 6,736,473 Overseas 226,456.08 18.84 4,266,432 3,999,654 Money Market 7,785,142.70 1.00 7,785,143 7,785,143 Index 500 114,727.97 89.13 10,225,704 8,984,680 INVESCO Funds Group, Inc.: Total Return 63,713.18 13.21 841,651 828,431 Industrial Income 95,691.99 14.33 1,371,266 1,365,853 High Yield 114,747.49 11.78 1,351,726 1,427,352 Utilities 18,274.30 11.95 218,378 211,043 Van Eck Investment Trust: Worldwide Balanced 29,433.17 11.14 327,886 308,605 Gold and Natural Resources 15,931.07 16.72 266,367 257,094 -------------------------- Total $57,137,579 $54,275,545 ==========================
For the year ended December 31, 1996, the aggregate cost of purchases (plus reinvested dividends) and the proceeds from sales of investments were $71,906,031 and $31,000,056, respectively. ________________________________________________________________________________ 140 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE D. OTHER POLICY DEDUCTIONS The FirstLine and Strategic Advantage products 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. NOTE E. POLICY LOANS The FirstLine and Strategic Advantage policies allow the policyholders to borrow against their policies by using them as collateral for a loan. At the time they borrow against their policies, an amount equal to the loan amount is transferred from the Separate Account divisions to a Loan Division 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. NOTE F. 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. ________________________________________________________________________________ 141 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE G. SUMMARY OF CHANGES IN UNITS The following schedule summarizes the changes in divisional units for the year ended December 31, 1996:
(DECREASE) FOR COI INCREASE AND OUTSTANDING INCREASE (DECREASE) ADMINISTRATIVE OUTSTANDING AT BEGINNING FOR PAYMENTS FOR DIVISIONAL CHARGES AND AT END DIVISION OF YEAR RECEIVED TRANSFERS SURRENDERS OF YEAR - ---------------------------------------------------------------------------------------------------------------- Neuberger & Berman: Limited Maturity Bond 162,009.578 22,341.563 34,959.370 (584.620) 218,725.891 Growth 60,162.107 40,992.586 33,140.220 (726.930) 133,567.983 Government Income 77,187.706 30,340.987 35,590.000 (345.290) 142,773.403 Partners 73,535.288 52,840.719 150,615.480 (1,099.030) 275,892.457 Fred Alger Management, Inc.: American Small Capitalization 80,027.266 41,830.466 176,940.020 (1,724.430) 297,073.322 American MidCap Growth 19,692.860 21,703.253 110,111.630 (1,027.270) 150,480.473 American Growth 69,805.233 79,036.444 135,021.170 (1,687.560) 282,175.287 American Leveraged AllCap 2,494.731 14,117.529 37,093.470 (661.260) 53,044.470 Fidelity Management & Research Co: Asset Manager 11,627.088 11,928.100 100,648.740 (295.760) 123,908.168 Growth 102,248.988 60,000.429 309,854.870 (1,818.620) 470,285.667 Overseas 93,906.733 36,170.266 239,414.430 (1,543.320) 367,948.109 Money Market 178,653.159 3,174,656.740 (2,593,671.600) (5,930.330) 753,707.969 Index 500 91,903.027 43,453.963 507,578.000 (2,044.340) 640,890.650 INVESCO Funds Group, Inc.: Total Return 12,602.664 11,847.269 40,812.090 (771.540) 64,490.483 Industrial Income 20,026.102 12,961.494 54,377.610 (329.850) 87,035.356 High Yield 45,708.358 5,929.679 57,717.210 (356.140) 108,999.107 Utilities 1,879.859 3,104.181 13,093.330 (68.880) 18,008.490 Van Eck Investment Trust: Worldwide Balanced 7,739.274 10,375.993 12,036.370 (342.850) 29,808.787 Gold and Natural Resources 1,765.913 4,573.270 15,683.750 (56.840) 21,966.093
________________________________________________________________________________ 142 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED) The following schedule summarizes the changes in divisional units for the year ended December 31, 1995:
(DECREASE) INCREASE FOR COI OUTSTANDING INCREASE (DECREASE) AND OUTSTANDING AT BEGINNING FOR PAYMENTS FOR DIVISIONAL ADMINISTRATIVE AT END DIVISION OF YEAR RECEIVED TRANSFERS CHARGES OF YEAR - ---------------------------------------------------------------------------------------------------------------- Neuberger & Berman: Limited Maturity Bond 0.000 382.961 164,031.781 (2,405.164) 162,009.578 Growth 0.000 1,107.568 60,922.448 (1,867.909) 60,162.107 Government Income 0.000 1,154.992 77,524.888 (1,492.174) 77,187.706 Partners 0.000 777.847 75,027.133 (2,269.692) 73,535.288 Fred Alger Management, Inc.: American Small Capitalization 0.000 15,032.912 66,694.332 (1,699.978) 80,027.266 American MidCap Growth 0.000 1,336.898 18,942.171 (586.209) 19,692.860 American Growth 0.000 795.728 72,142.081 (3,132.576) 69,805.233 American Leveraged AllCap 0.000 217.078 2,424.066 (146.413) 2,494.731 Fidelity Management & Research Co: Asset Manager 0.000 1,811.445 10,363.454 (547.811) 11,627.088 Growth 0.000 2,796.390 102,856.769 (3,404.171) 102,248.988 Overseas 0.000 2,389.778 93,305.776 (1,788.821) 93,906.733 Money Market 3,200.637 1,244,243.280 (1,045,323.517) (23,467.241) 178,653.159 Index 500 0.000 5,636.625 87,615.828 (1,349.426) 91,903.027 INVESCO Funds Group, Inc.: Total Return 0.000 329.342 12,652.423 (379.101) 12,602.664 Industrial Income 0.000 1,040.189 19,427.874 (441.961) 20,026.102 High Yield 0.000 766.963 45,527.967 (586.572) 45,708.358 Utilities 0.000 261.166 1,744.166 (125.473) 1,879.859 Van Eck Investment Trust: Worldwide Balanced 0.000 639.571 7,336.953 (237.250) 7,739.274 Gold and Natural Resources 0.000 384.059 1,482.141 (100.287) 1,765.913
________________________________________________________________________________ 143 FirstLine Security Life Separate Account L1 Notes to Financial Statements (continued) NOTE H. NET ASSETS Net assets at December 31, 1996 consisted of the following:
ACCUMULATED NET ACCUMULATED NET REALIZED UNREALIZED INVESTMENT GAINS GAINS PRINCIPAL INCOME (LOSSES) ON (LOSSES) ON DIVISION TRANSACTIONS (LOSS) INVESTMENTS INVESTMENTS NET ASSETS - ---------------------------------------------------------------------------------------------------------- Neuberger & Berman: Limited Maturity Bond $ 2,365,476 $ 109,528 $ (8,162) $ 25,234 $ 2,492,076 Growth 1,725,901 65,204 (18,524) 63,133 1,835,714 Government Income 1,483,474 24,172 6,596 34,072 1,548,314 Partners 3,920,042 31,950 131,986 579,264 4,663,242 Fred Alger Management, Inc.: American Small Capitalization 4,316,836 (13,285) 27,644 913 4,332,108 American MidCap Growth 2,226,430 2,489 13,338 92,798 2,335,055 American Growth 3,545,535 18,780 24,420 225,443 3,814,178 American Leveraged AllCap 839,227 (1,468) 13,799 23,190 874,748 Fidelity Management & Research Co: Asset Manager 1,461,400 5,725 8,537 69,675 1,545,337 Growth 6,683,255 80,958 23,593 261,613 7,049,419 Overseas 3,962,517 8,914 36,919 266,779 4,275,129 Money Market 8,016,110 279,556 - - 8,295,666 Index 500 8,785,136 150,280 57,624 1,241,024 10,234,064 INVESCO Funds Group, Inc.: Total Return 805,870 24,733 30,644 13,220 874,467 Industrial Income 1,233,922 98,197 32,085 5,413 1,369,617 High Yield 1,346,523 150,437 84,067 (75,626) 1,505,401 Utilities 205,330 4,246 1,350 7,335 218,261 Van Eck Investment Trust: Worldwide Balanced 306,435 (890) 2,979 19,281 327,805 Gold and Natural Resources 246,886 563 9,504 9,273 266,226 ---------------------------------------------------------------------- Total $53,476,305 $1,040,089 $478,399 $2,862,034 $57,856,827 ======================================================================
________________________________________________________________________________ 144 FirstLine APPENDIX A Factors for the Cash Value Accumulation Test For a Life Insurance Policy MALE NONSMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 12.574 25 6.095 50 2.671 75 1.396 1 12.681 26 5.904 51 2.589 76 1.372 2 12.341 27 5.717 52 2.509 77 1.349 3 11.996 28 5.533 53 2.433 78 1.328 4 11.655 29 5.354 54 2.360 79 1.307 5 11.316 30 5.179 55 2.290 80 1.288 6 10.979 31 5.008 56 2.223 81 1.270 7 10.644 32 4.843 57 2.159 82 1.253 8 10.311 33 4.682 58 2.097 83 1.236 9 9.982 34 4.527 59 2.038 84 1.221 10 9.660 35 4.376 60 1.982 85 1.207 11 9.345 36 4.231 61 1.928 86 1.195 12 9.041 37 4.091 62 1.877 87 1.183 13 8.750 38 3.955 63 1.828 88 1.172 14 8.476 39 3.825 64 1.781 89 1.161 15 8.218 40 3.699 65 1.736 90 1.151 16 7.973 41 3.577 66 1.694 91 1.141 17 7.740 42 3.461 67 1.654 92 1.131 18 7.517 43 3.348 68 1.615 93 1.120 19 7.301 44 3.240 69 1.579 94 1.109 20 7.091 45 3.136 70 1.544 95 1.097 21 6.886 46 3.036 71 1.511 96 1.083 22 6.684 47 2.939 72 1.480 97 1.069 23 6.484 48 2.847 73 1.450 98 1.054 24 6.288 49 2.757 74 1.422 99 1.040 100 1.000
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. ________________________________________________________________________________ 145 FirstLine APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy MALE SMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 10.511 25 4.963 50 2.267 75 1.330 1 10.508 26 4.811 51 2.205 76 1.312 2 10.203 27 4.661 52 2.145 77 1.295 3 9.897 28 4.515 53 2.088 78 1.280 4 9.597 29 4.371 54 2.034 79 1.265 5 9.301 30 4.231 55 1.982 80 1.251 6 9.007 31 4.094 56 1.933 81 1.238 7 8.718 32 3.962 57 1.886 82 1.225 8 8.433 33 3.834 58 1.841 83 1.213 9 8.153 34 3.710 59 1.798 84 1.202 10 7.879 35 3.590 60 1.757 85 1.191 11 7.613 36 3.475 61 1.717 86 1.182 12 7.356 37 3.363 62 1.680 87 1.173 13 7.109 38 3.256 63 1.644 88 1.164 14 6.876 39 3.153 64 1.610 89 1.155 15 6.654 40 3.054 65 1.577 90 1.147 16 6.456 41 2.959 66 1.547 91 1.138 17 6.269 42 2.869 67 1.518 92 1.129 18 6.091 43 2.782 68 1.490 93 1.120 19 5.919 44 2.698 69 1.464 94 1.109 20 5.752 45 2.619 70 1.438 95 1.097 21 5.590 46 2.542 71 1.414 96 1.083 22 5.430 47 2.469 72 1.391 97 1.069 23 5.272 48 2.399 73 1.369 98 1.054 24 5.117 49 2.331 74 1.349 99 1.040 100 1.000
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. ________________________________________________________________________________ 146 FirstLine APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy FEMALE NONSMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 14.687 25 6.861 50 3.013 75 1.493 1 14.680 26 6.638 51 2.920 76 1.461 2 14.279 27 6.421 52 2.831 77 1.430 3 13.873 28 6.211 53 2.745 78 1.401 4 13.471 29 6.007 54 2.662 79 1.373 5 13.073 30 5.809 55 2.583 80 1.347 6 12.682 31 5.618 56 2.507 81 1.322 7 12.294 32 5.432 57 2.433 82 1.299 8 11.915 33 5.252 58 2.362 83 1.278 9 11.541 34 5.078 59 2.293 84 1.257 10 11.175 35 4.910 60 2.226 85 1.239 11 10.817 36 4.747 61 2.162 86 1.221 12 10.469 37 4.590 62 2.100 87 1.205 13 10.132 38 4.439 63 2.040 88 1.190 14 9.807 39 4.294 64 1.983 89 1.176 15 9.494 40 4.154 65 1.928 90 1.163 16 9.192 41 4.019 66 1.876 91 1.150 17 8.899 42 3.890 67 1.826 92 1.137 18 8.617 43 3.765 68 1.778 93 1.125 19 8.344 44 3.645 69 1.732 94 1.112 20 8.078 45 3.530 70 1.688 95 1.098 21 7.821 46 3.419 71 1.645 96 1.084 22 7.571 47 3.312 72 1.604 97 1.069 23 7.327 48 3.208 73 1.565 98 1.054 24 7.091 49 3.109 74 1.528 99 1.040 100 1.000
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. ________________________________________________________________________________ 147 FirstLine APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy FEMALE SMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 13.162 25 6.032 50 2.728 75 1.451 1 13.099 26 5.836 51 2.651 76 1.423 2 12.723 27 5.647 52 2.578 77 1.396 3 12.346 28 5.463 53 2.507 78 1.371 4 11.974 29 5.285 54 2.438 79 1.347 5 11.608 30 5.113 55 2.373 80 1.325 6 11.248 31 4.946 56 2.310 81 1.303 7 10.894 32 4.785 57 2.249 82 1.283 8 10.547 33 4.629 58 2.190 83 1.263 9 10.207 34 4.478 59 2.132 84 1.246 10 9.874 35 4.332 60 2.076 85 1.229 11 9.550 36 4.192 61 2.022 86 1.214 12 9.234 37 4.056 62 1.969 87 1.199 13 8.930 38 3.926 63 1.919 88 1.186 14 8.636 39 3.801 64 1.870 89 1.173 15 8.352 40 3.682 65 1.824 90 1.161 16 8.085 41 3.568 66 1.780 91 1.149 17 7.826 42 3.459 67 1.738 92 1.137 18 7.577 43 3.354 68 1.697 93 1.125 19 7.336 44 3.254 69 1.658 94 1.112 20 7.102 45 3.158 70 1.620 95 1.098 21 6.876 46 3.065 71 1.583 96 1.084 22 6.655 47 2.976 72 1.547 97 1.069 23 6.441 48 2.890 73 1.513 98 1.054 24 6.234 49 2.808 74 1.481 99 1.040 100 1.000
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. ________________________________________________________________________________ 148 FirstLine APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy UNISEX 1 NONSMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 12.574 25 6.095 50 2.671 75 1.396 1 12.681 26 5.904 51 2.589 76 1.372 2 12.341 27 5.717 52 2.509 77 1.349 3 11.996 28 5.533 53 2.433 78 1.328 4 11.655 29 5.354 54 2.360 79 1.307 5 11.316 30 5.179 55 2.290 80 1.288 6 10.979 31 5.008 56 2.223 81 1.270 7 10.644 32 4.843 57 2.159 82 1.253 8 10.311 33 4.682 58 2.097 83 1.236 9 9.982 34 4.527 59 2.038 84 1.221 10 9.660 35 4.376 60 1.982 85 1.207 11 9.345 36 4.231 61 1.928 86 1.195 12 9.041 37 4.091 62 1.877 87 1.183 13 8.750 38 3.955 63 1.828 88 1.172 14 8.476 39 3.825 64 1.781 89 1.161 15 8.218 40 3.699 65 1.736 90 1.151 16 7.973 41 3.577 66 1.694 91 1.141 17 7.740 42 3.461 67 1.654 92 1.131 18 7.517 43 3.348 68 1.615 93 1.120 19 7.301 44 3.240 69 1.579 94 1.109 20 7.091 45 3.136 70 1.544 95 1.097 21 6.886 46 3.036 71 1.511 96 1.083 22 6.684 47 2.939 72 1.480 97 1.069 23 6.484 48 2.847 73 1.450 98 1.054 24 6.288 49 2.757 74 1.422 99 1.040 100 1.000
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. ________________________________________________________________________________ 149 FirstLine APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy UNISEX 1 SMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 10.511 25 4.963 50 2.267 75 1.330 1 10.508 26 4.811 51 2.205 76 1.312 2 10.203 27 4.661 52 2.145 77 1.295 3 9.897 28 4.515 53 2.088 78 1.280 4 9.597 29 4.371 54 2.034 79 1.265 5 9.301 30 4.231 55 1.982 80 1.251 6 9.007 31 4.094 56 1.933 81 1.238 7 8.718 32 3.962 57 1.886 82 1.225 8 8.433 33 3.834 58 1.841 83 1.213 9 8.153 34 3.710 59 1.798 84 1.202 10 7.879 35 3.590 60 1.757 85 1.191 11 7.613 36 3.475 61 1.717 86 1.182 12 7.356 37 3.363 62 1.680 87 1.173 13 7.109 38 3.256 63 1.644 88 1.164 14 6.876 39 3.153 64 1.610 89 1.155 15 6.654 40 3.054 65 1.577 90 1.147 16 6.456 41 2.959 66 1.547 91 1.138 17 6.269 42 2.869 67 1.518 92 1.129 18 6.091 43 2.782 68 1.490 93 1.120 19 5.919 44 2.698 69 1.464 94 1.109 20 5.752 45 2.619 70 1.438 95 1.097 21 5.590 46 2.542 71 1.414 96 1.083 22 5.430 47 2.469 72 1.391 97 1.069 23 5.272 48 2.399 73 1.369 98 1.054 24 5.117 49 2.331 74 1.349 99 1.040 100 1.000
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. ________________________________________________________________________________ 150 FirstLine APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy UNISEX 2 NONSMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 12.943 25 6.234 50 2.733 75 1.418 1 13.032 26 6.037 51 2.649 76 1.392 2 12.683 27 5.845 52 2.568 77 1.368 3 12.327 28 5.657 53 2.490 78 1.345 4 11.975 29 5.473 54 2.415 79 1.323 5 11.626 30 5.294 55 2.343 80 1.303 6 11.278 31 5.120 56 2.275 81 1.283 7 10.934 32 4.950 57 2.209 82 1.265 8 10.593 33 4.786 58 2.146 83 1.247 9 10.256 34 4.627 59 2.085 84 1.231 10 9.926 35 4.474 60 2.027 85 1.216 11 9.604 36 4.325 61 1.972 86 1.202 12 9.292 37 4.182 62 1.918 87 1.190 13 8.994 38 4.043 63 1.868 88 1.178 14 8.710 39 3.910 64 1.819 89 1.166 15 8.443 40 3.782 65 1.773 90 1.155 16 8.188 41 3.658 66 1.729 91 1.144 17 7.945 42 3.539 67 1.687 92 1.133 18 7.712 43 3.424 68 1.647 93 1.122 19 7.487 44 3.314 69 1.609 94 1.110 20 7.267 45 3.208 70 1.573 95 1.097 21 7.053 46 3.106 71 1.538 96 1.084 22 6.843 47 3.007 72 1.506 97 1.069 23 6.637 48 2.912 73 1.475 98 1.054 24 6.433 49 2.821 74 1.445 99 1.040 100 1.000
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. ________________________________________________________________________________ 151 FirstLine APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy UNISEX 2 SMOKER
Attained Attained Attained Attained Age Factor Age Factor Age Factor Age Factor 0 10.942 25 5.143 50 2.347 75 1.361 1 10.931 26 4.984 51 2.282 76 1.341 2 10.616 27 4.828 52 2.221 77 1.323 3 10.298 28 4.675 53 2.162 78 1.306 4 9.985 29 4.526 54 2.105 79 1.289 5 9.677 30 4.380 55 2.052 80 1.274 6 9.373 31 4.239 56 2.000 81 1.259 7 9.072 32 4.102 57 1.951 82 1.244 8 8.777 33 3.969 58 1.904 83 1.230 9 8.487 34 3.841 59 1.859 84 1.217 10 8.203 35 3.717 60 1.816 85 1.205 11 7.927 36 3.597 61 1.774 86 1.194 12 7.660 37 3.481 62 1.735 87 1.183 13 7.405 38 3.371 63 1.697 88 1.173 14 7.161 39 3.264 64 1.660 89 1.163 15 6.930 40 3.162 65 1.626 90 1.153 16 6.721 41 3.064 66 1.594 91 1.143 17 6.523 42 2.970 67 1.563 92 1.133 18 6.334 43 2.880 68 1.534 93 1.122 19 6.152 44 2.794 69 1.505 94 1.110 20 5.975 45 2.711 70 1.478 95 1.097 21 5.803 46 2.632 71 1.452 96 1.084 22 5.634 47 2.556 72 1.427 97 1.069 23 5.468 48 2.484 73 1.404 98 1.054 24 5.305 49 2.414 74 1.382 99 1.040 100 1.000
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. ________________________________________________________________________________ 152 FirstLine APPENDIX B Factors for the Guideline Premium/Cash Value Corridor Test For a Life Insurance Policy
Attained Attained Attained Attained Age Factor Age Factor Age Factor 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. ________________________________________________________________________________ 153 FirstLine APPENDIX C PERFORMANCE INFORMATION POLICY PERFORMANCE The following hypothetical illustrations demonstrate how the actual investment experience of each Division of the Variable Account affects the Cash Surrender Value, Account Value and Death Benefit of a Policy. These hypothetical illustrations are based on the actual historical return of each Portfolio as if a Policy had been issued on the date indicated. Each Portfolio's Annual Total Return is based on the total return calculated for each fiscal year. These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Variable 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 $4,500 annual premium, paid at the beginning of each year, for a hypothetical Policy with a $200,000 face amount, the Cash Value Accumulation Test, death benefit Option 1, issued to a standard, nonsmoker male, Age 45. In each case, it is assumed that all premiums are allocated to the Division illustrated for the period shown. The benefits are calculated for a specific date. The amount and timing of Premium Payments and the use of other Policy features, such as Policy Loans, would affect individual Policy benefits. The amounts shown for the Cash Surrender Values, Account Values and Death Benefits take into account the charges against premiums, current cost of insurance and monthly deductions, the daily charge against the Variable Account for mortality and expense risks, and each Portfolio's charges and expenses. See Charges, Deductions and Refund, page 34. This prospectus also contains illustrations based on assumed rates of return. See Illustrations of Death Benefits, Account Values, Surrender Values and Accumulated Premiums, page 52. ________________________________________________________________________________ FirstLine 154 HYPOTHETICAL ILLUSTRATIONS Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $ 4,500 - --------------------------------------------------------------------------------
NEUBERGER & BERMAN AMT LIMITED MATURITY BOND PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/87 2.89% 2,150 3,675 200,000 12/31/88 7.17% 5,848 7,598 200,000 12/31/89 10.77% 10,053 12,028 200,000 12/31/90 8.32% 14,398 16,598 200,000 12/31/91 11.34% 19,879 22,079 200,000 12/31/92 5.18% 24,314 26,514 200,000 12/31/93 6.63% 29,356 31,556 200,000 12/31/94 (0.15)% 32,577 34,502 200,000 12/31/95 10.94% 39,991 41,641 200,000 12/31/96 4.31% 45,142 46,517 200,000 NEUBERGER & BERMAN AMT GOVERNMENT INCOME PORTFOLIO/1/ Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 11.76% 2,492 4,017 200,000 12/31/96 1.32% 5.759 7,509 200,000 NEUBERGER & BERMAN AMT GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/87 (4.89)% 1,850 3,375 200,000 12/31/88 25.97% 6,872 8,622 200,000 12/31/89 29.47% 13,484 15,459 200,000 12/31/90 (8.19)% 14,945 17,145 200,000 12/31/91 29.73% 24,312 26,512 200,000 12/31/92 9.54% 30,277 32,477 200,000 12/31/93 6.79% 35,757 37,957 200,000 12/31/94 (4.99)% 36,949 38,874 200,000 12/31/95 31.73% 53,649 55,299 200,000 12/31/96 9.14% 62,202 63,577 200,000
The assumptions underlying these values are described in Performance Information, page 147. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Variable Account asset based charges and deductions, which if reflected, would result in lower total return figures than those shown. ________________________________________________________________________________ Firstline 155 HYPOTHETICAL ILLUSTRATION (Continued) Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $ 4,500 - --------------------------------------------------------------------------------
NEUBERGER & BERMAN AMT PARTNERS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 36.47% 3,450 4,975 200,000 12/31/96 29.57% 9,194 10,944 200,000 ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 64.48% 4,540 6,065 200,000 12/31/90 8.71% 8,550 10,300 200,000 12/31/91 57.54% 19,577 21,522 200,000 12/31/92 3.55% 23,479 25,679 200,000 12/31/93 13.28% 30,528 32,728 200,000 12/31/94 (4.38)% 32,017 34,217 200,000 12/31/95 44.31% 51,789 53,989 200,000 12/31/96 4.18% 57,419 59,344 200,000 ALGER AMERICAN MIDCAP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 (1.54)% 1.979 3,504 200,000 12/31/95 44.45% 8,382 10,132 200,000 12/31/96 11.90% 13,006 14,981 200,000 ALGER AMERICAN GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 4.14% 2,198 3,723 200,000 12/31/91 40.39% 8,392 10,142 200,000 12/31/92 12.38% 13,083 15,058 200,000 12/31/93 22.47% 20,322 22,522 200,000 12/31/94 1.45% 23,870 26,070 200,000 12/31/95 36.37% 37,756 39,956 200,000 12/31/96 13.35% 46,579 48,779 200,000
The assumptions underlying these values are described in Performance Information, page 147. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Variable Account asset based charges and deductions, which if reflected, would result in lower total return figures than those shown. ________________________________________________________________________________ FirstLine 156 HYPOTHETICAL ILLUSTRATION (Continued) Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $ 4,500 - --------------------------------------------------------------------------------
ALGER AMERICAN LEVERAGED ALL CAP Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 12.04% 2,503 4,028 200,000 FIDELITY VIP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/87 3.66% 2,179 3,704 200,000 12/31/88 15.58% 6,508 8,258 200,000 12/31/89 31.51% 13,258 15,233 200,000 12/31/90 (11.73)% 14,070 16,270 200,000 12/31/91 45.51% 26,328 28,528 200,000 12/31/92 9.32% 32,409 34,609 200,000 12/31/93 19.37% 42,830 45,030 200,000 12/31/94 (0.02)% 46,066 47,991 200,000 12/31/95 35.36% 67,506 69,156 200,000 12/31/96 14.71% 81,343 82,718 200,000 FIDELITY VIP OVERSEAS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 8.13% 2,352 3,877 200,000 12/31/89 26.28% 7,526 9,276 200,000 12/31/90 (1.67)% 10,295 12,270 200,000 12/31/91 8.00% 14,609 16,809 200,000 12/31/92 (10.72)% 15,604 17,804 200,000 12/31/93 37.35% 26,724 28,924 200,000 12/31/94 1.72% 30,324 32,524 200,000 12/31/95 9.74% 37,108 39,033 200,000 12/31/96 13.15% 45,949 47,599 200,000
The assumptions underlying these values are described in Performance Information, page 147. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Variable Account asset based charges and deductions, which if reflected, would result in lower total return figures than those shown. ________________________________________________________________________________ FirstLine 157 HYPOTHETICAL ILLUSTRATION (Continued) Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $ 4,500 - --------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/87 6.44% 2,287 3,812 200,000 12/31/88 7.39% 6,011 7,761 200,000 12/31/89 9.12% 10,044 12,019 200,000 12/31/90 8.04% 14,345 16,545 200,000 12/31/91 6.09% 18,760 20,960 200,000 12/31/92 3.90% 22,825 25,025 200,000 12/31/93 3.23% 26,800 29,000 200,000 12/31/94 4.25% 31,462 33,387 200,000 12/31/95 5.87% 36,885 38,535 200,000 12/31/96 5.41% 42,370 43,745 200,000 FIDELITY VIP II ASSET MANAGER PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/90 6.72% 2,297 3,822 200,000 12/31/91 22.56% 7,174 8,924 200,000 12/31/92 11.71% 11,635 13,610 200,000 12/31/93 21.23% 18,340 20,540 200,000 12/31/94 (6.09)% 20,043 22,243 200,000 12/31/95 16.96% 27,531 29,731 200,000 12/31/96 14.60% 35,431 37,631 200,000 FIDELITY VIP II INDEX 500 PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/93 9.74% 2,414 3,939 200,000 12/31/94 1.04% 5,658 7,408 200,000 12/31/95 37.19% 12,775 14,750 200,000 12/31/96 22.82% 20,012 22,212 200,000
The assumptions underlying these values are described in Performance Information, page 147. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Variable Account asset based charges and deductions, which if reflected, would result in lower total return figures than those shown. ________________________________________________________________________________ Firstline 158 HYPOTHETICAL ILLUSTRATION (Continued) Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $ 4,500 - ----------------------------------------------------------------------------
INVESCO VIF TOTAL RETURN PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/95 22.79% 2,919 4,444 200,000 12/31/96 12.18% 7,080 8,830 200,000 INVESCO VIF INDUSTRIAL INCOME PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 29.25% 3,169 4,694 200,000 12/31/96 22.28% 8,215 9,965 200,000 INVESCO VIF HIGH YIELD PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 19.76% 2,801 4,326 200,000 12/31/96 16.59% 7,306 9,056 200,000 INVESCO VIF UTILITIES PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 9.08% 2,388 3,913 200,000 12/31/96 12.76% 6,532 8,282 200,000 VAN ECK WORLDWIDE HARD ASSETS FUND (FORMERLY GOLD AND NATURAL RESOURCES FUND) Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/91 (2.93)% 1,925 3,450 200,000 12/31/92 (4.09)% 4,797 6,547 200,000 12/31/93 64.83 % 14,436 16,441 200,000 12/31/94 (4.78)% 16,501 18,701 200,000 12/31/95 10.99 % 22,135 24,335 200,000 12/31/96 18.04 % 30,272 32,472 200,000
The assumptions underlying these values are described in Performance Information, page 147. * These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Variable Account asset based charges and deductions, which if reflected, would result in lower total return figures than those shown. ________________________________________________________________________________ FirstLine 159 HYPOTHETICAL ILLUSTRATION (Continued) Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $ 4,500 - --------------------------------------------------------------------------------
VAN ECK WORLDWIDE BALANCED FUND/1/ Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 (0.10)% 2,034 3,559 200,000 12/31/96 11.63 % 6,052 7,802 200,000 VAN ECK WORLDWIDE BOND PORTFOLIO/2/ Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 11.25% 2,472 3,997 200,000 12/31/91 18.39% 7,064 8,814 200,000 12/31/92 (5.25)% 9,397 11,372 200,000 12/31/93 7.79% 13,610 15,810 200,000 12/31/94 (1.32)% 16,542 18,742 200,000 12/31/95 17.30% 23,522 25,722 200,000 12/31/96 2.53% 27,312 29,512 200,000 VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO/2/ Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 26.82% 3,075 4,600 200,000 AIM VI CAPITAL APPRECIATION PORTFOLIO/2/ Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 2.50% 2,134 3,659 200,000 12/31/95 35.69% 7,953 9,703 200,000 12/31/96 17.58% 13,287 15,262 200,000
AIM VI GOVERNMENT SECURITIES PORTFOLIO/2/ Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 -3.73% 1,894 3,419 200,000 12/31/95 15.56% 6,179 7,929 200,000 12/31/96 2.29% 9,435 11,410 200,000 /1/ No longer available for new investors. /2/ Will become available on or before May 1, 1998. The assumptions underlying these values are described in Performance Information, page 147. *These Annual Total Return figures reflect the Portfolio's management fees and other operating expenses but do not reflect the Policy level or Variable Account asset based charges and deductions, which if reflected, would result in lower total return figures than those shown. ________________________________________________________________________________ FirstLine 160 PART II UNDERTAKING TO FILE REPORTS 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 May 1, 1997 (File No. 33-74190). UNDERTAKING REGARDING INDEMNIFICATION ________________________________________________________________________________ FirstLine II-1 ________________________________________________________________________________ FirstLine II-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 May 1, 1997 (File No. 33-74190). 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: Shirley A. Knarr (See Exhibits 6(a)). Ernst & Young LLP (See Exhibit 7(a)). Mayer, Brown & Platt (See Exhibit 7(b)). ________________________________________________________________________________ FirstLine II-3 The following exhibits: 1.A (1) Resolution of the Executive Committee of the Board of Directors of Security Life of Denver Insurance Company ("Security Life of Denver") authorizing the establishment of the Registrant. /1/ (2) Not Applicable. (3) (a) Security Life of Denver Distribution Agreement./2/ (b) Specimen Broker/Dealer Supervisory and Selling Agreement for Variable Contracts /3/, and Compensation Schedule./1/ (i) Broker/Dealer Supervisory and Selling Agreement for Variable Contracts with Paine Webber Incorporated./7/ (c) Commission Schedule for Policies./1/ (4) Not Applicable. (5) (a) Specimen Variable Universal Life Insurance Policy (Form No. 1195 (VUL)-5/97). /7/ (i) Specimen Variable Universal Life Policy Issued in Massachusetts (Form No. 1195 (VUL)-MA-5/97)./7/ (ii) Specimen Variable Universal Life Policy Issued in Maryland. (Form No. 1195 (VUL)-MA-5/97)./7/ (iii) Specimen Variable Universal Life Policy Issued in Texas. (Form No. 1195 (VUL)-MA-5/97)./7/ (iv) Specimen Variable Universal Life Insurance Policy (Form No. 2500 (VUL)-7/97)./8/ (b) Adjustable Term Insurance Rider (Form No. R2000-3/96)./7/ (6) (a) Security Life of Denver's Restated Articles of Incorporation./1/ (b-g) Amendments to Articles of Incorporation through June 12, 1987. /2/ (h) Security Life of Denver's By-Laws./1/ (i) Bylaws of Security Life of Denver Insurance Company (Restated with Amendments through September 30, 1997). (7) Not Applicable. (8) (a) Participation Agreements/3/ and Addendum to Sales Agreement./1/ (i) Specimen 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. (b) Amendments to Participation Agreements./1/ (i) Specimen Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Investment Trust and Van Eck Associates Corporation. (c) Service Agreement./1/ (d) Administrative Services Agreement between Security Life of Denver and Financial Administrative Services Corporation./2/ (e) Amendment to Administrative Services Agreement between Security Life of Denver and Financial Administrative Services Corporation./4/ (9) Not Applicable. (10) (a) Specimen Flexible Premium Variable Life Insurance Application (Form No. Q-1155). /1/ (i) Variable Life Insurance Application (Form No. Q-2006-9/97). /8/ (ii) Variable Life Insurance Application (Form No. Q-1155-98). /9/ ________________________________________________________________________________ FirstLine II-4 (b) Specimen Flexible Premium Variable Life Insurance Guaranteed Issue Application (Form No. Q-115695)./1/ 2. Included as Exhibit 1.A(5) above. 3. (a) Opinion and Consent of Eugene L. Copeland as to securities being registered./5/ 4. Not Applicable. 5. Not Applicable. 6. Opinion and Consent of Shirley A. Knarr. 7. (a) Consent of Ernst & Young LLP. (b) Consent of Mayer, Brown and Platt. 8. Not Applicable. 9. Financial Data Schedule. _______________ /1/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on August 4, 1995 (File No. 33-88148). /2/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form N-4 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account A1, filed with the Securities and Exchange Commission on February 21, 1995 (File No. 33- 72564). /3/ Incorporated herein by reference to Pre-Effective Amendment No. 2 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on October 25, 1994 (File No. 33-74190). /4/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the Form N-4 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account A1, filed with the Securities and Exchange Commission on April 28, 1995 (File No. 33-78444). /5/ Incorporated herein by reference 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 14, 1994 (File No. 33-74190). /6/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on August 31, 1994 (File No. 33-74190). /7/ 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 April 30, 1997 (File No. 33-88148). /8/ To be used on or before May 1, 1998. ________________________________________________________________________________ FirstLine II-5 /9/ To be used on or before May 1, 1998, where Exhibit 1.A(10)(a)(i) has not been approved. ________________________________________________________________________________ FirstLine II-6 SIGNATURES Pursuant to Rule 485(a) under the Securities Act of 1933, Security Life of Denver Insurance Company and the Registrant, Security Life Separate Account L1 have duly caused this Post-Effective Amendment No. 5 to the 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 29th day of October, 1997. SECURITY LIFE OF DENVER INSURANCE COMPANY (Depositor) BY: /s/ Stephen M. Christopher -------------------------- Stephen M. Christopher President and Chief Operating Officer (Seal) ATTEST: /s/ Gary W. Waggoner - -------------------- Gary W. Waggoner SECURITY LIFE SEPARATE ACCOUNT L1 (Registrant) BY: SECURITY LIFE OF DENVER INSURANCE COMPANY (Depositor) BY: /s/ Stephen M. Christopher -------------------------- Stephen M. Christopher President and Chief Operating Officer (Seal) ATTEST: /s/ Gary W. Waggoner - -------------------- Gary W. Waggoner ________________________________________________________________________________ FirstLine II-7 Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 5 to the 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/ R. Glenn Hilliard - --------------------- R. Glenn Hilliard Chief Executive Officer /s/ Stephen M. Christopher - -------------------------- Stephen M. Christopher President and Chief Operating Officer PRINCIPAL FINANCIAL OFFICER /s/ Stephen J. Yarina - --------------------- Stephen J. Yarina Vice President, Treasurer and Chief Financial Officer PRINCIPAL ACCOUNTING OFFICER /s/ Stephen J. Yarina - --------------------- Stephen J. Yarina Vice President, Treasurer and Chief Financial Officer DIRECTORS: /s/ R. Glenn Hilliard (Chairman) - -------------------------------- R. Glenn Hilliard /s/ Thomas F. Conroy - -------------------- Thomas F. Conroy /s/ Michael W. Cunningham - ------------------------- Michael W. Cunningham /s/ Linda B. Emory - ------------------ Linda B. Emory /s/ Stephen M. Christopher - -------------------------- Stephen M. Christopher ________________________________________________________________________________ FirstLine II-8 EXHIBIT INDEX Exhibit No. Description of Exhibit - ----------- ---------------------- 1.A(1) Resolution of the Executive Committee of the Board of Directors of Security Life of Denver Insurance Company ("Security Life of Denver") authorizing the establishment of the Registrant./1/ 1.A(2) Not Applicable. 1.A(3)(a) Security Life of Denver Distribution Agreement./2/ 1.A(3)(b) Specimen Broker/Dealer Supervisory and Selling Agreement for Variable Contracts/3/, and Compensation Schedule./1/ 1.A(3)(b)(i) Broker/Dealer Supervisory and Selling Agreement for Variable Contracts with Paine Webber Incorporated./7/ 1.A(3)(c) Commission Schedule for Policies./1/ 1.A(4) Not Applicable. 1.A(5)(a) Specimen Variable Universal Life Insurance Policy (Form No. 1195)(VUL)-5/97)./7/ 1.A(5)(a)(i) Specimen Variable Universal Life Insurance Policy issued in Maryland (Form No. 1195(VUL)-MD-5/97)./7/ 1.A(5)(a)(ii) Specimen Variable Universal Life Insurance Policy issued in Massachusetts (Form No. 1195(VUL)-MA-5/97)./7/ 1.A(5)(a)(iii) Specimen Variable Universal Life Insurance Policy issued in Texas (Form No. 1195(VUL)-TX-5/97)./7/ 1.A(5)(a)(iv) Specimen Variable Universal Life Insurance Policy (Form No. 2500 (VUL)-7/97)./8/ 1.A(5)(b) Adjustable Term Insurance Rider (Form No. R2000-3/96). /7/ 1.A(6)(a) Security Life of Denver's Restated Articles of Incorporation./1/ 1.A(6)(b-g) Amendments to Articles of Incorporation through June 12, 1987./2/ 1.A(6)(h) Security Life of Denver's By-Laws./1/ 1.A(6)(h)(i) Bylaws of Security Life of Denver Insurance Company (Restated with Amendments through September 30, 1997). 1.A(7) Not Applicable. 1.A(8)(a) Participation Agreements/3/ and Addendum to Sales Agreement./1/ 1.A(8)(a)(i) Specimen 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. ________________________________________________________________________________ FirstLine II-9 1.A(8)(b) Amendments to Participation Agreements./1/ I.A(8)(b)(i) Specimen Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Investment Trust and Van Eck Associates Corporation. 1.A(8)(c) Service Agreement./1/ 1.A(8)(d) Administrative Services Agreement between Security Life of Denver and Financial Administrative Services Corporation. /2/ 1.A(8)(e) Amendments to Administrative Services Agreement between Security Life of Denver and Financial Administrative Services Corporation./4/ 1.A(9) Not Applicable. 1.A(10)(a) Specimen Flexible Premium Variable Life Insurance Application (Form No. Q-1155)./1/ 1.A(10)(a)(i) Variable Life Insurance Application (Form No. Q-2006-9/97). /8/ 1.A(10)(a)(ii) Variable Life Insurance Application (Form No. Q-1155-98). /9/ 1.A(10)(b) Specimen Flexible Premium Variable Life Insurance Guaranteed Issue Application (Form No. 115695)./1/ 2. Included as Exhibit 1.A(5) above. 3.(a) Opinion and Consent of Eugene L. Copeland as to securities being registered./5/ 4. Not Applicable. 5. Not Applicable. 6. Opinion and Consent of Shirley A. Knarr. 7.(a) Consent of Ernst & Young LLP. 7.(b) Consent of Mayer, Brown and Platt. 8. Not Applicable. 9. Financial Data Schedule (Exhibit 27 for purposes for electronic filing). ___________________ /1/ Incorporated herein by reference to Pre-Effective Amendment No. 1 of 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 August 4, 1995 (File No. 33-88148). /2/ Incorporated herein by reference to the Pre-Effective Amendment No. 1 of the Form N-4 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account A1, filed with the Securities and Exchange Commission on February 21, 1995 (File No. 33- 72564). ________________________________________________________________________________ FirstLine II-10 /3/ Incorporated herein by reference to Pre-Effective Amendment No. 2 of the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account A1, filed with the Securities and Exchange Commission on October 25, 1994 (File No. 33-74190). /4/ Incorporated herein by reference to Post-Effective Amendment No.2 of the Form N-4 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account A1, filed with the Securities and Exchange Commission on April 28, 1995 (File No. 33-78444). /5/ Incorporated herein by reference 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 14, 1994 (File No. 33-74190). /6/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on August 31, 1994 (File No. 33-74190). /7/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the form S-6 registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on April 30, 1997 (File No. 33-88148). /8/ To be used on or before May 1, 1998. /9/ To be used on or before May 1, 1998, where Exhibit 1.A(10)(a)(i) has not been approved. ________________________________________________________________________________ FirstLine II-11 EX-1.A(5)(A)(IV) 2 SPECIM VAR UNIV LIFE INS POLICY (FORM NO.2500) EXHIBIT 1.A(5)(a)(iv) Security Life of Denver Insurance Company INSURED: JOHN DOE POLICY DATE: January 1, 1998 POLICY NUMBER: 67000001 INITIAL STATED DEATH BENEFIT: $100,000.00 WE AGREE TO PAY the death benefit to the beneficiary upon the death of the insured while this policy is in force. WE AGREE TO PAY your Net Account Value to you as of the Maturity Date if the insured is living on that date. WE ALSO AGREE to provide the other rights and benefits of the policy. These agreements are subject to the provisions of the policy. RIGHT TO EXAMINE PERIOD. You have the right to examine and return this policy within 10 days after receipt. The policy may be returned by delivering or mailing it to us at our Customer Service Center. Immediately upon return it will be deemed void as of the policy date. Upon return of the policy to us, we will refund all premiums paid. [SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE] Secretary President In this policy "you" and "your" refer to the owner of the policy. "We", "us" and "our" refer to Security Life of Denver Insurance Company. This policy is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. Death benefits and other values provided by this contract, when based on the investment experience of a separate account, are variable. These values may increase or decrease based on investment experience and are not guaranteed as to fixed dollar amount. Death benefits are payable by us upon the death of the insured prior to the Maturity Date. Your net account value, if any, is payable by us if the insured is living as of the Maturity Date. Flexible premiums are payable by you during the lifetime of the insured until the Maturity Date. SECURITY LIFE OF DENVER INSURANCE COMPANY A Stock Company Customer Service Center 1290 Broadway; Denver, Colorado 80203 Toll Free Number: 1(800)448-9839 Form No. 2500 (VUL)-7/97 TABLE OF CONTENTS SCHEDULE.......................................................................5 DEFINITION OF TERMS............................................................6 INSURANCE COVERAGE PROVISIONS..................................................7 EFFECTIVE DATE OF COVERAGE..................................................7 BASE DEATH BENEFIT..........................................................7 CHANGE IN REQUESTED INSURANCE COVERAGE......................................7 Requested Increases in Coverage..........................................8 Requested Decreases in Coverage..........................................8 Death Benefit Option Changes.............................................8 PAYOUT OF PROCEEDS..........................................................9 PREMIUM PROVISIONS.............................................................9 INITIAL PREMIUM ALLOCATION..................................................9 SUBSEQUENT PREMIUM ALLOCATIONS..............................................9 CHANGES TO PREMIUM ALLOCATIONS.............................................10 SCHEDULED PREMIUMS.........................................................10 UNSCHEDULED PREMIUMS.......................................................10 NET PREMIUM................................................................10 PREMIUM LIMITATION.........................................................10 VARIABLE ACCOUNT PROVISIONS...................................................11 THE VARIABLE ACCOUNT.......................................................11 VARIABLE ACCOUNT DIVISIONS.................................................11 CHANGES WITHIN THE VARIABLE ACCOUNT........................................11 GENERAL ACCOUNT PROVISIONS....................................................12 THE GENERAL ACCOUNT........................................................12 GUARANTEED INTEREST DIVISION...............................................12 LOAN DIVISION..............................................................12 TRANSFER PROVISIONS...........................................................12 Page 2 ACCOUNT VALUE PROVISIONS......................................................12 ACCOUNT VALUES ON THE INVESTMENT DATE......................................13 ACCUMULATION UNIT VALUE....................................................13 ACCUMULATION EXPERIENCE FACTOR.............................................13 ACCOUNT VALUE OF THE DIVISIONS OF THE VARIABLE ACCOUNT.....................13 ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION..........................14 ACCOUNT VALUE OF THE LOAN DIVISION.........................................14 MONTHLY DEDUCTION AND REFUND..................................................15 MONTHLY DEDUCTION..........................................................15 COST OF INSURANCE..........................................................15 PERSISTENCY REFUND.........................................................15 LOAN PROVISIONS...............................................................16 POLICY LOANS...............................................................16 LOAN INTEREST..............................................................16 LOAN DIVISION..............................................................16 PARTIAL WITHDRAWAL PROVISIONS.................................................16 SURRENDER PROVISIONS..........................................................17 SURRENDER VALUE............................................................17 SURRENDER CHARGES..........................................................18 BASIS OF COMPUTATIONS......................................................18 FULL SURRENDERS............................................................19 GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS........................19 GRACE PERIOD...............................................................19 THREE YEAR CONTINUATION PERIOD..........................Bookmark not defined. GUARANTEE PERIOD...........................................................20 TERMINATION................................................................20 REINSTATEMENT..............................................................21 DEFERRAL OF PAYMENT........................................................21 GENERAL POLICY PROVISIONS.....................................................22 THE POLICY.................................................................22 Page 3 AGE........................................................................22 PROCEDURES.................................................................22 OWNERSHIP..................................................................22 BENEFICIARIES..............................................................22 EXCHANGE RIGHT.............................................................23 COLLATERAL ASSIGNMENT......................................................23 INCONTESTABILITY...........................................................23 MISSTATEMENT OF AGE OR SEX.................................................23 SUICIDE EXCLUSION..........................................................23 PERIODIC REPORTS...........................................................23 ILLUSTRATION OF BENEFITS AND VALUES........................................24 NONPARTICIPATING...........................................................24 CUSTOMER SERVICE CENTER....................................................24 PAYOUTS OTHER THAN AS ONE SUM.................................................24 ELECTION...................................................................24 PAYOUT OPTIONS.............................................................24 CHANGE AND WITHDRAWAL......................................................25 EXCESS INTEREST............................................................25 MINIMUM AMOUNTS............................................................25 SUPPLEMENTARY POLICY.......................................................25 INCOME PROTECTION..........................................................25 DEATH OF PRIMARY PAYEE.....................................................26 PAYMENTS OTHER THAN MONTHLY................................................26 SETTLEMENT OPTION TABLES......................................................27 Additional benefits or riders, if any, will be listed in the Schedule. The additional provisions will be inserted in the policy. Page 4 SCHEDULE (Effective Date: January 1, 1998) POLICY INFORMATION Policy Number 67000001 Initial Minimum Stated Death Benefit $100,000.00 Insured JOHN DOE Death Benefit Option OPTION 1 Age And Sex 35, Male Minimum Annual Premium $700.00 Premium Class Non-Smoker Policy Date January 1, 1998 Initial Scheduled Premium $1,200.00, Annually Maturity Date January 1, 2063 Definition of Life Insurance Test Guideline Premium/Cash Value Corridor Test [Guarantee Period Annual Premium Guarantee Period Expiration Date ]
CUSTOMER SERVICE CENTER: 1290 Broadway, Denver, Colorado 80203 Coverage will expire prior to the Maturity Date if premiums are insufficient to continue coverage and the Guarantee Period has expired. Coverage will also be affected by Partial Withdrawals, policy loans, changes in the current cost of insurance rates, the actual credited interest rate for the Guaranteed Interest division and the investment experience of the variable account. Page 5 SCHEDULE (Continued) BENEFIT PROFILE
- ------------------------------------------------------------------------------------------------------------------------------------ Age At Benefit Segment Maturity Effective Guideline Annual Segment Description Amount Issue Age Date Date Premium Target Premium - ------------------------------------------------------------------------------------------------------------------------------------ Stated Death Benefit (Segment #1) $100,000.00 35 100 January 1, 1998 $1,236.00 $800.00 - ------------------------------------------------------------------------------------------------------------------------------------
Page 5A SCHEDULE (Continued) EXPENSE CHARGES A. Premium Expense Charges (As a percent of all premiums) - Premium expense charges will equal the sum of the following: 1. Sales Load: Segment Issue Age Sales Load 0 - 49 2.25% 50 - 59 3.25% 60+ 4.25% 2. State And Local Taxes: 2.5% 3. Federal Deferred Acquisition Cost Tax: 1.5% We reserve the right to increase or decrease the premium expense charges for taxes due to any change in tax law. We further reserve the right to increase or decrease the premium expense charges for federal deferred acquisition costs taxes due to any change in the cost to us. B. Monthly Expense Charges: Monthly expense charges will equal the sum of the following: Initial Policy Charge: $10 per month for the first three policy years. Monthly Administrative Charge: $ 3 per month plus $0.0125 per thousand of Stated Death Benefit (or Target Death Benefit, if greater), for all years. The per thousand charge is limited to $15.00 per policy month. [GUARANTEED MINIMUM DEATH BENEFIT CHARGE] [$0.01 per thousand dollars of Stated Death Benefit per policy month during the guarantee period, subject to the conditions set forth in the policy.] ANNUAL MORTALITY AND EXPENSE RISK CHARGE (Based on the percentage of assets in each Variable Account division) Mortality And Expense Risk Charge 0.75% Page 5B SCHEDULE (Continued) SURRENDER CHARGES The maximum surrender charges which pertain to the insurance coverages shown in the Schedule are shown in the following table. This table may change upon any increases and/or decreases in the policy's Stated Death Benefit.
--------------------------------------------------------- SURRENDERS DURING THE POLICY YEAR TOTAL MAXIMUM ENDING SURRENDER CHARGE --------------------------------------------------------- 1997 $720.50 --------------------------------------------------------- 1998 $720.50 --------------------------------------------------------- 1999 $720.50 --------------------------------------------------------- 2000 $720.50 --------------------------------------------------------- 2001 $720.50 --------------------------------------------------------- 2002 $720.50 --------------------------------------------------------- 2003 $720.50 --------------------------------------------------------- 2004 $630.44 --------------------------------------------------------- 2005 $540.38 --------------------------------------------------------- 2006 $450.31 --------------------------------------------------------- 2007 $360.25 --------------------------------------------------------- 2008 $270.19 --------------------------------------------------------- 2009 $180.13 --------------------------------------------------------- 2010 $90.06 --------------------------------------------------------- 2011 0 ---------------------------------------------------------
Administrative Surrender Charge Table
------------------------------------------------------------ ADMINISTRATIVE SURRENDER SEGMENT CHARGE PER THOUSAND OF ISSUE AGE STATED DEATH BENEFIT ------------------------------------------------------------ 0 - 39 $2.50 ------------------------------------------------------------ 40 - 49 $3.50 ------------------------------------------------------------ 50 - 59 $4.50 ------------------------------------------------------------ 60 - 69 $5.50 ------------------------------------------------------------ 70 and above $6.50 ------------------------------------------------------------
This charge is reduced by 12.5% per year starting 7 policy years after the Segment's effective date until it reaches zero at the beginning of the 15th policy year following that Segment's effective date or the policy year in which the Insured reaches age 98, whichever is earlier. Page 5C SCHEDULE (Continued) POLICYHOLDER TRANSACTION CHARGES Requests for Sales Illustrations: First illustration each year is free of charge; thereafter $25 for each illustration requested. Premium Allocation Changes: First five changes each policy year are free of charge; thereafter $25 for each change. Partial Withdrawal Service Fee: See below Other Policy Transaction Charges: The charges for transfers between divisions of the Variable Account or between the Guaranteed Interest division and the Variable Account divisions; and charges for other Variable Account management functions are governed by the Prospectus in effect at the time of the transaction. POLICY LOANS Policy Loan Interest Rate: 3.75% per year Guaranteed Interest Rate Credited To Loan Division: 3.00% per year Minimum Loan Amount: $100 Maximum Loan Amount: See the Loan Provisions section. PARTIAL WITHDRAWALS Minimum Partial Withdrawal Amount: $100 Maximum Partial Withdrawal Amount: Amount which will leave $500 as the Net Cash Surrender Value Partial Withdrawal Service Fee: The lesser of $25 or 2% of the amount withdrawn Limit On Partial Withdrawals: One per policy year GUARANTEED INTEREST DIVISION Guaranteed Interest Rate For Guaranteed Interest Division 3.00% per year Page 5D SCHEDULE (Continued) To comply with the Definition of Life Insurance Test you have elected, the policy's Base Death Benefit at any time will be at least equal to the Account Value times the appropriate factor from this table. DEFINITION OF LIFE INSURANCE DEATH BENEFIT FACTORS BASED ON THE GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST
ATTAINED FACTOR ATTAINED FACTOR ATTAINED FACTOR ATTAINED FACTOR AGE AGE AGE AGE - ------------------------------------------------------------------------------------------------------- 0-40 2.50 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- 41 2.43 56 1.46 71 1.13 86 1.05 - ------------------------------------------------------------------------------------------------------- 42 2.36 57 1.42 72 1.11 87 1.05 - ------------------------------------------------------------------------------------------------------- 43 2.29 58 1.38 73 1.09 88 1.05 - ------------------------------------------------------------------------------------------------------- 44 2.22 59 1.34 74 1.07 89 1.05 - ------------------------------------------------------------------------------------------------------- 45 2.15 - ------------------------------------------------------------------------------------------------------- 60 1.30 75 1.05 90 1.05 - ------------------------------------------------------------------------------------------------------- 46 2.09 61 1.28 76 1.05 91 1.04 - ------------------------------------------------------------------------------------------------------- 47 2.03 62 1.26 77 1.05 92 1.03 - ------------------------------------------------------------------------------------------------------- 48 1.97 63 1.24 78 1.05 93 1.02 - ------------------------------------------------------------------------------------------------------- 49 1.91 64 1.22 79 1.05 94 1.01 - ------------------------------------------------------------------------------------------------------- 50 1.85 - ------------------------------------------------------------------------------------------------------- 65 1.20 80 1.05 95 1.01 - ------------------------------------------------------------------------------------------------------- 51 1.78 66 1.19 81 1.05 96 1.01 - ------------------------------------------------------------------------------------------------------- 52 1.71 67 1.18 82 1.05 97 1.01 - ------------------------------------------------------------------------------------------------------- 53 1.64 68 1.17 83 1.05 98 1.01 - ------------------------------------------------------------------------------------------------------- 54 1.57 69 1.16 84 1.05 99 1.01 - ------------------------------------------------------------------------------------------------------- 55 1.50 70 1.15 85 1.05 100 1.00 - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
PAGE 5E SCHEDULE (Continued) TABLE OF GUARANTEED RATES Guaranteed Maximum Cost of Insurance Rates Per $1000 (Basic Policy)
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate ---------------------------------------------------------------------------------------------------------------------------------- 0 0.34900 26 0.12342 51 0.44693 76 5.59039 --------------------------------------------------------------------------------------------------------------------------------- 1 0.08921 27 0.12175 52 0.48965 77 6.17549 --------------------------------------------------------------------------------------------------------------------------------- 2 0.08254 28 0.12008 53 0.53742 78 6.78686 --------------------------------------------------------------------------------------------------------------------------------- 3 0.08170 29 0.12208 54 0.59276 79 7.44038 --------------------------------------------------------------------------------------------------------------------------------- 4 0.07920 30 0.12008 55 0.65401 80 8.16249 --------------------------------------------------------------------------------------------------------------------------------- 5 0.07503 31 0.12258 56 0.72203 81 8.97320 --------------------------------------------------------------------------------------------------------------------------------- 6 0.07169 32 0.12509 57 0.79429 82 9.89813 --------------------------------------------------------------------------------------------------------------------------------- 7 0.06869 33 0.12926 58 0.87251 83 10.95204 --------------------------------------------------------------------------------------------------------------------------------- 8 0.06338 34 0.13427 59 0.96090 84 12.11846 --------------------------------------------------------------------------------------------------------------------------------- 9 0.06169 35 0.14094 60 1.05949 85 13.37460 --------------------------------------------------------------------------------------------------------------------------------- 10 0.06085 36 0.14762 61 1.16916 86 14.69860 --------------------------------------------------------------------------------------------------------------------------------- 11 0.06419 37 0.15680 62 1.29417 87 16.08129 --------------------------------------------------------------------------------------------------------------------------------- 12 0.07086 38 0.16682 63 1.43714 88 17.49682 --------------------------------------------------------------------------------------------------------------------------------- 13 0.08254 39 0.17851 64 1.59899 89 18.96601 --------------------------------------------------------------------------------------------------------------------------------- 14 0.09588 40 0.19103 65 1.77812 90 20.51212 --------------------------------------------------------------------------------------------------------------------------------- 15 0.10756 41 0.20607 66 1.97123 91 22.16549 --------------------------------------------------------------------------------------------------------------------------------- 16 0.11924 42 0.22110 67 2.18097 92 23.98724 --------------------------------------------------------------------------------------------------------------------------------- 17 0.12842 43 0.23865 68 2.40660 93 26.06643 --------------------------------------------------------------------------------------------------------------------------------- 18 0.13343 44 0.25619 69 2.65338 94 28.78427 --------------------------------------------------------------------------------------------------------------------------------- 19 0.13844 45 0.27709 70 2.93268 95 32.81758 --------------------------------------------------------------------------------------------------------------------------------- 20 0.14011 46 0.29966 71 3.30181 96 39.64294 --------------------------------------------------------------------------------------------------------------------------------- 21 0.13927 47 0.32391 72 3.61779 97 53.06605 --------------------------------------------------------------------------------------------------------------------------------- 22 0.13677 48 0.34984 73 4.04199 98 83.33333 --------------------------------------------------------------------------------------------------------------------------------- 23 0.13427 49 0.37912 74 4.52073 99 83.33333 --------------------------------------------------------------------------------------------------------------------------------- 24 0.13093 50 0.41009 75 5.03724 --------------------------------------------------------------------------------------------------------------------------------- 25 0.12675 ---------------------------------------------------------------------------------------------------------------------------------
The rates shown are for a standard rate class. If the policy is based on a special rate class (other than standard), the maximum cost of insurance rates will be adjusted using the rating factor shown in the Benefit Profile of the Schedule for the special class. If the special rate class is a stated percentage increase, the maximum cost of insurance rates will be determined by multiplying the rates for a standard rate class shown above by the rating factor shown in the Benefit Profile of the Schedule. If the special rate class is a flat amount per $1,000, the maximum cost of insurance rates will be determined by adding the flat amount per $1,000 shown in the Benefit Profile of the Schedule to the rate per $1,000 for the standard rate class shown above. The rates shown above are based on the 1980 Commissioners Standard Ordinary Mortality Table, age nearest birthday. Page 5F DEFINITION OF TERMS Account Value - The sum of the amounts allocated to the Divisions of the Variable Account and to the Guaranteed Interest Division, as well as any amount set aside in the Loan Division to secure a Policy Loan. Accumulation Unit Value - The value of the Accumulation Units of each Division of the Variable Account. The Accumulation Unit Value is determined as of each Valuation Date. Base Death Benefit - Initially, this is the Stated Death Benefit under the policy. The Base Death Benefit may be greater than the Stated Death Benefit depending on which death benefit option and which test for the Internal Revenue Code definition of life insurance you choose. Cash Surrender Value - The amount of your Account Value minus the Surrender Charge, if any. Customer Service Center - Our administrative office at 1290 Broadway; Denver, CO 80203. Division(s) of the Variable Account - The investment options available, each of which invests in shares of one of the portfolios. General Account - The account which contains all of our assets other than those held in the variable account or our other separate accounts. General Interest Division - Part of our General Account to which a portion of the Account Value may be allocated and which provides guarantees of principal and interest. Guideline Annual Premium - The premium used to calculate how Net Premium is allocated to each segment of Stated Death Benefit and to determine any persistency refund. Initial Period - The Initial Period ends on the earlier of: a) the date this policy was delivered to you plus the Right to Examine Period, so long as we receive notice of the delivery date at our Customer Service Center before the date defined in (b), or (b) the date this policy is mailed from our Customer Service Center plus the deemed mailing time and the Right to Examine Period. The deemed mailing time is five days. Investment Date - The date we allocate funds to your policy. We will allocate the initial Net Premium to your policy on the Valuation Date immediately following the latest of the date we receive at least one quarter of the Minimum annual premium as shown in the Schedule attached to your policy, we have approved the policy for issue, and all issue requirements have been met and received in our Customer Service Center. Loan Division - Part of our General Account in which funds are set aside to secure any outstanding Policy Loan and accrued loan interest when due. Maturity Date - The date the policy matures. This is the policy anniversary on which the insured's age is 100. Monthly Processing Date - The date each month on which the monthly deductions from the Account Value are due. The first Monthly Processing Date will be the policy date or the Investment Date, if later. Subsequent Monthly Processing Dates will be the same date as the policy date each month thereafter unless this is not a Valuation Date, in which case the Monthly Processing Date occurs on the next Valuation Date. Net Account Value - The amount of the Account Value minus any Policy Loan and accrued loan interest. Net Cash Surrender Value - The amount of the Cash Surrender Value minus any Policy Loan and accrued loan interest. Net Premium - The Net Premium equals the premium paid minus the premium expense charges shown in the Schedule. These charges are deducted from the premiums before the premium is applied to your Account Value. Page 6 Partial Withdrawal - The withdrawal of a portion of your Net Cash Surrender Value from the policy. The Partial Withdrawal may reduce the amount of Base Death Benefit in force. Policy Loan - The sum of amounts you have borrowed from your policy, increased by any Policy Loan interest capitalized when due, and reduced by any Policy Loan repayments. Right to Examine Period - The period of time within which the owner may examine the policy and return it for a refund. Scheduled Premium - The premium amount which you specify on the application as the amount you intend to pay at fixed intervals over a specified period of time. Premiums may be paid on a quarterly, semiannual, or annual basis, as you determine; you need not pay the Scheduled Premium, and you may change it at any time. Also, within limits, you may pay less or more than the Scheduled Premium. Segment - The Stated Death Benefit shown on the Benefit Profile of the Schedule is the initial Segment, or Segment 1. Each increase in the Stated Death Benefit (other than an option change) is a new Segment. Each new Segment will be shown separately on the Benefit Profile of the Schedule. The first year for a Segment begins on the effective date of the Segment and ends one year later. Each subsequent year begins at the end of the prior Segment year. Each new Segment may be subject to a new minimum annual premium, new sales load, new surrender charges, new cost of insurance charges and new incontestability and suicide exclusion periods. Stated Death Benefit - The sum of the Segments under the policy. The Stated Death Benefit changes when there is an increase or a decrease or when a transaction on the policy causes it to change (for example, a partial withdrawal under an Option 1 Base Death Benefit may cause the Stated Death Benefit to change). Surrender Charge - The charge made against your Account Value in the event of surrender, policy lapse, requested reductions in the Stated Death Benefit, or certain partial withdrawals. The Surrender Charge consists of the administrative Surrender Charge and the sales Surrender Charge. Target Death Benefit - The Target Death Benefit for your policy is defined in the Adjustable Term Rider, if any, attached to the policy. Valuation Date - A Valuation Date is any day: (a) The New York Stock Exchange ("NYSE") is open for trading and on which Security Life's Customer Service Center is open for business; or (b) as may be required by law. Valuation Period - The period which begins at 4:00 p.m. Eastern Time on Valuation Date and ends at 4:00 p.m. Eastern Time on the next succeeding Valuation Date. Page 6a INSURANCE COVERAGE PROVISIONS EFFECTIVE DATE OF COVERAGE The policy date shown in the Schedule is the effective date for all coverage provided in the original application. The effective date is subject to the payment of at least one quarter of the minimum annual premium and the acceptance of the policy by you during the continued insurability of all persons insured by this policy and any riders attached. The policy date is the date from which we measure policy years and determine the Monthly Processing Date. The first Monthly Processing Date is the Investment Date. Future Monthly Processing Dates are the same calendar day of each month as the policy date unless this is not a Valuation Date in which case the Monthly Processing Date occurs on the next Valuation Date. A policy anniversary occurs each year on the same month and day as the policy date unless this is not a Valuation Date in which case the policy anniversary occurs on the next Valuation Date. If the policy date is February 29th, the policy anniversary will be February 28th in years in which there is not a February 29th. The effective date for new Segments and additional benefits is shown in the Schedule. BASE DEATH BENEFIT The Base Death Benefit will be, at any time, determined as follows: Option 1: Under Option 1, the Base Death Benefit is the greater of: (a) the Stated Death Benefit; or (b) your Account Value multiplied by the appropriate factor from the Definition of Life Insurance Factors shown in the Schedule. Option 2: Under Option 2, the Base Death Benefit is the greater of: (a) the Stated Death Benefit plus the Account Value, or (b) your Account Value multiplied by the appropriate factor from the Definition of Life Insurance Factors shown in the Schedule. The Stated Death Benefit and the death benefit option are shown in the Schedule. This policy is designed to qualify as a life insurance contract under the Internal Revenue Code. All terms and provisions of the policy shall be construed in a manner consistent with that design. The Base Death Benefit in force at any time shall not be less than the amount of insurance necessary to achieve such qualification under the applicable provisions of the Internal Revenue Code in existence at the time the policy is issued. We reserve the right to amend the policy or adjust the amount of insurance when required. We will send you a copy of any policy amendment. CHANGE IN REQUESTED INSURANCE COVERAGE You may request that the insurance coverage be increased or decreased. Decreases are not allowed before the first policy anniversary. The change in coverage may not be for an amount less than $1,000. The effective date of the change will be the monthly anniversary immediately following the date your written application is approved by us. After any change to the Stated Death Benefit, you will receive an amended Schedule reflecting the change, the benefit under any riders, if applicable, the guaranteed cost of insurance rates, the Guideline Annual Premium, the new target premium and the new Surrender Charge. Page 7 Requested Increases in Coverage Subject to our limits, you may request an increase in the Stated Death Benefit. An increase will become effective as of the monthly anniversary immediately following the date your written application is approved by us. You must provide evidence satisfactory to us that the insured is insurable according to our normal rules of underwriting for this type of policy. This evidence will include an application and may include required medical information. An increase will consist of a new Segment of Stated Death Benefit. Each new Segment will result in a new sales load which will be deducted from the premium allocated to the new Segment. The new Segment may also be subject to a new minimum annual premium; new surrender charges; new per thousand of Stated Death Benefit charges; new cost of insurance charges and new incontestability and suicide exclusion periods. Requested Decreases in Coverage After the first policy anniversary, you may request a decrease in the Stated Death Benefit. A decrease will be effective as of the monthly anniversary immediately following the date your written application is approved by us. A decrease will first reduce Adjustable Term Insurance Rider coverage, if attached to your policy, and will then reduce each of the Stated Death Benefit Segments in the same proportion as the Stated Death Benefit is reduced. A Surrender Charge will apply if the Stated Death Benefit is decreased and the decrease occurs during the 14 years following the policy date or the date of the prior increase. If a Surrender Charge applies, it will be deducted from your Account Value and future Surrender Charges will be reduced. The Stated Death Benefit after any change may not be less than $50,000. Death Benefit Option Changes At least 30 days prior to a policy anniversary, you may request a change to the death benefit option. This change will be effective as of the policy anniversary. A death benefit option change applies to the entire Stated Death Benefit. For us to approve a change to the death benefit option from Option 1 to Option 2, you must submit evidence to us that the insured is insurable according to our normal rules of underwriting for that type of policy. This evidence will include an application and may include required medical information. We may not allow any change if it would reduce the Stated Death Benefit below the minimum we require to issue this policy at the time of reduction. After the effective date of the change, the Stated Death Benefit will be changed according to the following table: OPTION CHANGE FROM TO STATED DEATH BENEFIT FOLLOWING CHANGE EQUALS: Option 1 Option 2 Stated Death Benefit prior to such change minus your Account Value as of the effective date of the change. Option 2 Option 1 Stated Death Benefit prior to such change plus your Account Value as of the effective date of the change. For purposes of death benefit option changes, your Account Value will be allocated to each Segment in the same proportion that Segment bears to the Stated Death Benefit as of the effective date of the change. Page 8 PAYOUT OF PROCEEDS The proceeds is the amount we will pay: a) as of the Maturity Date, b) upon surrender of the policy before the Maturity Date, or c) upon the death of the insured before the Maturity Date. The proceeds as of the Maturity Date will be your Net Account Value. The proceeds upon surrender of this policy prior to the Maturity Date will be the Net Cash Surrender Value. The Maturity Date is the policy anniversary on which the insured's age is 100. The insured's age is the age listed in the Schedule increased by the number of completed policy years since the policy date. The amount of proceeds payable upon the death of the insured will be the Base Death Benefit in effect on the date of the insured's death; plus any amounts payable from any additional benefits provided by rider; minus any outstanding Policy Loan including accrued but unpaid interest; minus any unpaid monthly deductions incurred prior to the date of death. The calculation of the death proceeds will be computed as of the date of the insured's death. We will determine the amount of proceeds payable upon the death of the insured when we have received due proof of death and any other information which is necessary to process the claim. Any proceeds we pay are subject to adjustments as provided in the Misstatement of Age or Sex, Suicide Exclusion and Incontestability provisions. We will pay proceeds in one sum unless you request an alternate form of payment. There are many possible methods of payment. The available payout options are described in the Payouts Other Than As One Sum provision. Contact us or your registered representative for additional information. Interest will be paid on the one sum death proceeds from the date of death of the insured to the date of payment, or until a payout option is selected. Interest will be at the rate we declare, or at any higher rate required by law. PREMIUM PROVISIONS INITIAL PREMIUM ALLOCATION If the Initial Period has not ended on the Investment Date, Net Premium amounts designated for allocation to divisions of the Variable Account will be allocated to the Fidelity Investments Money Market Division and any Net Premium amount designated for allocation to the Guaranteed Interest division will be allocated to that division. On the Valuation Date immediately following the end of the Initial Period, the balance of the Fidelity Investments Money Market Division will be transferred to the other Divisions of the Variable Account according to the allocations shown in the latest instructions received from you at our Customer Service Center. The amounts allocated to the Guaranteed Interest division will remain in that division. If the Initial Period has ended on the Investment Date, Net Premium amounts will be allocated to divisions of the Variable Account and/or the Guaranteed Interest Division in accordance with the allocation shown in your the latest instructions received at our Customer Service Center. SUBSEQUENT PREMIUM ALLOCATIONS After the initial premium allocation, all future scheduled and unscheduled premiums will be allocated to the Investment Divisions in accordance with the allocation shown in the latest instructions received at our Customer Service Center (unless you otherwise specify in writing) on the Valuation Date immediately following our receipt of the premium at our Customer Service Center. Page 9 CHANGES TO PREMIUM ALLOCATIONS Your original allocation instructions are in your application. You may change the allocation for subsequent Premiums in accordance with instructions included in your annual policy prospectus. If you change your premium allocation more than 5 times per policy year, we will deduct a charge from the divisions of the Variable Account and the Guaranteed Interest Division in the same proportion that your Account Value of each Division bears to your Net Account Value. The amount of this charge is shown in the Schedule. SCHEDULED PREMIUMS The Scheduled Premium as shown in the Schedule may be paid while this policy is in force during the insured's lifetime. You may increase or decrease the amount of the Scheduled Premium, subject to limits we may set and provisions in the Premium Limitation Section. Under conditions provided in the Grace Period provision and the Guarantee Period, you may be required to make premium payments to keep the policy in force. You may pay premiums on a monthly basis through an automated payment facility. All payment modes are subject to our minimum requirements for the payment mode selected. UNSCHEDULED PREMIUMS You may make unscheduled premium payments at any time the policy is in force during the insured's lifetime, subject to the Premium Limitation section. Unless you tell us otherwise, these premium payments will first be applied to reduce or pay off any existing Policy Loan and, as such, premium expense charges will not be deducted. We may limit the amount of such unscheduled premium payments if the payment would result in an increase in the Base Death Benefit. If the net amount at risk is increased as a result of an unscheduled premium, we may require evidence of insurability satisfactory to us that the insured is insurable according to our normal rules of underwriting for this type of policy. This evidence will include an application and may include required medical information. The net amount at risk is the difference between the Base Death Benefit and your Account Value. NET PREMIUM The Net Premium equals the premium paid minus the premium expense charges shown in the Schedule. Premiums allocated to a new Segment will be subject to a new sales load. Premiums are allocated in the same proportion that the Guideline Annual Premium of each Segment bears to the sum of the Guideline Annual Premiums of all Segments. The Guideline Annual Premium for each Segment is shown in the Schedule. The target premium for each Segment is also shown in the Schedule. PREMIUM LIMITATION If the Definition of Life insurance test used for your policy is the Guideline Premium / Cash Value Corridor Test, we will not accept any premium that causes your policy not to qualify as a life insurance policy under the Internal Revenue Code. Page 10 VARIABLE ACCOUNT PROVISIONS THE VARIABLE ACCOUNT The Variable Account is an account established by us, pursuant to the laws of the State of Colorado, to separate the assets funding the benefits for the class of policies to which this policy belongs from the other assets of Security Life of Denver Insurance Company. The Variable Account is registered as a unit investment trust under the Investment Company Act of 1940. All income, gains and losses, whether or not realized, from assets allocated to the Variable Account are credited to or charged against the Variable Account without regard to income, gains or losses of our General Account. The assets of the Variable Account are our property but are separate from our General Account and our other Variable Accounts. That portion of the assets of the Variable Account which is equal to the reserves and other policy liabilities with respect to the Variable Account is not subject to creditor claims against us. VARIABLE ACCOUNT DIVISIONS The Variable Account is divided into divisions, each of which invests in a series fund portfolio designed to meet the objectives of the division. The current eligible divisions are shown in your annual policy prospectus. We may, from time to time, add additional divisions. If we do, you may be permitted to select from these other divisions subject to the terms and conditions we may impose on those allocations. We reserve the right to limit the number of divisions in which you may invest over the life of the policy. This limit, if any, will be listed in the updated policy prospectus provided to you each year. CHANGES WITHIN THE VARIABLE ACCOUNT When permitted by law, and subject to any required notice to you and approval of the Securities and Exchange Commission ("SEC"), state regulatory authorities or policy owners, we may from time to time make the following changes to the Variable Account: . Make additional divisions available. These divisions will invest in investment portfolios we find suitable for the policy. . Eliminate divisions from the Variable Account, combine 2 or more divisions, or substitute a new portfolio for the portfolio in which a division invests. A substitution may become necessary if, in our judgment, a portfolio no longer suits the purposes of the policy. This may happen due to a change in laws or regulations, or a change in a portfolio's investment objectives or restrictions. This may also happen if the portfolio is no longer available for investment, or for some other reason, such as a declining asset base. . Transfer assets of the Variable Account, which we determine to be associated with the class of policies to which your policy belongs, to another Variable Account. . Withdraw the Variable Account from registration under the Investment Company Act of 1940. . Operate the Variable Account as a management investment company under the Investment Company Act of 1940. . Cause one or more divisions to invest in a mutual fund other than or in addition to the portfolios. . Discontinue the sale of policies. Page 11 . Terminate any employer or plan trustee agreement with us pursuant to its terms. . Restrict or eliminate any voting rights as to the Variable Account. . Make any changes required by the Investment Company Act of 1940 or the rules or regulations thereunder. GENERAL ACCOUNT PROVISIONS THE GENERAL ACCOUNT The General Account holds all of our assets other than those held in the Variable Account or our other separate accounts. The Guaranteed Interest division is a part of our General Account. GUARANTEED INTEREST DIVISION The Guaranteed Interest division is another division to which you may allocate premiums or make transfers. The Account Value of the Guaranteed Interest division is equal to the Net Premium allocated to this division plus any earned interest minus deductions taken from this division. Interest is credited at the guaranteed rate shown in the schedule or may be credited at a higher rate. Any higher rate is guaranteed to be in effect for at least 12 months. LOAN DIVISION The Loan Division is the account which is set aside to secure the Policy Loan, if any. See the Loan Provision section for information. TRANSFER PROVISIONS After the Right to Examine Period, your Account Value in each division may be transferred to any other division of the Variable Account or to the Guaranteed Interest division upon your request. One transfer from the Guaranteed Interest division into the variable divisions may be made during the first 30 days of each policy year. Additional limitations, requirements and charges for transfers will be listed in and governed by your annual policy prospectus in effect at the time of the transfer. We reserve the right to modify these limitations, requirements and charges from time to time. ACCOUNT VALUE PROVISIONS The Account Value is the sum of the current amounts allocated to the divisions of the Variable Account and to the Guaranteed Interest Division plus your balance in the Loan Division. The Account Value is based on the amount and number of premiums paid, policy and rider charges assessed, loans and withdrawals taken, monthly deductions, premium expense charges, transaction charges, any Surrender Charges, and the investment experience or credited interest of the division to which your Account Value is allocated. Page 12 Your Net Account Value is equal to your Account Value minus any Policy Loan and accrued but unpaid loan interest. ACCOUNT VALUES ON THE INVESTMENT DATE The Account Value of each division of the Variable Account and the Guaranteed Interest Division as of the Investment Date is equal to: a) The allocation to that division of the first Net Premium paid (as determined by you); minus b) The portion of any monthly deductions due on the Investment Date allocated to that division. ACCUMULATION UNIT VALUE The investment experience of a division of the Variable Account is determined as of each Valuation Date. We use an Accumulation Unit Value to measure the experience of each of the Variable Account Divisions during a Valuation Period. We set the Accumulation Unit Value at $10 on the Valuation Date when the first investments in each division of the Variable Account are made. The Accumulation Unit Value for a Valuation Period equals the Accumulation Unit Value for the preceding Valuation Period multiplied by the Accumulation Experience Factor defined below for the Valuation Period. The number of units for a given transaction related to a division of the Variable Account as of a Valuation Date is determined by dividing the dollar value of that transaction by that division's Accumulation Unit Value for that date. ACCUMULATION EXPERIENCE FACTOR For each Division of the Variable Account, the Accumulation Experience Factor reflects the investment experience of the portfolio in which that division invests and the charges assessed against that division for a Valuation Period. The Accumulation Experience Factor is calculated as follows: a) The net asset value of the portfolio in which that division invests as of the end of the current Valuation Period; plus b) The amount of any dividend or capital gains distribution declared and reinvested in the portfolio in which that division invests during the current Valuation Period; minus c) A charge for taxes, if any. d) The result of (a), (b) and (c) divided by the net asset value of the portfolio in which that division invests as of the end of the preceding Valuation Period; minus e) The daily equivalent of the annual mortality and expense risk charge shown in the Schedule for each day in the current Valuation Period. ACCOUNT VALUE OF THE DIVISIONS OF THE VARIABLE ACCOUNT On subsequent Valuation Dates after the Investment Date, your Account Value of each Division of the Variable Account is calculated as follows: a) The number of Accumulation Units in that division as of the beginning of the current Valuation Period multiplied by that division's Accumulation Unit Value for the current Valuation Period; plus b) Any additional Net Premiums allocated to that division during the current Valuation Period; plus c) Any Account Value transferred to or minus any Account Value transferred from the Variable Division during the current Valuation Period (including the applicable portion of any transfer fee); minus d) Any Partial Withdrawals allocated to that division and any applicable withdrawal service fees which are allocated to the Variable Division during the current Valuation Period; plus Page 13 e) Any amounts released from the Loan Division as a result of a loan or loan interest payment, or minus amounts transferred to the Loan Division as of a result of any loans which are allocated to the Variable Division during the current Valuation Period; minus f) The portion of any Surrender Charge resulting from a decrease in Stated Death Benefit allocated to the Division; minus g) The portion of the monthly deduction allocated to the Variable Division, if a Monthly Processing Date occurs during the current Valuation Period. ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION On Valuation Dates after the Investment Date, your Account Value of the Guaranteed Interest Division is calculated as follows: a) The Account Value of the Guaranteed Interest Division at the end of the preceding Valuation Period plus interest at the declared rate credited during the current Valuation Period; plus b) Any additional Net Premiums allocated to the Guaranteed Interest Division plus interest credited to these premiums during the current Valuation Period; plus c) Any Account Value transferred to or minus any Account Value transferred from the Guaranteed Interest Division during the current Valuation Period (including the applicable portion of any transfer fee); minus d) Any Partial Withdrawals taken and any applicable withdrawal service fees which are allocated to the Guaranteed Interest Division during the current Valuation Period; plus e) Any amounts released from the Loan Division as a result of a loan or loan interest payment, or minus amounts transferred to the Loan Division as a result of any loans which are allocated to the Guaranteed Interest Division during the current Valuation Period; minus f) The portion of any Surrender Charge resulting from a decrease in Stated Death Benefit allocated to the Guaranteed Interest Division, minus g) The portion of the monthly deduction allocated to the division, if a Monthly Processing Date occurs during the current Valuation Period. ACCOUNT VALUE OF THE LOAN DIVISION On Valuation Dates after the Investment Date, your Account Value of the Loan Division is equal to: a) The Account Value of the Loan Division on the prior Valuation Date; plus b) Any interest credited to the Loan Division during the Valuation Period; plus c) An amount equal to any additional loans since the prior Valuation Date; minus d) Any loan repayments, including payment of loan interest in cash; plus e) The amount of accrued loan interest if the Valuation Date is a policy anniversary; minus f) The amount of interest credited to the Loan Division during the year if the Valuation Date is a policy anniversary. On policy anniversaries, any amount of interest credited to the Loan Division during the year is transferred from the Loan Division to the Variable Account and Guaranteed Interest Divisions according to your premium allocation then in effect. Page 14 MONTHLY DEDUCTION AND REFUND MONTHLY DEDUCTION The monthly deduction is equal to: a) the cost of insurance charges for this policy; plus b) the monthly charges for any other additional benefits provided by rider; plus c) the monthly expense charges shown in the Schedule. The monthly deductions are allocated to the divisions of the Variable Account and Guaranteed Interest Division in the same proportion that your Account Value in the division bears to your net Account Value as of the Monthly Processing Date. This deduction is taken from your Account Value as of the Monthly Processing Date. COST OF INSURANCE The cost of insurance is determined on a monthly basis for each Segment. Such cost is the monthly cost of insurance rate for the insured's premium class for each Segment multiplied by the net amount at risk. The net amount at risk is (a) minus (b) where: a) is the Base Death Benefit for all Segments as of the Monthly Processing Date after the monthly deductions (other than cost of insurance charges for the Base Death Benefit, any Adjustable Term Insurance Rider and any Waiver of Monthly Deductions Rider), divided by 1 plus the monthly equivalent of the guaranteed interest rate for the Guaranteed Interest Division as shown in the Schedule; and b) is your Account Value as of the Monthly Processing Date after the monthly deductions (other than the cost of insurance for the Base Death Benefit, any Adjustable Term Insurance Rider and any Waiver of Monthly Deduction Rider). The cost of insurance rates will be determined by us from time to time. They will be based on the sex and age as of the effective date of coverage, the duration since the coverage began and the premium class. Any change in rates will apply to all individuals of the same premium class and whose policies have been in effect for the same length of time. The rates will never exceed those rates shown in the Table of Guaranteed Rates in the Schedule as adjusted for any special premium class. Each time there is a new Segment, the net amount at risk will be allocated to each Segment in the same proportion that Segment bears to the Stated Death Benefit. Different rates will apply to each Segment depending upon the premium class, the age as of the effective date of the increase and the duration since the effective date of the increase. PERSISTENCY REFUND Each month your policy or a Segment of Stated Death Benefit remains in force after its tenth policy anniversary, we will credit your Account Value with a refund equivalent to 0.5% of your Account Value on an annual basis for that Segment. The percentage of Account Value which is eligible for this refund is based on the Guideline Annual Premiums for each Segment and the number of years each Segment has been in force. The persistency refund will be added to the divisions of the Variable Account and the Guaranteed Interest Division in the same proportion that your Account Value in each division bears to your Net Account Value as of the Monthly Processing Date. Page 15 LOAN PROVISIONS POLICY LOANS You may obtain a Policy Loan after the first policy anniversary. The maximum amount you may borrow at any time equals the Net Cash Surrender Value on the date of the loan request less all monthly deductions to the next policy anniversary. The Policy Loan is a first lien on your policy. The minimum amount you may borrow is shown in the Schedule. The outstanding Policy Loan amount is equal to the loan amount as of the beginning of the policy year plus new loans and minus loan repayments, plus accrued interest. LOAN INTEREST The annual Policy Loan interest rate is shown in the Schedule. If a loan is made, interest is due and payable at the end of the policy year. Thereafter, interest on the loan amount is due annually at the end of each policy year until the loan is repaid. If interest is not paid when due, it is added to the Policy Loan. If the Policy Loan amount and any accrued interest equals or exceeds the Cash Surrender Value, a premium sufficient to keep this policy in force must be paid as provided in the Grace Period Provision. LOAN DIVISION When a Policy Loan is taken or when interest is not paid in cash when due, an amount equal to the loan (or unpaid loan interest, respectively) is transferred from the divisions of the Variable Account and the Guaranteed Interest Division to the Loan Division to secure the loan. This amount will be deducted from the divisions of the Variable Account and the Guaranteed Interest Division in the same proportion that your Account Value in each division bears to your Net Account Value as of the date the transfer is effective unless otherwise specified in your instructions to us. Your Account Value in the Loan Division will be credited with interest at the interest rate for the Loan Division shown in the Schedule. When a loan repayment is made an amount equal to the repayment is transferred from the Loan Division to the Guaranteed Interest Division and the divisions of the Variable Account in the same proportion as your current premium allocation unless you request a different allocation. PARTIAL WITHDRAWAL PROVISIONS You may apply for a Partial Withdrawal of your Account Value on any Monthly Processing Date after the first policy anniversary by writing to us at our Customer Service Center. The minimum and maximum Partial Withdrawal amounts are shown in the Schedule. When a Partial Withdrawal is made, the amount of the withdrawal plus a service fee is deducted from your Account Value. The amount of the service fee is shown in the Schedule. We limit the number of Partial Withdrawals in a policy year and this number is shown in the Schedule. If the Stated Death Benefit is reduced by a Partial Withdrawal during the first 14 years following the policy date or following an increase in the Stated Death Benefit, a Surrender Charge will be deducted from your Account Value. The Stated Death Benefit is not reduced by a Partial Withdrawal taken when the Base Death Benefit has been increased to qualify your policy as life insurance under the Internal Revenue Code and the amount withdrawn is no greater than that which reduces your Account Value to the level which no longer requires the Base Death Benefit to be increased for Internal Revenue Code purposes. Page 16 For a policy under an Option 1 death benefit, the Stated Death Benefit is not reduced by a Partial Withdrawal in the circumstances described above. In addition, if no more than 15 years have elapsed since the policy date and the insured is not yet age 81, a Partial Withdrawal of an amount up to 10% of your Account Value or, if greater, 5% of the Stated Death Benefit, calculated immediately before the Partial Withdrawal is taken will not reduce the Stated Death Benefit. Any additional amount withdrawn reduces your Stated Death Benefit by that additional amount. For a policy under an Option 2 death benefit, a Partial Withdrawal does not reduce your Stated Death Benefit. Any reduction in death benefit or Account Value will occur as of the date the Partial Withdrawal occurs. No Partial Withdrawal will be allowed if the Stated Death Benefit remaining in force after any such Partial Withdrawal would be reduced below the minimum Stated Death Benefit shown in the Schedule. For a policy under an Option 2 death benefit, a Partial Withdrawal generally reduces the Base Death Benefit by the amount of the withdrawal. Under any death benefit option, if the Base Death Benefit has been increased in order to qualify your policy as a life insurance contract under the Internal Revenue Code, the Partial Withdrawal reduces the Base Death Benefit by an amount greater than the withdrawal. If the Stated Death Benefit is reduced during the first 7 years of a coverage segment, a new target premium will be calculated and future maximum Surrender Charges will be reduced. If the Stated Death Benefit is reduced after the first 7 years of a coverage segment, the Surrender Charge is reduced in the same proportion that the Stated Death Benefit is reduced. You may specify how much of the withdrawal you wish taken from each division of the Variable Account or from the Guaranteed Interest Division. You may not withdraw from the Guaranteed Interest Division more than the total withdrawal times the ratio of your Account Value in the Guaranteed Interest Division to your Net Account Value immediately prior to the withdrawal. Unless you indicate otherwise, we will make the withdrawal from the amounts in the Guaranteed Interest Division and the divisions of the Variable Account in the same proportion that your Account Value in each division bears to your Net Account Value immediately prior to the withdrawal. The withdrawal service fee and any Surrender Charge deducted from your Account Value is deducted from each Variable Division and the Guaranteed Interest Division in the same proportion that your Account Value of each division bears to your Net Account Value immediately after the withdrawal. We may send you a new Schedule to reflect the effect of the withdrawal, if there is any change to the Stated Death Benefit and Surrender Charges. We may ask you to return your policy to our Customer Service Center to make this change. The withdrawal and the reductions in death benefits will be effective as of the Valuation Date after we receive your request. SURRENDER PROVISIONS SURRENDER VALUE The Net Cash Surrender Value on any date will be your Account Value minus any applicable Surrender Charge and minus any Policy Loan including accrued but unpaid loan interest. Page 17 SURRENDER CHARGES A separate Surrender Charge will apply to each Stated Death Benefit Segment. The Surrender Charge for this policy is the sum of the Surrender Charge for each Segment of Stated Death Benefit. The Surrender Charge will not exceed the total maximum Surrender Charge shown in the Schedule. For purposes of calculating the Surrender Charge for a Segment premiums are allocated to a Segment in the same proportion that the Guideline Annual Premium of each Segment bears to the sum of the Guideline Annual Premiums of all Segments. The Guideline Annual Premium for each Segment is shown in the Schedule. For each Segment, the Surrender Charge consists of an administrative Surrender Charge and a sales Surrender Charge. The administrative Surrender Charge for each Segment is determined from the administrative Surrender Charge table in the Schedule. It depends on the Segment's issue age, effective date and initial Stated Death Benefit which are in the Schedule. For the first 7 policy years following the effective date of a Segment, the sales Surrender Charge is the lesser of: 50% of the target premium for the Segment; or 25% of the sum of all premiums paid up to the target premium for the Segment plus 5% of the sum of all premiums paid in excess of the target premium for the Segment. Thereafter, the sales Surrender Charge for the Segment decreases at the beginning of each year following the 7th policy year from the effective date of the Segment by 12.5% of the sales Surrender Charge in effect at the end of the 7th policy year until it reaches zero at the beginning of the 15th policy year following the Segment's effective date or the policy year the insured reaches age 98, whichever is sooner. During the first 14 policy years or within 14 years of the effective date of an increase in the Stated Death Benefit Segment, if you request a decrease to the Stated Death Benefit or take a Partial Withdrawal which causes the Stated Death Benefit to decrease, the administrative Surrender Charge will decrease in the same proportion that the Stated Death Benefit decreases. Upon a decrease in the Stated Death Benefit, a portion of the Surrender Charge will be deducted from your Account Value. The amount of the Surrender Charge which will be deducted from your Account Value will equal the Surrender Charge in effect before the decrease minus the Surrender Charge in effect after the decrease. If a decrease to the Stated Death Benefit occurs after the first 7 years of a Segment, the maximum Surrender Charges for the remaining policy will be reduced by the percentage that the Stated Death Benefit is decreased. If a decrease occurs during the first 7 years of a Segment, the target premium will be recalculated; future maximum Surrender Charges for that Segment will be reduced. A Surrender Charge is not deducted from your Account Value if the Stated Death Benefit is decreased because the death benefit option is changed. If the Surrender Charge deducted from your Account Value causes your Net Cash Surrender Value to become zero or less, you may enter the Grace Period (see Grace Period). BASIS OF COMPUTATIONS The Cash Surrender Value under the policy is not less than the minimums required as of the policy date by the state in which your policy was delivered. A detailed statement of the method of computation of policy values under the policy has been filed with the insurance department of the state in which the policy was delivered, if required. Page 18 FULL SURRENDERS You may surrender your policy after the Right to Examine Period or at any time during the lifetime of the Insured and receive the Net Cash Surrender Value. We will compute the Net Cash Surrender Value as of the next Valuation Date after we receive both your request and the policy at our Customer Service Center. This policy will be canceled as of the date we receive your request, and there will be no further benefits under this policy. GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS GRACE PERIOD If the following three conditions occur on a Monthly Processing Date, the policy will enter into the 61 day Grace Period: a) The Net Cash Surrender Value is zero or less, and b) The Guarantee Period shown in the Schedule and described below has expired or been terminated, and c) The three year continuation period described below has expired or the required premium for the three year continuation period has not been paid. We will give you a 61 day Grace Period from this Monthly Processing Date to make the required premium payment. The required premium payment then due must be paid to keep the policy in force. If this amount is not received in full by the end of the Grace Period, the policy will lapse without value. The required premium payment will be equal to past due charges plus an amount we expect to be sufficient to keep the policy and any riders in force for 2 months following the receipt of the required premium payment. If we receive at least the required premium payment during the Grace Period we will make deductions from the Net Premium payment for the past due amounts and apply any remaining amount as premium to the policy. Notice of the amount of the required premium payment will be mailed to you or any assignee at the last known address at least 30 days before the end of the Grace Period. If the insured dies during the Grace Period, we will deduct any overdue monthly deductions from the death proceeds of the policy. Page 19 THREE YEAR CONTINUATION PERIOD Your policy will remain in force regardless of the Net Account Value, if, at any time during the first 3 policy years, the sum of your premiums paid minus the sum of your partial withdrawals, policy loans and accrued but unpaid policy loan interest is not less than the sum of the applicable minimum monthly premiums for each policy month starting with the first policy month to and including the policy month which begins on the current Monthly Processing Date. Each minimum monthly premium equals 1/12 of the minimum annual premium. The minimum annual premium is shown in the Schedule. We use this premium for each policy month until the effective date of a change in the Stated Death Benefit. If there is a change, the new Schedule will show the applicable minimum annual premium for subsequent policy years. GUARANTEE PERIOD The policy will not terminate during the guarantee period even if the Net Account Value is zero except as provided below. The guarantee period will expire on the date shown in the Schedule. Each monthly guarantee premium equals 1/12 of the guarantee premium. The guarantee annual premium is shown in the Schedule. We use this premium for each policy year until the effective date of a change in the Stated Death Benefit. If there is a change, a new Schedule will show the applicable minimum guarantee annual premium for subsequent policy years. The guarantee period will terminate prior to the guarantee period expiration date if, on any Monthly Processing Date: a) the actual premiums paid, minus the amount of any partial withdrawals and any policy loan including accrued but unpaid interest are less than b) the sum of the guarantee monthly premiums for each policy month starting with the first policy month to and including the policy month that begins on the current Monthly Processing Date. The guarantee period will also terminate if your Account Value on any Monthly Processing Date is not diversified according to the following rules: a) No more than 35% of your Net Account Value may be invested in any one division; and b) Your Net Account Value must be invested in at least 5 divisions. You will satisfy these diversification requirements if: (i) you are participating in the automatic rebalancing feature defined in and governed by the policy prospectus in effect at the time you elect the guarantee period and your automatic rebalancing allocations comply with the diversifications specified above; or (ii) you elect dollar cost averaging and direct the resulting transfers into at least four other divisions with no more than 35% of any transfer being to any one division. TERMINATION All coverage provided by this policy will end as of the earliest of: a) The date the policy is surrendered; b) The date of death of the insured; c) The Maturity Date of the policy; or d) The date the Grace Period ends without payment of the required premium. Page 20 REINSTATEMENT The policy may be reinstated within five years after the beginning of the Grace Period. The reinstatement will be effective as of the Monthly Processing Date on or next following the date we approve your written application. We will reinstate the policy and any riders if the following conditions are met: a) You have not surrendered the policy for its Net Cash Surrender Value; b) You submit evidence satisfactory to us that the insured and those insured under any riders are still insurable according to our normal rules of underwriting for this type of policy; and c) We receive payment of the amount of premium sufficient to keep the policy and any riders in force from the beginning of the Grace Period to the end of the expired Grace Period and for 2 months after the date of reinstatement. We will let you know, at the time you request reinstatement, the amount of premium needed for this purpose. The Surrender Charge as of the date of reinstatement will equal the Surrender Charge as of the beginning of the Grace Period. We will reinstate any Policy Loan, with accrued loan interest to the end of the Grace Period, which existed when coverage ended. Upon reinstatement, the Net Premium received minus past due amounts will be allocated to the Divisions of the Variable Account and the Guaranteed Interest Division according to the premium allocation percentages in effect at the start of the Grace Period or as directed by you in writing at the time of reinstatement. DEFERRAL OF PAYMENT Requests for transfers, withdrawals, payment of proceeds on the Maturity Date or a full surrender will be processed within 7 days of receipt of the request in a form acceptable to us. However, we may postpone the processing of any such Variable Account transactions for any of the following reasons: a) The NYSE is closed, other than customary weekend and holiday closings. b) Trading on the NYSE is restricted by the SEC. c) The SEC declares that an emergency exists as a result of which disposal of securities in the Variable Account is not reasonably practicable to determine your Account Value in the divisions. d) A governmental body having jurisdiction over the Variable Account by order permits such suspension. Rules and regulations of the SEC, if any, are applicable and will govern as to whether conditions described in (b), (c), or (d) exist. Death proceeds will be paid within 7 days of determination of the proceeds and are not subject to deferment. We may defer for up to 6 months payment of any surrender proceeds, withdrawal or loan amounts from the Guaranteed Interest Division. Page 21 GENERAL POLICY PROVISIONS THE POLICY The policy, including the original application and applications for an increase, riders, endorsements, any Schedule pages, and any reinstatement applications make up the entire contract between you and us. A copy of the original application will be attached to the policy at issue. A copy of any application as well as a new Schedule will be attached or furnished to you for attachment to the policy at the time of any change in coverage. In the absence of fraud, all statements made in any application will be considered representations and not warranties. No statement will be used to deny a claim unless it is in an application. AGE The policy is issued at the age shown in the Schedule. This is the insured's age nearest birthday on the policy date. The insured's age at any time is the age shown in the Schedule increased by the number of completed policy years. PROCEDURES We must receive any election, designation, assignment or any other change request you make in writing, except those specified on the application. It must be in a form acceptable to us. We may require a return of the policy for any change or for a full surrender. We are not liable for any action we take before we receive and record the written request at our Customer Service Center. In the event of the death of the insured before the Maturity Date, please let us or our agent know as soon as possible. Claim procedure instructions will be sent to the beneficiary immediately. We may require proof of age and a certified copy of the death certificate. We may require the beneficiary and next of kin to sign authorizations as part of due proof. These authorization forms allow us to obtain information about the Insured, including, but not limited to, medical records of physicians and hospitals used by the insured. OWNERSHIP The original owner is the person named as the owner in the application. You, as the owner, can exercise all rights and receive the benefits during the insured's life before the Maturity Date. This includes the right to change the owner, beneficiaries, and methods for the payment of proceeds. All rights of the owner are subject to the rights of any assignee and any irrevocable beneficiary. You may name a new owner by sending written notice to us. The effective date of the change to the new owner will be the date you sign the notice. The change will not affect any payment made or action taken by us before recording the change at our Customer Service Center. BENEFICIARIES The primary beneficiary surviving the insured will receive any death proceeds which become payable. Surviving contingent beneficiaries are paid death proceeds only if no primary beneficiary has survived the insured. If more than one beneficiary in a class survives the insured, they will share the death proceeds equally, unless your designation provides otherwise. If there is no designated beneficiary surviving, you or your estate will be paid the death proceeds. The beneficiary designation will be on file with us or at a location designated by us. While you are living, you may name a new beneficiary. The effective date of the change will be the date the request was signed. We will pay proceeds to the most recent beneficiary designation on file. We will not be subject to multiple payments. Page 22 EXCHANGE RIGHT If, for any reason within the first 2 policy years or within 2 years of the effective date of an increase, you want to exchange this policy for a policy in which values do not vary with the investment experience of the Variable Account, we will exchange this policy. This transfer will not be subject to the excess transfer charge. The exchange will be implemented by transferring your Account Value in all the divisions of the Variable Account to the Guaranteed Interest Division and removing your future right to choose to allocate funds to the divisions of the Variable Account. We will require a return of this policy before this change will be processed. COLLATERAL ASSIGNMENT You may assign this policy as collateral security by written notice to us. Once it is recorded with us, the rights of the owner and beneficiary are subject to the assignment. It is your responsibility to make sure the assignment is valid. INCONTESTABILITY After this policy has been in force during the insured's life for 2 years from the policy date, we will not contest the statements in the application attached at issue. After this policy has been in force during the insured's life for 2 years from the effective date of any new Segment or of an increase in any other benefit with respect to the insured, we will not contest the statements in the application for the new Segment or other increase. After this policy has been in force during the insured's life for 2 years from the effective date of any reinstatement, we will not contest the statements in the application for such reinstatement. MISSTATEMENT OF AGE OR SEX If the age or sex of the insured has been misstated, the death benefit will be adjusted. The death benefit will be that which the cost of insurance which was deducted from your Account Value on the last Monthly Processing Date prior to the death of the insured would have purchased for the insured's correct age and sex. SUICIDE EXCLUSION If the insured commits suicide, while sane or insane, within 2 years of the policy date, we will make a limited payment to the beneficiary. We will pay in one sum the amount of all premiums paid to us during that time, minus any outstanding Policy Loan (including accrued but unpaid interest) and Partial Withdrawals. If the insured commits suicide, while sane or insane, within 2 years of the effective date of a new Segment or of an increase in any other benefit, we will make a limited payment to the beneficiary for the new Segment or other increase. This payment will equal the cost of insurance and any applicable monthly expense charges deducted for such increase. PERIODIC REPORTS We will send you at least once each year a report which shows the current Account Value, Cash Surrender Value and premiums paid since the last report. The report will also show the allocation of your Account Value as of the date of the report and the amounts added to or deducted from your Account Value of each Division since the last report. The report will include any other information that may be currently required by the insurance supervisory official of the jurisdiction in which this policy is delivered. Page 23 ILLUSTRATION OF BENEFITS AND VALUES We will send you, upon written request, a hypothetical illustration of future death benefits and Account Values. This illustration will include the information as required by the laws or regulations where this policy is delivered. If you request more than one illustration during a policy year, we will charge a reasonable fee for each additional illustration. The maximum amount of this fee is shown in the Schedule. NONPARTICIPATING The policy does not participate in our surplus earnings. CUSTOMER SERVICE CENTER Our Customer Service Center is at the address shown in the Schedule. Unless you are otherwise notified: a) All requests and payments should be sent to us at our Customer Service Center; and b) All transactions are effective as of the Valuation Date the required information is received at our Customer Service Center. PAYOUTS OTHER THAN AS ONE SUM ELECTION During the insured's lifetime, you may elect that the beneficiary receive the proceeds upon death of the insured other than in one sum. If you have not made an election, the Beneficiary may do so within 60 days after the insured's death. You may also elect to take the Net Cash Surrender Value of the policy upon its surrender other than in one sum. Satisfactory written request must be received at our Customer Service Center before payment can be made. A payee that is not a natural person may not be named without our consent. The various methods of settlement are described in the following Payout Options section. PAYOUT OPTIONS OPTION I. Payouts for a Designated Period. Payouts will be made in 1, 2, 4, or 12 installments per year as elected for a designated period, which may be 5 to 30 years. The installment dollar amounts will be equal except for any excess interest as described below. The amount of the first monthly payout for each $1,000 of Account Value applied is shown in Settlement Option Table I. OPTION II. Life Income With Payouts for Designated Period. Payouts will be made in 1, 2, 4, or 12 installments per year throughout the payee's lifetime, or if longer, for a period of 5, 10, 15 or 20 years as elected. The installment dollar amounts will be equal except for any excess interest, as described below. The amount of the first monthly payout for each $1,000 of Account Value applied is shown in Settlement Option Table II. This option is not available for ages not shown in the Table. OPTION III. Hold at Interest. Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4, or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. OPTION IV. Payouts of a Designated Amount. Payouts will be made until proceeds, together with interest, which will be at the rate declared by us or at any higher rate required by law, are exhausted. Payouts will be made in 1, 2, 4, or 12 equal installments per year, as elected. Page 24 OPTION V. Other. Settlement may be made in any other manner as agreed upon in writing between you (or the beneficiary) and us. CHANGE AND WITHDRAWAL You may change an election at any time before the death of the insured or maturity of the policy. If you have given the beneficiary the right to make changes or withdrawals, or if the beneficiary has elected the option, the beneficiary (as primary payee) may take the actions below. a) Changes may be made from Payout Options I, III, and IV to another option. b) Full withdrawals may be made under Payout Option III or IV. Partial Withdrawals of not less than $300 may be made under Payout Option III. c) Remaining installments under Payout Option I may be commuted at 3 1/2% interest and received in one sum. d) Changes in any contingent payee designation may be made. A written request must be sent to our Customer Service Center in writing to make a change or withdrawal. We also may require that you send in the Supplemental Policy. We may defer payment of commuted and withdrawable amounts for a period up to 6 months. EXCESS INTEREST If we declare that Payout Options are to be credited with an interest rate above that guaranteed, it will apply to Payout Options I, II, III, and IV. The crediting of excess interest for one period does not guarantee the higher rate for other periods. Any declared interest rate will be in effect for at least 12 months. MINIMUM AMOUNTS The minimum amount which may be applied under any option is $2,000. If the payments to the payee are ever less than $20, we may change the frequency of payments so as to result in payments of at least that amount. SUPPLEMENTARY POLICY When an option becomes effective, the policy will be surrendered in exchange for a Supplementary Policy. It will provide for the manner of settlement and rights of the payees. The Supplementary Policy's effective date will be the date of the insured's death or the date of other settlement. The first payment under Options I, II, and IV will be payable as of the effective date. The first interest payment under Option III will be made as of the end of the interest payment period elected. Subsequent payments will be made in accordance with the frequency of payment elected. The Supplementary Policy may not be assigned or payments made to another without our consent. INCOME PROTECTION Unless otherwise provided in the election, a payee does not have the right to commute, transfer or encumber amounts held or installments to become payable. To the extent provided by law, the proceeds, amount retained, and installments are not subject to any payee's debts, policies, or engagements. Page 25 DEATH OF PRIMARY PAYEE Upon the primary payee's death, any payments certain under Option I or II, interest payments under Option III, or payments under Option IV will be continued to the contingent payee. Or, amounts may be released in one sum if permitted by the policy. The final payee will be the estate of the last to die of the primary payee and any contingent payee. PAYMENTS OTHER THAN MONTHLY The tables which follow show monthly installments for Options I and II. To arrive at annual, semiannual, or quarterly payments, multiply the appropriate figures by 11.813, 5.957 or 2.991 respectively. Factors for other periods certain or for other options which may be provided by mutual agreement will be provided upon reasonable request. Page 26 SETTLEMENT OPTION TABLES SETTLEMENT OPTION TABLE I (Per $1,000 of Net Proceeds)
- ---------------------------------------------------------------------------- No. of Monthly No. of Monthly Years Payable Installments Years Payable Installments - ---------------------------------------------------------------------------- 1 $84.65 16 6.76 - ---------------------------------------------------------------------------- 2 43.05 17 6.47 - ---------------------------------------------------------------------------- 3 29.19 18 6.20 - ---------------------------------------------------------------------------- 4 22.27 19 5.97 - ---------------------------------------------------------------------------- 5 18.12 20 5.75 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 6 15.35 21 5.56 - ---------------------------------------------------------------------------- 7 13.38 22 5.39 - ---------------------------------------------------------------------------- 8 11.90 23 5.24 - ---------------------------------------------------------------------------- 9 10.75 24 5.09 - ---------------------------------------------------------------------------- 10 9.83 25 4.96 - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- 11 9.09 26 4.84 - ---------------------------------------------------------------------------- 12 8.46 27 4.73 - ---------------------------------------------------------------------------- 13 7.94 28 4.63 - ---------------------------------------------------------------------------- 14 7.49 29 4.53 - ---------------------------------------------------------------------------- 15 7.10 30 4.45 - ----------------------------------------------------------------------------
Page 27 SETTLEMENT OPTION TABLE II
- ---------------------------------------------------------------------------------------------------------------------------------- (Per $1,000 of Net Proceeds) - ---------------------------------------------------------------------------------------------------------------------------------- Age of Payee Nearest Age of Payee Nearest Birthday When First Birthday When First Installment is Payable Monthly Installment Installment is Payable Monthly Installment - ---------------------------------------------------------------------------------------------------------------------------------- 5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years Male Female Certain Certain Certain Certain Male Female Certain Certain Certain Certain - ---------------------------------------------------------------------------------------------------------------------------------- 15 20 3.31 3.31 3.31 3.31 33 38 3.77 3.77 3.75 3.74 - ---------------------------------------------------------------------------------------------------------------------------------- 16 21 3.33 3.33 3.33 3.32 34 39 3.80 3.80 3.79 3.77 - ---------------------------------------------------------------------------------------------------------------------------------- 17 22 3.35 3.35 3.34 3.34 35 40 3.84 3.84 3.83 3.81 - ---------------------------------------------------------------------------------------------------------------------------------- 18 23 3.37 3.37 3.36 3.36 36 41 3.88 3.88 3.87 3.84 - ---------------------------------------------------------------------------------------------------------------------------------- 19 24 3.39 3.38 3.38 3.38 37 42 3.93 3.93 3.91 3.88 - ---------------------------------------------------------------------------------------------------------------------------------- 20 25 3.41 3.40 3.40 3.40 38 43 3.97 3.97 3.95 3.92 - ---------------------------------------------------------------------------------------------------------------------------------- 21 26 3.43 3.43 3.42 3.42 39 44 4.02 4.02 4.00 3.96 - ---------------------------------------------------------------------------------------------------------------------------------- 22 27 3.45 3.45 3.44 3.44 40 45 4.07 4.07 4.05 4.00 - ---------------------------------------------------------------------------------------------------------------------------------- 23 28 3.47 3.47 3.47 3.46 41 46 4.13 4.13 4.09 4.05 - ---------------------------------------------------------------------------------------------------------------------------------- 24 29 3.50 3.49 3.49 3.48 42 47 4.18 4.18 4.14 4.09 - ---------------------------------------------------------------------------------------------------------------------------------- 25 30 3.52 3.52 3.57 3.51 43 48 4.24 4.24 4.20 4.14 - ---------------------------------------------------------------------------------------------------------------------------------- 26 31 3.55 3.54 3.54 3.53 44 49 4.30 4.30 4.25 4.18 - ---------------------------------------------------------------------------------------------------------------------------------- 27 32 3.58 3.57 3.57 3.56 45 50 4.36 4.36 4.31 4.23 - ---------------------------------------------------------------------------------------------------------------------------------- 28 33 3.60 3.60 3.59 3.58 46 51 4.43 4.43 4.37 4.28 - ---------------------------------------------------------------------------------------------------------------------------------- 29 34 3.64 3.63 3.60 3.61 47 52 4.49 4.49 4.43 4.34 - ---------------------------------------------------------------------------------------------------------------------------------- 30 35 3.67 3.66 3.65 3.64 48 53 4.56 4.56 4.49 4.39 - ---------------------------------------------------------------------------------------------------------------------------------- 31 36 3.70 3.70 3.69 3.67 49 54 4.64 4.64 4.55 4.44 - ---------------------------------------------------------------------------------------------------------------------------------- 32 37 3.74 3.73 3.72 3.70 50 55 4.77 4.71 4.62 4.50 - ----------------------------------------------------------------------------------------------------------------------------------
Page 28 SETTLEMENT OPTION TABLE II (Continued)
- ---------------------------------------------------------------------------------------------------------------------------------- (Per $1,000 of Net Proceeds) - ---------------------------------------------------------------------------------------------------------------------------------- Age of Payee Nearest Age of Payee Nearest Birthday When First Birthday When First Installment is Payable Monthly Installment Installment is Payable Monthly Installment - ---------------------------------------------------------------------------------------------------------------------------------- 5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years Male Female Certain Certain Certain Certain Male Female Certain Certain Certain Certain - ---------------------------------------------------------------------------------------------------------------------------------- 51 56 4.85 4.79 4.69 4.55 69 74 7.52 7.00 6.29 5.56 - ---------------------------------------------------------------------------------------------------------------------------------- 52 57 4.94 4.87 4.76 4.61 70 75 7.77 7.17 6.38 5.60 - ---------------------------------------------------------------------------------------------------------------------------------- 53 58 5.04 4.96 4.84 4.67 71 76 8.04 7.35 6.47 5.63 - ---------------------------------------------------------------------------------------------------------------------------------- 54 59 5.14 5.05 4.91 4.73 72 77 8.32 7.53 6.55 5.66 - ---------------------------------------------------------------------------------------------------------------------------------- 55 60 5.24 5.14 4.99 4.79 73 78 8.62 7.71 6.63 5.68 - ---------------------------------------------------------------------------------------------------------------------------------- 56 61 5.35 5.24 5.07 4.85 74 79 8.94 7.89 6.71 5.70 - ---------------------------------------------------------------------------------------------------------------------------------- 57 62 5.47 5.34 5.15 4.91 75 80 9.28 8.07 6.78 5.72 - ---------------------------------------------------------------------------------------------------------------------------------- 58 63 5.59 5.45 5.24 4.97 76 81 9.63 8.25 6.84 5.73 - ---------------------------------------------------------------------------------------------------------------------------------- 59 64 5.71 5.56 5.33 5.03 77 82 10.00 8.43 6.89 5.74 - ---------------------------------------------------------------------------------------------------------------------------------- 60 65 5.85 5.68 5.42 5.10 78 83 10.39 8.60 6.94 5.74 - ---------------------------------------------------------------------------------------------------------------------------------- 61 66 5.99 5.80 5.51 5.16 79 84 10.80 8.77 6.98 5.75 - ---------------------------------------------------------------------------------------------------------------------------------- 62 67 6.15 5.93 5.61 5.21 80 85 11.22 8.93 7.01 5.75 - ---------------------------------------------------------------------------------------------------------------------------------- 63 68 6.31 6.07 5.70 5.27 81 11.66 9.08 7.04 5.75 - ---------------------------------------------------------------------------------------------------------------------------------- 64 69 6.48 6.21 5.80 5.33 82 12.12 9.21 7.06 5.75 - ---------------------------------------------------------------------------------------------------------------------------------- 65 70 6.66 6.35 5.90 5.38 83 12.60 9.34 7.07 5.75 - ---------------------------------------------------------------------------------------------------------------------------------- 66 71 6.86 6.50 6.00 5.43 84 13.09 9.44 7.08 5.75 - ---------------------------------------------------------------------------------------------------------------------------------- 67 72 7.07 6.66 6.10 5.48 85 13.59 9.54 7.09 5.75 - ---------------------------------------------------------------------------------------------------------------------------------- 68 73 7.29 6.83 6.19 5.52 - ----------------------------------------------------------------------------------------------------------------------------------
Page 29 This Policy is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY Death benefits and other values provided by this contract, when based on the investment experience of a separate account, are variable. These values may increase or decrease based on investment experience and are not guaranteed as to fixed dollar amount. Death benefits are payable by us upon the death of the insured prior to the Maturity Date. Your Net Account Value, if any, is payable by us if the insured is living as of the Maturity Date. Flexible premiums are payable by you during the lifetime of the insured until the Maturity Date. SECURITY LIFE OF DENVER INSURANCE COMPANY A Stock Company Customer Service Center 1290 Broadway; Denver, Colorado 80203 Toll Free Number: 1(800)448-9839 EX-1.A(6)(H)(I) 3 BYLAWS SEC LIFE OF DENV INS CO BYLAWS OF EXHIBIT 1.A(6)(h)(i) SECURITY LIFE OF DENVER INSURANCE COMPANY (Restated with Amendments through September 30, 1997) ARTICLE I Name, Principal Place of Business --------------------------------- Section 1.1. Name. The name of the Corporation is Security Life of ---- Denver Insurance Company. Section 1.2. Place of Business. The principal business and operation ----------------- of the Corporation shall be conducted and carried on in the City and County of Denver, State of Colorado. The Corporation shall have the right to conduct its business, carry on its operations, and have offices in any state, territory, district, or possession of the United States, or any foreign country. ARTICLE I Shareholders ------------ Section 2.1. Annual Meetings. An annual meeting of shareholders --------------- shall be held each year at such date, time and place as may be designated by the Board of Directors from time to time. At such annual meeting, the shareholders shall elect Directors and may elect a Chairman of the Board and a Vice Chairman to serve until the next annual meeting and until their successors shall be elected and qualified. In addition, any other proper business may be transacted at the annual meeting. Annual meetings may be called by the Board of Directors or by any officer instructed by the Board of Directors to call the meeting. Section 2.2. Special Meetings. Special meetings of shareholders may ---------------- be called at any time by the Chairman, the President, or the Board of Directors. Such meetings shall be held at the offices of the Corporation or at such other place as may be selected by the Board of Directors. Section 2.3. Notice of Meetings. Notices of time and place of all ------------------ annual and special meetings of shareholders shall be mailed by the Secretary or Assistant Secretary to each shareholder not less than ten (10) nor more than sixty (60) days before the date thereof. Notice of a special meeting must include a description of the purpose or purposes for which it was called. Section 2.4. Presiding Officer. The Chairman of the Board shall ----------------- preside at all meetings of the shareholders. If the Chairman is unable to preside, the shareholders present at such meeting who represent the voting stock of the Corporation shall elect a presiding officer. The Secretary shall take the minutes of the meeting, but in his or her absence the presiding officer may appoint any person as acting secretary of the meeting. Section 2.5. Quorum. A quorum for the transaction of business at any ------ such meeting -1- shall consist of a number of shareholders representing a majority of the shares of the voting stock outstanding. The vote of a majority of the shareholders present at a meeting at which quorum is present shall be the act of the shareholders. Shareholders present at a meeting with less than a quorum may adjourn the meeting until such time that a quorum is present. Section 2.6. Voting. At every meeting of the shareholders, each ------ shareholder shall be entitled to cast one vote for each share of voting stock held in his or her name, which vote shall be cast by the shareholder either in person or by proxy. Any shareholder may execute a proxy authorizing and entitling the holder to exercise the power as shareholder unless such proxy shall be revoked in writing prior to such meeting or said shareholder be personally present. All proxies shall be in writing and duly signed by the shareholder executing the same and shall be filed with the Secretary and recorded as a part of the minutes of the shareholders' meeting. Section 2.7. Consent of Shareholders in Lieu of Meeting. Any action ------------------------------------------ required or permitted by law to be taken at any annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all of the holders of outstanding stock who are entitled to vote on such action. Such consents may be signed in counterparts each of which shall be considered an original and all of which together shall constitute one original. ARTICLE III Board of Directors ------------------ Section 3.1. Powers; Number; Qualifications. The business and ------------------------------ affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the certificate of incorporation. The Board of Directors shall consist of not less than five (5) nor more than twelve (12) members. Directors need not be shareholders. Section 3.2. Election; Term of Office. Each director shall hold ------------------------ office until the next annual meeting of the shareholders and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Section 3.3. Resignation. Any director may resign at any time upon ------------ written notice to the Board of Directors, or to the President, or to the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Section 3.4. Removal. The shareholders shall have the power to ------- remove from the Board any director with or without cause. Section 3.5. Retirement. Mandatory retirement of any Director from ---------- the Board will occur at the first annual meeting of shareholders following the Director's attainment of age 70. Section 3.6. Vacancies. Unless otherwise provided in the certificate --------- of incorporation -2- or these by-laws, vacancies and newly created directorships resulting from any increase in the authorized number of directors or from any other cause may be filled by a vote of the shareholders, or a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Section 3.7. Regular Meetings. Regular meetings of the Board of ---------------- Directors may be held at such places and at such times as the Board of Directors may from time to time determine, and if so determined notice thereof need not be given. Section 3.8. Special Meetings. Special meetings of the Board of ---------------- Directors may be held at any time or place whenever called by the Chairman of the Board, by the President, or by any two directors. Special meetings may also be called by an affirmative vote of the shareholders representing a majority of the shares of voting stock outstanding. Notice of the date, time, and place of such meeting shall be given at least two (2) days prior to the meeting. Section 3.9. Meetings by Electronic Media Permitted. Members of the -------------------------------------- Board of Directors may participate in a meeting of the Board by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 3.10. Quorum; Vote Required for Action. At all meetings of -------------------------------- the Board of Directors, a majority of the entire Board shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at a meeting at which quorum is present shall be the act of the Board. In case at any meeting of the Board of Directors a quorum shall not be present, the members of the Board of Directors present may adjourn the meeting from time to time until a quorum shall attend. Section 3.11. Action by Directors Without a Meeting. Unless ------------------------------------- otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board. Such consents may be signed in counterparts each of which shall be considered an original and all of which together shall constitute one original. ARTICLE IV Committees ---------- Section 4.1. Executive Committee. Either the Board of Directors or ------------------- the shareholders may designate an Executive Committee consisting of one or more members, and may designate a Chairman from among the members so appointed to the Committee. The Executive Committee shall have and may exercise all the authority of the Board of Directors in the management of the business and affairs of the Corporation to the extent permitted by law, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Unless otherwise permitted by law, the -3- Executive Committee shall not have the power to (a) authorize distributions; (b) approve or propose to shareholders actions that are required by law to be approved by shareholders; (c) fill vacancies on the Board of Directors or any of its committees; (d) amend articles of incorporation; (e) adopt, amend, or repeal bylaws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or (h) authorize or approve the issuance or sale of shares, or a contract for the sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares, unless done within limits specifically prescribed by the Board of Directors. Section 4.2. Other Committees. The Board of Directors or the ----------------- shareholders may elect from among its members such other committee or committees, each consisting of one or more Directors, each of which shall have such duties, powers and authority as may be provided in such resolution. Section 4.3. Committee Rules and Operation. Unless the Board of ----------------------------- Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, a majority of the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of a majority of the members present at a meeting at the time of such vote if a quorum is then present shall be the act of such committee, and in other respects each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these by-laws. Each committee designated by the Board shall keep a written record of its proceedings and, upon request by the Board of Directors, shall submit a report of its activities to the Board of Directors of the Corporation. Section 4.4. Action Without a Meeting. Unless otherwise restricted ------------------------ by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if all members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee. Section 4.5. Meetings by Electronic Media Permitted. Members of any -------------------------------------- committee of the Board of Directors may participate in a meeting of the committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting. Section 4.6. Alternate Committee Members. The Chairman may --------------------------- designate one or more directors as alternate members of any committee, who will act in the place of any absent or disqualified committee member, or fill any vacancy occurring on a committee as a result of death, resignation, removal or otherwise. In the case of an absent or disqualified committee member, the alternate shall serve as a member of the committee so long as the incumbent member remains absent or disqualified from voting. In the case of a vacancy, the alternate shall serve for the remainder of the unexpired term of the vacating member, or until a new member is selected, qualified and elected by the Board of Directors or Shareholders. If a committee member is absent from or disqualified -4- from voting at a committee meeting and no alternate member has been designated by the Chairman, the remaining member or members of the committee present at the meeting, whether or not he or she or they constitute a quorum, may unanimously select from the Board a director to act at the meeting in place of the absent or disqualified committee member. ARTICLE V Officers -------- Section 5.1. Officers; Election. The Board of Directors may elect a ------------------ Chief Executive Officer, a President, and a Treasurer. The Board of Directors may also, from time to time, elect or, by resolution, delegate to the President or Chief Executive Officer, the authority to appoint, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary and one or more Assistant Secretaries, and may elect other officers as the Board or Chief Executive Officer deems necessary, and may give any of them such further designations or alternate titles as it considers desirable. The Board of Directors may also elect or, by resolution, delegate to the Chief Executive Officer, the authority to appoint from time to time, one or more Presidents to act as the chief operating officers of the various business units of the Corporation. Any number of offices may be held by the same person. The delegation of such authority to the President or Chief Executive Officer shall in no way affect, diminish or replace the authority of the Board of Directors to elect officers. Section 5.2. Chairman of the Board. The Chairman of the Board shall --------------------- preside at meetings of the shareholders and of the Board of Directors. In addition, the Chairman of the Board shall have such powers and perform such duties as the Board of Directors may from time to time determine. Section 5.3. President. The President shall be the chief operations --------- executive of the Corporation. Subject to the authority of the Board of Directors, the President shall have general supervision of the business and affairs of the Corporation and shall report thereon to the Board of Directors as the Board of Directors may require. In the absence or incapacity of the Chairman of the Board and the Vice Chairman, the President shall have the powers and perform the duties of the Chairman of the Board. Presidents of the business units of the Corporation shall be the chief operations executives for and shall have supervisory authority over the business units for which they are appointed. Section 5.4. Executive Vice Presidents, Senior Vice Presidents, and ------------------------------------------------------ Vice Presidents. The Executive Vice Presidents, Senior Vice Presidents, and - ---------------- Vice Presidents shall have such powers and duties as may be delegated to them from time to time by the Chief Executive Officer, the President, the Board of Directors, or the Executive Committee, and generally shall consult and advise with the President and aid the President in the discharge of his or her duties. In the absence or incapacity of the President to perform his or her duties, and except as may otherwise be provided by resolution of the Board of Directors in specific instances, the duties of the President shall devolve upon one or more Executive Vice Presidents as determined by the Chairman of the Board. -5- Section 5.5. Secretary. The Secretary and Assistant Secretaries --------- shall have such powers and duties as may be given to them from time to time by the President, the Board of Directors, or the Executive Committee. The Secretary shall keep the minutes of the Shareholders, Board of Directors, the Executive Committee, and other committees. The Secretary shall have the custody of the corporate seal with authority to affix it to instruments, documents, and contracts. The Secretary shall perform the duties usually incidental to the office of Secretary and such other duties of that nature that may be assigned to him or her from time to time by the Board of Directors. Section 5.6. Treasurer. The Treasurer shall have charge of, and be --------- responsible for, all funds and securities of the corporation. The Treasurer shall, from time to time, render a statement of the condition of the finances of the corporation at the request of the Board of Directors. The Treasurer shall receive, and give receipt for, monies due and payable to the corporation from any source whatsoever, and, in general, perform all the duties incident to the office of Treasurer and such other duties as, from time to time, may be assigned to him or her by the Board of Directors, the Chairman of the Board, or the President. Section 5.7. Term of Office;. Except as otherwise provided in the --------------- resolution of the Board of Directors electing any officer, each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Section 5.8. Resignation. Any officer may resign at any time upon ----------- written notice to the Board or to the President, Chief Executive Officer, or the Secretary of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Section 5.9. Removal. The Board of Directors may remove any officer ------- with or without cause. Section 5.10. Vacancies. Any vacancy occurring in any office of the --------- Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors at any regular or special meeting. Section 5.11. Powers and Duties. The officers of the Corporation ----------------- shall have such powers and duties in the management of the Corporation as shall be stated in these by-laws or in a resolution of the Board of Directors which is not inconsistent with these by-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties. ARTICLE VI Stock ----- Section 6.1. Certificates. Every holder of stock in the Corporation ------------ shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of -6- Directors, or the President or a Vice President, and by the Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by him or her in the Corporation. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 6.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of --------------------------------------------------------- New Certificates. The Corporation may issue a new certificate of stock in the - ---------------- place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his or her legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. ARTICLE VII Indemnification of Directors, ----------------------------- Officers and Other Personnel ---------------------------- Section 7.1. Definitions. As used in this article, the term: ----------- (a) "Corporation" includes any domestic or foreign entity that is a predecessor of this Corporation by reason of merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (b) "Director" means an individual who is or was a director of the Corporation or an individual who, while a director of the Corporation is or was serving at the Corporation's request as a director, officer, employee, attorney- in-fact, agent, fiduciary, manager, member, partner, or trustee of, or to hold any similar position with, another domestic or foreign corporation, partnership, limited liability company, joint venture, employee benefit plan, or other entity. A director is considered to be serving an employee benefit plan at the Corporation's request if the director's duties to the Corporation also impose duties on, or otherwise involve services by, the director to the plan or to participants in or beneficiaries of the plan. "Director" includes, unless the context requires otherwise, the estate or personal representative of a director. (c) "Expenses" includes counsel fees (d) "Liability" means the obligation incurred with respect to a proceeding to pay a judgment, settlement, penalty, fine, including an excise tax assessed with respect to an employee benefit plan, or reasonable expenses.. (e) "Official capacity" means, when used with respect to a director, the office of -7- director in the Corporation and, when used with respect to a person other than a director as contemplated in Section 7.7, the office in the Corporation held by the officer or the employment or fiduciary relationship undertaken by the employee or fiduciary on behalf of the Corporation. "Official capacity" does not include service for any other domestic or foreign corporation, partnership, limited liability company, joint venture, employee benefit plan, or other entity. (f) "Officer" means an individual who is or was an officer of the Corporation or an individual who, while an officer of the Corporation, is or was serving at the Corporation's request as a director, officer, employee, attorney- in-fact, agent, fiduciary, manager, member, partner, or trustee of, or to hold any similar position with, another domestic or foreign corporation, partnership, limited liability company, joint venture, employee benefit plan, or other entity. An officer is considered to be serving an employee benefit plan at the Corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. "Officer" includes, unless the context requires otherwise, the estate or personal representative of an officer. (g) "Party" includes a person who was, is, or is threatened to be made a named defendant or respondent in a proceeding. (h) "Proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal. Section 7.2. Authority to Indemnify Directors. -------------------------------- (a) Except as provided in subsection 7.2(d) below, the Corporation shall indemnify a person made a party to a proceeding because such person is or was a director against liability incurred in the proceeding if (i) the person conducted himself or herself in good faith; and (ii) the person reasonably believed: (1) in the case of conduct in an official capacity with the Corporation, that his or her conduct was in the Corporation's best interests; and, (2) in all other cases, that his or her conduct was at least not opposed to the Corporation's best interests; and (iii) in the case of any criminal proceeding, the person had no reasonable cause to believe his or her conduct was unlawful. (b) A director's conduct with respect to an employee benefit plan for a purpose the director reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection 7.2(a)(ii)(2). A director's conduct with respect to an employee benefit plan for a purpose that the director did not reasonably believe to be in the interests of the participants in or the beneficiaries of the plan shall be deemed not to satisfy the requirements of subsection 7.2(a)(i). (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of ---- ---------- itself, determinative that the director did not meet the standard of conduct set forth in this Section 7.2. (d) The Corporation may not indemnify a director under this Article VII in connection with (i) a proceeding by or in the right of the Corporation in which such person was -8- adjudged liable to the Corporation, or (ii) any other proceeding charging that the director derived an improper personal benefit, whether or not involving action in an official capacity, in which proceeding the director was adjudged liable on the basis that he or she derived an improper personal benefit. (e) Indemnification permitted under this Article in connection with a proceeding by or in the right of the Corporation is limited to reasonable expenses incurred in connection with the proceeding. Section 7.3. Mandatory Indemnification. The Corporation shall ------------------------- indemnify a person who was wholly successful on the merits or otherwise, in the defense of any proceeding to which the person was a party because the person is or was a director, against reasonable expenses incurred by him or her in connection with the proceeding. Section 7.4. Advances for Expenses. --------------------- (a) The Corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if: (i) the director furnishes to the Corporation a written affirmation of the director's good faith belief that he or she has met the standard of conduct set forth in Section 7.2 above; (ii) the director furnishes to the Corporation a written undertaking, executed personally or on the director's behalf, to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct; and (iii) a determination is made that the facts then known to those making the determination would not preclude indemnification under this Article VII. (b) The undertaking required by subsection 7.4(a)(ii) above shall be an unlimited general obligation of the director or officer but need not be secured and may be accepted without reference to financial ability to make repayment. (c) Determinations and authorizations of payments under this Section shall be made in the manner specified in Section 7.6, below. Section 7.5. Court-Ordered Indemnification and Advances for Expenses. ------------------------------------------------------- A director who is or was a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court, after giving any notice the court considers necessary, may order indemnification in the following manner: (a) If it determines that the director is entitled to mandatory indemnification under Section 7.4, above, the Corporation shall pay the director's reasonable expenses incurred to obtain court-ordered indemnification; (b) If it determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director met the standard of conduct set forth in subsection 7.2(a) above or was adjudged liable as described in subsection 7.2(d) above; except that the indemnification with respect to any proceeding in which liability shall have been adjudged in the circumstances described in subsection 7.2(d) is limited to reasonable -9- expenses incurred in connection with the proceeding and reasonable expenses incurred to obtain court-ordered indemnification. Section 7.6. Determination and Authorization of Indemnification of ----------------------------------------------------- Directors. - --------- (a) The Corporation acknowledges that any indemnification of a director under Section 7.2 has been pre-authorized by the Corporation in the manner described in subsection 7.6(b) below. Nevertheless, the Corporation shall not indemnify a director under Section 7.2 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in Section 7.2. The Corporation shall not advance expenses to a director under Section 7.4 unless authorized in the specific case after the written affirmation and undertaking required by subsections 7.4(a) & (b) are received and the determination required by subsection 7.4(a) has been made. (b) The determination required by subsection 7.6(a) shall be made: (i) by the Board of Directors by majority vote of those present at a meeting at which a quorum is present, and only those directors not parties to the proceeding shall be counted in satisfying the quorum; or (ii) if a quorum cannot be obtained, by a majority vote of a committee of the Board of Directors designated by the Board of Directors, which committee shall consist of two or more directors not parties to the proceeding; except that directors who are parties to the proceeding may participate in the designation of directors for the committee. (c) If a quorum cannot be obtained as contemplated in subsection 7.6(b)(i) and a committee cannot be established under subsection 7.6(b)(ii), or, even if a quorum is obtained or a committee is designated, if a majority of the directors constituting such quorum or such committee so directs, the determination required to be made by subsection 7.6(a) shall be made: (i) by independent legal counsel selected by a vote of the Board of Directors or the committee in the manner specified in subsections 7.6(b)(i) or (ii), or, if a quorum of the full board cannot be obtained and a committee cannot be established, by independent legal counsel selected by a majority of the full Board of Directors; or (ii) by the shareholders. (d) Authorization of indemnification and advance of expenses shall be made in the same manner as the determination that indemnification or advance of expenses is permissible; except that, if the determination that indemnification or advance of expenses is permissible is made by independent legal counsel, authorization of indemnification and advance of expenses shall be made by the body that selected such counsel. Section 7.7. Indemnification of Officers and Employees. A person ----------------------------------------- made a party to a proceeding because such person is or was an officer is entitled to mandatory indemnification under Section 7.3 and is entitled to apply for court-ordered indemnification under Section 7.5, in each case to the same extent as a director. The Corporation shall indemnify and advance expenses under this Article to an officer, or employee of the Corporation to the maximum extent allowed by law. Section 7.8. Exclusions. Except as may be otherwise authorized by ---------- the Board of -10- Directors, no indemnification is provided under this Article VII for unsalaried persons under contract with the corporation in sales capacities such as General Agents, Agents and Brokers, or for persons performing services to the corporation as independent contractors. Section 7.9. Insurance. The Corporation may purchase and maintain --------- insurance on behalf of a person who is or was a director, officer, employee, fiduciary, partner, trustee, or agent of the Corporation or who, while a director, officer, employee, fiduciary, partner, trustee, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, limited liability company, joint venture, employee benefit plan, or other entity against liability asserted against or incurred by the person in that capacity or arising from his or her status as a director, officer, employee, fiduciary, partner, trustee, or agent, whether or not the Corporation would have power to indemnify the person against the same liability under Sections 7.2, 7.3, or 7.7 above. Section 7.10. Report to Shareholders. If the Corporation indemnifies ---------------------- or advances expenses to a director under this Article VII in connection with a proceeding by or in the right of the Corporation, the Corporation shall give written notice of the indemnification or advance to the shareholders with or before the notice of the next shareholders' meeting. If the next shareholder action is taken without a meeting at the instigation of the Board of Directors, such notice shall be given to the shareholders at or before the time the first shareholder signs a writing consenting to such action. Section 7.11. Non-Exclusivity. The indemnification provided by this --------------- Article VII 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 shareholders or disinterested directors, or otherwise, and any procedure provided for by any of the foregoing, both as to action in his or her official capacity and as to action in another capacity while holding such office. This Article VII does not limit the Corporation's power to pay or reimburse expenses incurred by a director, officer, employee, or agent in connection with the person's appearance as a witness in a proceeding at a time when the person has not been made a named defendant or respondent to the proceeding. Section 7.12. Continuance. The indemnification and advancement of ----------- expenses provided by, or granted pursuant to, this Article VII shall continue as to a person who has ceased to be a director, officer or employee of the corporation 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 7.13. Application of this Article. The provisions of this --------------------------- Article VII shall apply to all actions, suits or proceedings described in Section 7.2 arising or alleged to arise out of any acts or omissions on the part of any person referred to in Section 7.2 or Section 7.7, occurring or alleged to occur prior to the adoption of this Article VII or at any time while it remains in force. By this Article VII, it is intended that the Corporation provide the maximum indemnification allowed by law to directors, officers and employees of the Corporation. If any portion of this Article VII is invalid under any applicable statute or rule of law, it shall not affect the remainder of this Article VII, -11- which shall remain valid and binding. ARTICLE VIII Miscellaneous ------------- Section 8.1. Fiscal Year. The fiscal year of the Corporation shall ----------- be determined by the Board of Directors. Section 8.2. Seal. The Corporation may have a corporate seal which ---- shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. Section 8.3. Waiver of Notice of Meetings of Shareholders, Directors ------------------------------------------------------- and Committees. Whenever notice is required to be given by law or under any - -------------- provision of the certificate of incorporation or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the certificate of incorporation or these by-laws. Section 8.4. Interested Directors; Quorum. No contract or ---------------------------- transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or her or their votes are counted for such purpose, if: (a) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board, a committee thereof or the shareholders. -12- Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction if so determined by a majority of the disinterested directors present at such meeting. Section 8.5. Form of Records. Any records maintained by the --------------- Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of electronic or magnetic media, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same. Section 8.6. Amendment of By-Laws. These by-laws may be amended or -------------------- repealed, and new by-laws adopted, by the Board of Directors, or by a majority vote of those shareholders entitled to vote. Date: 9/30/97 ------------------------- /s/ --------------------------- Secretary -13- EX-1.A(8)(A)(I) 4 SPECIMAN PARTIC AGMT EXHIBIT 1.A(8)(a)(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 TABLE OF CONTENTS Description Page Section 1. Available Funds.....................................................2 1.1 Availability......................................................2 1.2 Addition, Deletion or Modification of Funds.......................2 1.3 No Sales to the General Public....................................2 Section 2. Processing Transactions.............................................2 2.1 Timely Pricing and Orders.........................................2 2.2 Timely Payments...................................................3 2.3 Applicable Price..................................................3 2.4 Dividends and Distributions.......................................4 2.5 Book Entry........................................................4 Section 3. Costs and Expenses..................................................4 3.1 General...........................................................4 3.2 Registration......................................................4 3.3 Other (Non-Sales-Related)`........................................5 3.4 Other (Sales-Related)`............................................5 3.5 Parties to Cooperate..............................................5 Section 4. Legal Compliance....................................................5 4.1 Tax Laws..........................................................5 4.2 Insurance and Certain Other Laws..................................8 4.3 Securities Laws...................................................8 4.4 Notice of Certain Proceedings and Other Circumstances.............9 4.5 Life Co. To Provide Documents; Information about AVIF............10 4.6 AVIF To Provide Documents' Information about Life Co.............11 Section 5. Mixed and Shared Funding...........................................12 5.1 General..........................................................12 5.2 Disinterested Directors..........................................12 5.3 Monitoring for Material Irreconcilable Conflicts.................13 5.4 Conflict Remedies................................................15 5.5 Notice to Life Co................................................15 5.6 Information Requested by Board of Directors......................15 5.7 Compliance with SEC Rules........................................15 5.8 Other Requirements...............................................15 i Description Page Section 6. Termination........................................................15 6.1 Events of Termination............................................15 6.2 Notice Requirement for Termination...............................16 6.3 Funds to Remain Available........................................17 6.4 Survival of Warranties and Indemnifications......................17 6.5 Continuance of Agreement for Certain Purposes....................17 Section 7. Parties to Cooperate Respecting Termination........................17 Section 8. Assignment.........................................................18 Section 9. Notices............................................................18 Section 10. Voting Procedures.................................................19 Section 11. Foreign Tax Credits...............................................19 Section 12. Indemnification...................................................20 12.1 Of AVIF by Life Co. and Underwriter..............................20 12.2 Of Life Co. and Underwriter by AVIF..............................22 12.2 Effect of Notice.................................................24 12.3 Successors.......................................................24 Section 13. Applicable Law....................................................24 Section 14. Execution in Counterparts.........................................25 Section 15. Severability......................................................25 Section 16. Rights Cumulative.................................................25 Section 17. Headings..........................................................25 Section 18. Confidentiality...................................................25 Section 19. Trademarks and Fund Names.........................................26 Section 20. Parties to Cooperate..............................................27 ii PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the _____ day of ___________, 1996 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF'); ___________________ Life Insurance Company, a [STATE] life insurance company ("LIFE COMPANY"), on behalf of itself and each of its segregated asset accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"); and [NAME OF SEPARATE ACCOUNT UNDERWRITER], an affiliate of LIFE COMPANY and the principal underwriter of the Contracts (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, AVIF currently consists of nine separate series ("Series"), shares ("Shares") of each of which are registered under the Securities Act of 1933, as amended (the " 1933 Act") and are currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity contracts and variable life insurance contracts ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend from time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and 1 WHEREAS, to the extent permitted by applicable insurance laws and regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 (111934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: Section 1. Available Funds -------------------------- 1.1 Availability. ------------- AVIF will make Shares of each Fund available to LIFE COMPANY for purchase and redemption at net asset value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Directors of AVIF may refuse to sell Shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Directors acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, such action is deemed in the best interests of the shareholders of such Fund. 1.2 Addition, Deletion or Modification of Funds. -------------------------------------------- The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 No Sales to the General Public. ------------------------------- AVIF represents and warrants that no Shares of any Fund have been or win be sold to the general public. 2 Section 2. Processing Transactions ---------------------------------- 2.1 Timely Pricing and Orders. -------------------------- (a) AVIF or its designated agent will use its best efforts to provide LIFE COMPANY with the net asset value per Share for each Fund by 5:30 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for business. (b) LIFE COMPANY will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to the Account unit values and to process transactions that receive that same Business Day's Account unit values. LIFE COMPANY will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is unable to meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to LIFE COMPANY. (c) With respect to payment of the purchase price by LIFE COMPANY and of redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), LIFE COMPANY shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any-material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to LIFE COMPANY. 2.2 Timely Payments. --------------- LIFE COMPANY will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by LIFE COMPANY by 1:00 p.m. Central Time on the same day as the Order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable LIFE COMPANY to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act or such shorter period of time as may be required by law. 3 2.3 Applicable Price. ----------------- (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract transactions") and that LIFE COMPANY receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), LIFE COMPANY shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. (b) All other Share purchases and redemptions by LIFE COMPANY will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor and such orders will be irrevocable. 2.4 Dividends and Distributions. --------------------------- AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to LIFE COMPANY of any income dividends or capital gain distributions payable on the Shares of any Fund. LIFE COMPANY hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. LIFE COMPANY reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 Book Entry. ---------- Issuance and transfer of AVIF Shares will be by book entry only. Stock certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account. Section 3. Costs and Expenses ----------------------------- 3.1 General. -------- Except as otherwise specifically provided herein, each Party will bear all expenses incident to its performance under this Agreement. 4 3.2 Registration. ------------- (a) AVIF will bear the cost of its registering as a management investment company under the 1940 Act and registering its Shares under the 1933 Act, and keeping such registrations current and effective; including, without limitation, the preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of all applicable registration or filing fees with respect to any of the foregoing. (b) LIFE COMPANY will bear the cost of registering, to the extent required, each Account as a unit investment trust under the 1940 Act and registering units of interest under the Contracts under the 1933 Act and keeping such registrations current and effective; including, without limitation, the preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with respect to each Account and its units of interest and payment of all applicable registration or filing fees with respect to any of the foregoing. 3.3 Other (Sales-Related) --------------------- (a) AVIF will bear, or arrange for others to bear, the costs of preparing, filing with the SEC and setting for printing AVIF's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF proxy material and other shareholder communications. (b) IDS Life of New York will bear the costs of preparing, filing with the SEC and setting for printing each Account's prospectus, statement of additional information and any amendments or supplements thereto (collectively, the "Account Prospectus"), any periodic reports to Contract owners, annuitants, insureds or participants (as appropriate) under the Contracts (collectively, "Participants"), voting instruction solicitation material, and other Participant communications. (c) LIFE COMPANY will print in quantity and deliver to existing Participants the documents described in Section 3.3(b) above and the prospectus provided by AVIF in camera ready or computer diskette form. AVIF will print the AVIF statement of additional information, proxy materials relating to AVIF and periodic reports of AVIF. 3.4 Other (Sales-Related). ---------------------- LIFE COMPANY will bear the expenses of distribution. These expenses would include by way of illustration, but are not limited to, the costs of distributing to Participants the following documents, whether they relate to the Account or AVIF: prospectuses, statements of additional information, proxy materials and periodic reports. These costs would also include the costs of preparing, printing, and distributing sales literature and advertising relating to the Funds, as well as filing such materials with, and obtaining approval from, the SEC, NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required. 5 3.5 Parties To Cooperate. --------------------- Each Party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. Section 4. Legal Compliance --------------------------- 4.1 Tax Laws. --------- (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will use its best efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents that it will use its best efforts to comply and to maintain each Fund compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of LIFE COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) LIFE COMPANY shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) LIFE COMPANY shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; 6 (iii) LIFE COMPANY shall use its best efforts to minimize any liability of AVIF or its affiliates resulting - from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of such a failure or alleged failure; provided, however, that LIFE COMPANY will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by LIFE COMPANY to the IRS, any Participant or any other claimant in connection with any of the foregoing Proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by LIFE COMPANY to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by LIFE COMPANY to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) LIFE COMPANY shall provide AVIF or its affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF, and its accounting and legal advisors to review the relevant books and records of LIFE COMPANY) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) LIFE COMPANY shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld, provided that LIFE COMPANY shall not be required, after exhausting all administrative penalties, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent 7 counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and its affiliates shall have no liability as a result of such failure or alleged failure if LIFE COMPANY fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, LIFE COMPANY may, in its discretion, authorize AVIF or its affiliates to act in the name of LIFE COMPANY in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the proceedings that it is so authorized to control; provided, that in no event shall LIFE COMPANY have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) LIFE COMPANY represents and warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code and that it will use its best efforts to maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e) LIFE COMPANY represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contact," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. LIFE COMPANY will use its best efforts to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 Insurance and Certain Other Laws. -------------------------------- (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by LIFE COMPANY, including,: the furnishing of information not otherwise available to LIFE COMPANY which is required by state insurance law to enable LIFE COMPANY to obtain the authority needed to issue the Contracts in any applicable state. (b) LIFE COMPANY represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of New York and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset 8 account under Section 4240 of the New York Insurance Law and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is a corporation duly organized; validly existing, and in good standing under the laws of the State of Maryland and has full power, authority, and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement. 4.3 Securities Laws. --------------- (a) LIFE COMPANY represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1933 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and New York law, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply, in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE COMPANY will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants that (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offering of its Shares, (iv) AVIF does and will comply in all material respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply, in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF"S Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Directors, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b- 1 to finance distribution expenses. 9 (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to the funds and/or securities of the Fund are and continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. 4.4 Notice of Certain Proceedings and Other Circumstances. ------------------------------------------------------ (a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF Prospectus, (fl) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY. AVIF will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interests pursuant to the Contracts, or (iv) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without Stations any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. LIFE COMPANY will make every reasonable effort to prevent the issuance-of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 LIFE COMPANY To Provide Documents; Information About AVIF. --------------------------------------------------------- (a) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) LIFE COMPANY will provide to AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the 10 Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to LIFE COMPANY in the manner required by Section 9 hereof. (c) Neither LIFE COMPANY nor any of its affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with the express written permission of AVIF. (d) LIFE COMPANY shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of this Section 4.5, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospects statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF To Provide Documents; Information About LIFE COMPANY, ---------------------------------------------------------- (a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. (b) AVIF will provide to LIFE COMPANY camera ready or computer diskette copies of all AVIF prospectuses and printed copies, in an amount specified by LIFE COMPANY, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE 11 COMPANY, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF will provide to LIFE COMPANY or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which LIFE COMPANY, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if LIFE COMPANY or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. LIFE COMPANY shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF nor any of its affiliates will give any information or make any representations or statements on behalf of or concerning LIFE COMPANY, each Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by LIFE COMPANY for distribution; or (iii) in sales literature or other promotional material approved by LIFE COMPANY or its affiliates, except with the express written permission of LIFE COMPANY. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning LIFE COMPANY, and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i. e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither LIFE COMPANY, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, the phrase "sales literature or other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media, (e.g., on- line networks such as the Internet or other electronic messages), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 12 Section 5. Mixed and Shared Funding ----------------------------------- 5.1 General. ------- The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with LIFE COMPANY, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. 5.2 Disinterested Directors. ------------------------ AVIF agrees that its Board of Directors shall at all times consist of directors a majority of whom (the "Disinterested Directors") are not interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the Rules thereunder and as modified by any applicable orders of the SEC, except that if this condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filed by the Board; (b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 5.3 Monitoring for Material Irreconcilable Conflicts. ------------------------------------------------- AVIF agrees that its Board of Directors will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other regulatory authority; (b) a change in applicable federal or state insurance, tax or securities laws or regulations, or a public ruling, private letter ruling, no- action or interpretative letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; 13 (d) the manner in which the investments of any Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the Board of Directors in carrying out its responsibilities by providing the Board of Directors with all information reasonably necessary for the Board of Directors to consider any issue raised, including information as to a decision by LIFE COMPANY to disregard voting instructions of Participants. 5.4 Conflict Remedies. ------------------ (a) It is agreed that if it is determined by a majority of the members of the Board of Directors or a majority of the Disinterested Directors that a material irreconcilable conflict exists, LIFE COMPANY will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonably practicable (as determined by a majority of the Disinterested Directors), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a to "management company" in Section 4(3) of the 1940 Act or a new separate amount that is operated as a management company. (b) If the material irreconcilable conflict arises because of LIFE COMPANY's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, LIFE COMPANY may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to LIFE COMPANY that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. 14 (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to LIFE COMPANY conflicts with the majority of other state regulators, then LIFE COMPANY will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs LIFE COMPANY that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by LIFE COMPANY for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) LIFE COMPANY agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Directors will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. LIFE COMPANY will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 5.5 Notice to LIFE COMPANY ---------------------- AVIF will promptly make known in writing to LIFE COMPANY the Board of Directors of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 Information Requested by Board of Directors. -------------------------------------------- LIFE COMPANY and AVIF (or its investment adviser) will at least annually submit to the Board of Directors of AVIF such reports, materials or data as the Board of Directors may reasonably request so that the Board of Directors may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Directors. All reports received by the Board of Directors of potential or existing conflicts, and all Board of Directors actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Directors or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 Compliance with SEC Rules. ------------------------- If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required in order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 15 5.8 Other Requirements. ------------------- AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1 (d), 4.3(a), 4.4(b), 4.5 (a), 5, and 10 of this Agreement. Section 6. Termination ---------------------- 6.1 Events of Termination. ---------------------- Subject to Section 6.4 below, this Agreement will terminate as to a Fund: (a) at the option of any party, with or without cause with respect to the Fund, upon six (6) months advance written notice to the other parties, or, if later, upon receipt of any required exemptive relief from the SEC, unless otherwise agreed to in writing by the parties; or (b) at the option of AVIF upon institution of formal proceedings against LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding LIFE COMPANY's obligations under this Agreement or related to the sale of the Contracts, the operation of each Account, or the purchase of Shares, if, in each case, AVIF reasons determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on the Fund with respect to which the Agreement is to be determinated; or (c) at the option of LIFE COMPANY upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state insurance regulator or any other regulatory body regarding AVIF's obligations under this Agreement or related to the operation or management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE COMPANY reasonably determines that such proceedings, or the facts on which such proceedings would be based, have a material likelihood of imposing material adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the Fund with respect to which the Agreement is to be terminated; or (d) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by LIFE COMPANY; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or 16 (g) at the option of LIFE COMPANY if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if LIFE COMPANY reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or (i) upon another Party's material breach of any provision of this Agreement. 6.2 Notice Requirement for Termination. ----------------------------------- No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6. 1 (a) or 6.1 (e) hereof, such prior written notice shall be given at least six (6) months in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (b) in the event that any termination is based upon the provisions of Sections 6. 1 (b) or 6. 1 (c) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; and (c) in the event that any termination is based upon the provisions of Sections 6. 1 (d), 6.1 (f), 6. 1 (g), 6. 1 (h) or 6. 1 (i) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.3 Funds To Remain Available. -------------------------- Notwithstanding any termination of this Agreement, AVIF will, at the option of LIFE COMPANY, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts."). Specifically, without limitation, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.3 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 17 6.4 Survival of Warranties and Indemnifications. -------------------------------------------- All warranties and indemnifications will survive the termination of this Agreement. 6.5 Continuance of Agreement for Certain Purposes. ---------------------------------------------- If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6. 1 (b), 6. 1 (c), 6. 1 (d), 6. 1 (f), 6. 1 (g), 6. 1 (h) or 6. 1 (i) hereof, Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "Initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date, except that LIFE COMPANY may, by written notice shorten said six (6) month period in the case of a termination pursuant to Sections 6. 1 (d), 6. 1 (f), 6. 1 (g), 6.1 (h) or 6. 1 (i). Section 7. Parties To Cooperate Respecting Termination ------------------------------------------------------ The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a Fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. Section 8. Assignment --------------------- This Agreement may not be assigned by any Party, except with the written consent of each other Party. Section 9. Notices ------------------ Notices and communications required or permitted by Section 9 hereof will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: UNDERWRITER LIFE COMPANY Street Address City, State Zip Code Facsimile: 18 Attn.: [NAME OF PERSON] AIM Variable Insurance Funds, Inc. 11 Greenway Plaza, Suite 1919 Houston, TX 77046 Facsimile: 713-993-9185 Attn.: Nancy L. Martin, Esquire Section 10. Voting Procedures ------------------------------ Subject to the cost allocation procedures set forth in Section 3 hereof, LIFE COMPANY will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. LIFE COMPANY will vote Shares in accordance with timely instructions received from Participants. LIFE COMPANY will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for Participants. Neither LIFE COMPANY nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. LIFE COMPANY reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. LIFE COMPANY shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY of any changes of interpretations or amendments to Mixed and Shared Funding exemptive, order it has obtained. AVIF with comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors and with whatever rules the SEC may promulgate with respect thereto. Section 11. Foreign Tax Credits -------------------------------- AVIF agrees to consult in advance with LIFE COMPANY concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. 19 Section 12. Indemnification ---------------------------- 12.1 Of AVIF by LIFE COMPANY and UNDERWRITER. ---------------------------------------- (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, its affiliates, and each person, if any, who controls AVIF or its affiliates within the meaning of Section 15 of the 1933 Act and each of their respective directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY or UNDERWRITER by or on behalf of AVIF for use in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of LIFE COMPANY, UNDERWRITER or their respective affiliates or persons under their control (including, without limitation, their employees and "Associated Persons," as that term is defined in paragraph (m) of Article I of the NASD's By- Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, 20 UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or result from any other material breach of this Agreement by LIFE COMPANY or UNDERWRITER; or (v) arise as a result of failure by the Contracts issued by LIFE COMPANY to qualify as annuity contracts or the insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason if willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF. (c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, LIFE COMPANY and UNDERWRITER shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY and UNDERWRITER and shall bear the fees and expenses of any additional counsel retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 Of LIFE COMPANY and UNDERWRITER by AVIF - --------------------------------------- (a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e), below, AVIF agrees to indemnify and hold harmless LIFE COMPANY, UNDERWRITER, their respective affiliates, and each person, if any, who controls LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of Section 15 of the 1933 Act and each of their respective 21 directors and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF ) or actions in respect thereof (including, to the extent reasonable, legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law, or otherwise; provided, the Account owns shares of the Fund and insofar as such losses, claims, damages, liabilities or actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statement, AVIF Prospectus or sales literature or advertising of AVIF (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to AVIF or its affiliates by or on behalf of LIFE COMPANY, UNDERWRITER or their respective affiliates for use in AVIF's 1933 Act registration statement, AVIF Prospectus, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF or its affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF or its affiliates or persons under its control (including, without limitation, their employees and "Associated Persons" as that Term is defined in Section (n) of Article 1 of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with information furnished to LIFE COMPANY, UNDERWRITER or their respective affiliates by or on behalf of AVIF for use in any Accounts 1933 Act registration statement, any Account Prospectus, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or 22 (iv) arise as a result of any failure by AVIF to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF. (b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e) hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by LIFE COMPANY of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that LIFE COMPANY reasonably deems necessary or appropriate as a result of the noncompliance. (c) AVIF shall not be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY, UNDERWRITER, each Account or Participants. (d) AVIF shall not be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify AVIF of any such action shall not relieve AVIF from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF to such Indemnified Party of AVIF's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the fees and expenses of any additional counsel retained by it, and AVIF will not be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 23 (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 12.3 Effect of Notice. ---------------- Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12. 1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the in Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 Successors ---------- A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. Section 13. Applicable Law --------------------------- This Agreement will be construed and the provisions hereof interpreted under and in accordance with Maryland law, without regard for that state's principles of conflict of laws. Section 14. Execution in Counterparts -------------------------------------- This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. Section 15. Severability ------------------------- If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. 24 Section 16. Rights Cumulative ------------------------------ The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, that the Parties are entitled to under federal and state laws. Section 17. Headings --------------------- The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. Section 18. Confidentiality ---------------------------- AVIF acknowledges that the identities of the customers of LIFE COMPANY or any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the LIFE COMPANY Protected Parties or any of their employees or agents in connection with LIFE COMPANY's performance of its duties under this Agreement are the valuable property of the LIFE COMPANY Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of identities of or other information about the LIFE COMPANY Protected Parties' customers, or any other information or property of the LIFE COMPANY Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the LIFE COMPANY Protected Parties' customers who also maintain accounts directly with AVIF, AVIF withhold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with LIFE COMPANY's prior written consent; or (b) as required by law or judicial process. LIFE COMPANY acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by LIFE COMPANY from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with LIFE COMPANY, LIFE COMPANY will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property. except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. 25 Section 19. Trademarks and Fund Names -------------------------------------- (a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of AVIF, owns all right, title and interest in and to the name, trademark and service mark "AIM" and such other trade names, trademarks and service marks as may be set forth on Schedule B, as amended from time to time by written notice from AIM to LIFE COMPANY (the "AIM licensed marks" or the "licensor's licensed marks") and is authorized to use and to license other persons to use such marks. LIFE COMPANY and its affiliates are hereby granted a non-exclusive license to use the AIM licensed marks in connection with LIFE COMPANY's performance of the services contemplated under this Agreement, subject to the terms and conditions set forth in this Section 19. (b) The grant of license to LIFE COMPANY and its affiliates ( the "licensee") shall terminate automatically upon termination of this Agreement. Upon automatic termination, the licensee shall cease to use the licensor's licensed marks, except that LIFE COMPANY shall have the right to continue to service any outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's elective termination of this license, LIFE COMPANY and its affiliates shall immediately cease to issue any new activity or life insurance contracts bearing any of the AIM licensed marks and shall likewise cease any activity which suggests that it has any right under any of the AIM licensed marks or that it has any association with AIM except that LIFE COMPANY shall have the right to continue to service outstanding Contracts bearing any of the AIM licensed marks. (c) The licensee shall obtain the prior written approval of the licensor for the public release by such licensee of any materials bearing the licensor's licensed marks. The licensor's approvals shall not be unreasonably withheld. (d) During the term of this grant of license, a licensor may request that a licensee submit samples of any materials bearing any of the licensor's licensed marks which were previously approved by the licensor but, due to changed circumstances, the licensor may wish to reconsider. If, on reconsideration, or on initial review, respectively, any such samples fail to meet with the written approval of the licensor, then the licensee shall immediately cease distributing such disapproved materials. The licensor's approval shall not be unreasonably withheld, and the licensor, when requesting reconsideration of a prior approval, shall assume the reasonable expenses of withdrawing and replacing such disapproved materials. The licensee shall obtain the prior written approval of the licensor for the use of any new materials developed to replace the disapproved materials, in the manner set forth above. (e) The licensee hereunder: (i) acknowledges and stipulates that, to the best of the knowledge of the licensee, the licensor's licensed marks are valid and enforceable trademarks and/or service marks and that such licensee does not own the licensor's licensed marks and claims no rights therein other than as a licensee under this Agreement; (ii) agrees never to contend otherwise in legal proceedings or in other circumstances; and (iii) acknowledges and agrees that the use of the licensor's licensed marks pursuant to this grant of license shall inure to the benefit of the licensor. 26 Section 20. Parties to Cooperate --------------------------------- Each party to this Agreement will cooperate with each other party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. ------------------------------------- 27 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS, INC. Attest: By: ---------------------------- ------------------------------------ Nancy L. Martin Name: Robert H. Graham Assistant Secretary Title: President LIFE INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: By: ---------------------------- --------------------------------- Name: Name: ---------------------------- --------------------------------- Title: Title: ---------------------------- --------------------------------- SEPARATE ACCOUNT UNDERWRITER Attest: By: ---------------------------- --------------------------------- Name: Name: ---------------------------- --------------------------------- Title: Title: ---------------------------- --------------------------------- 28 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS - ----------------------------------- . AIM VARIABLE INSURANCE FUNDS, INC. [LIST APPLICABLE PORTFOLIOS] SEPARATE ACCOUNTS UTILIZING THE FUNDS - ------------------------------------- CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS - ----------------------------------------- . 29 SCHEDULE B . AIM VARIABLE INSURANCE FUNDS, INC. AIM__________________Fund . AIM and Design 30 EX-1.A(8)(B)(I) 5 SPECIMAN AMEND FUND PART AGMT, SEC LIFE/VAN ECK AMENDMENT TO FUND EXHIBIT 1.A(8)(b)(i) PARTICIPATION AGREEMENT ----------------------- The Fund Participation Agreement made by and among Security Life of Denver ("Insurance Company"), Van Eck Investment Trust ("Trust") and the Trust's investment adviser, Van Eck Associates Corporation ("Adviser") is amended as follows: The Exhibit A (Amended) attached hereto is substituted for the original Exhibit A. SECURITY LIFE OF DENVER By - ---------------------------- -------------------------------- Date VAN ECK INVESTMENT TRUST By - ---------------------------- -------------------------------- Date VAN ECK ASSOCIATES CORPORATION By - ---------------------------- -------------------------------- Date EXHIBIT A (Amended) FUNDS Worldwide Bond Fund Worldwide Emerging Markets Fund Worldwide Real Estate Fund Worldwide Balanced Fund Worldwide Hard Assets (previously known as Gold and Natural Resources) EX-1.A(10)(A)(I) 6 VARI LIFE INS APPL (FORM NO. Q-2006-9/97) EXHIBIT 1.A(10)(a)(i) Flexible Premium Variable Life Insurance Application ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- ---------------------- Q2006-9/97 [LOGO OF SECURITY LIFE APPEARS HERE] [LOGO OF SECURITY LIFE APPEARS HERE] Security Life of Denver Insurance Company 1290 Broadway Denver, CO 80203 303-860-1290 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE APPLICATION INSTRUCTIONS - -------------------------------------------------------------------------------- FOR ALL APPLICATIONS . Use the application approved for the state in which the applicant owner will sign the application. . Use dark ink to complete the application. . Print LEGIBLY to avoid issue errors. . Attach a complete illustration and all schedules associated with this application to expedite policy issue process and ensure that the policy is issued accordingly. . Incomplete applications may require an amendment to be signed upon delivery, or may be returned, which will delay the issue process. . The issue state and appropriate application form will be determined by the state in which the application was signed by the owner-applicant. - -------------------------------------------------------------------------------- SIGNATURES REQUIRED, Page 10: . The signature of all proposed insureds (parent or guardian of the proposed insured if below age 15). . The signature(s) of the owner. If a corporation is the owner, one officer, other than the proposed insured, should sign and indicate name of corporation and title of signing officer. . The signature of all agent/registered representative(s) included in the sale. (Page 10 and Registered Representative's Report.) APPLICATION -- PART I - -------------------------------------------------------------------------------- SECTION A: A-3: Exercise Right of Exchange Rider -- complete this box to identify policy to be exchanged and return the policy along with the application and medical information on the new proposed insured. A-4: If the application is employer sponsored, and the policy will be corporate owned, this question should be answered "No." - -------------------------------------------------------------------------------- SECTION B: Proposed Insured Information B-1: The legal name of the insured will appear on the policy as indicated in this space. B-4 Insurance age is calculated as age nearest birthday. - -------------------------------------------------------------------------------- SECTION C AND SECTION D: Owner and Beneficiary Designations . If you are designating more than one owner and/or beneficiary, use Special Instructions, Section O, and indicate the second owner's name and/or percentage of the beneficiary split. For example: John Doe, Husband, 70% Mary Doe, Mother, 30% NOTE: The amount must be stated in percentages. A dollar amount may not be specified. . If you are designating a trust as the owner and/or beneficiary, include the name of the Trustee, the name of the Trust and the date of the Trust. For example: John Doe, Trustee, of the Revocable Life Insurance Trust of James Doe, dated November 1, 1991. - -------------------------------------------------------------------------------- . When you are designating more than one owner, include the social security number or tax identification number for each respective owner in Special Instructions, Section O. . If you have children as owners or beneficiaries, please refer to the brochure entitled "Your Minor Child." - -------------------------------------------------------------------------------- SECTION F: Special Dating Requested . This section provides an option for indicating a specific age and date on which the policy applied for will be issued. This date is the POLICY DATE only, and may differ from the INVESTMENT DATE. - -------------------------------------------------------------------------------- SECTION J: Premium Information J-1: Consult your Service Guide for List Bill and EFT guidelines. J-2: Electronic Funds Transfer (EFT) is a premium payment method which the payor may elect. If selected, the scheduled premium will automatically be drafted from the payor's checking account. J-3: If any Authorized Withdrawal/EFT is collected with this application, the required premium amount as outlined in the prospectus must be collected in order to put the policy inforce. - -------------------------------------------------------------------------------- SECTION K: Suitability . Must be completed or application will be returned. . The prospectus date should reflect the date printed on the cover of the prospectus provided at the time of solicitation. - -------------------------------------------------------------------------------- SECTION L: 1035 Exchange Information L-4: For purposes of 1035 Exchanges, this information is required to carry over the correct cost basis and loan amount. - -------------------------------------------------------------------------------- SECTION O: Special Instructions . Used for any additional information (for example, billing and mailing instructions) and continuing your answers for owner and beneficiary designations. . If you are requesting child rider(s) and need to request beneficiary(ies) other than shown in Section D, please indicate here. Include name(s) of beneficiary(ies) and relationship. . May be used to continue answers to question L-12, if necessary. . Payor, accepting rating on formal application only. APPLICATION -- PART II - -------------------------------------------------------------------------------- Medical Information This part of the application must be completed for each person proposed for coverage unless the person is medically examined. - -------------------------------------------------------------------------------- [LOGO OF SECURITY LIFE APPEARS HERE] Security Life of Denver Insurance Company 1290 Broadway Denver, CO 80203 303-860-1290 Application for Flexible Premium Variable Life Insurance to Security Life of Denver Insurance Company - -------------------------------------------------------------------------------- PART I - -------------------------------------------------------------------------------- Please Print All Information Using Dark Ink ================================================================================ SECTION A -- General Information (Complete for all cases) A-1 [_] Check here if insurance is for PENSION or similar tax qualified ERISA plan. A-2 If above statement checked, list plan type [______________________________] (Example: Profit-Sharing; Defined Contribution; etc.) A-3 [_] Exercise Right of Exchange Rider Name of Insured under Policy to be Exchanged Policy Number [__________________________________________] [___________] A-4 Employer Sponsored Plans check one: Employee Owned? [_] Yes [_] No ================================================================================ SECTION B -- Proposed Insured (Complete for all cases. To apply for additional insureds complete Section G) B-1 Name (Print full name, include suffix) (First, Middle, Last, Suffix) [_______________________________________________________________________] B-2 Sex B-3 Birthdate [_] Male [_] Female Month Day Year [_][_] [_][_] [_][_] B-4 Insurance Age B-5 Birthplace Age Nearest Birthday (State) [_][_] [___________________] B-6 Social Security Number B-7 Telephone Number [_][_][_]-[_][_]-[_][_][_][_] [_][_][_]-[_][_][_]-[_][_][_][_] B-8 Height [______________] B-9 Weight [______________] B-10 Address (Street, Apt. No.) [_________________________________________________________________________] (City) (State) (Zip Code) [___________________] [_____] [_][_][_][_][_]-[_][_][_][_] B-11 Occupation B-12 Describe duties [____________________________] [____________________________] B-13 Employer Name B-14 Employment date: Month Year [____________________________] [_][_] [_][_] ================================================================================ SECTION C -- Owner (Complete only if other than Proposed Insured) C-1 Owner Name (Print full name, include suffix--if name to appear differently on policy, indicate in Section O) (First, Middle, Last, Suffix) [_________________________________________________________________________] C-2 Relationship to Proposed Insured C-3 Social Security Number or Tax I.D. [_____________________________] No. (Include any hyphens) [_][_][_][_][_][_][_][_][_][_][_] C-4 Owner Address (Street, Apt. No.) [_________________________________________________________________________] (City) (State) (Zip Code) [___________________] [_____] [_][_][_][_][_]-[_][_][_][_] ================================================================================ SECTION D -- Beneficiaries (Complete for all cases) --------------------------------------------------------------------------- D-1 Primary Beneficiary(ies) (Print Full Names) --------------------------------------------------------------------------- Relationship to Proposed Insured --------------------------------------------------------------------------- Birthdate --------------------------------------------------------------------------- Contingent Beneficiary(ies) (Print Full Names) --------------------------------------------------------------------------- Relationship to Proposed Insured --------------------------------------------------------------------------- Birthdate --------------------------------------------------------------------------- 1 ================================================================================ SECTION E -- Plan Information (Complete for all cases) E-1 Flexible Premium Variable Life Insurance Policy a. Product Name [_______________________________________________________] b. Stated Death Benefit $ [________________________] c. Adjustable Term Rider [_] Yes [_] No If Yes: Initial Target Death Benefit $ [_________________________] (Attach Schedule from Illustration for subsequent Target Death Benefit changes.) d. Scheduled Periodic Premium $ [_________________________] (If premium varies from year to year attach schedule) e. [_] Option 1 (Stated Death Benefit. If no option selected, Option 1 will apply.) [_] Option 2 (Stated Death Benefit plus Account Value.) f. [_] Guideline Premium Cash Value Corridor Test [_] Cash Value Accumulation Test g. First Year Pour-In (if any) $ [_______________________] h. Additional Riders [_] Accidental Death $ [________________________] [_] Additional Insured $ [______________________] (Complete section G) [_] Right to Exchange [_] Waiver of Cost of Insurance [_] Waiver of Specified Premium $ [_________________________] [_] Child's Insurance Rider (# of Units) [______] (Complete section H) [_] Guaranteed Insurability Rider [___________________] [_] Other [__________________________________________________________] ================================================================================ SECTION F -- Special Dating Requested (If neither box checked below, policy will be issued at age nearest birthday as of issue date.) F-1 [_] Date to Save Age Specify Requested Age [______] Mo Day Year F-2 [_] Specific Date [_][_] [_][_] [_][_][_][_] ================================================================================ SECTION G -- Additional Insured Rider G-1 Name of Proposed Additional Insured (If more than one additional insured, specify details in special instructions, Section O) (First, Middle, Last, Suffix) [_________________________________________________________________________] G-2 Relationship to proposed insured [______________________________________] Month Day Year G-3 Birthdate [_][_] [_][_] [_][_][_][_] G-4 Social Security Number [_][_][_]-[_][_]-[_][_][_][_] G-5 Height [_______] G-6 Weight [_______] G-7 Insurance Age (Age nearest birthday) [_][_] G-8 Show beneficiary for additional insured if different from beneficiary named in Section D. --------------------------------------------------------------------------- Name: Relationship: Birthdate: --------------------------------------------------------------------------- ================================================================================ SECTION H -- Child Rider Birthdate Mo/Day/Yr Height Weight H-1 Child / / ---------------------------------------------------------------------------- H-2 Child / / ---------------------------------------------------------------------------- H-3 Child / / ---------------------------------------------------------------------------- H-4 Child / / 2 ================================================================================ SECTION I -- Guaranteed Minimum Death Benefit Option I-1 Guarantee Period (Select one, if option desired; otherwise there will be no Guaranteed Period) [_] Later of ten years or proposed insured's age 65 [_] Lifetime of proposed insured Note: The Guarantee Period will terminate if: 1. You fail to pay the required Guarantee Period Annual premium defined in your prospectus; or 2. Your Account Value on any Monthly Processing date is not diversified according to the following rules: a. No more than 35% of your Net Account Value may be invested in any one division; and b. Your Net Account Value must be invested in at least five divisions. You will satisfy these diversification requirements if: (i) you participate in the Automatic Rebalancing feature defined in and governed by the policy prospectus in effect at the time you elect the Guarantee Period and your Automatic Rebalancing allocations comply with the diversifications specified above; or (ii) you elect Dollar Cost Averaging and direct the resulting transfers into at least four other Divisions with no more than 35% of any transfer being to any one division. There may be other circumstances that will cause the Guarantee Period to terminate before its scheduled expiration date. See your prospectus for further information. ================================================================================ SECTION J -- Premium Information J-1 Premium Mode (If no option selected - Premium mode will be quarterly) [_] Annual [_] Quarterly [_] Semi-Annual [_] Monthly (only available for List Bill and Authorized Withdrawal/EFT) J-2 Payment Method (If no option selected - Payment Method will be Direct Bill for Annual, Semi-Annual or Quarterly Premium Mode or EFT for Monthly Mode) [_] Direct Bill (not available for monthly) [_] Single Premium [_] List Bill Existing List Bill Number _________________________ [_] Authorized Withdrawal (Complete Authorized Withdrawal/EFT Form) J-3 Premium collected with application The agent is not authorized to collect any premium before delivering a policy unless the Binding Limited Life Insurance Coverage form has been completed and signed by the agent, applicant and proposed insured and a copy given to the applicant. There is no coverage before delivery of the policy except as provided by that form. Yes No [_] [_] a. Has agent collected any premium (including any Authorized Withdrawal/EFT Form) with this application? If yes, total premium (including any pour-in) collected $ [_______________________] [_] [_] b. If answer to (a) is "Yes," has agent complied with the Binding Limited Life Insurance Coverage requirements? [_] [_] c. Has the applicant signed and received a Binding Limited Life Insurance Coverage form in connection with this application? Attach signed copy of Binding Limited Life Insurance Coverage form. NOTE: If any Authorized Withdrawal/EFT is collected with this application, the required premium amount as outlined in the prospectus must be collected in order to put the policy in force. 3 ================================================================================ SECTION J -- Premium Information (continued) J-4 Initial Premium Allocation. Please allocate your Initial Premium to the Guaranteed Interest Division and/or among the Variable Account Divisions. Please use whole number percentages for each Division elected. You must allocate at least 1% of your Premium Allocation to each Division in which you elect to invest. The total must equal 100%. _______% GUARANTEED INTEREST DIVISION VARIABLE ACCOUNT DIVISIONS - -------------------------------------------------------------------------------- AIM INVESCO _____% V.I. GOVERNMENT SECURITIES _____% INDUSTRIAL INCOME _____% V.I. CAPITAL APPRECIATION _____% HIGH YIELD _____% UTILITIES ALGER AMERICAN _____% TOTAL RETURN _____% SMALL CAPITALIZATION _____% VIF SMALL COMPANY GROWTH _____% MIDCAP GROWTH _____% GROWTH NEUBERGER & BERMAN _____% LEVERAGED ALLCAP _____% LIMITED MATURITY BOND _____% GROWTH PORTFOLIO FIDELITY INVESTMENTS _____% PARTNERS PORTFOLIO _____% ASSET MANAGER _____% GROWTH PORTFOLIO VAN ECK _____% OVERSEAS _____% WORLDWIDE HARD ASSETS _____% MONEY MARKET _____% WORLDWIDE EMERGING MARKETS _____% INDEX 500 _____% WORLDWIDE BOND _____% WORLDWIDE REAL ESTATE ================================================================================ SECTION K -- Suitability a. Have you, the Proposed Insured, and the Owner, if other than the Proposed Insured, received a current Prospectus dated ______________ ______________________ for the Variable Life Insurance policy applied for and current prospectus for each of the Variable Account Divisions? [_] Yes [_] No b. Do you understand that under the policy applied for the amount or duration of the death benefit may vary under specified conditions; policy values may increase or decrease in accordance with the investment experience of investment divisions in a Separate Account, and may increase in accordance with the interest credited in the Guaranteed Interest Division; and the amount payable at the Final Policy Date is not guaranteed but is dependent on the amount then in the Account Value? [_] Yes [_] No c. Do you understand that any personalized illustrations received are based on hypothetical interest assumptions which may not be indicative of actual future investment experience of our Separate Account or of actual interest credited in our Guaranteed Interest Division? [_] Yes [_] No d. With this in mind, is the policy in accord with your insurance objectives and your anticipated financial needs? [_] Yes [_] No 4 ================================================================================ SECTION L -- Personal Information L-1 List life insurance policies on all persons proposed for coverage (1) now in force or (2) applied for within the last 12 months, or (3) pending now. If NONE, Check this box [_]
---------------------------------------------------------------------------------------------------------------------- Name of Year A.D. Business or Indicate if Inforce, Proposed Insured Company Issued Amount Amount Personal Applied for, or Pending ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------
Yes No L-2 Has any proposed insured ever been declined for insurance (or reinstatement) or been offered insurance with restricted benefits or at other than standard rates? (If "Yes" give details in section L-12) [_] [_] L-3 Is this insurance to replace, or will it cause any change in, any insurance or annuity on any person proposed for coverage? (If "Yes" submit a completed replacement form with this application.) [_] [_] L-4 a. Is this insurance intended to be a tax free exchange 1035 Exchange? (If "Yes" indicate Company in section L-12) [_] [_] b. If "Yes" will any policy loan be carried over? [_] [_] L-5 Has any person proposed for coverage: a. ever smoked cigarettes? (If "Yes," give name and details in section L-12) [_] [_] b. ever used tobacco in any form other than cigarettes? (If "Yes" give name and details in section L-12) [_] [_] c. ever stopped smoking cigarettes? (If "Yes" give name and date last smoked in section L-12) [_] [_] d. ever stopped using tobacco in any form other than cigarettes. (If "Yes" give name, type and date last used in section L-12) [_] [_] L-6 Within the last 3 years or within the next 12 months, has any person proposed for coverage: a. flown (or planned to fly) other than as a passenger on a regularly scheduled airline? (If "Yes" complete Aviation Supplement.) [_] [_] b. had a drivers license denied, revoked, or suspended; had three or more moving violations; been convicted of an alcohol or drug related driving offense; been involved in two or more auto accidents? (If "Yes" give details in section L-12) [_] [_] c. participated in (or intend to participate in) vehicle racing (on land or water), ballooning, bobsledding, hang gliding, ultralight aviation, horse racing, mountaineering, rodeo, scuba/skin diving, skydiving/ parachuting, or bungee cord jumping? (If "Yes" complete Avocation Supplement) [_] [_] L-7 List Driver's License No. here [_][_][_][_][_][_][_][_][_][_][_][_] State [____] L-8 Does any person proposed for coverage contemplate traveling or residing outside the U.S.A. or Canada within the next 12 months? (If "Yes" give details in section L-12) [_] [_] L-9 Has any person proposed for coverage been convicted of a felony within the last 5 years? (If "Yes" give details in section L-12) [_] [_] L-10 Has any person proposed for coverage: a. ever had, or now have, any type of heart disease, cancer, leukemia, or malignant tumor? (If "Yes" give details in section L-12) [_] [_] b. ever been diagnosed by a licensed member of the medical profession as having Acquired Immune Deficiency Syndrome (AIDS) or any immune deficiency or disorder? (Do Not Answer This Question If You Reside In Nevada.) (If "Yes" give details in section L-12) [_] [_] L-11 Does any person proposed for coverage now participate in any regular physical exercise program? [_] [_] L-12 Details of "YES" Answers to Questions L-2 through L-11 --------------------------------------------------------------------------- --------------------------------------------------------------------------- 5 ================================================================================ SECTION M -- Medical Exam Certificate (Complete when submitting medical examination of another insurance company.) M-1 The attached examination is on the life of: [_____________________________] M-2 Name of insurance company for which examination was made and date of examination: -------------------------------------------------------------------------- Company Date of Examination -------------------------------------------------------------------------- M-3 To the best of the proposed insured's knowledge and belief, are the statements in the examination true as of today? [_] Yes [_] No (If "No," explain in "REMARKS") M-4 Has the proposed insured consulted a doctor or other practitioner or received medical or surgical advice since the date of the examination? [_] Yes [_] No (If "Yes," explain in "REMARKS") -------------------------------------------------------------------------- Remarks to No. M-3 and M-4 -------------------------------------------------------------------------- ================================================================================ SECTION N -- Financial Information Must be completed where the face amount exceeds (1) $200,000 for business insurance, (2) $300,000 for an insured 65 and under, or (3)$100,000 for an insured over 65. N-1 What is the purpose of the insurance applied for? [_______________________] If the insurance applied for is personal, what is the proposed insured's: Annual Earned Income $ [__________________] Annual Interest & Other Income $ [__________________] Total Assets $ [__________________] Total Liabilities $ [__________________] Total Net Worth $ [__________________] N-2 If Business Insurance: a. Annual net profit (before taxes, past two years) Last Year 2 Years Ago $ [__________________] $ [_____________________] b. Business reason for insurance (check at least one box and furnish details) [_] Key Person [_] Stock Redemption/buy And Sell [_] Other [___________] c. If Key Person insurance: (1) Are all partners or key people to be covered? [_] Yes [_] No (If "No," explain) ----------------------------------------------------------------- ----------------------------------------------------------------- (2) Does proposed insured have an ownership interest in the business? [_] Yes [_] No If "Yes," what is proposed insured's percent of ownership? [______%] (3) What is proposed insured's annual income? $ [______________________] 6 ================================================================================ SECTION N -- Financial Information (Continued) Must be completed where the face amount exceeds (1) $200,000 for business insurance, (2) $300,000 for an insured 65 and under, or (3) $100,000 for an insured over 65. d. If to fund stock redemption, is there a written agreement? [_] Yes [_] No (1) What is the book value of the business? $ [____________________] (2) What is the market value of the business? $ [___________________] (3) How was the value determined? [__________________________________] N-3 Is this insurance to guarantee a loan? [_] Yes [_] No a. If "Yes," is the lender requiring this insurance? [_] Yes [_] No b. Is the loan finalized? [_] Yes [_] No c. What is the term of the loan? (Months) [_____________] d. Name of lender: [_____________________________________________________] e. Amount of loan: [_____________________________________________________] f. Purpose of loan: [____________________________________________________] g. Are others being insured for the same purpose? [_] Yes [_] No If Yes, who and for what amount? [_____________________________________] Amount $ [___________________] [_____________________________________] Amount $ [___________________] N-4 Additional remarks about purpose of the insurance and how the amount of insurance was determined. --------------------------------------------------------------------------- Remarks to Section N --------------------------------------------------------------------------- ================================================================================ SECTION O -- Special Instructions - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- PART II - -------------------------------------------------------------------------------- Please Print All Information Using Dark Ink Part II must be completed for each person proposed for coverage unless the person is medically examined. ================================================================================ SECTION A -- Personal Physicians A-1 For each person proposed for coverage, give the name and address of the personal physicians and the date and reason the physician was last seen. If NONE, check here [_] ----
--------------------------------------------------------------------------------------------------- Proposed Insured's Name Name and Address of Physician Date and Reason Last Seen --------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------
================================================================================ SECTION B -- Medical Information (Complete for each person proposed for coverage.) (For all of Section B, circle each specific condition and give details of all "Yes" answers in the Details Section following question B-11. Give name of disease, symptoms, etc.; the date of onset; the duration; number of attacks; and name and addresses of medical professional or hospital providing services.) B-1 Has any person proposed for coverage ever been treated for, or been told by a member of the medical profession that the person has: Yes No a. pain, pressure, or discomfort in the chest or arms; high blood pressure; heart murmur; irregular heartbeat; or any other disease or disorder of the heart? [_] [_] b. anemia; leukemia; or any other disorder of the blood, veins or arteries? [_] [_] c. asthma; bronchitis; pneumonia; tuberculosis; emphysema; shortness of breath; chronic cough, or any other disorder of the lungs or respiratory system? [_] [_] d. mental or emotional disorder, nervous breakdown; epilepsy; convulsions; chronic fatigue; fainting spells; paralysis; stroke; or any other disorder of the brain or nervous system? [_] [_] e. significant weight loss; ulcer; colitis; diverticulitis; hepatitis; cirrhosis; persistent diarrhea; or other disease of the liver, gall bladder, pancreas, stomach or intestines? [_] [_] f. diabetes; thyroid; recurrent enlarged glands; or other glandular disease or disorder? [_] [_] g. arthritis; gout; or any bone, joint, muscle, or skin disorder? [_] [_] h. polyp, tumor, or cancer? [_] [_] i. disorder of the urinary tract or kidneys; urethritis; cystitis; sugar, albumin, or blood in the urine? [_] [_] j. prostate or testicular disease; venereal disease; herpes; or disease of the uterus, ovaries or breasts? [_] [_] k. any disorder of the eyes; ears; nose; or throat? [_] [_] l. any other health impairment or medically or surgically treated condition within the last 5 years not mentioned above? [_] [_] 8 Yes No B-2 Has any person proposed for coverage ever been treated for or been told by a licensed member of the medical profession that the person has Acquired Immune Deficiency Syndrome (AIDS) or any disorder or deficiency of the Immune System? (Do Not Answer This Question If You Reside In Nevada.) [_] [_] B-3 Within the past 10 years, has any person proposed for coverage: a. tested positive in a test to detect antibodies to the AIDS virus (Human T-Cell Lymphotrophic virus type III; HTLV-III, Human Immunodeficiency Virus [HIV])? (Do Not Answer This Question If You Reside in Connecticut or Maine.) [_] [_] b. had a blood transfusion? [_] [_] B-4 Within the past 5 years, has any person proposed for coverage been a patient in or had treatment at a hospital, clinic, sanitarium or other medical facility? [_] [_] B-5 Is any person proposed for coverage now under regular medical observation by, or taking treatment from, a member of the medical profession? [_] [_] B-6 Other than as stated in the answers above, has any person proposed for coverage, within the last 5 years: a. had a checkup or consultation with a member of the medical profession? [_] [_] b. had an electrocardiogram, x-ray, blood test or other test? [_] [_] c. been advised by a member of the medical profession to have any diagnostic test, hospitalization, or surgery which was not completed? [_] [_] --- B-7 Does any person proposed for coverage have a deformity or an amputation? [_] [_] B-8 Does any person proposed for coverage now take any medicine prescribed by a member of the medical profession? [_] [_] B-9 Except as legally prescribed by a physician, has any person proposed for coverage ever used narcotics, cocaine, marijuana, or any hallucinatory or mind altering substances in the past 10 years? [_] [_] B-10 In the last 5 years, has any person proposed for coverage received treatment for or joined an organization because of the alcoholism or drug addiction of that person? [_] [_] B-11 Has any parent, brother, or sister of any person proposed for coverage ever had cancer; diabetes; high blood pressure; heart or kidney disease; nervous or mental disorder; tuberculosis; or hereditary disorder? [_] [_] Details of "Yes" answers to questions B-1 through B-11
- --------------------------------------------------------------------------------------------------------------------- Ques. Name of No. Proposed Insured Complete Details (including, if any, name of physician noted in Section A-1) - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
================================================================================ SECTION C -- Family History
- ------------------------------------------------------------------------------------------------------- Living Deceased Family Member Age State of Health Age at Death/Cause - ------------------------------------------------------------------------------------------------------- Father - ------------------------------------------------------------------------------------------------------- Mother - ------------------------------------------------------------------------------------------------------- Brothers - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Sisters - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
9 AGREEMENTS All statements and answers in this application (which includes Part I, Part II, and supplements and amendments) are true and complete to the best of my knowledge and belief. I also agree that: 1. The statements and answers in this application will be relied upon and form the basis of any insurance. 2. No information will be considered as having been given to Security Life unless it is written in this application. (This paragraph does not apply in the states of Maine, Missouri, Oregon, South Carolina, and South Dakota.) 3. No agent or any other unauthorized person can make or change any insurance contract or give up any of Security Life's rights or requirements. Any change must be in writing and signed by an officer of Security Life. 4. Security Life may amend this application by an appropriate notation in the space designated "Home Office Corrections" in order to correct errors or omissions or to conform the application with any policy that may be issued. The acceptance of the policy constitutes a ratification of such amendments. In those states, including Maryland, where change in amount, classification, plan, premium, or benefit requires the written consent of the applicant, no change may be ratified except by a written acceptance. We reserve the right to make any changes required by law. 5. Insurance Under Policy Applied For--Except as may be provided in any Binding Limited Life Insurance Coverage, no policy of insurance will be in force until (1) the first policy premium is paid and (2) the policy is delivered while the facts and health condition of the proposed insured(s) are as represented in this application. When these conditions are satisfied, the policy as delivered will then take effect. 6. Binding Limited Life Insurance Coverage--Any pre-delivery insurance coverage is provided in the Binding Limited Life Insurance Coverage form. That coverage is available only if: a premium is accepted by the agent; the agent has authority to accept premium as set out in that form; and the form is completed and signed by the agent, applicant, and proposed insured. 7. If the contract applied for is for a pension, profit-sharing, HR10, or other tax qualified plan, any policy issued shall not be transferable other than to the Insurer, except as directed by the Plan Administrator. Other applicable provisions may be added to the contract. 8. I certify, under penalty of perjury, that my social security/tax identification number(s) is shown and is correct and that I am not subject to back up withholding. AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION Security Life of Denver Insurance Company ("Security Life") may obtain information about me or my minor children from: any physicians; medical practitioner; hospital, clinic or other medical facility; employer; other insurance companies or institutions; consumer reporting agency; or Medical Information Bureau, Inc. (MIB, Inc.). The purpose is to evaluate my application for insurance or benefits. Security Life may obtain an investigative consumer report and any records or other information available as to diagnosis, treatment and prognosis of any physical or mental condition. Security Life may obtain any drug, physical and mental health, and alcohol- related information which may be protected by federal or state laws and regulations. As it pertains to alcohol and drug information covered by federal regulation, this authorization may be revoked at any time by written notice to Security Life. But any action taken before my written revocation is received by Security Life will not be affected. Security Life may make a brief report about me or my children to MIB, Inc. Security Life may disclose information to: its reinsurers; those who perform services for Security Life on my application for insurance or benefits: or those companies to which I have applied or may apply for life or health insurance or benefits. Disclosure may be made when required or permitted by law. This is valid for two and one-half years from the date below. An original or copy may be used by Security Life or its authorized representatives to obtain information. I have read and received a copy of this authorization. I also have a copy of the Notice of Information Procedures. It includes the MIB, Inc. and Fair Credit Reporting Notices. NOTICE: Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, files an application, statement or claim containing any false, incomplete, or misleading information may be guilty of insurance fraud. Signature of Proposed Insured [______________________________________] Date [_______________] (If below age 15, signature of parent or guardian) Signature of Owner (If other than proposed insured) [_____________________________________________] OR (If applicable) Corporate (If a firm or corporation is to be owner, Owner Signature the signature and title of an officer other than the proposed insured is required.) Signed by Owner at [State_______] Signature of Spouse [_________________________________________________] Signature of Additional Insured(s) (If proposed for coverage) [___________________________________________________] Except for any medical exam form, I certify that I have asked and recorded completely and accurately the answers to all questions on this application. I know of nothing else affecting the risk. Signature of Agent/ Registered Rep. [________________________________Reg. Rep. Number______________] Signature of Agent/ Registered Rep. [________________________________Reg. Rep. Number______________] Signature of Agent/ Registered Rep. [________________________________Reg. Rep. Number______________] [__________________________________] [________________________________________] Name of Broker/Dealer/Branch/OSJ Address of Broker/Dealer/Branch/OSJ - -------------------------------------------------------------------------------- HOME OFFICE CORRECTIONS (FOR HOME OFFICE USE ONLY) (Not applicable in West Virginia) - -------------------------------------------------------------------------------- 10 Registered Representative's Report (Must be completed and signed for every application) Yes No 1) Do you have knowledge or reason to believe that replacement of existing insurance or annuity may be involved? [_] [_] If Yes, explain:_____________________________________________ 2) How long have you known the proposed insured? ______ Years Are you related? [_] [_] If so, how? _________________________________________________ 3) Does the proposed insured speak English? [_] [_] Was the application interpreted for and understood by the proposed insured? [_] [_] Are all persons proposed for coverage U.S. citizens? [_] [_] If not, how long in U.S.? _____Mos. _____Yrs. 4) Did proposed insured approach you for this insurance? [_] [_] 5) What is the amount of insurance in force on the spouse of the proposed insured? $______________________________________ 6) If any proposed insured is a minor, what is the amount of insurance on: Father $___________ Mother $__________ Brothers $___________ Sisters $__________ 7) Will the applicant accept this policy if it is a "Modified Endowment" at issue? [_] [_] 8) If a medical exam is required, has it been ordered? [_] [_] 9) What is the source of the first premium payment: [_] Applicant check [_] Other (specify):_________________________________________ ================================================================================ 10) Writing Registered Representative (Print) [________________________________] Writing Registered Representative (Sign) [_________________________________] Date [_______________] Registered Representative Number: [_][_][_][_][_] [_] Production Credit Split Variable Agent Number Percent ------------ ------- ------------ ------- ------------ ------- - -------------------------------------------------------------------------------- 11) What was the PRIMARY purpose of the insurance? PERSONAL PLANNING A [_] Estate/Death Tax B [_] Family Protection C [_] Mortgage Protection D [_] College Funding E [_] Gift/Charitable F [_] Retirement Maximizer G [_] IRP/PPP/PRO H [_] Savings I [_] Other _______________________ BUSINESS PLANNING J [_] Executive Bonus K [_] Qualified Plan L [_] Deferred Compensation M [_] Buy-Sell N [_] Key Executive O [_] Employee Benefit P [_] Other _______________________ ================================================================================ 12) Who was the PRIMARY decision-maker involved? PERSONAL PLANNING A [_] Insured B [_] Insured and Spouse C [_] Parent D [_] Grandparent E [_] Child(ren) F [_] Other _______________________ BUSINESS PLANNING G [_] Businessowner H [_] Attorney I [_] Accountant J [_] Board of Directors K [_] Trustee L [_] Other _______________________ ================================================================================ 13) Did the Home Office or Regional Staff assist you? [_] Yes [_] No (If yes, check all that apply.) A [_] Illustration B [_] Case Design C [_] Sample Documents D [_] Template Design E [_] Estate Analysis F [_] Business Analysis G [_] Family Asset Review H [_] Competition Services I [_] Legal Consultation J [_] Other _______________________ 11 (Detach and give to Applicant) AGREEMENTS All statements and answers in this application (which includes Part I, Part II, and supplements and amendments) are true and complete to the best of my knowledge and belief. I also agree that: 1. The statements and answers in this application will be relied upon and form the basis of any insurance. 2. No information will be considered as having been given to Security Life unless it is written in this application. (This paragraph does not apply in the states of Maine, Missouri, Oregon, South Carolina, and South Dakota.) 3. No agent or any other unauthorized person can make or change any insurance contract or give up any of Security Life's rights or requirements. Any change must be in writing and signed by an officer of Security Life. 4. Security Life may amend this application by an appropriate notation in the space designated "Home Office Corrections" in order to correct errors or omissions or to conform the application with any policy that may be issued. The acceptance of the policy constitutes a ratification of such amendments. In those states, including Maryland, where change in amount, classification, plan, premium, or benefit requires the written consent of the applicant, no change may be ratified except by a written acceptance. We reserve the right to make any changes required by law. 5. Insurance Under Policy Applied For Except as may be provided in any Binding Limited Life Insurance Coverage, no policy of insurance will be in force until (1) the first policy premium is paid and (2) the policy is delivered while the facts and health condition of the proposed insured(s) are as represented in this application. When these conditions are satisfied, the policy as delivered will then take effect. 6. Binding Limited Life Insurance Coverage Any pre-delivery insurance coverage is provided in the Binding Limited Life Insurance Coverage form. That coverage is available only if: a premium is accepted by the agent; the agent has authority to accept premium as set out in that form; and the form is completed and signed by the agent, applicant, and proposed insured. 7. If the contract applied for is for a pension, profit-sharing, HR10, or other tax qualified plan, any policy issued shall not be transferable other than to the Insurer, except as directed by the Plan Administrator. Other applicable provisions may be added to the contract. 8. I certify, under penalty of perjury, that my social security/tax identification number(s) is shown and is correct and that I am not subject to back up withholding. NOTICE OF INFORMATION PROCEDURES OUR UNDERWRITING PROCESS This process is an evaluation of information about you. It is to see if you qualify for the insurance requested. The information we review may vary with the insurance applied for. We look at information about you such as: your age; occupation; health; mode of living; avocation; and other personal information. Answers on the application are the principal source of information. We may contact other people or institutions personally, by phone, or by letter. The purpose is to confirm or add to information you have provided. For example, we may obtain information from your doctor, clinic, hospital, or other insurers. In some cases, your Security Life agent may obtain information on our behalf. A medical examination or laboratory tests may be requested. NOTICE Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, files an application, statement or claim containing any false, incomplete, or misleading information may be guilty of insurance fraud. MIB, INC. Medical Information Bureau, Inc. ("MIB, Inc.") may provide Security Life with a brief report about you. This is a nonprofit organization of life insurance companies which has an information exchange for its members. Information that is sent to MIB, Inc. by one member may be given to their member companies who have a business need for it. Upon your written request, MIB, Inc. will arrange for disclosure of any information it may have in your file. If you question the accuracy of MIB's information, you may request a correction according to the procedures in the Federal Fair Credit Reporting Act. MIB's address is: P.O. Box 105, Essex Station, Boston, Massachusetts 02112, telephone 617/426-3660. CONSUMER REPORTS In some cases, a Security Life representative may prepare a consumer report or investigative consumer report about you or, Security Life may ask an independent agency to prepare a consumer report or an investigative consumer report about you. These reports may include information on your character; general reputation; personal characteristics such as health, finances, and job, and mode of living except as may be related directly or indirectly to your sexual orientation. Any information obtained by the agency may be kept in its file and later given to others who have a business need for it. If an investigative consumer report is ordered by Security Life, the report will include information obtained through interviews with your neighbors, friends, or others you know. You may request a personal interview. The agency will make a reasonable attempt to talk to you. It will include that information in its report. The Federal Fair Credit Reporting Act gives you the right to make a written request within a reasonable period of time, to receive additional information from Security Life about the nature and scope of an investigation, if one is made. We will provide the name, address, and phone number of any agency we ask to prepare such a report. You may contact the agency directly to learn about the contents of the report. DISCLOSURE OF INFORMATION Information we obtain about you is confidential. As permitted by law, we may disclose information without further authorization to others such as: consumer reporting agencies hired to prepare investigative reports; insurance companies to which you have applied for coverage or benefits; those providing services for us; those conducting bona fide actuarial, marketing, or scientific studies or audits; and your attending doctor. Upon written request, we will give you more information about these procedures. YOUR RIGHT TO REVIEW INFORMATION These are procedures by which you can make a written request to review personal information in our policy file. However, Security Life will not disclose information to you that was prepared for any anticipated claim or any civil or criminal proceeding. We also have procedures by which you may request correction, amendment, or deletion of any information in our files which you believe to be inaccurate or irrelevant. Upon written request, we will provide you with further information about these procedures. We hope this notice helps explain our underwriting process. If you have any additional questions, discuss them with your agent or contact us directly. Security Life of Denver Insurance Company 1290 Broadway Denver, CO 80203 303-860-1290 [LOGO OF SECURITY LIFE APPEARS HERE] 1290 Broadway Denver, CO 80203 EX-1.A(10)(A)(II) 7 VARI LIFE INS APP (FORM NO. Q-1155-98) EXHIBIT 1.A(10)(a)(ii) FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE APPLICATION ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- ------------------------------- Q1155-98 [LOGO OF SECURITY LIFE APPEARS HERE] [LOGO OF SECURITY LIFE APPEARS HERE] Security Life of Denver Insurance Company P. O. Box 173763 Denver, CO 80217-3763 1-800-933-5858 FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE APPLICATION INSTRUCTIONS - -------------------------------------------------------------------------------- FOR ALL APPLICATIONS . Use dark ink to complete the application. . Print LEGIBLY to avoid issue errors. . Attach a complete illustration and all schedules associated with this application to expedite policy issue process and ensure that the policy is issued accordingly. . Incomplete applications may require an amendment to be signed upon delivery, or may be returned, which will delay the issue process. . The issue state will be determined by the state in which the application was signed. - -------------------------------------------------------------------------------- SIGNATURES REQUIRED, Page 10: . The signature of all proposed insureds (parent or guardian of the proposed insured if below age 15). . The signature(s) of the owner. If a corporation is the owner, one officer, other than the proposed insured, should sign and indicate name of corporation and title of signing officer. . The signature of the agent/registered representative. (Page 10 and Registered Representative's Report.) APPLICATION -- PART I - -------------------------------------------------------------------------------- SECTION A: A-3: Exercise Right of Exchange Rider -- complete this box to identify policy to be exchanged and return the policy along with the application and medical information on the new proposed insured. A-4: If the application is employer sponsored, and the policy will be corporate owned, this question should be answered "No". - -------------------------------------------------------------------------------- SECTION B: Proposed Insured Information B-1: The legal name of the insured will appear on the policy as indicated in this space. B-4 Insurance age is calculated as age nearest birthday. - -------------------------------------------------------------------------------- SECTION C AND SECTION D: Owner and Beneficiary Designations . If you are designating more than one owner and/or beneficiary, use Special Instructions, Section O, and indicate the second owner's name and/or percentage of the beneficiary split. For example: John Doe, Husband, 70% Mary Doe, Mother, 30% . If you are designating a trust as the owner and/or beneficiary, include the name of the Trustee, the name of the Trust and the date of the Trust. For example: John Doe, Trustee, of the Revocable Life Insurance Trust of James Doe, dated November 1, 1991. . When you are designating more than one owner, include the social security number or tax identification number for each respective owner in Special Instructions, Section O. . If you have children as owners or beneficiaries, please refer to the brochure entitled "Your Minor Child." - -------------------------------------------------------------------------------- SECTION F: Special Dating Requested . This section provides an option for indicating a specific age and date on which the policy applied for will be issued. This date is the POLICY DATE only, and may differ from the INVESTMENT DATE. - -------------------------------------------------------------------------------- SECTION I: Premium Information I-1: Consult your Service Guide for List Bill and EFT guidelines. I-2: Electronic Funds Transfer (EFT) is a premium payment method which the payor may elect. If selected, the premium will automatically be drafted from the payor's checking account. I-3: If any Authorized Withdrawal/EFT is collected with this application, the required premium amount as outlined in the prospectus must also be collected along with the Binding Limited Life Insurance Coverage form in order to bind coverage. - -------------------------------------------------------------------------------- SECTION J: Fund Transfers J:1: You must have at least $10,000 of Accumulation Value in the Fidelity Investments Money Market Division or the Neuberger & Berman Limited Maturity Bond Division to exercise this option. The minimum transfer amount each month is $100. The maximum transfer amount is equal to the Accumulation Value in the Division from which the transfer originates when the election is made, divided by 12. - -------------------------------------------------------------------------------- SECTION K: 1035 Exchange Information K-4: For purposes of 1035 Exchanges, this information is required to carry over the correct cost basis and loan amount. - -------------------------------------------------------------------------------- SECTION O: Special Instructions . Used for any additional information (for example, billing and mailing instructions) and continuing your answers for owner and beneficiary designations. . If you are requesting child rider(s) and need to request beneficiary(ies) other than shown in Section D, please indicate here. Include name(s) of beneficiary(ies) and relationship. . May be used to continue answers to question K-12, if necessary. . Payor, accepting rating on formal application only. APPLICATION -- PART II - -------------------------------------------------------------------------------- Medical Information This part of the application must be completed for each person proposed for coverage unless the person is medically examined. - -------------------------------------------------------------------------------- [LOGO OF SECURITY LIFE APPEARS HERE] Security Life of Denver Insurance Company P. O. Box 173763 Denver, CO 80217-3763 1-800-933-5858 Application for Flexible Premium Variable Life Insurance to Security Life of Denver Insurance Company - -------------------------------------------------------------------------------- PART I - -------------------------------------------------------------------------------- Please Print All Information Using Dark Ink ================================================================================ SECTION A -- General Information (Complete for all cases) A-1 [_] Check here if insurance is for PENSION or similar tax qualified ERISA plan. A-2 If above statement checked, list plan type [_____________________________] (Example: Profit-Sharing; Defined Contribution; etc.) A-3 [_] Exercise Right of Exchange Rider Name of Insured under Policy to be Exchanged Policy Number [__________________________________________] [___________] A-4 Employer Sponsored Plans check one: Employee Owned? [_] Yes [_] No ================================================================================ SECTION B -- Proposed Insured (Complete for all cases. To apply for additional insureds complete Section G) B-1 Name (Print full name, include suffix) (First, Middle, Last, Suffix) [_________________________________________________________________________] B-2 Sex B-3 Birthdate B-4 Insurance Age B-5 Birthplace [_] Male Month Day Year (Age Nearest Birthday) (State) [_] Female [__] [__] [____] [__] ___________ B-6 Social Security Number B-7 Telephone Number B-8 Height _______ [___] - [__] - [____] [___] - [___] - [____] B-9 Weight _______ B-10 Address (Street, Apt. No.) [_________________________________________________________________________] (City) (State) (Zip Code) [____________________________________________] [_____] [______]-[____] B-11 Occupation B-12 Describe duties [______________________________] [_________________________________] B-13 Employer Name Month Year [__________________________________] B-14 Employment date: [__] [__] ================================================================================ SECTION C -- Owner (Complete only if other than Proposed Insured) C-1 Owner Name (Print full name, include suffix - if name to appear differently on policy, indicate in Section O) (First, Middle, Last, Suffix) [_________________________________________________________________________] C-2 Relationship to Proposed Insured C-3 Social Security Number or Tax I.D. No. (Include any hyphens) [______________________________] [_][_][_][_][_][_][_][_][_][_][_] C-4 Owner Address (Street, Apt. No.) [_________________________________________________________________________] (City) (State) (Zip Code) [___________________________________] [_____] [_][_][_][_][_]-[_][_][_][_] ================================================================================ SECTION D -- Beneficiaries (Complete for all cases) D-1 Primary Beneficiary(ies) (Print Full Names) [_________________________________________________________________________] Relationship to Proposed Insured [_________________________________________________________________________] Birthdate [_________________________________________________________________________] Contingent Beneficiary(ies) (Print Full Names) [_________________________________________________________________________] Relationship to Proposed Insured [_________________________________________________________________________] Birthdate [_________________________________________________________________________] 1 ================================================================================ SECTION E -- Plan Information (Complete for all cases) E-1 Flexible Premium Variable Life Insurance Policy a. Product Name [_________________________________________________________________________] b. Stated Death Benefit [________________________] c. Scheduled Periodic Premium $ [____________________________] (If premium varies from year to year attach schedule) d. [_] Option 1 (Stated Death Benefit. If no option selected, Option 1 will apply.) [_] Option 2 (Stated Death Benefit plus Account Value.) [_] Option 3 (Stated Death Benefit plus Premiums Paid, less partial withdrawals.) e. [_] Guideline Premium Test [_] Cash Value Accumulation Test f. First Year Pour-In (if any) $ [___________________________] g. Riders [_] Adjustable Term Rider $ [_________________________] (Attach Schedule of Target Death Benefits) [_] Additional Insured $ [____________________________] (Complete section G) [_] Accidental Death $ [______________________________] [_] Child's Insurance Rider (# of Units) [____________] (Complete section H) [_] Right to Exchange [_] Waiver of Cost of Insurance [_] Guaranteed Insurability Rider [___________________] [_] Waiver of Specified Premium $ [___________________] [_] Other [_________________________________________________________] ================================================================================ SECTION F -- Special Dating Requested (If neither box checked below, policy will be issued at age nearest birthday as of issue date.) F-1 [_] Date to Save Age Specify Requested Age [___] Mo Day Year F-2 Specific Date [_][_] [_][_] [_][_][_]_] ================================================================================ SECTION G -- Additional Insured Rider G-1 Name of Proposed Additional Insured (If more than one additional insured, specify details in special instructions, Section O) (First, Middle, Last, Suffix) [__________________________________________________________________________] G-2 Relationship to proposed insured [_________________________________________] Month Day Year G-3 Birthdate [_][_] [_][_] [_][_][_][_] G-4 Social Security Number [_][_][_]-[_][_]-[_][_][_][_] G-5 Height [____] G-6 Weight [____] G-7 Insurance Age (Age nearest birthday) [_][_] G-8 Show beneficiary for additional insured if different from beneficiary named in Section D. Name: [______________] Relationship [______________] Birthdate: [_________] ================================================================================ SECTION H -- Child Rider Birthdate Mo/Day/Yr Height Weight H-1 Child [___________________ _______/__/________ ___________________________ H-2 Child [___________________ _______/__/________ ___________________________ H-3 Child [_____________________ _____/__/_____ ______________________________ H-4 Child [_____________________ _____/__/_____ ______________________________ 2 ================================================================================ SECTION I -- Premium Information I-1 Premium Mode (If no option selected - Premium mode will be quarterly) [_] Annual [_] Quarterly [_] Semi-Annual [_] Monthly (only available for List Bill and Authorized Withdrawal/EFT) I-2 Payment Method [_] Direct Bill (not available for monthly) [_] Single Premium [_] List Bill Existing List Bill Number __________________________ [_] Authorized Withdrawal (Complete Authorized Withdrawal/EFT Form) I-3 Premium collected with application NOTE: The agent is not authorized to collect any premium before delivering a policy unless the Binding Limited Life Insurance Coverage form has been completed and signed by the agent, applicant and proposed insured and a copy given to the applicant. There is no coverage before delivery of the policy except as provided by that form. Yes No [_] [_] a. Has agent collected any premium (including any Authorized Withdrawal/EFT Form) with this application? If any Authorized Withdrawal/EFT is collected with this application, the required premium amount as outlined in the prospectus must be collected. If yes, total premium (including any pour-in) collected $ [____________________] [_] [_] b. If answer to (a) is "Yes," has agent complied with the Binding Limited Life Insurance Coverage requirements? [_] [_] c. Has the applicant signed and received a Binding Limited Life Insurance Coverage form in connection with this application? Attach signed copy of Binding Limited Life Insurance Coverage form. I-4 Guaranteed Minimum Death Benefit Option Guarantee Period (Select one, if option desired) [_] Later of ten years or age 65 [_] Lifetime Note: The Guarantee Period will terminate if your Account Value on any Monthly Processing date is not diversified according to the following rules. No more than 35% of your unborrowed Account Value may be invested in any one division, and your unborrowed Account Value must be invested in at least five divisions. You can satisfy these diversification requirements if you participate in the Automatic Rebalancing feature. You can also satisfy our requirements for diversification if you elect Dollar Cost Averaging and direct the resulting transfers into at least four other Divisions with no more than 35% of any transfer being allocated to any one division. I-5 Initial Premium Allocation. Please allocate your Initial Premium to the Guaranteed Interest Division and/or among the Variable Account Divisions. Please use whole number percentages for each Division elected. You must allocate at least 1% of your Premium Allocation to each Division in which you elect to invest, provided that the minimum allocation to each Division is at least $100. The total must equal 100%. ____% GUARANTEED INTEREST DIVISION VARIABLE ACCOUNT DIVISIONS -------------------------- AIM ____% V.I. Government Securities ____% V.I. Capital Appreciation Alger American ____% Small Capitalization ____% MidCap Growth ____% Growth ____% Leveraged AllCap Fidelity Investments ____% Asset Manager ____% Growth Portfolio ____% Overseas ____% Money Market ____% Index 500 INVESCO ____% Industrial Income ____% High Yield ____% Utilities ____% Total Return ____% VIF Small Company Growth Neuberger & Berman ____% Limited Maturity Bond ____% Growth Portfolio ____% Partners Portfolio Van Eck ____% Worldwide Hard Assets ____% Worldwide Emerging Markets ____% Worldwide Bond ____% Worldwide Real Estate 3 ================================================================================ SECTION J -- Fund Transfers J-1 Dollar Cost Averaging Please transfer $ [_____________] from (check one only) my [_] [Fidelity Investments Money Market Division] [_] [Neuberger & Berman Limited Maturity Bond Division] into the other Variable Account Division(s) selected below. (Note: Please use whole number percentages for each Division selected.) You must allocate a minimum of 1% to each Division in which you elect to invest, provided that the minimum allocation to each Division is at least $100. The total must equal 100%. You may specify a date for Dollar Cost Averaging to terminate. You may also specify a dollar amount so that when the Account Value reaches this dollar amount, Dollar Cost Averaging would terminate. AIM ____% V.I. Government Securities ____% V.I. Capital Appreciation Alger American ____% Small Capitalization ____% MidCap Growth ____% Growth ____% Leveraged AllCap Fidelity Investments ____% Asset Manager ____% Growth Portfolio ____% Overseas ____% Money Market ____% Index 500 INVESCO ____% Industrial Income ____% High Yield ____% Utilities ____% Total Return ____% VIF Small Company Growth Neuberger & Berman ____% Limited Maturity Bond ____% Growth Portfolio ____% Partners Portfolio Van Eck ____% Worldwide Hard Assets ____% Worldwide Emerging Markets ____% Worldwide Bond ____% Worldwide Real Estate J-2 Automatic Rebalancing [_] Automatic Rebalancing Note: If you elect this feature, each quarter we will transfer amounts among the Variable Account Divisions and the Guaranteed Interest Division so that the percentages of your unborrowed Account Value in each Division match your most recent premium allocation. To qualify for this feature you must allocate your premium to at least five Divisions with no more than 35% of the premium allocated to any one Division. J-3 Telephone Transfer [_] Telephone Transfer (Check if you wish to select this option.) I/We hereby authorize and direct the Customer Service Center of Security Life of Denver Insurance Company to accept telephone instructions from either the Owner or ____________________ (insert name of your Registered Representative if you wish the representative to have telephone transfer authority) to reallocate my Accumulation Value among the Divisions available or request a policy loan or partial withdrawal. I/We agree to hold harmless and indemnify Security Life for any losses arising from such instructions. I/We further authorize Security Life and its Customer Service Center to record telephone conversations with me/us. (Initials of Owner _______) ================================================================================ SECTION K -- Personal Information K-1 List life insurance policies on all persons proposed for coverage (1) now in force or (2) applied for within the last 12 months, or (3) pending now. If NONE, Check this box [_]
- -------------------------------------------------------------------------------------------------------------------------------- Name of Year A.D. Business of Indicate if inforce Proposed Insured Company Issued Amount Amount Personal Applied for, or Pending - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
Yes No K-2 Has any proposed insured ever been declined for insurance (or reinstatement) or been offered insurance with restricted benefits or at other than standard rates? (If "Yes" give details in Section K-12) [_] [_] K-3 Is this insurance to replace, or will it cause any change in, any insurance or annuity on any person proposed for coverage? (If "Yes" submit a completed replacement form with this application.) [_] [_] K-4 a. Is this insurance intended to be a tax free exchange - 1035 Exchange? [_] [_] b. If "Yes" will any policy loan be carried over? [_] [_] 4 ================================================================================ SECTION K -- Personal Information (Continued) Yes No K-5 Has any person proposed for coverage: a. ever smoked cigarettes? (If "Yes," give name and details in section K-12) [_] [_] b. ever used tobacco in any form other than cigarettes? (If "Yes" give name and details in section K-12) [_] [_] c. ever stopped smoking cigarettes? (If "Yes" give name and date last smoked in section K-12) [_] [_] d. ever stopped using tobacco in any form other than cigarettes. (If "Yes" give name, type and date last used in section K-12) [_] [_] K-6 Within the last 3 years or within the next 12 months, has any person proposed for coverage: a. flown (or planned to fly) other than as a passenger on a regularly scheduled airline? (If "Yes" complete Aviation Supplement.) [_] [_] b. had a drivers license denied, revoked, or suspended; had three or more moving violations; been convicted of an alcohol or drug related driving offense; been involved in two or more auto accidents? (If "Yes" give details in section K-12) [_] [_] c. participated in (or intend to participate in) vehicle racing (on land or water), ballooning, bobsledding, hang gliding, ultralight aviation, horse racing, mountaineering, rodeo, scuba/skin diving, skydiving/ parachuting, or bungee cord jumping? (If "Yes" complete Avocation Supplement) [_] [_] K-7 List Driver's License No. here [_][_][_][_][_][_][_][_][_][_][_][_] State [__] K-8 Does any person proposed for coverage contemplate traveling or residing outside the U.S.A. or Canada within the next 12 months? (If "Yes" give details in section K-12) [_] [_] K-9 Has any person proposed for coverage been convicted of a felony within the last 5 years? (If "Yes" give details in section K-12) [_] [_] K-10 Has any person proposed for coverage: a. ever had, or now have, any type of heart disease, cancer, leukemia, or malignant tumor? (If "Yes" give details in section K-12) [_] [_] b. ever been diagnosed by a licensed member of the medical profession as having Acquired Immune Deficiency Syndrome (AIDS) or any immune deficiency or disorder? (Do Not Answer This Question If You Reside In Nevada.) (If "Yes" give details in section K-12) [_] [_] K-11 Does any person proposed for coverage now participate in any regular physical exercise program? [_] [_] K-12 Details of "YES" Answers to Questions K-2 through K-11 --------------------------------------------------------------------------- --------------------------------------------------------------------------- ================================================================================ SECTION L -- Medical Exam Certificate (Complete when submitting medical examination of another insurance company.) L-1 The attached examination is on the life of: [_____________________________] L-2 Name of insurance company for which examination was made and date of examination: --------------------------------------------------------------------------- Company Date of Examination --------------------------------------------------------------------------- Yes No L-3 To the best of the proposed insured's knowledge and belief, are the statements in the examination true as of today? (If "No," explain in "REMARKS") [_] [_] L-4 Has the proposed insured consulted a doctor or other practitioner or received medical or surgical advice since the date of the examination? (If "Yes," explain in "REMARKS") [_] [_] --------------------------------------------------------------------------- Remarks to No. L-3 and L-4 --------------------------------------------------------------------------- 5 ================================================================================ SECTION M -- Financial Information (Must be completed where the face amount exceeds [1] $200,000 for business insurance, [2] $300,000 for an insured 65 and under, or [3] $100,000 for an insured over 65.) M-1 What is the purpose of the insurance applied for? [________________________] If the insurance applied for is personal, what is the proposed insured's: Annual Earned Income $ [_______] Total Assets $ [____________] Annual Interest & Other Income $ [_______] Total Liabilities $ [____________] Total Net Worth $ [____________] Yes No M-2 If Business Insurance: Last Year 2 Years Ago a. Annual net profit (before taxes, past two years) $ [_______] $ [_______] b. Business reason for insurance (check at least one box and furnish details) [_] Key Person [_] Stock Redemption/Buy and Sell [_] Other [__________] c. If Key Person insurance: Yes No (1) Are all partners or key people to be covered? [_] [_] (If "No," explain) ------------------------------------------------------------ ------------------------------------------------------------ (2) Does proposed insured have an ownership interest in the business? If "Yes," what is proposed insured's percent of ownership? [____________%] (3) What is proposed insured's annual income? $ [_________] d. If to fund stock redemption, is there a written agreement? [_] Yes [_] No (1) What is the book value of the business? $ [_______________] (2) What is the market value of the business? $ [_______________] (3) How was the value determined? [_____________________] Yes No M-3 Is this insurance to guarantee a loan? [_] [_] a. If "Yes," is the lender requiring this insurance? [_] [_] b. Is the loan finalized? [_] [_] c. What is the term of the loan? (Months) [____] d. Name of lender: [_________________________________________] e. Amount of loan: [_________________________________________] f. Purpose of loan: [________________________________________] g. Are others being insured for the same purpose? [_] [_] If Yes, who and for what amount? [_______________________________] Amount $ [____________] [_______________________________] Amount $ [____________] 6 ================================================================================ SECTION M -- Financial Information (Continued) (Must be completed where the face amount exceeds [1] $200,000 for business insurance, [2] $300,000 for an insured 65 and under, or [3] $100,000 for an insured over 65.) M-4 Additional remarks about purpose of the insurance and how the amount of insurance was determined. - -------------------------------------------------------------------------------- Remarks to Section M - -------------------------------------------------------------------------------- ================================================================================ SECTION N -- Suitability a. Have you, the Proposed Insured, and the Owner, if other than the Proposed Insured, received a current Prospectus dated ______________________ for the Variable Life Insurance policy applied for and current prospectus for each of the Variable Account Divisions? [ ] Yes [ ] No b. Do you understand that under the policy applied for the amount or duration of the death benefit may vary under specified conditions; policy values may increase or decrease in accordance with the investment experience of investment divisions in a Separate Account, and may increase in accordance with the interest credited in the Guaranteed Interest Division; and the amount payable at the Final Policy Date is not guaranteed but is dependent on the amount then in the Account Value? [ ] Yes [ ] No c. Do you understand that any personalized illustrations received are based on hypothetical interest assumptions which may not be indicative of actual future investment experience of our Separate Account or of actual interest credited in our Guaranteed Interest Division? [ ] Yes [ ] No d. With this in mind, is the policy in accord with your insurance objectives and your anticipated financial needs? [ ] Yes [ ] No ================================================================================ SECTION O -- Special Instructions - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- PART II - -------------------------------------------------------------------------------- Please Print All Information Using Dark Ink Part II must be completed for each person proposed for coverage unless the person is medically examined. ================================================================================ SECTION A -- Personal Physicians A-1 For each person proposed for coverage, give the name and address of the personal physicians and the date and reason the physician was last seen. If NONE, check here [ ] ----
------------------------------------------------------------------------------------------- Proposed Insured's Name Name and Adress of Physician Date and Reason Last Seen ------------------------------------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- ------------------------------------------------------------------------------------------- ---------------------------------------------------------------- ---------------------------------------------------------------- -------------------------------------------------------------------------------------------
================================================================================ SECTION B -- Medical Information (Complete for each person proposed for coverage.) (For all of Section B, circle each specific condition and give details of all "Yes" answers in the Details Section following question B-11. Give name of disease, symptoms, etc.; the date of onset; the duration; number of attacks; and name and addresses of medical professional or hospital providing services.) B-1 Has any person proposed for coverage ever been treated for, or been told by a member of the medical profession that the person has: a. pain, pressure, or discomfort in the chest or arms; high blood Yes No pressure; heart murmur; irregular heartbeat; or any other disease or disorder of the heart? [ ] [ ] b. anemia; leukemia; or any other disorder of the blood, veins or arteries? [ ] [ ] c. asthma; bronchitis; pneumonia; tuberculosis; emphysema; shortness of breath; chronic cough, or any other disorder of the lungs or respiratory system? [ ] [ ] d. mental or emotional disorder, nervous breakdown; epilepsy; convulsions; chronic fatigue; fainting spells; paralysis; stroke; or any other disorder of the brain or nervous system? [ ] [ ] e. significant weight loss; ulcer; colitis; diverticulitis; hepatitis; cirrhosis; persistent diarrhea; or other disease of the liver, gall bladder, pancreas, stomach or intestines? [ ] [ ] f. diabetes; thyroid; recurrent enlarged glands; or other glandular disease or disorder? [ ] [ ] g. arthritis; gout; or any bone, joint, muscle, or skin disorder? [ ] [ ] h. polyp, tumor, or cancer? [ ] [ ] i. disorder of the urinary tract or kidneys; urethritis; cystitis; sugar, albumin, or blood in the urine? [ ] [ ] j. prostate or testicular disease; venereal disease; herpes; or disease of the uterus, ovaries or breasts? [ ] [ ] k. any disorder of the eyes; ears; nose; or throat? [ ] [ ] l. any other health impairment or medically or surgically treated condition within the last 5 years not mentioned above? [ ] [ ]
8 Yes No B-2 Has any person proposed for coverage ever been treated for or been told by a licensed member of the medical profession that the person has Acquired Immune Deficiency Syndrome (AIDS) or any disorder or deficiency of the Immune System? (Do Not Answer This Question If You Reside In Nevada.) [ ] [ ] B-3 Within the past 10 years, has any person proposed for coverage: a. tested positive in a test to detect antibodies to the AIDS virus (Human T-Cell Lymphotrophic virus type III; HTLV-III, Human Immunodeficiency Virus [HIV])? (Do Not Answer This Question If You Reside in Connecticut or Maine.) [ ] [ ] b. had a blood transfusion? [ ] [ ] B-4 Within the past 5 years, has any person proposed for coverage been a patient in or had treatment at a hospital, clinic, sanitarium or other medical facility? [ ] [ ] B-5 Is any person proposed for coverage now under regular medical observation by, or taking treatment from, a member of the medical profession? [ ] [ ] B-6 Other than as stated in the answers above, has any person proposed for coverage, within the last 5 years: a. had a checkup or consultation with a member of the medical profession? [ ] [ ] b. had an electrocardiogram, x-ray, blood test or other test? [ ] [ ] c. been advised by a member of the medical profession to have any diagnostic test, hospitalization, or surgery which was not completed? [ ] [ ] --- B-7 Does any person proposed for coverage have a deformity or an amputation? [ ] [ ] B-8 Does any person proposed for coverage now take any medicine prescribed by a member of the medical profession? [ ] [ ] B-9 Except as legally prescribed by a physician, has any person proposed for coverage ever used narcotics, cocaine, marijuana, or any hallucinatory or mind altering substances in the past 10 years? [ ] [ ] B-10 In the last 5 years, has any person proposed for coverage received treatment for or joined an organization because of the alcoholism or drug addiction of that person? [ ] [ ] B-11 Has any parent, brother, or sister of any person proposed for coverage ever had cancer; diabetes; high blood pressure; heart or kidney disease; nervous or mental disorder; tuberculosis; or hereditary disorder? [ ] [ ]
Details of "Yes" answers to questions B-1 through B-11
- ------------------------------------------------------------------------------------------------------------------------ Ques. Name of No. Proposed Insured Complete Details - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
SECTION C -- Family History
- ------------------------------------------------------------------------------------------------------------------------ Living Deceased Family Member Age State of Health Age at Death/Cause - ------------------------------------------------------------------------------------------------------------------------ Father - ------------------------------------------------------------------------------------------------------------------------ Mother - ------------------------------------------------------------------------------------------------------------------------ Brothers - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Sisters - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
9 AGREEMENTS All statements and answers in this application (which includes Part I, Part II, and supplements and amendments) are true and complete to the best of my knowledge and belief. I also agree that: 1. The statements and answers in this application will be relied upon and form the basis of any insurance. 2. No information will be considered as having been given to Security Life unless it is written in this application. (This paragraph does not apply in the states of Maine, Missouri, Oregon, South Carolina, and South Dakota.) 3. No agent or any other unauthorized person can make or change any insurance contract or give up any of Security Life's rights or requirements. Any change must be in writing and signed by an officer of Security Life. 4. Security Life may amend this application by an appropriate notation in the space designated "Home Office Corrections" in order to correct errors or omissions or to conform the application with any policy that may be issued. The acceptance of the policy constitutes a ratification of such amendments. In those states, including Maryland, where change in amount, classification, plan, premium, or benefit requires the written consent of the applicant, no change may be ratified except by a written acceptance. We reserve the right to make any changes required by law. 5. Insurance Under Policy Applied For - Except as may be provided in any Binding Limited Life Insurance Coverage, no policy of insurance will be in force until (1) the first policy premium is paid and (2) the policy is delivered while the facts and health condition of the proposed insured(s) are as represented in this application. When these conditions are satisfied, the policy as delivered will then take effect. 6. Binding Limited Life Insurance Coverage - Any pre-delivery insurance coverage is provided in the Binding Limited Life Insurance Coverage form. That coverage is available only if: a premium is accepted by the agent; the agent has authority to accept premium as set out in that form; and the form is completed and signed by the agent, applicant, and proposed insured. 7. If the contract applied for is for a pension, profit-sharing, HR10, or other tax qualified plan, any policy issued shall not be transferable other than to the Insurer, except as directed by the Plan Administrator. Other applicable provisions may be added to the contract. 8. I certify, under penalty of perjury, that my social security/tax identification number(s) is shown and is correct and that I am not subject to back up withholding. AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION Security Life of Denver Insurance Company ("Security Life") may obtain information about me or my minor children from: any physicians; medical practitioner; hospital, clinic or other medical facility; employer; other insurance companies or institutions; consumer reporting agency; or Medical Information Bureau, Inc. (MIB, Inc.). The purpose is to evaluate my application for insurance or benefits. Security Life may obtain an investigative consumer report and any records or other information available as to diagnosis, treatment and prognosis of any physical or mental condition. Security Life may obtain any drug, physical and mental health, and alcohol- related information which may be protected by federal or state laws and regulations. As it pertains to alcohol and drug information covered by federal regulation, this authorization may be revoked at any time by written notice to Security Life. But any action taken before my written revocation is received by Security Life will not be affected. Security Life may make a brief report about me or my children to MIB, Inc. Security Life may disclose information to: its reinsurers; those who perform services for Security Life on my application for insurance or benefits: or those companies to which I have applied or may apply for life or health insurance or benefits. Disclosure may be made when required or permitted by law. This is valid for two and one-half years from the date below. An original or copy may be used by Security Life or its authorized representatives to obtain information. I have read and received a copy of this authorization. I also have a copy of the Notice of Information Procedures. It includes the MIB, Inc. and Fair Credit Reporting Notices. NOTICE: Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, files an application, statement or claim containing any false, incomplete, or misleading information is guilty of insurance fraud. Signature of Proposed Insured Date ---------------------------------------- --------------- (If below age 15, signature of parent or guardian) Signed at City State ---------------------------------------------------------------- Signature of Spouse/ ----------------------------------------------- Additional Insured(s) (If proposed for coverage) ----------------------------------------------- Owner Signature (If other than proposed insured) ----------------------------------------------- OR (If applicable) Corporate Owner Signature ----------------------------------------------- (If a firm or corporation is to be owner, the signature and title of an officer other than the proposed insured is required.) Except for any medical exam form, I certify that I have asked and recorded completely and accurately the answers to all questions on this application. I know of nothing else affecting the risk. Signature of Agent/Registered Rep. Reg. Rep. Number ------------------------------------------- - ------------------------------------- -------------------------------------- Name of Broker/Dealer/Branch Address of Broker/Dealer/Branch - -------------------------------------------------------------------------------- HOME OFFICE CORRECTIONS (FOR HOME OFFICE USE ONLY) (Not applicable in West Virginia) - -------------------------------------------------------------------------------- 10 Registered Representative's Report (Must be completed and signed for every application) Yes No 1) Do you have knowledge or reason to believe that replacement of existing insurance or annuity may be involved? [ ] [ ] If Yes, explain:______________________ 2) How long have you known the proposed insured? ______ Years Are you related? [ ] [ ] If so, how? __________________________ 3) Does the proposed insured speak English? [ ] [ ] Was the application interpreted for and understood by the proposed insured? [ ] [ ] Are all persons proposed for coverage U.S. citizens? [ ] [ ] If not, how long in U.S.? ____Mos. ____Yrs. 4) Did proposed insured approach you for this insurance? [ ] [ ] 5) What is the amount of insurance in force on the spouse of the proposed insured? $______________ 6) If any proposed insured is a minor, what is the amount of insurance on: Father $___________ Mother $___________ Brothers $___________ Sisters $___________ 7) Will the applicant accept this policy if it is a "Modified Endowment" at issue? [ ] [ ] 8) If a medical exam is required, has it been ordered? [ ] [ ] 9) What is the source of the first premium payment: [ ] Applicant check [ ] Other (specify):__________________
================================================================================ 10) Writing Registered Representative (Print) ---------------------------------- Writing Registered Representative (Sign) ---------------------------------- Date Registered Representative Number: [_][_][_][_][_][_] -------------- Production Credit Split Agent Number Percent ------------ ------- ------------ ------- ------------ ------- - -------------------------------------------------------------------------------- 11) What was the PRIMARY purpose of the insurance? PERSONAL PLANNING A [ ] Estate/Death Tax B [ ] Family Protection C [ ] Mortgage Protection D [ ] College Funding E [ ] Gift/Charitable F [ ] Retirement Maximizer G [ ] IRP/PPP/PRO H [ ] Savings I [ ] Other__________________________ BUSINESS PLANNING J [ ] Executive Bonus K [ ] Qualified Plan L [ ] Deferred Compensation M [ ] Buy-Sell N [ ] Key Executive O [ ] Employee Benefit P [ ] Other__________________________ ================================================================================ 12) Who was the PRIMARY decision-maker involved? PERSONAL PLANNING A [ ] Insured B [ ] Insured and Spouse C [ ] Parent D [ ] Grandparent E [ ] Child(ren) F [ ] Other___________________________ BUSINESS PLANNING G [ ] Businessowner H [ ] Attorney I [ ] Accountant J [ ] Board of Directors K [ ] Trustee L [ ] Other___________________________ ================================================================================ 13) Did the Home Office or Regional Staff assist you? [_] Yes [_] No (If yes, check all that apply.) A [ ] Illustration B [ ] Case design C [ ] Sample Documents D [ ] Template design E [ ] Estate Analysis F [ ] Business Analysis G [ ] Family Asset Review H [ ] Competition Services I [ ] Legal Consultation J [ ] Other__________________________ 11 (Detach and give to Applicant) AGREEMENTS All statements and answers in this application (which includes Part I, Part II, and supplements and amendments) are true and complete to the best of my knowledge and belief. I also agree that: 1. The statements and answers in this application will be relied upon and form the basis of any insurance. 2. No information will be considered as having been given to Security Life unless it is written in this application. (This paragraph does not apply in the states of Maine, Missouri, Oregon, South Carolina, and South Dakota.) 3. No agent or any other unauthorized person can make or change any insurance contract or give up any of Security Life's rights or requirements. Any change must be in writing and signed by an officer of Security Life. 4. Security Life may amend this application by an appropriate notation in the space designated "Home Office Corrections" in order to correct errors or omissions or to conform the application with any policy that may be issued. The acceptance of the policy constitutes a ratification of such amendments. In those states, including Maryland, where change in amount, classification, plan, premium, or benefit requires the written consent of the applicant, no change may be ratified except by a written acceptance. We reserve the right to make any changes required by law. 5. Insurance Under Policy Applied For - Except as may be provided in any Binding Limited Life Insurance Coverage, no policy of insurance will be in force until (1) the first policy premium is paid and (2) the policy is delivered while the facts and health condition of the proposed insured(s) are as represented in this application. When these conditions are satisfied, the policy as delivered will then take effect. 6. Binding Limited Life Insurance Coverage - Any pre-delivery insurance coverage is provided in the Binding Limited Life Insurance Coverage form. That coverage is available only if: a premium is accepted by the agent; the agent has authority to accept premium as set out in that form; and the form is completed and signed by the agent, applicant, and proposed insured. 7. If the contract applied for is for a pension, profit-sharing, HR10, or other tax qualified plan, any policy issued shall not be transferable other than to the Insurer, except as directed by the Plan Administrator. Other applicable provisions may be added to the contract. 8. I certify, under penalty of perjury, that my social security/tax identification number(s) is shown and is correct and that I am not subject to back up withholding. NOTICE OF INFORMATION PROCEDURES OUR UNDERWRITING PROCESS This process is an evaluation of information about you. It is to see if you qualify for the insurance requested. The information we review may vary with the insurance applied for. We look at information about you such as: your age; occupation; health; mode of living; avocation; and other personal information. Answers on the application are the principal source of information. We may contact other people or institutions personally, by phone, or by letter. The purpose is to confirm or add to information you have provided. For example, we may obtain information from your doctor, clinic, hospital, or other insurers. In some cases, your Security Life agent may obtain information on our behalf. A medical examination or laboratory tests may be requested. NOTICE Any person who knowingly and with intent to injure, defraud, or deceive any insurance company, files an application, statement or claim containing any false, incomplete, or misleading information is guilty of insurance fraud. MIB, INC. Medical Information Bureau, Inc. ("MIB, Inc.") may provide Security Life with a brief report about you. This is a nonprofit organization of life insurance companies which has an information exchange for its members. Information that is sent to MIB, Inc. by one member may be given to their member companies who have a business need for it. Upon your written request, MIB, Inc. will arrange for disclosure of any information it may have in your file. If you question the accuracy of MIB's information, you may request a correction according to the procedures in the Federal Fair Credit Reporting Act. MIB's address is: P.O. Box 105, Essex Station, Boston, Massachusetts 02112, telephone 617/426-3660. CONSUMER REPORTS In some cases, a Security Life representative may prepare a consumer report or investigative consumer report about you or, Security Life may ask an independent agency to prepare a consumer report or an investigative consumer report about you. These reports may include information on your character; general reputation; personal characteristics such as health, finances, and job, and mode of living except as may be related directly or indirectly to your sexual orientation. Any information obtained by the agency may be kept in its file and later given to others who have a business need for it. If an investigative consumer report is ordered by Security Life, the report will include information obtained through interviews with your neighbors, friends, or others you know. You may request a personal interview. The agency will make a reasonable attempt to talk to you. It will include that information in its report. The Federal Fair Credit Reporting Act gives you the right to make a written request within a reasonable period of time, to receive additional information from Security Life about the nature and scope of an investigation, if one is made. We will provide the name, address, and phone number of any agency we ask to prepare such a report. You may contact the agency directly to learn about the contents of the report. DISCLOSURE OF INFORMATION Information we obtain about you is confidential. As permitted by law, we may disclose information without further authorization to others such as: consumer reporting agencies hired to prepare investigative reports; insurance companies to which you have applied for coverage or benefits; those providing services for us; those conducting bona fide actuarial, marketing, or scientific studies or audits; and your attending doctor. Upon written request, we will give you more information about these procedures. YOUR RIGHT TO REVIEW INFORMATION These are procedures by which you can make a written request to review personal information in our policy file. However, Security Life will not disclose information to you that was prepared for any anticipated claim or any civil or criminal proceeding. We also have procedures by which you may request correction, amendment, or deletion of any information in our files which you believe to be inaccurate or irrelevant. Upon written request, we will provide you with further information about these procedures. We hope this notice helps explain our underwriting process. If you have any additional questions, discuss them with your agent or contact us directly. Security Life of Denver Insurance Company P. O. Box 173763 Denver, CO 80217-3763 1-800-933-5858 [LOGO OF SECURITY LIFE APPEARS HERE] P. O. Box 173763 Denver, CO 80217-3763 EX-6 8 OPINION & CONSENT OF SHIRLEY A. KNARR EXHIBIT 6 [LOGO OF SECURITY LIFE APPEARS HERE] October 16, 1997 Security Life of Denver Insurance Company 1290 Broadway Denver, CO 80203-5699 Re: Security Life Separate Account L1 Post-Effective Amendment No. 5; SEC File No. 33-74190 Gentlemen: In my capacity as Variable Products Portfolio Manager and Actuarial Officer of Security Life of Denver Insurance Company ("Security Life"), I have provided actuarial advice concerning: The preparation of Post-Effective Amendment No. 5 to the Registration Statement on Form S-6 (File No. 33-74190) to be filed by Security Life and its Security Life Separate Account L1 (the "Separate Account") with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 with respect to the "FirstLine" variable universal life insurance policy; and The preparation of the policy forms for the variable universal life insurance policy described in Post-Effective Amendment No. 5 (the "Policy"). It is my professional opinion that 1. The aggregate fees and charges under the Policy are reasonable in relation to the services rendered the expenses expected to be incurred and the risks assumed by Security Life. 2. The illustrations of death benefits, account value, cash surrender value, and total premiums paid plus interest at 5 percent shown in the Prospectus, based on the assumptions stated in the illustration are consistent with the provisions of the Policy. The rate structure of the Policy has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations included, appear to be correspondingly more favorable to prospective buyers than other illustrations which could have been provided at other combinations of ages, sex of the insured, death benefit option and amount, definition life insurance test, premium class, and premium amounts. Insureds of other premium classes may have higher costs of insurance charges. 3. All other numerical examples shown in the Prospectus are consistent with the Policy and our other practices, and have not been designed to appear more favorable to prospective buyers than other examples which could have been provided. I hereby consent to the filing of this opinion as an Exhibit to Post-Effective Amendment No. 5 to the Registration Statement and the use of my name under the heading "Experts" in the Prospectus. Sincerely, /s/: Shirley A. Knarr Shirley A. Knarr, FSA, MAAA SK:bjm ------------------------------ EX-7.(A) 9 CONSENT OF ERNST & YOUNG Consent of Independent Auditors EXHIBIT 7(a) We consent to the reference to our firm under the captions "Experts" and "Financial Statements" and to the use of our reports dated April 9, 1997 (with respect to the financial statements of Security Life Separate Account L1) and April 11, 1997 (with respect to the financial statements of Security Life of Denver Insurance Company), included in Post-Effective Amendment No. 5 to the Registration Statement (Form S-6 No. 33-74190) and related Prospectus of Security Life of Denver Insurance Company and Security Life Separate Account L1 dated October 29, 1997. /s/ ERNST & YOUNG LLP Denver, Colorado October 29, 1997 EX-7.(B) 10 CONSENT MAYER BROWN & PLATT EXHIBIT 7(b) CONSENT OF MAYER, BROWN & PLATT We hereby consent to the reference to our firm under the caption "Legal matters" in the Additional Information section comprising a part of Post- Effective Amendment No. 5 to the Form S-6 Registration Statement of Security Life Separate Account L1 with respect to Strategic Advantage Variable Universal Life, File No. 33-74190. /s/ MAYER, BROWN & PLATT EX-27 11 FINANCIAL DATA SCHEDULE
6 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 54,275,545 57,137,579 0 0 0 57,137,579 0 0 (719,248) (719,248) 0 0 0 0 0 0 0 0 0 57,856,827 1,183,779 0 0 241,127 942,652 401,852 2,675,307 4,019,811 0 0 0 0 5,742,883 2,615,086 0 44,630,293 0 0 0 0 0 0 0 35,541,681 0 0 0 0 0 0 0 0 0 0
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