-----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, TK3Zljko90jK227DWqsM9qLBpCrUQRojIeAFzZh5CbwfZTBxAL1qd//zy2u6ocwp kk+Ny78kMCt2ZnGKlouLfQ== 0000927356-98-000248.txt : 19980304 0000927356-98-000248.hdr.sgml : 19980304 ACCESSION NUMBER: 0000927356-98-000248 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19980302 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: 98554915 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 PEAMEND #6 As filed with the Securities and Exchange Commission on March 2, 1998 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. 6 _________________ 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 February 27, 1998 for its most recent fiscal year ending December 31, 1997. 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 Strategic Advantage 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"). Twenty-three Divisions of the Variable Account are available under the Policy. 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 or transferred into the Policy. 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 yet 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 during the first three Policy years, 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: May 1, 1998 The minimum monthly premium is equal to one twelfth of the Minimum Annual Premium. If the Guaranteed Minimum Death Benefit is effective, 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: 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. 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. 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 Delivery and Free Look Periods. 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 Equities, 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 173888 Denver, CO 80217-3763 (800) 848-6362
PROSPECTUS DATED: May 1, 1998 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........................................................ 11 Automatic Rebalancing........................................................ 11 Loans........................................................................ 12 Partial Withdrawals.......................................................... 12 Surrender.................................................................... 12 Right to Exchange Policy..................................................... 12 Lapse........................................................................ 12 Reinstatement................................................................ 12 Charges and Deductions....................................................... 12 Persistency Refund........................................................... 13 Tax Considerations........................................................... 13 INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS AND THE GUARANTEED INTEREST DIVISION.................................... 14 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 ..... 18 Applying for a Policy........................................................ 18 Temporary Insurance.......................................................... 19 Premiums..................................................................... 19 Scheduled Premiums...................................................... 19 Unscheduled Premium Payments............................................ 19 Minimum Annual Premium.................................................. 19 Special Continuation Period............................................. 20 Premium Payments Affect the Coverage.................................... 20 Choice of Definitional Tests............................................ 20 Choice of Guaranteed Minimum Death Benefit Provisions............................................................. 20 Modified Endowment Contracts............................................ 20 Allocation of Net Premiums................................................... 21 Death Benefits............................................................... 21 Death Benefit Options................................................... 21 Changes in Death Benefit Option......................................... 22 Changes in Death Benefit Amounts........................................ 23 Guaranteed Minimum Death Benefit Provision.............................. 23 3 Requirements to Maintain the Guarantee Period........................... 24 Additional Benefits.......................................................... 24 Accidental Death Benefit Rider.......................................... 25 Adjustable Term Insurance Rider......................................... 25 Additional Insured Rider................................................ 25 Children's Insurance Rider.............................................. 25 Right to Change Insured Rider........................................... 26 Guaranteed Insurability Rider........................................... 26 Waiver of Cost of Insurance Rider....................................... 26 Waiver of Specified Premium Rider....................................... 26 Benefits at Maturity......................................................... 26 Policy Values................................................................ 26 Account Value........................................................... 26 Cash Surrender Value.................................................... 26 Net Cash Surrender Value................................................ 26 Net Account Value....................................................... 26 Determining the Value in the Divisions of the Variable Account............................................................ 26 How We Calculate Accumulation Unit Values for Each Division.................................................................... 27 Transfers of Account Values.................................................. 27 Dollar Cost Averaging........................................................ 28 Automatic Rebalancing........................................................ 28 Policy Loans................................................................. 29 Partial Withdrawals.......................................................... 30 Surrender.................................................................... 31 Right to Exchange Policy..................................................... 31 Lapse........................................................................ 31 If the Guaranteed Minimum Death Benefit Provision Is Not in Effect............................................ 31 If the Guaranteed Minimum Death Benefit Provision Is in Effect................................................ 31 Grace Period................................................................. 32 Reinstatement................................................................ 32 CHARGES, DEDUCTIONS AND REFUNDS.............................................. 32 Deductions from Premiums..................................................... 32 Tax Charges............................................................. 32 Sales Charge............................................................ 33 Daily Deductions from the Variable Account................................... 33 Mortality and Expense Risk Charge....................................... 33 Monthly Deductions from the Account Value.................................... 33 Initial Policy Charge................................................... 33 Monthly Administrative Charge........................................... 33 Cost of Insurance Charges............................................... 34 Charges for Additional Benefits......................................... 34 Guaranteed Minimum Death Benefit Charge................................. 34 Changes in Monthly Charges.............................................. 34 Policy Transaction Fees...................................................... 34 Partial Withdrawal...................................................... 35 Transfers............................................................... 35 Allocation Changes...................................................... 35 Illustrations........................................................... 35 Persistency Refund........................................................... 35 Surrender Charge............................................................. 35 Administrative Surrender Charge......................................... 36 Sales Surrender Charge.................................................. 36 Calculation of Surrender Charge......................................... 37 Charges From Portfolios...................................................... 38 4 Portfolio Annual Expenses............................................... 39 Group or Sponsored Arrangements or Corporate Purchasers.................................................................. 41 Other Charges................................................................ 41 TAX CONSIDERATIONS........................................................... 41 Life Insurance Definition.................................................... 41 Diversification Requirements................................................. 42 Modified Endowment Contracts................................................. 42 Tax Treatment of Premiums.................................................... 43 Loans, Lapses, Surrenders and Withdrawals.................................... 43 If the Policy Is Not a Modified Endowment Contract............................................................... 43 If the Policy Is a Modified Endowment Contract.......................... 43 Alternative Minimum Tax...................................................... 44 Section 1035 Exchanges....................................................... 44 Tax-exempt Policy Owners..................................................... 44 Changes to Comply with Law................................................... 44 Other........................................................................ 44 ADDITIONAL INFORMATION ABOUT THE POLICY...................................... 45 Voting Privileges............................................................ 45 Right to Change Operations................................................... 46 Reports to Owners............................................................ 46 OTHER GENERAL POLICY PROVISIONS.............................................. 46 Free Look Period............................................................. 46 The Policy................................................................... 46 Age.......................................................................... 47 Ownership.................................................................... 47 Beneficiary.................................................................. 47 Collateral Assignment........................................................ 47 Incontestability............................................................. 47 Misstatements of Age or Sex.................................................. 47 Suicide...................................................................... 47 Payment...................................................................... 48 Notification and Claims Procedures........................................... 48 Telephone Privileges......................................................... 48 Non-participating............................................................ 48 Distribution of the Policies................................................. 49 Settlement Provisions........................................................ 49 ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES, AND ACCUMULATED PREMIUMS.................................. 50 ADDITIONAL INFORMATION....................................................... 58 Directors and Officers....................................................... 58 State Regulation............................................................. 61 Legal Matters................................................................ 61 Legal Proceedings............................................................ 61 Experts...................................................................... 61 Registration Statement....................................................... 61 Year 2000 Preparedness....................................................... 61 FINANCIAL STATEMENTS......................................................... 62 5 APPENDIX A................................................................... 65 APPENDIX B................................................................... 73 APPENDIX C................................................................... 74 PERFORMANCE INFORMATION...................................................... 74 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 total of the amounts allocated to the Divisions of the Variable Account and to the Guaranteed Interest Division, plus any amount set aside in the Loan Division to secure a Policy Loan. ACCUMULATION UNIT -- A unit of measurement used to calculate the Account Value in each 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. AGE -- The Insured's Age at any time is his or her age on the birthday nearest the Policy Date plus the number of full Policy years 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 increased to maintain compliance with the Federal income tax law definition of life insurance. BENEFICIARY(IES)-- The person or persons designated to receive the Death Proceeds upon 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 173888, Denver, CO 80217-3888. DEATH PROCEEDS -- The amount payable upon the death of the Insured. It equals the Base Death Benefit plus any Rider benefits, if applicable, minus outstanding Policy Loans and accrued loan interest, minus any Policy charges incurred prior to the date of the Insured's death, but not yet deducted. DELIVERY PERIOD -- The period which begins on the date the Policy is issued and ends on the earlier of: (i) the date the Policy was delivered as long as we receive notice of the delivery date at our Customer Service Center before the date in (ii) or, (ii) the date the Policy is mailed from our Customer Service Center plus the deemed mailing time. The deemed mailing time is five days unless required otherwise by the state in which the policy is issued. DIVISION(S) -- The Loan Division and the Divisions of the Variable Account which invest in shares 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 Value is not diversified according to our requirements. GUARANTEE PERIOD ANNUAL PREMIUM -- The premium 7 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 guarantees 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 for coverage to begin. Initial Premium is equal to the sum of 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 next Valuation Date following the date: (i) we have received the Initial Premium, and, (ii) we have approved the Policy for issue, and (iii) 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 outstanding Policy Loans 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 to meet the requirements of the Special Continuation Period. MONTHLY PROCESSING DATE -- The date each month on which deductions from the Account Value are due. The first Monthly Processing Date will be the later of the Policy Date or the Investment Date. Subsequent Monthly Processing Dates will be the same date as the Policy Date unless this is not a Valuation Date, in which case the Monthly Processing Date is the next Valuation Date. NASD -- The National Association of Securities Dealers, Inc. NET ACCOUNT VALUE -- The Account Value minus Policy Loans and accrued loan interest. NET AMOUNT AT RISK -- (For Base Death Benefit) 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. It is equal to the Cash Surrender Value minus Policy Loans and accrued loan interest. NET PREMIUM -- Premium amounts paid minus 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 part of the Net Cash Surrender Value from the Policy. A 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. POLICY -- The basic Policy, applications, and any Riders or endorsements. POLICY LOAN -- The total amount borrowed from the Policy, plus any Policy Loan interest capitalized when due, less 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 smoking status of the Insured as well as any substandard ratings 8 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 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. The Scheduled Premium need not be paid, and may be changed at any time. Also, within limits, the Owner may pay more or less 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, and new incontestability and suicide exclusion periods. SPECIAL CONTINUATION PERIOD -- A three-year period, beginning with the Policy Date, during which payment of the Minimum Annual Premium will guarantee the Policy against lapse. STATED DEATH BENEFIT -- The sum of the Segments under the Policy. The Stated Death Benefit changes when there is an increase, a decrease, or when a transaction on the Policy causes it to change. SURRENDER CHARGE -- The charge made against the Account Value upon surrender, Policy lapse, a requested Stated Death Benefit reduction, 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 Policy application; the Adjustable Term Insurance Rider Death Benefit is the difference between the Target Death Benefit and the Base Death Benefit. 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 and to keep the Target Death Benefit at the desired amount. The Target Death Benefit for each year is shown in the Schedule 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, 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 the unit values of the Divisions are determined. Valuation Dates currently occur on each day on which the New York Stock 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 Valuation Date. VARIABLE ACCOUNT -- Security Life Separate Account L1 segregates 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. 9 POLICY SUMMARY THIS POLICY SUMMARY PROVIDES 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 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 ON REQUEST. GENERAL INFORMATION The Policy provides life insurance protection on the life of the Insured. As long as the Policy remains in force, we will pay a death benefit when the Insured dies. When the Policy reaches the Maturity Date during the lifetime of the Insured, we will pay a maturity benefit in lieu of a death benefit. 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 by Rider, reduced by the amount of any outstanding Policy Loan and any accrued loan interest. See Death Benefits, page 21. When we issue the Policy, the death benefit generally is equal to the Stated Death Benefit 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 31) then the Policy and its 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 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 Choice of Guaranteed Minimum Death Benefit Provisions, page 20. 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 26. ADDITIONAL BENEFITS A variety of additional benefits may be attached to the Policy by Rider. The charge for these benefits is deducted monthly from the Account Value. See Additional Benefits, page 24. 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 those required to keep the Policy in force or payments required to maintain certain benefits as described below. The Initial Premium must be paid for us to issue the Policy. The Minimum Annual Premium must be paid 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 Guaranteed Minimum Death Benefit. The Scheduled Premium is specified by the Owner at application. The Scheduled Premium may not be sufficient to maintain the Guarantee Period for one of the Guaranteed Minimum Death Benefit provisions or to keep the Policy in force. 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 Coverage, page 20. ALLOCATION OF NET PREMIUMS After certain premium-based charges are deducted from the premiums, the balance (Net Premium) is added to the Account Value based on the premium allocation instructions. Net Premiums may be allocated to one or more 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. No allocations will be made prior to the Investment Date. After the Investment Date, amounts allocated to the 10 Guaranteed Interest Division will be held in that Division. Amounts allocated to the Divisions of the Variable Account will be held in the Division investing in the Fidelity VIP Money Market Portfolio. At the end of the Delivery and Free Look Periods, the amounts held in the Guaranteed Interest Division will remain in that Division; and 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. Thereafter, Net Premiums 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 also will 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 Withdrawals and service fees 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 outstanding Policy Loans and accrued loan interest. The Net Account Value of the Policy is equal to the Account Value less the amount of outstanding Policy Loans 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. Each Division of the Variable Account will have different Accumulation Unit Values. See Determining the Value in the Divisions of the Variable Account, page 26. 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. Each Accumulation Unit Value reflects the Division's 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 27. TRANSFERS OF ACCOUNT VALUES After the Delivery and Free Look Periods, 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 resulting from Automatic Rebalancing or Dollar Cost Averaging are not included in the 12 transfers without a charge. The minimum amount we will transfer is $100 or the balance in the division, if less than $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 27. DOLLAR COST AVERAGING Dollar Cost Averaging is available by electing this feature at application or at any other time, 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 the Divisions investing in either the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio. There is no charge for this feature. See Dollar Cost Averaging, page 28. AUTOMATIC REBALANCING Automatic Rebalancing is available by electing this feature at 11 application or by completing the appropriate form. Automatic Rebalancing allows the Owner to match the Account Value allocations over time to the specified allocation percentages. We will charge a fee of $25 each time the automatic rebalancing allocation is changed in excess of five times per policy year; otherwise, there is no charge for this feature. See Automatic Rebalancing, page 28. 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 annual rate of 3.75%. The Loan Division earns a guaranteed rate of interest equal to 3% on an annual basis. See Policy Loans, page 29. PARTIAL WITHDRAWALS A partial withdrawal of part of the Net Cash Surrender Value may be requested any time after the first Policy year, within limits. One Partial Withdrawal is allowed each Policy year. See Partial Withdrawals, page 30. SURRENDER The Owner may surrender the Policy for its Net Cash Surrender Value at any time while the Insured is living. We will compute the Net Cash Surrender Value as of the date we receive the request and the Policy at our Customer Service Center. All insurance coverage will end on that date. See Surrender, page 31. RIGHT TO EXCHANGE POLICY At any time during the first 24 months following the Policy Date, 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 31. LAPSE Insurance coverage will continue as long as the Net Cash Surrender Value of the Policy is sufficient to pay all 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 a 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 three-year Special Continuation Period regardless of the amount of the Net cash surrender 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 31. REINSTATEMENT A lapsed Policy and its Riders may be reinstated within five years of its lapse if it has not been surrendered and the Insured is still living. New evidence of insurability and payment of certain reinstatement premiums will be required. We also will reinstate any Policy Loan which existed when coverage ended, with accrued loan interest to the date of lapse. See Reinstatement, page 32. 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 is deducted to cover a portion of our expenses in issuing this Policy. The charge is based on 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% This deduction is only a portion of the total sales charge that will be assessed against the Account Value if the Policy is surrendered during the 14 Policy years following the Policy Date or the addition of a new Segment. See Sales Surrender 12 Charge, page 36. See Deductions from Premiums, page 32. 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 this charge to compensate us for mortality and expense risks under the Policies. See Daily Deductions from the Variable Account, page 33. 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 for the first three Policy years. (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, any Adjustable Term Insurance Rider, and 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 33. 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 34. (i) Partial Withdrawal fee -- the lesser of $25 or 2% of the amount requested. (ii) Transfer fee -- twelve transfers per Policy year are permitted without fees; for each transfer thereafter, a $25 fee is charged. (iii) Allocation Changes -- five premium allocation or automatic rebalancing changes are permitted each Policy year without fees; for each change thereafter, a $25 fee is charged. (iv) Illustrations -- one illustration per Policy year is available with a fee; for each illustration thereafter, a $25 fee may be charged. 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 also may be assessed if a Partial Withdrawal is taken. The charge consists of an administrative Surrender Charge plus a sales Surrender Charge. The administrative Surrender Charge is a fixed dollar amount per thousand dollars of Stated Death Benefit and depends upon the Insured's Age at the Policy Date or the effective date of each Segment. The Sales Surrender Charge will never be more than 50% of one Base Standard Target Premium. See Surrender Charge, page 35. 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 38. PERSISTENCY REFUND The Account Value will be credited with a Persistency Refund each Monthly Processing Date after the tenth Policy anniversary. See Persistency Refund, page 35. TAX CONSIDERATIONS Under current Federal income tax law, death benefits of life insurance policies generally are not subject to income tax. In order for this treatment to apply, the Policy must qualify as a life insurance contract. 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 41. 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 13 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 42. 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 1997, Security Life and its consolidated subsidiaries had over $XXX billion of life insurance in force. Our total assets exceeded $X billion and our shareholder's equity exceeded $XXX million, on a generally accepted accounting principles basis as of December 31, 1997. 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 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 $XXX billion on a Dutch (modified U.S.) generally accepted accounting principles basis as of December 31, 1997. 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"), was established on November 3, 1993, under the Insurance Law of the State of Colorado. It 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 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 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 14 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 and variable life insurance contracts , 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. 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 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. For Policies issued before December 31, 1997, Owners may access a one-time opportunity to remove the policy investment history (for purposes of the 18-fund limitation only); thus increasing their future investment options. However, this procedure may require restricted investment options for a short period of time and such policies may experience some servicing delays as a result of the removal of Policy history from the current administrative system. 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 which 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 15 duration may range up to four years. 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. 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 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. It may enter into futures contracts on securities indexes as well as purchase and sell call and put options on these futures. The Portfolio may borrow money for the purchase of additional securities, but only from banks. It 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 16 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 the 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 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 -- 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, and Worldwide Bond Fund. 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 -- 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 -- seeks high total return 17 through a flexible policy of investing globally, primarily in debt securities. Van Eck Worldwide Emerging Markets Fund -- 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. 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 -- 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 -- seeks to achieve a high level of current income consistent with reasonable concern for safety of principal by investing in debt securities issued, guaranteed or 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. The Guaranteed Interest Division is part of our General Account and 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, the General Account, the Guaranteed Interest Division and any interests therein are not 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. From time to time, we declare the interest rate that will apply to amounts in the Guaranteed Interest Division. These 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 on 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 differences will be defined in the Policy. The illustrations beginning on page 52 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 A FirstLine Policy may be purchased by submitting an application to us. On the Policy Date, the Insured must be no older than Age 85. Before issuing a Policy or applying Net Premium to the Variable Account or the Guaranteed Interest 18 Division, we require satisfactory evidence of insurability. This evidence may include a medical examination, completion of all underwriting requirements, and satisfaction of issue 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 next Valuation Date following the date: (i) we receive the Initial Premium and, (ii) approve the Policy for issue and (iii) 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 is effective. The Policy Date is 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. TEMPORARY INSURANCE 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 applied-for face amount 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 in the binding limited life insurance coverage form or 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, 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 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. Other than the first one, required premiums 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 minimum and maximum limits we set. If one of the Guaranteed Minimum Death Benefit provisions 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 42 and Changes to Comply with Law, page 44. If a Policy Loan is outstanding, any payment which is not a Scheduled Premium payment received before the Maturity Date is considered a loan repayment, unless indicated otherwise. Applicable tax and sales charges which are deducted from any premium payment are not deducted from a loan repayment. MINIMUM ANNUAL PREMIUM 19 The Minimum Annual Premium must be paid during the first three policy years to meet 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, all 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 through 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 31. If during the first three Policy years, any charges are not deducted so as to keep the Policy from lapsing under the Special Continuation Period, these charges are not permanently waived. At the end of the Special Continuation Period, the aggregate amount of the charges previously not deducted will be due and will be deducted at the beginning of Policy year four. PREMIUM PAYMENTS AFFECT THE 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. At that time the Policy will lapse. See Lapse, page 31. 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 as 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 41. If the Guideline Premium/Cash Value Corridor Test is chosen, the allowable premium payments relative to the Policy death benefit will be limited. CHOICE OF GUARANTEED MINIMUM DEATH BENEFIT PROVISIONS The Owner will 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 benefits to the Policy will increase the Guarantee Period Annual Premium above those indicated above. Policy Owners should consider the Guaranteed Minimum Death Benefit Provision when setting the Scheduled Premium. MODIFIED ENDOWMENT CONTRACTS 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 20 upon whether premiums have been paid which exceed a defined "seven-pay" limit. See Modified Endowment Contracts, page 42. 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 The balance after certain premium-based charges are deducted from each premium is the Net Premium. No allocation will be made prior to the Investment Date. After the Investment Date, the Net Premium is added to the Account Value according to the Owner's instructions. Net Premium amounts allocated to the Guaranteed Interest Division will be allocated to that Division upon receipt. During the Delivery and Free Look Periods, Net Premiums allocated to the Divisions of the Variable Account will be allocated to the Division investing in the Fidelity VIP Money Market Portfolio. At the end of the Delivery and Free Look Periods, this portion of the Account Value automatically will be allocated according to the most recent premium allocation instructions. Thereafter, Net Premiums received will be allocated upon receipt, according to the allocation instructions stated in 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. More than five premium allocation changes in a Policy year will be subject to 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. See Maximum Number of Investment Divisions, page 15. 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 application instructions. 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. 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; thus no sales charge applies. The cost is included in the monthly cost of insurance charges discussed below. See Adjustable Term Insurance Rider, page 25. 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. As 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, reduced by any outstanding Policy Loan and accrued loan interest (and, if in the grace period or three-year Special Continuation Period, further reduced by any unpaid charges incurred prior to the date of the Insured's death). The Death Proceeds will include any amount provided by Rider on the Insured. DEATH BENEFIT OPTIONS The Owner may choose from three death benefit options if the Policy was delivered on or before December 31, 1997, or two death benefit options (Option 1 or Option 2) if delivered thereafter. These options may result in a Base Death Benefit which exceeds the Stated Death Benefit. The death benefit option may be changed on any Policy anniversary. See Changes In Death Benefit Option, page 22. Under Option 1, the Base Death Benefit is the greater of: (i) the Stated Death Benefit on the date of the Insured's death; or 21 (ii) 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: (i) the Stated Death Benefit plus the Account Value on the date of the Insured's death; or (ii) 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 insurance coverage that does not vary in amount, and lower cost of insurance charges, should choose Option 1. Owners who prefer to have any favorable investment experience reflected in increased insurance coverage should choose Option 2. 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 : (i) the Stated Death Benefit of the Policy plus the sum of all premiums paid minus Partial Withdrawals taken under the Policy; or (ii) 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 by the test for compliance chosen in the original Policy application. See Life Insurance Definition, page 41. If necessary, we will adjust the Policy to continue to qualify as life insurance under the applicable provisions of the Federal income tax laws in existence at the time the Policy was 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 on or following the date we approve the request for the change. After the request is approved, we will send a new Schedule page which should be attached to the Policy. We may ask that the Policy be returned to our Customer Service Center so that we can note the change in the Schedule. 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: OPTION CHANGE STATED DEATH BENEFIT FROM TO FOLLOWING CHANGE EQUALS: Option 1 Option 2 Stated Death Benefit prior to change minus the Account Value as of the effective date of the change. Option 2 Option 1 Stated Death Benefit prior to change plus the Account Value as of the effective date of the change. Option 1 Option 3 Stated Death Benefit prior to 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 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 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 22 change plus (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 23. 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 35. 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. Thus, there is no immediate change in the Net Amount at Risk on which our cost of insurance charges are based. See Cost of Insurance Charges, page 34. In addition, there will be no change to the amount of term insurance if the Adjustable Term Insurance Rider has been added. CHANGES IN DEATH BENEFIT AMOUNTS 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 after the first Policy anniversary. An increase or a decrease in the Policy death benefit may be requested by the Owner. This request will be effective as of the next monthly processing date after the request is received at our Customer Service Center unless there are underwriting or other requirements. A change in coverage may not be for an amount less than $1,000. 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. 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 41. Decreases in the death benefit generally may not decrease the Stated Death Benefit below the minimum required to issue this Policy. There may be tax consequences to the decrease, See Life Insurance Definition, page 41 and Modified Endowment Contracts, page 42. 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. Satisfactory evidence that the Insured is still insurable must be provided when the death benefit is increased. Unless otherwise indicated, any request for an increase to the Target Death Benefit will be assumed also to 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 once each 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 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 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. 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 35 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. 23 Because the charges to 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 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 Policy's Stated Death Benefit remains 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. 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 for as long as the Policy is in force or to the Maturity Date. See Choice of Guaranteed Minimum Death Benefit Provisions, page 20. 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; and any attached Riders will lapse. See Lapse, page 31. The Guaranteed Minimum Death Benefit provision is not available in some states. REQUIREMENTS TO MAINTAIN THE GUARANTEE PERIOD The Guaranteed Minimum Death Benefit provision requires a premium payment level, the Guarantee Period Annual Premium, that is higher than the Minimum Annual Premium. The Guarantee Period Annual Premium is 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. Although the required Guarantee Period Annual Premium level is different for the two Guarantee Periods, the mechanics of the Guaranteed Minimum Death Benefit provision is 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 Partial Withdrawals, Policy Loans 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 through, 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 also will be terminated if the Net Account Value on any Monthly Processing Date is not diversified according to the following rules: (i) No more than 35% of the Net Account Value may be invested in any one division, and (ii) 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 (i) and (ii) above are met. The Policy will also be deemed to satisfy the diversification requirements 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 28, and Automatic Rebalancing, page 28. 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 34. 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 Guaranteed Minimum Death Benefit provision is terminated. 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 by the Owner at any time. See Modified Endowment Contracts, page 42, 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. 24 Certain Riders may not be available for all Policies. ACCIDENTAL DEATH BENEFIT RIDER This Rider is not available for Policies issued on or after May 1, 1998. 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 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 the Owner's 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 23. 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 30. 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 34. 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. 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 is five times the Stated Death Benefit of the Policy. CHILDREN'S INSURANCE RIDER This Rider is not available for Policies issued on or after May 1, 1998. This Rider will allow the addition of death benefit for children by birth or legal adoption upon attainment of 15 days of age without presenting evidence of insurability. 25 RIGHT TO CHANGE INSURED RIDER This Rider allows the Owner to change the person insured under the Policy. A change of the Insured may have Federal income tax consequences. If a change of Insured occurs, the cost of insurance charges in the future may change but the Account Value will remain unchanged as of the change date. There is no charge for this Rider. GUARANTEED INSURABILITY RIDER This Rider is not available for Policies issued on or after May 1, 1998. 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 amount will be credited monthly to the Policy. In the application the amount of premium is selected, within limits, that will be credited. If this Rider is added to your Policy, the Waiver of Cost of Insurance Rider may not also be added. 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 outstanding Policy Loans and accrued loan interest. The Policy will then end. The Maturity Date is the Policy anniversary date on which the Insured attains Age 100. POLICY VALUES ACCOUNT VALUE The Account Value is the total amount in the Guaranteed Interest Division, in the various Divisions of the Variable Account and the Loan Division. The Account Value therefore reflects all premiums paid, charges made, Policy 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 outstanding Policy Loans 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 outstanding Policy Loans and 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. 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, 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 26 each day to the Variable Account. See How We Calculate Accumulation Unit Values for Each Division, page 27. 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, 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 the resulting 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 new 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 result is the Accumulation Experience Factor for the Valuation Period. TRANSFERS OF ACCOUNT VALUES After the Free Look Period ends, up to 12 transfers among the 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. Transfer requests should be made in writing 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 we 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 their ability to provide maximum investment return to all Owners. Transfers from the Guaranteed Interest Division may be made 27 only once during the first 30 days of each Policy year. Transfer requests received within 30 days 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. 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. Transfers of the Account Value to the Guaranteed Interest Division are not limited. 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. 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 48. 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. 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. However, participation in Dollar Cost Averaging does not assure a profit nor does it protect against a loss in a declining market. With Dollar Cost Averaging, a designated dollar amount or 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 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 or from the Guaranteed Interest Division. Any transfers that are a result of the Dollar Cost Averaging feature are not counted toward the limit of 12 transfers that can be made each Policy year without a transfer charge. There is no charge for this feature. Dollar Cost Averaging allocations may be designated in dollar amounts or whole percentages. The minimum percentage that may be transferred to any one Division is 1% of the total amount transferred to all selected Divisions. The transfer amount under Dollar Cost Averaging may be no less than $100. The first Dollar Cost Averaging date must be at least five days after our receipt of the request for Dollar Cost Averaging. In no event will Dollar Cost Averaging begin before the end of the Delivery and Free Look Periods. Dollar Cost Averaging may occur monthly, quarterly, semi-annually, or annually on a date requested by the Owner. Unless specified otherwise, 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 five 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 48. A date for Dollar Cost Averaging to terminate may be specified by the Owner. Termination also may occur when the balance remaining in the Division investing in either the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio reaches a specified dollar amount. 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. 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. During the operation of the automatic rebalancing feature, transfers among the Divisions may occur 28 monthly, quarterly, semi-annually, or annually on a date specified by the Owner. Unless specified otherwise, automatic rebalancing will take place on the last Valuation Date of each calendar quarter. Automatic rebalancing allocations may be specified for all or some of the Divisions in which the Account Value is invested. 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 of all Divisions included in automatic rebalancing matches the automatic rebalancing allocation percentage for that Division. This will rebalance the amounts in Divisions that do not match the set allocation, which could result, for example, from Divisions which outperform the other Divisions for that time period. 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 Delivery and Free Look Periods. If elected after the Policy Date, the first transfer will be processed on the date requested by the Owner which is at least five days after the request is received at our Customer Service Center, or, if no date is specified, the last Valuation Date of the calendar quarter after we receive notification at our Customer Service Center and the Delivery and Free Look Periods have 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 27. If we receive an automatic rebalancing request which is in conflict with these provisions, we will ask for revised instructions. The Owner may terminate the automatic rebalancing feature at any time, as long as we receive notice of the termination at least five 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 still must be maintained for the Guarantee Period to continue. If the automatic rebalancing feature is active, the Guarantee Period is in effect, 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. We will charge a fee of $25 each time the allocation is changed more than fiv times per Policy year; otherwise, there is no charge for this feature. An automatic rebalancing program may be run simultaneously with a Dollar Cost Averaging program. 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. We may impose requirements relating to Policy Loans as necessitated by our administrative system. For example, we may require that loan requests specify a dollar amount rather than a percentage to be taken from a specific Division. Loan interest charges on a Policy Loan accrue daily at an 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. When 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, sufficient units of the Variable Account Divisions are redeemed to cover the amount of the loan 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 unless otherwise specified by the Owner. 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 an annual rate of 29 3%. The amount of interest credited to the Loan Division for the Policy year will be transferred from the Loan Division on each Policy anniversary. 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, or the Cash Surrender Value paid on surrender, or the Account Value upon maturity. It also may 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. If telephone privileges have been elected, a Policy Loan may be requested by telephoning our Customer Service Center. A telephone request for a Policy Loan must be for an amount less than $25,000. See Telephone Privileges, page 48. Loans may have adverse Tax Consequences. See Modified Endowment Contracts, page 42. PARTIAL WITHDRAWALS A Partial Withdrawal may be requested on any Monthly Processing Date after the first Policy anniversary by 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 35. The Stated Death Benefit is not reduced by a Partial Withdrawal when: (i) 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 41) and (ii) 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 does reduce 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 the minimum we require to issue this policy. See Group or Sponsored Arrangements or Corporate Purchasers, page 41. 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 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 48. 30 Partial Withdrawals may have adverse tax consequences. See Modified Endowment Contracts, page 42. SURRENDER The Policy may be surrendered for its Net Cash Surrender Value at any time we 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 Policy Loans and accrued loan interest. Costs and expenses which have been deducted from the Net Account Value on the Monthly Processing Date preceding the surrender will not be added or pro-rated at surrender. During the first 14 Policy years, a Surrender Charge is also deducted from the Cash Surrender Value. A new 14 year Surrender Charge period will apply to each additional Segment of the Policy created by a requested increase in the Stated Death Benefit. See Surrender Charge, page 35. 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. 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 42. RIGHT TO EXCHANGE POLICY During the first 24 months following the Policy Date, the Owner has the right to exchange the Policy from one in which the investment experience is not guaranteed for a guaranteed Policy, unless required differently by state law. This is accomplished by transferring 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. When this right is exercised, we will not allow allocation of future premium payments or transfers to the Divisions of the Variable Account. 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 apply to the transfer to exercise this exchange privilege. See The Guaranteed Interest Division, page 18. LAPSE Insurance coverage will continue as long as the Net Cash Surrender Value of the Policy is sufficient to pay all the deductions 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 and 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 through 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 or the Special Continuation Period is in effect and all requirements have been met, the Policy including its Riders will lapse on any Monthly Processing Date that the Net Cash Surrender Value of the Policy is not sufficient to pay the monthly deductions from the Account Value. A 61-day grace period will begin on that Monthly Processing Date. See Grace Period, page 32. If we do not receive full payment of the requested amount within the 61 days, the Policy and all Riders attached will 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 deduct amounts owed to us, including any applicable Surrender Charge, and inform the Owner that the Policy has ended. If the Insured dies during the grace period, we will pay the Death Proceeds to the Beneficiary subject to 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 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 benefits will lapse if the Net Cash Surrender Value is not sufficient to cover all the deductions from the Account Value on any 31 Monthly Processing Date (unless the Policy is in the three-year Special Continuation Period). While the Guaranteed Minimum Death Benefit 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 waived permanently. The Guaranteed Minimum Death Benefit will be terminated if the Policy does not meet the monthly premium or diversification tests as explained in Requirements to Maintain the Guarantee Period, page 24. If the Guaranteed Minimum Death Benefit 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 it 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, 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) Satisfactory evidence is provided 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; and (iii) We receive a premium payment sufficient to keep the Policy and its Riders in force from the beginning to the end of the grace period and for two mo following the date of the reinstatement, unless required differently by s 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 also will reinstate 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 by the owner. Once terminated, the Guaranteed Minimum Death Benefit cannot be reinstated. CHARGES, DEDUCTIONS AND REFUNDS DEDUCTIONS FROM PREMIUMS Unless a loan is outstanding (see Policy Loans, page 29), payments received before the Maturity Date are considered to be premiums. Certain expenses are deducted from premium payments. The Net Premium is then added to the Account Value. The expenses which are deducted from premiums include the tax charges and the sales charge. TAX CHARGES Most 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 32 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 resulting from the receipt of premium payments, under Internal Revenue Code Section 848. 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 part of the total sales charge that will be assessed against the Account Value if the Policy is surrendered during the first 14 Policy years or the first 14 Policy years following an increase to the Stated Death Benefit. See Surrender Charge, page 35. For a Policy with multiple Segments, premiums paid are allocated to the Segments in the same proportion as 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 costs of distribution, of preparing our sales literature, 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 Surrender Charges 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 the 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 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 ten Policy years, which effectively reduces the charge for mortality and expense risks. See Persistency Refund, page 35. 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 such costs 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 33 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 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 makeup of the death benefit, and with the 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, including the state of Montana and 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. These rates are based on the 1980 Commissioner's Standard Ordinary Mortality Tables. We may offer Policies on a guaranteed issue basis under certain group or sponsored arrangements. If an eligible group or sponsored arrangement purchases Policies on a guaranteed issue basis, the Policies will be issued up to a predetermined face amount, with minimal evidence of insurability. Policies issued on a guaranteed issue basis may present different mortality costs to us compared to underwritten Policies. We may charge different cost of insurance rates and use different rating standards for guaranteed issue Policies. The cost of insurance charges may depend on the issue Age of the Insured, the size of the group, and the total premium to be paid by the group. Under most guaranteed issue Policies, the overall charges for insurance will be higher than under a comparable underwritten Policy issued in the preferred nonsmoker, standard nonsmoker, or standard smoker class. This means that an Insured may be able to obtain individual underwritten insurance coverage at a lower overall cost. CHARGES FOR ADDITIONAL BENEFITS The cost of 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, page 24. 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 or charges for additional benefits or the 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. 34 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 apply. See Partial Withdrawals, page 30. TRANSFERS We charge a fee of $25 for each additional transfer beyond the first 12 in a Policy year. 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 Transfers of Account Values, page 27, and Right to Exchange Policy, page 12. ALLOCATION CHANGES We charge a $25 fee each time the premium or automatic rebalancing allocation is changed more than five times each per Policy year. ILLUSTRATIONS We reserve the right to charge a fee, not to exceed $25, for each Policy illustration 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 Before After Persistency Persistency Refund Refund ------ ------ Variable Divisions $10,000.00 $10,004.17 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 Divisions $5,000.00 $5,004.17 Loan Division $5,000.00 $5,000.00 SURRENDER CHARGE We assess a Surrender Charge against the Account Value upon surrender, reduction in Stated Death Benefit or lapse 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 from issuing and distributing Policies. The Surrender Charge consists of two parts: 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 35 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 is 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 showing 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). The amount of the administrative Surrender Charge and the maximum sales Surrender Charge stays level for the first seven Policy years following the effective date of a coverage segment. It then decreases at the beginning of each subsequent 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. ADMINISTRATIVE SURRENDER CHARGE The administrative Surrender Charge is 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. 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 from the Account Value. The administrative Surrender Charge is designed to cover part of the administrative 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 by allocating premiums paid to Segments in the same proportion that the guideline annual premium for each Segment (as defined by the Federal income tax laws) bears to the sum of the guideline annual premiums for all Segments. The sales Surrender Charge is 25% of paid premiums up to the Target Premium for the Segment without any substandard ratings (Base Standard Target Premium) plus 5% of 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. 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. 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 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 36 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. Upon a Partial Withdrawal which causes the Stated Death Benefit to be reduced, or a requested decrease to the Stated Death Benefit occurring 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 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. CALCULATION OF SURRENDER CHARGE EXAMPLES: 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 Actual Surrender Surrender Charge 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 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 Actual Surrender Surrender Charge 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
37 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 asset value. The price reflects 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. 38 PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS) 1
Investment Total Portfolio 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% 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% 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 0.75% 0.25% 1.00% VAN ECK WORLDWIDE INSURANCE TRUST Worldwide Hard Assets Fund 1.00% 0.11% 1.11% Worldwide Real Estate Fund 1.00% 0.25% 1.25% Worldwide Emerging Markets Fund 1.00% 0.27 % 1.27% Worldwide Bond Fund 1.00% 0.12% 1.12% AIM VARIABLE INSURANCE FUNDS, INC. AIM VI - Capital Appreciation 0.64% 0.09% 0.73% AIM VI - Government Securities 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 39 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 regarding 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 an 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 ended 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. 40 GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS This Policy is available for purchase by individuals, corporations or other institutions. 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. 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 also may allow Partial Withdrawals to be taken without a Surrender Charge. 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. Group and sponsored plan rates are negotiated independently between Security Life and its reinsurers; thus, the rates will vary depending on group or plan size, general insurability, and underwriting standards as defined for group purposes. The negotiated rates are subject to conditions and underwriting standards which are available to Security Life at the time of sale and which reflect our costs and services. Such rates and standards shall 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 reserve the right to charge 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 41 Premium/Cash Value Corridor Test." Under the Cash Value Accumulation Test, there is no limit to the amount that may be paid in premiums as long as there is enough death benefit in relation to Account Value at all times. The death benefit at all times must be at least equal to an actuarially determined factor, depending on the Insured's Age, sex, and Premium Class at any point in time, multiplied by the Account Value. See Appendix A, page 65, 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 73, 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 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, as long as the Policy remains in force, increases in Account Value as a result of interest or investment experience will not be subject to Federal income tax unless and until there is a distribution from the Policy, such as a Partial Withdrawal or loan. 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 26. 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 49. 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, exchanges, transfers, 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 Owners 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. 42 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 Modified Endowment Contract if the accumulated premiums paid at any time during the first seven Policy years exceed 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 tax 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 a 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 Partial 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 43 expectancy) of the taxpayer or the joint lives (or joint life 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. We accept Section 1035 exchanges with outstanding loans. 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 also may 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 regarding the tax attributes of the particular arrangement. We are required to withhold income taxes from any portion of 44 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 also will 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 Variable Account. We will cast votes attributable to amounts in the Divisions of the Variable Account not attributable to 45 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 n 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 change 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 also will 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. 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. 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 46 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 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 47 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 outstanding Policy Loans and accrued loan interest and minus any Partial Withdrawals, unless otherwise required by law. If the Insured has been changed and the new Insured dies by suicide within two years of the change 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 Partial Withdrawals since the change 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 also will 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 27. We may, however, postpone the processing of any such transactions at any of these times: . 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 date of death of the Insured. The Death Proceeds will not be affected by changes in the values of the Divisions of the Variable Account subsequent to the date of death of the Insured. We will pay interest at the rate declared by us or at any higher rate required by law from the date of death of the Insured 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 require the Beneficiary and the Insured's next of kin to sign authorization forms 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 or a Policy Loan 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 48 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 with which we enter into selling agreements 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 two through ten, 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 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 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 be subject to our rules at the time of selection. Currently, these alternate payment options are available only 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 Settlement Option Table I in the Policy. Option II: Life Income with Payouts Guaranteed for a Designated Period: Payouts will be made in 1, 2, 4 or 12 installments per year throughout the payee's lifetime, or if longer, for a period of 5, 10, 15, or 20 years as elected. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of Account Value applied is shown in Settlement Option Table II in the Policy. This option is available only for ages shown in this Table. Option III: Hold at Interest: Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4 or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. 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. 49 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 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. ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, 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 of Smoker Death Benefit Life Insurance Stated Death Target Death Sex Age Status Option Test Benefit Premium Benefit - --------- ------- ------------ -------------- -------------- ------------ ------------- ------------ Male 45 Nonsmoker 1 CVAT 200,000 $3,750 200,000 Male 45 Nonsmoker 1 CVAT 100,000 $3,750 200,000 Male 45 Nonsmoker 1 GP 200,000 $3,750 200,000
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 33) 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. 50 The tables also reflect a daily investment advisory fee equivalent to an annual rate of .7178% 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 .1735% 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 .8913% 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 (1.63)%, on 6% it would be 4.32%, and on 12% it would be 10.28%. 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. 51 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: $3750.00 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 ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3937 2627 1139 200000 2992 1505 200000 2809 1322 200000 2 3750 8072 5167 3492 200000 6248 4573 200000 5696 4021 200000 3 3750 12413 7619 5757 200000 9793 7931 200000 8662 6799 200000 4 3750 16971 10102 8052 200000 13784 11734 200000 11831 9781 200000 5 3750 21757 12489 10289 200000 18135 15935 200000 15085 12885 200000 6 3750 26783 14781 12581 200000 22886 20686 200000 18425 16225 200000 7 3750 32059 14766 14766 200000 21847 19647 200000 21847 19647 200000 8 3750 37600 19035 17110 200000 33729 31804 200000 25345 23420 200000 9 3750 43417 20982 19332 200000 39907 38257 200000 28915 27265 200000 10 3750 49525 22793 21418 200000 46656 45281 200000 32549 31174 200000 15 3750 84966 30210 30210 200000 93733 93733 200000 52831 52831 200000 20 3750 130197 32500 32500 200000 169104 169104 301174 75106 75106 200000 25 3750 187925 25818 25818 200000 282217 282217 445620 98773 98773 200000 30 3750 261603 1740 1740 200000 447409 447409 636215 123804 123804 200000 AGE 65 3750 140644 32034 32034 200000 188280 188280 326854 79728 79728 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. 52 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: $3750.00 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 ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3937 2836 1348 200000 3215 1727 200000 3025 1537 200000 2 3750 8072 5477 3802 200000 6605 4930 200000 6029 4354 200000 3 3750 12413 7926 6063 200000 10188 8325 200000 9011 7148 200000 4 3750 16971 10405 8355 200000 14221 12171 200000 12196 10146 200000 5 3750 21757 12789 10589 200000 18619 16419 200000 15468 13268 200000 6 3750 26783 15076 12876 200000 23422 21222 200000 18827 16627 200000 7 3750 32059 17289 15089 200000 28696 26496 200000 22300 20100 200000 8 3750 37600 19437 17512 200000 34503 32578 200000 25901 23976 200000 9 3750 43417 21546 19896 200000 40927 39277 200000 29663 28013 200000 10 3750 49525 23594 22219 200000 48014 46639 200000 33573 32198 200000 15 3750 84966 34030 34030 200000 99006 99006 201775 57287 57287 200000 20 3750 130197 41457 41457 200000 182044 182044 324221 85846 85846 200000 25 3750 187925 43643 43643 200000 311932 311932 492541 120133 120133 200000 30 3750 261603 36086 36086 200000 510440 510440 725845 161231 161231 229271 AGE 65 3750 140644 42390 42390 200000 203646 203646 353530 92177 92177 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. 53 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: $3750.00 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 ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3937 2626 1789 200000 2992 2155 200000 2809 1971 200000 2 3750 8072 5166 4141 200000 6248 5223 200000 5695 4670 200000 3 3750 12413 7618 6518 200000 9792 8692 200000 8661 7561 200000 4 3750 16971 10101 9001 200000 13782 12682 200000 11830 10730 200000 5 3750 21757 12488 11388 200000 18133 17033 200000 15083 13983 200000 6 3750 26783 14779 13679 200000 22884 21784 200000 18424 17324 200000 7 3750 32059 16964 15864 200000 28069 26969 200000 21846 20746 200000 8 3750 37600 19034 18072 200000 33726 32764 200000 25343 24381 200000 9 3750 43417 20981 20156 200000 39905 39080 200000 28913 28088 200000 10 3750 49525 22792 22105 200000 46654 45966 200000 32548 31861 200000 15 3750 84966 30220 30220 200000 93735 93735 200000 52840 52840 200000 20 3750 130197 32548 32548 200000 169107 169107 301179 75152 75152 200000 25 3750 187925 26003 26003 200000 282222 282222 445628 98919 98919 200000 30 3750 261603 2387 2387 200000 447416 447416 636226 124189 124189 200000 AGE 65 3750 140644 32099 32099 200000 188283 188283 326860 79787 79787 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. 54 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: $3750.00 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 ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3937 3004 2166 200000 3394 2556 200000 3198 2361 200000 2 3750 8072 5860 4835 200000 7033 6008 200000 6435 5410 200000 3 3750 12413 8575 7475 200000 10991 9851 200000 9715 8615 200000 4 3750 16971 11325 10225 200000 15362 14262 200000 13222 12122 200000 5 3750 21757 13991 12891 200000 20196 19096 200000 16846 15746 200000 6 3750 26783 16575 15476 200000 25501 24401 200000 20593 19493 200000 7 3750 32059 19090 17990 200000 31340 30240 200000 24480 23380 200000 8 3750 37600 12542 20580 200000 37779 36817 200000 28523 27560 200000 9 3750 43417 23940 23115 200000 44876 44051 200000 32735 31910 200000 10 3750 49525 26264 25576 200000 52656 51969 200000 37107 36420 200000 15 3750 84966 37379 37379 200000 107473 107473 219031 62763 62763 200000 20 3750 130197 44854 44854 200000 195636 195636 348429 93167 93167 200000 25 3750 187925 47100 47100 200000 333510 333510 526612 130147 130147 205502 30 3750 261603 39813 39813 200000 544177 544177 773820 173261 173261 246377 AGE 65 3750 140644 45788 45788 200000 218569 218569 379435 99952 99952 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. 55 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: $3750.00 GUIDELINE PREMIUM TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%---------- -----------12.00%------------- ------------6.00%------------- PREMIUM CASH CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3937 2627 1139 200000 2992 1505 200000 2809 1322 200000 2 3750 8072 5167 3492 200000 6248 4573 200000 5696 4021 200000 3 3750 12413 7619 5757 200000 9793 7931 200000 8662 6799 200000 4 3750 16971 10102 8052 200000 13784 11734 200000 11831 9781 200000 5 3750 21757 12489 10289 200000 18135 15935 200000 15085 12885 200000 6 3750 26783 14781 12581 200000 22886 20686 200000 18425 16225 200000 7 3750 32059 16966 14766 200000 28071 25871 200000 21847 19647 200000 8 3750 37600 19035 17110 200000 33729 31804 200000 25345 23420 200000 9 3750 43417 20982 19332 200000 39907 38257 200000 28915 27265 200000 10 3750 49525 22793 21418 200000 46656 45281 200000 32549 31174 200000 15 3750 84966 30210 30210 200000 93733 93733 200000 52831 52831 200000 20 3750 130197 32500 32500 200000 173523 173523 211698 75106 75106 200000 25 3750 187925 25818 25818 200000 306941 306941 356051 98773 98773 200000 30 3750 261603 1740 1740 200000 525155 525155 561916 123804 123804 200000 AGE 65 3750 140644 32034 32034 200000 195320 195320 234384 79728 79728 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. 56 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: $3750.00 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 3750 3937 2836 1348 200000 3215 1727 200000 3025 1537 200000 2 3750 8072 5477 3802 200000 6605 4930 200000 6029 4354 200000 3 3750 12413 7926 6063 200000 10188 8325 200000 90911 7148 200000 4 3750 16971 10405 8355 200000 14221 12171 200000 12196 10146 200000 5 3750 21757 12789 10589 200000 18619 16419 200000 15468 13268 200000 6 3750 26783 15076 12876 200000 23422 21222 200000 18827 16627 200000 7 3750 32059 17289 15089 200000 28696 26496 200000 22300 20100 200000 8 3750 37600 19437 17512 200000 34503 32578 200000 25901 23976 200000 9 3750 43417 21546 19896 200000 40927 39277 200000 29663 28013 200000 10 3750 49525 23594 22219 200000 48014 46639 200000 33573 32198 200000 15 3750 84966 34030 34030 200000 99007 99007 200000 57287 57287 200000 20 3750 130197 41457 41457 200000 185524 185524 226340 85846 85846 200000 25 3750 187925 43643 43643 200000 329412 329412 382118 120133 120133 200000 30 3750 261603 36086 36086 200000 566366 566366 606012 163147 163147 200000 AGE 65 3750 140644 42390 42390 200000 208910 208910 250692 92177 92177 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. 57 ADDITIONAL INFORMATION DIRECTORS AND OFFICERS Set forth below is information regarding the directors and principal officers of Security Life of Denver Insurance Company. Security Life's address, and the business address of each person named, except as noted with one or two asterisks (*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The business address of each person denoted with one asterisk (*) is ING North America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327- 4390. The business address of each person denoted with two asterisks (**) is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273.
Name and Principal Business and Address Position and Offices with Security Life of Denver - ------------------------------- -------------------------------------------------------------- R. Glenn Hilliard* Chief Executive Officer Stephen M. Christopher Director, President and Chief Operating Officer Catherine T. Fitzgerald* Executive Vice President Keith T. Glover* Executive Vice President James L. Livingston, Jr. Executive Vice President, Operations Jeffrey R. Messner Executive Vice President and Chief Marketing Officer Thomas F. Conroy Director and President, Security Life Reinsurance Michael W. Cunningham* Director, Executive Vice President Linda B. Emory* Director, Vice President and Appointed Actuary Jess A. Skriletz President, Institutional Markets 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, Variable Philip R. Kruse Senior Vice President, Sales & Marketing Charles LeDoyen** Senior Vice President, Structured Settlements
58
Name and Principal Business and Address Position and Offices with Security Life of Denver - ------------------------------- -------------------------------------------------------------- Timothy P. McCarthy Senior Vice President, Marketing Services Jeffery W. Seel* Senior Vice President and Chief Investment Officer Lawrence D. Taylor Senior Vice President and Chief Actuary 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 C. Lynn McPherson* Vice President Sue A. Miskie Vice President, Corporate Services
59
Name and Principal Business and Address Position and Offices with Security Life of Denver - ------------------------------- -------------------------------------------------------------- Donna T. Mosely Vice President, Valuation Daniel G. Patsey Vice President, Strategic Technology 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 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 Relda A. Fleshman Deputy General Counsel 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
60 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, of our operations and finances to the Insurance Departments of the various jurisdictions in which we do business to determine solvency and compliance with state insurance laws and regulations. We are also subject to various Federal securities laws and regulations. LEGAL MATTERS The legal matters in connection with the Policy described in this prospectus have been passed on by the General Counsel of Security Life 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, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and the financial statements of the Separate Account L1 at December 31, 1997, and for each of the two years in the period ended December 31, 1997, 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 firm as experts in accounting and auditing. Actuarial matters in this prospectus have been examined by Lawrence D. Taylor, F.S.A., M.A.A.A., who is the Senior Vice President and Chief Actuary of Security Life. His opinion on actuarial matters is filed as an exhibit to the Registration Statement we filed with the SEC. REGISTRATION STATEMENT We have filed a Registration Statement relating to the 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. YEAR 2000 PREPAREDNESS Security Life is aware of potential computer system challenges associated with the year 2000. We plan to upgrade our current variable life administration system by early 1999. It is expected that this upgrade will make our system year 2000 compatible. We do not anticipate delays or problems in processing or administering variable life products in the year 2000 or beyond. 61 FINANCIAL STATEMENTS The consolidated financial statements of Security Life of Denver Insurance Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, are prepared in accordance with generally accepted accounting principles and start on page 63. The financial statements included for the Security Life Separate Account L1 at December 31, 1997 and for each of the two years in the period ended December 31, 1997, 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. 62 Consolidated Financial Statements Security Life of Denver Insurance Company and Subsidiaries Years ended December 31,1997, 1996 and 1995 with Report of Independent Auditors 63 Financial Statements Security Life Separate Account L1 Year ended December 31,1997 with Report of Independent Auditors 64 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
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. 65 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
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. 66 APPENDIX A (CONT.) Factors for the Cash Value Accumulation Test For a Life Insurance Policy FEMALE NONSMOKER
Attained Attained Factor Attained Factor Attained Factor Age Factor Age Age Age 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. 67 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. 68 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. 69 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. 70 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. 71 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. 72 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. 73 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 $3,750 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 32. This prospectus also contains illustrations based on assumed rates of return. See Illustrations of Death Benefits, Account Values, Surrender Values and Accumulated Premiums, page 50. 74 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
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 74. * 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. 75 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 74. * 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. 76 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 74. * 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. 77 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 Death Ended: Return* Value Value Benefit - --------------------------------------------------------------------------------------------------------------------- 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 Death Ended: Return* Value Value Benefit - --------------------------------------------------------------------------------------------------------------------- 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 Death Ended: Return* Value Value Benefit - --------------------------------------------------------------------------------------------------------------------- 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 74. * 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. 78 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 Death Ended: Return* Value Value Benefit - --------------------------------------------------------------------------------------------------------------------- 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
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 74. * 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. 79 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 BOND PORTFOLIO
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
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
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
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 - ----------------------------------------------------------------------------------------------------------------------
The assumptions underlying these values are described in Performance Information, page 74. * 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. 80 HYPOTHETICAL ILLUSTRATIONS Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $3,750 - --------------------------------------------------------------------------------
NEUBERGER & BERMAN AMT LIMITED MATURITY BOND PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 7.17% 1,603 3,090 200,000 12/31/89 10.77% 4,771 6,446 200,000 12/31/90 8.32% 7,887 9,749 200,000 12/31/91 11.34% 11,715 13,765 200,000 12/31/92 5.18% 14,923 17,123 200,000 12/31/93 6.63% 18,667 20,867 200,000 12/31/94 (0.15)% 20,991 23,191 200,000 12/31/95 10.94% 26,430 28,355 200,000 12/31/96 4.31% 30,338 31,988 200,000 12/31/97 6.74% 35,205 36,580 200,000 NEUBERGER & BERMAN AMT GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 25.97% 2,198 3,686 200,000 12/31/89 29.47% 6,693 8,368 200,000 12/31/90 (8.19)% 8,092 9,955 200,000 12/31/91 29.73% 14,326 16,376 200,000 12/31/92 9.54% 18,504 20,704 200,000 12/31/93 6.79% 22,514 24,714 200,000 12/31/94 (4.99)% 23,489 25,689 200,000 12/31/95 31.73% 35,133 37,058 200,000 12/31/96 9.14% 41,324 42,974 200,000 12/31/97 29.01% 57,107 58,482 200,000 NEUBERGER & BERMAN AMT PARTNERS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 36.47% 2,532 4,020 200,000 12/31/96 29.57% 7,130 8,805 200,000 12/31/97 31.25% 13,136 14,998 200,000
The assumptions underlying these values are described in Performance Information, page 74. * 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. - -------------------------------------------------------------------------------- 81 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 $3,750 - --------------------------------------------------------------------------------
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 64.48% 3,427 4,914 200,000 12/31/90 8.71% 6,618 8,293 200,000 12/31/91 57.54% 15,437 17,299 200,000 12/31/92 3.55% 18,514 20,564 200,000 12/31/93 13.28% 23,957 26,157 200,000 12/31/94 (4.38)% 25,079 27,279 200,000 12/31/95 44.31% 40,788 42,988 200,000 12/31/96 4.18% 45,251 47,176 200,000 12/31/97 11.39% 53,470 55,120 200,000 ALGER AMERICAN MIDCAP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 (1.54)% 1,328 2,815 200,000 12/31/95 44.45% 6,456 8,131 200,000 12/31/96 11.90% 10,103 11,965 200,000 12/31/97 15.01% 14,723 16,773 200,000 ALGER AMERICAN GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 4.14% 1,507 2,994 200,000 12/31/91 40.39% 6,466 8,141 200,000 12/31/92 12.38% 10,168 12,030 200,000 12/31/93 22.47% 15,918 17,968 200,000 12/31/94 1.45% 18,552 20,752 200,000 12/31/95 36.37% 29,566 31,766 200,000 12/31/96 13.35% 36,522 38,722 200,000 12/31/97 25.75% 49,779 51,704 200,000 ALGER AMERICAN LEVERAGED ALL CAP Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 12.04% 1,757 3,244 200,000 12/31/97 19.68% 5,504 7,179 200,000
The assumptions underlying these values are described in Performance Information, page 74. * 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. - -------------------------------------------------------------------------------- 82 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 $3,750 - --------------------------------------------------------------------------------
FIDELITY VIP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 15.58% 1,869 3,356 200,000 12/31/89 31.51% 6,399 8,074 200,000 12/31/90 (11.73)% 7,434 9,296 200,000 12/31/91 45.51% 15,420 17,470 200,000 12/31/92 9.32% 19,654 21,854 200,000 12/31/93 19.37% 26,853 29,053 200,000 12/31/94 (0.02)% 29,187 31,387 200,000 12/31/95 35.36% 43,867 45,792 200,000 12/31/96 14.71% 53,545 55,195 200,000 12/31/97 23.48% 69,638 71,013 200,000 FIDELITY VIP OVERSEAS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 8.13% 1,633 3,120 200,000 12/31/89 26.28% 5,766 7,441 200,000 12/31/90 (1.67)% 7,921 9,784 200,000 12/31/91 8.00% 11,326 13,376 200,000 12/31/92 (10.72)% 11,922 14,122 200,000 12/31/93 37.35% 20,716 22,916 200,000 12/31/94 1.72% 23,514 25,714 200,000 12/31/95 9.74% 28,880 30,805 200,000 12/31/96 13.15% 35,863 37,513 200,000 12/31/97 11.56% 43,035 44,410 200,000
The assumptions underlying these values are described in Performance Information, page 74. * 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. - -------------------------------------------------------------------------------- 83 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 $3,750 - --------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/88 7.39% 1,610 3,097 200,000 12/31/89 9.12% 4,677 6,352 200,000 12/31/90 8.04% 7,759 9,622 200,000 12/31/91 6.09% 10,910 12,960 200,000 12/31/92 3.90% 13,876 16,076 200,000 12/31/93 3.23% 16,908 19,108 200,000 12/31/94 4.25% 20,206 22,406 200,000 12/31/95 5.87% 24,280 26,205 200,000 12/31/96 5.41% 28,419 30,069 200,000 12/31/97 5.51% 32,756 34,131 200,000 FIDELITY VIP II ASSET MANAGER PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/90 6.72% 1,588 3,076 200,000 12/31/91 22.56% 5,481 7,156 200,000 12/31/92 11.71% 8,996 10,859 200,000 12/31/93 21.23% 14,316 16,366 200,000 12/31/94 (6.09)% 15,477 17,677 200,000 12/31/95 16.96% 21,383 23,583 200,000 12/31/96 14.60% 27,598 29,798 200,000 12/31/97 20.65% 36,915 38,840 200,000 FIDELITY VIP II INDEX 500 PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/93 9.74% 1,684 3,171 200,000 12/31/94 1.04% 4,254 5,929 200,000 12/31/95 37.19% 9,904 11,767 200,000 12/31/96 22.82% 15,649 17,699 200,000 12/31/97 32.82% 24,757 26,957 200,000
The assumptions underlying these values are described in Performance Information, page 74. * 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. - -------------------------------------------------------------------------------- 84 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 $3,750 - --------------------------------------------------------------------------------
INVESCO VIF TOTAL RETURN PORTFOLIO Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/95 22.79% 2,097 3,585 200,000 12/31/96 12.18% 5,410 7,085 200,000 12/31/97 22.91% 10,046 11,908 200,000 INVESCO VIF INDUSTRIAL INCOME PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 29.25% 2,303 3,790 200,000 12/31/96 22.28% 6,333 8,008 200,000 12/31/97 28.17% 11,754 13,617 200,000 INVESCO VIF HIGH YIELD PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 19.76% 2,001 3,489 200,000 12/31/96 16.59% 5,592 7,267 200,000 12/31/97 17.33% 9,697 11,559 200,000 INVESCO VIF UTILITIES PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 9.08% 1,663 3,150 200,000 12/31/96 12.76% 4,961 6,636 200,000 12/31/97 23.41% 9,544 11,406 200,000 VAN ECK WORLDWIDE HARD ASSETS FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/91 (2.93)% 1,284 2,771 200,000 12/31/92 (4.09)% 3,552 5,227 200,000 12/31/93 64.83 % 11,226 13,089 200,000 12/31/94 (4.78)% 12,831 14,881 200,000 12/31/95 10.99 % 17,129 19,329 200,000 12/31/96 18.04 % 23,551 25,751 200,000 12/31/97 (1.67)% 25,421 27,621 200,000
The assumptions underlying these values are described in Performance Information, page 74. *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. - -------------------------------------------------------------------------------- 85 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 $3,750 - -------------------------------------------------------------------------------
VAN ECK WORLDWIDE BOND PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 11.25% 1,732 3,219 200,000 12/31/91 18.39% 5,393 7,068 200,000 12/31/92 (5.25)% 7,197 9,060 200,000 12/31/93 7.79% 10,521 12,571 200,000 12/31/94 (1.32)% 12,663 14,863 200,000 12/31/95 17.30% 18,161 20,361 200,000 12/31/96 2.53% 21,109 23,309 200,000 12/31/97 2.38% 24,321 26,246 200,000 VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 26.82% 2,225 3,713 200,000 12/31/97 (11.61)% 3,944 5,619 200,000 AIM VI CAPITAL APPRECIATION PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 2.50% 1,455 2,943 200,000 12/31/95 35.69% 6,110 7,785 200,000 12/31/96 17.58% 10,328 12,191 200,000 12/31/97 13.51% 14,753 16,803 200,000 AIM VI GOVERNMENT SECURITIES PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 (3.73%) 1,259 2,746 200,000 12/31/95 15.56% 4,670 6,345 200,000 12/31/96 2.29% 7,217 9,079 200,000 12/31/97 8.16% 10,587 12,637 200,000
The assumptions underlying these values are described in Performance Information, page 74. *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. - -------------------------------------------------------------------------------- 86 FIRSTLINE II 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 II, 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"). Twenty-three Divisions of the Variable Account are available under the Policy. 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 Policy Loans taken or transferred into the Policy. 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 outstanding Policy Loans, accrued loan interest, and 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 during the first three policy years, 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: May 1, 1998 Form V-62-98 The minimum monthly premium is equal to one twelfth of the Minimum Annual Premium. If the Guaranteed Minimum Death Benefit Provision is effective, 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: 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. 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. 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 Delivery and Free Look Periods. 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 Insurance Company Security Life Center 1290 Broadway Denver, CO 80203-5699 (800) 525-9852 THROUGH ITS: Security Life Separate Account L1 ADMINISTERED AT: Customer Service Center P.O. Box 173888 Denver, CO 80217-3888 (800) 848-6362 PROSPECTUS DATED: May 1, 1998 BROKER-DEALER: ING America Equities, Inc. 1290 Broadway Attn: Variable Denver, CO 80203-5699 (303) 860-2000 - -------------------------------------------------------------------------------- FirstLine II 2
TABLE OF CONTENTS DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS...................................................7 POLICY SUMMARY.......................................................................................10 GENERAL INFORMATION..................................................................................10 DEATH BENEFITS.......................................................................................10 CONTINUATION OF COVERAGE.............................................................................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................................................................................11 AUTOMATIC REBALANCING................................................................................11 LOANS................................................................................................12 PARTIAL WITHDRAWALS..................................................................................12 SURRENDER............................................................................................12 RIGHT TO EXCHANGE POLICY.............................................................................12 LAPSE................................................................................................12 REINSTATEMENT........................................................................................12 CHARGES AND DEDUCTIONS...............................................................................12 PERSISTENCY REFUND...................................................................................13 TAX CONSIDERATIONS...................................................................................13 INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS AND THE GUARANTEED INTEREST DIVISION........................................................14 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 II VARIABLE UNIVERSAL LIFE POLICY...........................18 APPLYING FOR A POLICY................................................................................18 TEMPORARY INSURANCE..................................................................................19 PREMIUMS ............................................................................................19 Scheduled Premiums.................................................................19 Unscheduled Premium Payments.......................................................19 Minimum Annual Premium.............................................................19 Special Continuation Period........................................................19 Premium Payments Affect the Coverage...............................................20 Choice of Definitional Tests.......................................................20 Guaranteed Minimum Death Benefit Provision.........................................20 Modified Endowment Contracts.......................................................20 ALLOCATION OF NET PREMIUMS...........................................................................20 MAXIMUM NUMBER OF INVESTMENT DIVISIONS...............................................................21 DEATH BENEFITS.......................................................................................21 Death Benefit Options..............................................................21 Changes in Death Benefit Option....................................................22 Changes in Death Benefit Amounts...................................................22
- -------------------------------------------------------------------------------- FirstLine II 3 Guaranteed Minimum Death Benefit...................................................23 Requirements to Maintain the Guarantee Period......................................23 ADDITIONAL BENEFITS..................................................................................24 Adjustable Term Insurance Rider....................................................24 Additional Insured Rider...........................................................25 Right to Exchange Rider............................................................25 Waiver of Cost of Insurance Rider..................................................25 Waiver of Specified Premium Rider..................................................25 BENEFITS AT MATURITY.................................................................................25 CONTINUATION OF COVERAGE.............................................................................25 POLICY VALUES........................................................................................25 Account Value......................................................................25 Cash Surrender Value...............................................................26 Net Cash Surrender Value...........................................................26 Net Account Value..................................................................26 DETERMINING THE VALUE IN THE DIVISIONS OF THE VARIABLE ACCOUNT.......................................26 HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION..........................................26 TRANSFERS OF ACCOUNT VALUES..........................................................................27 DOLLAR COST AVERAGING................................................................................27 AUTOMATIC REBALANCING................................................................................28 POLICY LOANS.........................................................................................29 PARTIAL WITHDRAWALS..................................................................................29 SURRENDER............................................................................................30 RIGHT TO EXCHANGE POLICY.............................................................................30 LAPSE................................................................................................30 If the Guaranteed Minimum Death Benefit Is Not in Effect...........................31 If the Guaranteed Minimum Death Benefit Is in Effect...............................31 GRACE PERIOD.........................................................................................31 REINSTATEMENT........................................................................................31 CHARGES, DEDUCTIONS AND REFUNDS......................................................................32 DEDUCTIONS FROM PREMIUMS.............................................................................32 Tax Charges........................................................................32 Sales Charge.......................................................................32 DAILY DEDUCTIONS FROM THE VARIABLE ACCOUNT...........................................................32 Mortality and Expense Risk Charge..................................................32 MONTHLY DEDUCTIONS FROM THE ACCOUNT VALUE............................................................33 Initial Policy Charge..............................................................33 Monthly Administrative Charge......................................................33 Cost of Insurance Charges..........................................................33 Charges for Additional Benefits....................................................34 Changes in Monthly Charges.........................................................34 POLICY TRANSACTION FEES..............................................................................34 Partial Withdrawal.................................................................34 Transfers..........................................................................34 Allocation Changes.................................................................34 Illustrations......................................................................34 Continuation of Coverage Administrative Fee........................................34 PERSISTENCY REFUND...................................................................................34 SURRENDER CHARGE.....................................................................................35 Administrative Surrender Charge....................................................35 Sales Surrender Charge.............................................................36 Calculation of Surrender Charge....................................................37 CHARGES FROM PORTFOLIOS..............................................................................37 Portfolio Annual Expenses..........................................................38
- -------------------------------------------------------------------------------- FirstLine II 4 GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS..............................................40 OTHER CHARGES........................................................................................40 TAX CONSIDERATIONS...................................................................................40 LIFE INSURANCE DEFINITION............................................................................40 DIVERSIFICATION REQUIREMENTS.........................................................................41 MODIFIED ENDOWMENT CONTRACTS.........................................................................41 TAX TREATMENT OF PREMIUMS............................................................................42 LOANS, LAPSES, SURRENDERS AND WITHDRAWALS............................................................42 If the Policy Is Not a Modified Endowment Contract.................................42 If the Policy Is a Modified Endowment Contract.....................................42 ALTERNATIVE MINIMUM TAX..............................................................................43 SECTION 1035 EXCHANGES...............................................................................43 TAX-EXEMPT POLICY OWNERS.............................................................................43 CHANGES TO COMPLY WITH LAW...........................................................................43 OTHER................................................................................................43 ADDITIONAL INFORMATION ABOUT THE POLICY..............................................................44 VOTING PRIVILEGES....................................................................................44 RIGHT TO CHANGE OPERATIONS...........................................................................44 REPORTS TO OWNERS....................................................................................45 OTHER GENERAL POLICY PROVISIONS......................................................................45 FREE LOOK PERIOD.....................................................................................45 THE POLICY...........................................................................................45 AGE..................................................................................................45 OWNERSHIP............................................................................................46 BENEFICIARY..........................................................................................46 COLLATERAL ASSIGNMENT................................................................................46 INCONTESTABILITY.....................................................................................46 MISSTATEMENTS OF AGE OR SEX..........................................................................46 SUICIDE..............................................................................................46 PAYMENT..............................................................................................47 NOTIFICATION AND CLAIMS PROCEDURES...................................................................47 TELEPHONE PRIVILEGES.................................................................................47 NON-PARTICIPATING....................................................................................47 DISTRIBUTION OF THE POLICIES.........................................................................47 SETTLEMENT PROVISIONS................................................................................48 ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND SURRENDER VALUES, AND ACCUMULATED PREMIUMS........................................................................49 ADDITIONAL INFORMATION...............................................................................57 DIRECTORS AND OFFICERS...............................................................................57 STATE REGULATION.....................................................................................60 LEGAL MATTERS........................................................................................60 LEGAL PROCEEDINGS....................................................................................60 EXPERTS..............................................................................................60 REGISTRATION STATEMENT...............................................................................60 YEAR 2000 PREPAREDNESS...............................................................................60 FINANCIAL STATEMENTS.................................................................................61 APPENDIX A...........................................................................................64
- -------------------------------------------------------------------------------- FirstLine II 5 APPENDIX B...........................................................................................72 APPENDIX C...........................................................................................73 PERFORMANCE INFORMATION..............................................................................73
- -------------------------------------------------------------------------------- FirstLine II 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 total 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 used 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. Age -- The Insured's Age at any time is his or her age on the birthday nearest the Policy Date plus the number of full Policy years since the Policy Date. Age 100 -- The Policy anniversary on which the Insured's Age is 100. 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. The Base Death Benefit may be increased to satisfy the Federal income tax law definition of life insurance. Beneficiary(ies) -- The person or persons designated to receive the Death Proceeds upon 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 173888, Denver, CO 80217-3888. Continuation of Coverage -- A Policy feature which permits the insurance coverage to continue in force beyond Policy Age 100. Death Proceeds -- The amount payable upon the death of the Insured. It equals the Base Death Benefit plus any Rider benefits, if applicable, minus outstanding Policy Loans, accrued loan interest, minus any Policy charges incurred prior to the date of the Insured's death, but not yet deducted. Delivery Period -- The period which begins on the date the Policy is issued and ends on the earlier of: (a) the date the Policy was delivered 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 the Policy is mailed from our Customer Service Center plus the deemed mailing time. The deemed mailing time is five days, unless required otherwise by the state in which the Policy is issued. Division(s) -- The Loan Division and the Divisions of the Variable Account which invest in shares 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 Guarantee Period is to the Insured's Age 65 or 10 years from the Policy Date, whichever is later. The Guarantee Period will end sooner if the Guarantee Period Annual Premium has not been paid or on any Monthly Processing Date that the Net Account Value is not diversified according to the Policy requirements. Guarantee Period Annual Premium -- The premium payment level required to maintain the Guarantee Period. - -------------------------------------------------------------------------------- FirstLine II 7 Guaranteed Interest Division -- Part of our General Account to which a portion of the Account Value may be allocated and which guarantees principal and interest. Guaranteed Minimum Death Benefit -- The Policy provision 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 for coverage to begin. Initial Premium is equal to the sum of 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 next Valuation Date following the date: (i) we have received Initial Premium, and, (ii) we have approved the Policy for issue, and (iii) 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 outstanding Policy Loans and accrued loan interest when due. Minimum Annual Premium -- The premium which must be paid during the first three policy years to meet the requirements of the Special Continuation Period. Monthly Processing Date -- The date each month on which deductions from the Account Value are due. The first Monthly Processing Date will be the later of the Policy Date or the Investment Date. Subsequent Monthly Processing Dates will be the same date as the Policy Date unless this is not a Valuation Date, in which case the Monthly Processing Date is the next Valuation Date. NASD -- The National Association of Securities Dealers, Inc. Net Account Value -- The Account Value minus Policy Loans and accrued loan interest. Net Amount at Risk -- (for the Base Death Benefit) 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. It is equal to the Cash Surrender Value minus Policy Loans and accrued loan interest. Net Premium -- Premium amounts paid minus 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 part of the Net Cash Surrender Value from the Policy. A 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. Policy -- The basic Policy, any applications, and any Riders or endorsements. 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. Policy Loan -- The total amounts borrowed from the Policy, plus any Policy Loan interest capitalized when due, minus any Policy Loan repayments. 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 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. - -------------------------------------------------------------------------------- FirstLine II 8 Scheduled Premium -- The premium amount specified by the Owner on the application as the amount 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. The Scheduled Premium need not be paid and may be changed at any time. Also, within limits, the Owner may pay more or less 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 and new incontestability and suicide exclusion periods. Special Continuation Period -- A three-year period beginning at the Policy Date, during which payment of the Minimum Annual Premium will guarantee the Policy against lapse. Stated Death Benefit -- The sum of the Segments under the Policy. The Stated Death Benefit changes when there is an increase, 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 Policy application; the Adjustable Term Insurance Rider Death Benefit is the difference between the Target Death Benefit and the Base Death Benefit. 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 and to keep the Target Death Benefit at the desired amount. The Target Death Benefit for each year is shown in the Schedule 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, 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 the unit values of the Divisions are determined. Valuation Dates currently occur on each day on which the New York Stock 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 Valuation Date. Variable Account -- Security Life Separate Account L1 segregates 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 II 9 POLICY SUMMARY This policy summary provides 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 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. As long as the Policy remains in force, we will pay a death benefit when the Insured dies. At the insured's Age 100 the Owner may surrender the Policy or allow Continuation of Coverage to become effective. If Continuation of Coverage is effective, we will deduct a one-time administrative fee and the Policy will remain in force. See Continuation of Coverage, page 25. 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 by Rider, reduced by the amount of any outstanding Policy Loan and any accrued loan interest. See Death Benefits, page 21. When we issue the Policy, the death benefit is equal to the Stated Death Benefit 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 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 30) then the Policy and its Riders are guaranteed not to lapse, regardless of the Net Cash Surrender Value. The Stated Death Benefit of the Policy may remain in force after the 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 Provision, page 20. Continuation of Coverage If the Insured is still living at Age 100 and the Continuation of Coverage feature is in effect, we will deduct a one-time administrative fee and the Policy will remain in force. See Continuation of Coverage, page 25. Additional Benefits A variety of additional benefits may be attached to the Policy by Rider. The charge for these benefits is deducted monthly from the Account Value. See Additional Benefits, page 24. 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 those required to keep the Policy in force or payments required to maintain certain benefits as described below. The Initial Premium must be paid 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. The Guarantee Period Annual Premium must be paid to maintain the Guaranteed Minimum Death Benefit. The Scheduled Premium is specified by the Owner at application. The Scheduled Premium may not be sufficient to maintain the Guarantee Period for the Guaranteed Minimum Death Benefit or to keep the Policy in force. 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 Coverage, page 20. Allocation of Net Premiums After certain premium-based charges are deducted from the premiums, the balance, Net Premium, is added to the Account Value based on the premium allocation instructions. Net Premiums may be allocated to one or more 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. No allocations will be made prior to the Investment Date. - -------------------------------------------------------------------------------- FirstLine II 10 After the Investment Date, amounts allocated to the Guaranteed Interest Division will be allocated to that Division upon receipt. Amounts allocated to the Divisions of the Variable Account will be held in the Division investing in the Fidelity VIP Money Market Portfolio. At the end of the Delivery and Free Look Periods, the amounts allocated to the Guaranteed Interest Division will remain in that Division; and, the funds held in the Fidelity VIP Money Market Division will be reallocated to the other Divisions of the Variable Account according to the most recent premium allocation instructions. Thereafter, Net Premiums will be allocated upon receipt according to the most recent premium allocation instructions. Allocation percentages must be in whole numbers, with the sum equaling 100%. See Allocation of Net Premiums, page 20. 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 21. 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 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 Withdrawals and service fees 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 outstanding Policy Loans and accrued loan interest. The Net Account Value of the Policy is equal to the Account Value less the amount of outstanding Policy Loans 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. Each Division of the Variable Account will have different Accumulation Unit Values. See Determining the Value in the Divisions of the Variable Account, page 26. 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. Each Accumulation Unit Value 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 26. 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 resulting from Automatic Rebalancing or Dollar Cost Averaging are not included in the 12 transfers without a charge. The minimum amount we will transfer is $100 or the balance in the division if less than $100. Once during the first 30 days of each Policy year, transfers may be made from the Guaranteed Interest Division. 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 27. Dollar Cost Averaging Dollar Cost Averaging is available by electing this feature at application or by completing the appropriate form. We offer Dollar Cost Averaging to Owners who have at least $10,000 in the Divisions investing in either the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio. There is no charge for this feature. See Dollar Cost Averaging, page 27. Automatic Rebalancing Automatic Rebalancing is available by electing this feature at application or by completing the appropriate form. - -------------------------------------------------------------------------------- FirstLine II 11 Automatic Rebalancing allows the Owner to match the Account Value allocations over time to the specified allocation percentages. We will charge a fee of $25 each time the automatic rebalancing allocation is changed in excess of five times per policy year; otherwise, there is no charge for this feature. See Automatic Rebalancing, page 28. 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 annual rate of 4.75%. The Loan Division earns a guaranteed rate of interest equal to 4% on an annual basis. See Policy Loans, page 29. Partial Withdrawals Part 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 29. 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 Policy Loans 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. All insurance coverage will end on that date. See Surrender, page 30. Right to Exchange Policy At any time during the first 24 months following the Policy Date, 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 30. Lapse Insurance coverage will continue as long as the Net Cash Surrender Value of the Policy is sufficient to pay 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 requirements to maintain the Guarantee Period for the Guaranteed Minimum Death Benefit provision have been met, the Stated Death Benefit portion of the Policy will remain in effect after the three-year Special Continuation Period regardless of the amount of the Net Cash Surrender 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 30. Reinstatement A lapsed Policy and its Riders may be reinstated within five years of its lapse if it has not been surrendered and the Insured is still living. New evidence of insurability and payment of certain reinstatement premiums will be required. We also will reinstate any Policy Loans which existed when coverage ended, with accrued loan interest to the date of lapse. See Reinstatement, page 31. 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 is deducted to cover a portion of our expenses in issuing this Policy. This charge is based on 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% This deduction is only a portion of the total sales charge that will be assessed against the Account Value in the event of surrender during the first 14 Policy Years or 14 years following the addition of a new Segment. See Sales Surrender Charge, page 36. See Deductions from Premiums, page 32. - -------------------------------------------------------------------------------- FirstLine II 12 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 this charge to compensate us for mortality and expense risks under the Policies. See Daily Deductions from the Variable Account, page 32. 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 for the first three policy years. (ii) Monthly Administrative Charge -- $3 per month plus $0.025 per thousand of Stated Death Benefit (or Target Death Benefit if greater). Currently the per thousand charge is limited to $30 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 the Base Death Benefit, any Adjustable Term Insurance Rider, 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. See Monthly Deductions from the Account Value, page 33. 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 for which the charge is made. See Policy Transaction Fees, page 34. (i) Partial Withdrawal fee -- $25. (ii) Transfer fee -- Twelve transfers per Policy year are permitted without fees; for each transfer thereafter, a $25 fee is charged. (iii) Allocation Change fee -- Five premium and five automatic rebalancing allocation changes are permitted each Policy year without fees; for each change thereafter, a $25 fee is charged. (iv) Illustrations -- One illustration per policy year is available without a fee, for each illustration thereafter, a $25 fee may be charged. (v) Continuation of Coverage -- a one-time $200 administrative fee will be charged at Age 100 to activate coverage. 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 be assessed if a Partial Withdrawal is taken. The charge consists of the administrative Surrender Charge plus the sales Surrender Charge. The administrative Surrender Charge is a fixed dollar amount per thousand dollars of Stated Death Benefit and depends upon the Insured's Age at the Policy Date or the 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 35. 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 37. Persistency Refund The Account Value will be credited with a Persistency Refund each Monthly Processing Date after the tenth Policy anniversary. See Persistency Refund, page 34. Tax Considerations Under current Federal income tax law, death benefits of life insurance policies generally are not subject to income tax. In order for this treatment to apply, the Policy must qualify as a life insurance contract. 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 40. 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 41. - -------------------------------------------------------------------------------- FirstLine II 13 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 1997, Security Life and its consolidated subsidiaries had over $XXX billion of life insurance in force. Our total assets exceeded $X billion and our shareholder's equity exceeded $XXX million, on a generally accepted accounting principles basis as of December 31, 1997. 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 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 $XXX billion on a Dutch (modified U.S.) generally accepted accounting principles basis as of December 31, 1997. 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") was established on November 3, 1993, under the Insurance Law of the State of Colorado. It 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 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 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. - -------------------------------------------------------------------------------- FirstLine II 14 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 and variable life insurance contracts 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. 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 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 which 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. 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. 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 - -------------------------------------------------------------------------------- FirstLine II 15 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 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. It also may enter into futures contracts on securities indexes as well as 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 money; but only from banks. It 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 - -------------------------------------------------------------------------------- FirstLine II 16 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 the 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 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 -- 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, and Worldwide Bond Fund. 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 -- 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 -- seeks high total return through a flexible policy of investing globally, primarily in debt securities. Van Eck Worldwide Emerging Markets Fund -- 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. 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 - -------------------------------------------------------------------------------- FirstLine II 17 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 -- 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 -- 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. The Guaranteed Interest Division is part of our General Account and 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, the General Account, the Guaranteed Interest Division and interests therein are generally not 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. From time to time, we declare the interest rate that will apply to all amounts in the Guaranteed Interest Division. These interest rates will never be less than the minimum guaranteed interest rate of 4% 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 on 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 II VARIABLE UNIVERSAL LIFE POLICY This prospectus describes our standard FirstLine II Variable Universal Life Policy. There may be differences in the Policy because of state requirements where the Policy is issued. Any such differences will be defined in the Policy. The illustrations beginning on page 51 are intended to provide an idea of how the key financial elements of FirstLine II work. The illustrations show Premiums, Account Values, Cash Surrender Values and Death Benefits. Applying for a Policy A FirstLine II Policy may be purchased by submitting an application to us. On the Policy Date, the Insured must be no older than Age 85. Before issuing a Policy or applying Net Premium to the Variable Account or the Guaranteed Interest Division, we require satisfactory evidence of insurability. This evidence may include a medical examination, completion of all underwriting requirements, and satisfaction of issue 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 next Valuation Date following the date: (i) we receive the Initial Premium, and, (ii) approve the Policy for issue, and (iii) 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 - -------------------------------------------------------------------------------- FirstLine II 18 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 is effective. The Policy Date is 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. Temporary Insurance 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 applied-for face amount, 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: (i) in the answers in the binding limited life insurance coverage form or in the application, (ii) a proposed Insured dies by suicide or intentional self-inflicted injury, or (iii) the premium check is not honored. Premiums The Owner may choose the amount and frequency of premium payments, 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 be paid over a specified period of time and may not 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 may be paid by 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 minimum and maximum limits we may set. If the Guaranteed Minimum Death Benefit is desired, 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 41 and Changes to Comply with Law, page 43. If a Policy Loan is outstanding, any payment which is not a Scheduled Premium payment is considered a loan repayment, unless indicated otherwise. Applicable tax and sales charges which are deducted from any premium payment are not deducted from a loan repayment. Minimum Annual Premium The Minimum Annual Premium must be paid during the first three policy years to meet the requirements for the three-year Special Continuation Period. We determine the 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 is shown in the Schedule pages of the Policy. Special Continuation Period - -------------------------------------------------------------------------------- FirstLine 19 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, all 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 through 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 30. If during the first three Policy years, any charges are not deducted so as to keep the Policy from lapsing under the Special Continuation Period, these charges are not permanently waived. At the end of the Special Continuation Period, the aggregate amount of the charges previously not deducted will be due and will be deducted at the beginning of Policy year four. Premium Payments Affect the 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. At that time, the Policy will lapse. See Lapse, page 30. 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 19. Under the Guaranteed Minimum Death Benefit, the Stated Death Benefit portion of the Policy will remain in effect until the end of the Guarantee Period as 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 40. If the Guideline Premium /Cash Value Corridor Test is chosen, the allowable premium payments relative to the Policy death benefit will be limited. Guaranteed Minimum Death Benefit Provision The Owner will have the opportunity to choose whether to place and keep the Guaranteed Minimum Death Benefit provision in effect. This provision 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. This provision requires a premium payment level (the Guarantee Period Annual Premium) which is higher than the Minimum Annual Premium. In addition, the Net Account Value must be diversified according to our requirements. See Guaranteed Minimum Death Benefit, page 23. Policy Owners should consider the Guaranteed Minimum Death Benefit Provision when setting the Scheduled Premium. Modified Endowment Contracts 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 41. 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 The balance after certain premium-based charges are deducted from each premium is called the Net Premium. It is added to the Account Value according to the Owner's instructions. On or after the Investment Date, Net Premium amounts allocated to the Guaranteed Interest Division will be allocated to that Division upon receipt. During the Delivery and Free Look Periods, Net Premiums allocated to the Divisions of the Variable Account will be allocated to the Division investing in the Fidelity VIP Money Market Portfolio. At the end of the Delivery and Free Look Periods, this portion of the Account Value will automatically be allocated according to the most recent premium allocation instructions. Thereafter, Net Premiums will be allocated upon receipt, according to the allocation instructions stated in 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. More than five Premium allocation - -------------------------------------------------------------------------------- FirstLine 20 changes in a Policy year, will be subject to a $25 charge for each additional change. 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 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 II 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 II. When the Policy is issued, an initial amount of insurance coverage is determined according to the application instructions. 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. 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 24. 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. As 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, reduced by any outstanding Policy Loans and accrued loan interest (and, if in the grace period or three-year Special Continuation Period, further reduced by any unpaid charges incurred prior to the date of the Insured's death). The Death Proceeds will include any amount provided by Rider on the 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 22. 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 insurance coverage that does not vary in amount and lower cost of insurance charges, should choose Option 1. Owners who prefer to have any favorable investment experience reflected in increased insurance coverage should choose Option 2. 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 sex at any point in time as well as by the test for compliance chosen in the original Policy application. See Life Insurance Definition, page 40. - -------------------------------------------------------------------------------- FirstLine 21 If necessary, we will adjust the Policy to continue to qualify as life insurance under the applicable provisions of the Federal income tax laws in existence at the time the Policy was 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. A change in the death benefit option will be effective 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 policy Schedule page which should be attached to the Policy. We may ask that the Policy be returned to our Customer Service Center so that we can note the change in the Schedule. 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, 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: 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. 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 22. We do not charge a Surrender Charge for any decrease in Stated Death Benefit, nor is there an adjustment to the Target Premium. See Surrender Charge, page 35. 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. In addition, there will be no change to the amount of term insurance if an Adjustable Term Insurance Rider has been added. See Cost of Insurance Charges, page 33. If the Continuation of Coverage feature is in effect, Death Benefit Option 2 will not be available after Age 100. Changes in Death Benefit Amounts 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 after the first Policy anniversary. An increase or a decrease in the death benefit of the Policy may be requested by the Owner. This request will be effective as of the next monthly processing date after the request is received at our Customer Service Center unless there are underwriting or other requirements. Any change in coverage may not be for an amount less than $1,000. 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 ask that the Policy be returned to our Customer Service Center so that we can note the change in the Schedule. 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 40. Decreases in the death benefit generally may not decrease the Stated Death Benefit below $50,000; or the minimum we require to issue the Policy. There may be tax consequences to the decrease, See Life Insurance Definition, page 40 and Modified Endowment Contracts, page 41. 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. Satisfactory evidence that the Insured is still insurable must be provided when the death benefit is increased. Unless indicated otherwise, any request for an increase to the Target Death Benefit will be assumed to also be a request for - -------------------------------------------------------------------------------- FirstLine II 22 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, premiums paid after the increase will be allocated to the original and 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. If a 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 35. Guaranteed Minimum Death Benefit 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. A Guaranteed Minimum Death Benefit provision is available, 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. This provision has a Guarantee Period of 10 Policy years or to the Insured's Age 65, whichever is later. It protects the Stated Death Benefit of the Policy for a limited number of Policy years. The Guarantee Period Annual Premium depends on the Stated Death Benefit of the Policy, the Insured's Age, sex, and Premium Class, the death benefit option chosen, and additional Rider coverage. Adding additional benefits to the Policy will increase the Guarantee Period Annual Premium above this level. 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 provision; any attached Riders will lapse. See Lapse, page 30. The Guaranteed Minimum Death Benefit provision is not available in some states. Requirements to Maintain the Guarantee Period The Guaranteed Minimum Death Benefit provision requires a premium payment level, the Guarantee Period Annual Premium, that is higher than the Minimum Annual Premium and the Net Account Value must meet certain diversification requirements. 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 (ii) the amount of any Partial Withdrawals plus any Policy Loans and accrued loan interest, equals or exceeds (iii) the sum of the Guarantee Period Monthly Premiums for each Policy Month starting with the first Policy Month through 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 lapse. 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 will increase. The Guarantee Period Monthly Premium is one-twelfth of the Guarantee Period Annual Premium. The Guarantee Period will lapse if the Net Account Value on any Monthly Processing Date is not diversified according to the following rules: i) No more than 35% of the Net Account Value may be invested in any one division, and - -------------------------------------------------------------------------------- FirstLine II 23 ii) 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 i) and ii) 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 27, and Automatic Rebalancing, page 28. If the lapse of the Guaranteed Minimum Death Benefit is not corrected, this feature will be terminated. Once terminated, the Guaranteed Minimum Death Benefit provision cannot be reinstated. There is no charge for the Guaranteed Minimum Death Benefit. 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 by the Owner at any time. See Modified Endowment Contracts, page 41, 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. Adjustable Term Insurance Rider 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 the Owner's 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 22. If at any time as 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 29. 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 - -------------------------------------------------------------------------------- FirstLine II 24 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 33. 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. 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 is five times the Stated Death Benefit of the Policy. 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 income tax consequences. If a change of Insured occurs, the cost of insurance charges in the future may change but the Account Value will remain unchanged as of the change date. There is no charge for this Rider. 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 amount will be credited monthly to the Policy. In the application the amount of premium is selected, within limits, that will be credited. If this Rider is added to your Policy, the Waiver of Cost of Insurance Rider may not also be added. Benefits at Maturity If the insured is still living at Age 100 and the Owner does not desire to use the Continuation of Coverage feature, the Policy Owner may choose to surrender the Policy for the Net Account Value. Some portion of this payment may be taxable. Consult with your tax adviser for advice. The Net Account Value is the Account Value reduced by any outstanding Policy Loan and accrued loan interest. The Policy will then end. Continuation of Coverage If the Insured is still living at Age 100 and the Continuation of Coverage feature is in effect, the Net Account Value (except amounts in the loan division) will be transferred into the Guaranteed Interest Division. A one-time administrative fee will be assessed against the Policy to cover future expenses. The insurance coverage under the Policy will continue in force until the time of the Insured's death unless the Policy lapses or is surrendered. At Age 100, all Riders except the Adjustable Term Rider terminate. The coverage provided under the Rider converts to base coverage and the Stated Death Benefit is redefined. If there is no Rider coverage, the Stated Death Benefit is unchanged. Any Policy with Death Benefit Option 2 will be converted to Death Benefit Option 1 at Age 100 when the Continuation of Coverage feature become effective. See Changes in Death Benefit Option, page 22. The Net Account Value may not be transferred into the Variable Divisions after Age 100. Thus related investment features such as Dollar Cost Averaging and Automatic Rebalancing are discontinued. If there is an outstanding loan on the Policy, loan interest will continue to accrue. If no payments are made, it is possible that the loan interest may reduce the account value and cause the Policy to lapse. To avoid this event, you may make loan or loan interest payments after Age 100. However, no additional premium payments will be accepted. During the Continuation of Coverage period (after Age 100) you may take policy loans or partial withdrawals. The availability of this feature is subject to state approval. Policy Values Account Value The Account Value is the total amount in the Guaranteed Interest Division, the various Divisions of the Variable Account, and the Loan Division. The Account Value therefore reflects all premiums paid, charges made, Policy Loans and Partial Withdrawals taken, investment experience of the Variable Account, and earnings accrued in the - -------------------------------------------------------------------------------- FirstLine II 25 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 outstanding Policy Loans and accrued loan interest. Net Account Value The Net Account Value of the Policy is equal to the Account Value less the amount of outstanding Policy Loans 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. 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, 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 26. 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, 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 the resulting 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 new amount represents the gross experience factor per Accumulation Unit, before reduction for the - -------------------------------------------------------------------------------- FirstLine II 26 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 result is the Accumulation Experience Factor for the Valuation Period. Transfers of Account Values After the Free Look Period ends, up to 12 transfers among the 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. Transfer requests should be made in writing 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 $100. 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 we 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 their ability to provide maximum investment return to all Owners. Transfers from the Guaranteed Interest Division may be made only during the first 30 days of each Policy year. Transfer requests received within 30 days 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. 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. Transfers of the Account Value to the Guaranteed Interest Division are not limited. 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 21. If telephone privileges have been elected, transfers may be made by telephoning our Customer Service Center. See Telephone Privileges, page 47. Dollar Cost Averaging We offer a feature called Dollar Cost Averaging to Owners who have at least $10,000 of Account Value invested in the Division investing in either the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio. 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. However, participation in Dollar Cost Averaging does not assure a profit nor does it protect against a loss in a declining market. With Dollar Cost Averaging, a designated dollar amount of or percentage of Account Value of the Division investing in either the Fidelity VIP Money Market Portfolio or the Neuberger Berman AMT Limited Maturity Bond Portfolio 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 or from the Guaranteed Interest Division. Any transfers that are a result of the Dollar Cost Averaging feature are not counted toward the limit of 12 transfers that can be made each Policy year without a transfer charge. There is no charge for this feature. Dollar Cost Averaging allocations may be designated in dollar amounts or as whole percentages. The minimum percentage that may be transferred to any one Division is 1% of the total amount transferred to all selected Divisions. The transfer amount under Dollar Cost Averaging may be no less - -------------------------------------------------------------------------------- FirstLine II 27 than $100. The first Dollar Cost Averaging date must be at least five days after our receipt of the request for Dollar Cost Averaging. In no event will Dollar Cost Averaging begin before the end of the Delivery and Free Look Periods. Dollar Cost Averaging may occur monthly, quarterly, semi-annually, or annually on a date requested by the Owner. Unless specified otherwise, 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 five 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 47. A date for Dollar Cost Averaging to terminate may be specified by the Owner. Termination may also occur when the balance remaining in the Division investing in either the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio reaches a specified dollar amount. 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. 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. During the operation of Automatic Rebalancing, transfers among the Divisions may occur monthly, quarterly, semi-annually, or annually on a date specified by the Owner. Unless specified otherwise, Automatic Rebalancing will take place on the last Valuation Date of each calendar quarter. Automatic Rebalancing allocations may be specified for all or some of the Divisions in which the Account Value is invested. 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 of all the Divisions included in Automatic Rebalancing matches the Automatic Rebalancing allocation percentage for that Division. This will rebalance the amounts in Divisions that do not match the set allocation, which could result, for example, from Divisions which outperform the other Divisions for that time period. 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 Delivery and Free Look Periods. If this feature is elected after the Policy Date, the first transfer will be processed as of the date requested by the Owner or, if no date is specified, the last Valuation Date of the calendar quarter after we receive notification at our Customer Service Center and the Delivery and Free Look Periods have 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 27. If we receive an Automatic Rebalancing request which is in conflict with these provisions, we will ask for revised instructions. The Owner may terminate the Automatic Rebalancing feature at any time, as long as we receive notice of the termination at least five 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 still must be maintained for the Guarantee Period to continue. If the Automatic Rebalancing feature is active, the Guarantee Period is in effect, 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, page 23. 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. We will charge a $25 fee each time the rebalancing allocation is changed more than five times per Policy year; otherwise, there is no charge for this feature. An Automatic Rebalancing program may be run simultaneously with a Dollar Cost Averaging program. - -------------------------------------------------------------------------------- FirstLine II 28 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. We may impose requirements relating to Policy Loans as necessitated by our administrative system. For example, we may require that loan requests specify a dollar amount rather than a percentage to be taken from a specific Division. Loan interest charges on a Policy Loan accrue daily at a annual interest rate of 4.75%. 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, sufficient units of the Variable Account Divisions are redeemed to cover the amount of the loan 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 unless otherwise specified by the Owner. 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 an annual rate of 4%. The amount of interest credited to the Loan Division for the Policy year will be transferred from the Loan Division on Policy anniversaries. 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 and the Cash Surrender Value paid on surrender. It also may 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. If telephone privileges have been elected, 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 47. Loans may have adverse Tax Consequences. See Modified Endowment Contracts, page 41. Partial Withdrawals A Partial Withdrawal may be requested on any Monthly Processing Date after the first Policy anniversary by 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 35. The Stated Death Benefit is not reduced by a Partial Withdrawal taken when: (i) 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 40) and (ii) the amount withdrawn is no greater than that amount which reduces the Account Value to the level which - -------------------------------------------------------------------------------- FirstLine II 29 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 does reduce 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 the minimum we require to issue this Policy. See Group or Sponsored Arrangements or Corporate Purchasers, page 40. 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 immediately prior to the withdrawal. A new Schedule reflecting the effect of the withdrawal will be sent 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 47. Partial Withdrawals may have adverse tax consequences. See Modified Endowment Contracts, page 41. Surrender 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 Policy Loans and accrued loan interest. Costs and expenses which have been deducted from the net Account Value on the Monthly Processing Date preceding the surrender will not be added or pro-rated at surrender. During the first 14 Policy years a Surrender Charge is also deducted from the Cash Surrender Value. 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 35. 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. 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 41. Right to Exchange Policy During the first 24 months following the Policy Date, the Owner has the right to exchange the Policy from one in which the investment experience is not guaranteed for a guaranteed Policy, unless required differently by state law. This is accomplished by transferring 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. When this right is exercised, we will not allow allocation of future premium payments or transfers to the Divisions of the Variable Account. 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 apply to the transfer to exercise this exchange privilege. See The Guaranteed Interest Division, page 18. Lapse Insurance coverage will continue as long as the Net Cash Surrender Value of the Policy is sufficient to pay all the deductions 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 - -------------------------------------------------------------------------------- FirstLine II 30 with the first Policy Month through 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 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 31. If we do not receive full payment of the requested amount within the 61 days, the Policy and all Riders attached will 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 deduct amounts owed to us, including any applicable Surrender Charge, and inform the Owner that the Policy has ended. If the Insured dies during the grace period, we will pay the Death Proceeds to the Beneficiary subject to reductions for Policy Loans, accrued loan interest and any monthly deductions due. If the Guaranteed Minimum Death Benefit Is in Effect After the Special Continuation Period, if the Guaranteed Minimum Death Benefit 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 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 three-year Special Continuation Period). While the Guaranteed Minimum Death Benefit 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 waived permanently. The Guaranteed Minimum Death Benefit will be terminated if the Policy does not meet the monthly premium or diversification tests as explained in Requirements to Maintain the Guarantee Period, page 23. If the Guaranteed Minimum Death Benefit 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 it 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 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) Satisfactory evidence is provided 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; and - -------------------------------------------------------------------------------- FirstLine II 31 (iii) We receive a premium payment sufficient to keep the Policy and its Riders in force from the beginning to the end of the grace period and for two months following the date of the reinstatement, 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 also will reinstate 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 by the Owner. CHARGES, DEDUCTIONS AND REFUNDS Deductions from Premiums Unless a loan is outstanding (see Policy Loans, page 29), payment received before Age 100 is considered a premium. Certain expenses are deducted from premium payments. The Net Premium is then added to the Account Value. The expenses which are deducted from the premium include the tax and the sales charges. Tax Charges Nearly 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 resulting from the receipt of premium payments, under Internal Revenue Code Section 848. 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 a part of the total sales charge that will be assessed against the Account Value if the Policy is surrendered during the first 14 Policy years or the first 14 Policy years following an increase to the Stated Death Benefit. See Surrender Charge, page 35. For a Policy with multiple Segments, premiums paid are allocated to the Segments in the same proportion as 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 costs of distribution, of preparing our sales literature, 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 Surrender Charges 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 the 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 - -------------------------------------------------------------------------------- FirstLine II 32 Insureds, as a group, may live for a shorter period of time than estimated and, therefore, the cost of insurance charges 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 0.6% per year for each Segment that has been in force for at least ten Policy years, which effectively reduces the charge for mortality and expense risks. See Persistency Refund, page 34. 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 such costs 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 $0.025 per thousand of Stated Death Benefit (or Target Death Benefit, if greater), and is guaranteed never to exceed this amount. The per thousand charge currently is limited to $30 per month. This charge is designed to cover ongoing costs 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 makeup of the death benefit, and with the 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, including the state of Montana and 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. 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. These rates are based on the 1980 Commissioner's Standard Ordinary Mortality Tables. We may offer Policies on a guaranteed issue basis under certain group or sponsored arrangements. If an eligible group or sponsored arrangement purchases Policies on a guaranteed issue basis, the Policies will be issued up to a predetermined face amount, with minimal evidence of insurability. Policies issued on a guaranteed issue basis may present different mortality costs to us compared to underwritten Policies. We may charge different cost of insurance rates for guaranteed - -------------------------------------------------------------------------------- FirstLine II 33 issue Policies. The cost of insurance charges may depend on the issue Age of the Insured, the size of the group, and the total premium to be paid by the group. Under most guaranteed issue Policies, the overall charges for insurance will be higher than under a comparable underwritten Policy issued in the preferred nonsmoker, standard nonsmoker, or standard smoker class. This means that an Insured may be able to obtain individual underwritten insurance coverage at a lower overall cost. Charges for Additional Benefits The cost of 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, page 24. Changes in Monthly Charges Any changes in the cost of insurance charges or charges for additional benefits 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 of $25 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 29. Transfers We charge a fee of $25 for each additional transfer beyond the first 12 in a Policy year. 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 Transfers of Account Values, page 27, and Right to Exchange Policy, page 12. Allocation Changes We charge a $25 fee each time the premium or Automatic Rebalancing allocation is changed more than five times each per Policy year. Illustrations We reserve the right to charge a fee, not to exceed $25, for each Policy illustration in excess of one per Policy year. Continuation of Coverage Administrative Fee At Age 100, if the continuation of Coverage feature is in effect, a one-time administrative charge of $200 will be assessed to cover the costs expected to be incurred to maintain and service the Policy for the remainder of the Insured's lifetime. This charge is in lieu of the normal monthly administrative charge. It is designed to reimburse us for expenses and we do not expect to gain from it. Persistency Refund Long-term Owners of FirstLine II 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 0.6% of the Account Value on an annual basis for that Segment (0.05% monthly). However, the persistency refund is not guaranteed to be paid on the Guaranteed Interest Division. 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 = .0005 Persistency refund = 10,000 x .0005 = $5.00 - -------------------------------------------------------------------------------- FirstLine II 34 Before After Persistency Persistency Refund Refund ------ ------ Variable Divisions $10,000.00 $10,005.00 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 = $6,000 Account Value in the Loan Division = $4,000 Monthly persistency refund Rate = .0005 Persistency refund = 10,000 x .0005 = $5.00 Before After Persistency Persistency Refund Refund ------ ------ Variable Divisions $6,000.00 $6,005.00 Loan Division $4,000.00 $4,000.00 Surrender Charge We assess a Surrender Charge against the Account Value upon surrender, reduction in Stated Death Benefit or lapse 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 from issuing and distributing Policies. The Surrender Charge consists of two parts: 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 is 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 showing 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). The amount of the administrative Surrender Charge and the sales Surrender Charge stays level for the first seven Policy years following the effective date of a coverage segment, then decreases at the beginning of each subsequent 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. Administrative Surrender Charge The administrative Surrender Charge is 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. 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 from the Account Value. The administrative Surrender Charge is designed to cover part of the administrative expenses such as application processing, establishment of Policy records and insurance underwriting costs. It also includes costs associated with the - -------------------------------------------------------------------------------- FirstLine II 35 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 by allocating premiums paid to Segments in the same proportion that the guideline annual premium for each Segment (as defined by the Federal income tax laws) bears to the sum of the guideline annual premiums for all Segments. The sales Surrender Charge is 25% of paid premiums up to the Target Premium for the Segment without any substandard ratings (Base Standard Target Premium) plus 5% of 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. 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. 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 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 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 II 36 Calculation of Surrender Charge Examples: 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 Surrender Sales Surrender Charge Actual 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 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 Surrender Sales Surrender Charge Actual 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 asset value. The price reflects 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. - -------------------------------------------------------------------------------- FirstLine II 37
Portfolio Annual Expenses (As a Percentage of Portfolio Average Net Assets) /1/ Investment ---------- Management Total Portfolio ---------- --------------- Portfolio 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% 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 0.75% 0.25% 1.00% Van Eck Worldwide Insurance Trust Worldwide Hard Assets Fund 1.00% 0.11% 1.11% Worldwide Real Estate Fund 1.00% 0.25% 1.25% Worldwide Emerging Markets Fund 1.00% 0.27% 1.27% Worldwide Bond Fund 1.00% 0.12% 1.12% AIM Variable Insurance Funds, Inc. AIM VI - Capital Appreciation 0.64% 0.09% 0.73% AIM VI - Government Securities 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 - -------------------------------------------------------------------------------- FirstLine II 38 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 regarding 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 an 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 ended 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. - -------------------------------------------------------------------------------- FirstLine II 39 Group or Sponsored Arrangements or Corporate Purchasers This Policy is available for purchase by individuals, corporations or 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 also may 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 reserve the right to charge 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 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, multiplied by the Account Value. See Appendix A, page 64, 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 - -------------------------------------------------------------------------------- FirstLine II 40 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 72, 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 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, as long as the Policy remains in force, increases in Account Value as a result of interest or investment experience will not be subject to Federal income tax unless and until there is a distribution from the Policy, such as a Partial Withdrawal or loan. 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. The IRS has not given an official opinion on policies that continue coverage past age 100. There are no clear guidelines on how to keep these benefits within the definition of life insurance. However, we believe our approach is appropriate and in keeping with the spirit of the current law. See Continuation of Coverage, 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 48. 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, exchanges, transfers, 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 Owners 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 Modified Endowment Contract if the accumulated premiums paid at any time during the first seven Policy years exceed 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 - -------------------------------------------------------------------------------- FirstLine II 41 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. To the extent possible, to keep the Policy from being treated as a "modified endowment contract" for Federal tax purposes, the provisions of the Policy shall be interpreted to prevent the Policy from being subject to such treatment. We reserve the right to amend the Policy to reflect any clarifications that may be needed or are appropriate, including any rider, to achieve this objective. 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 tax 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 a 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 Partial 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 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 - -------------------------------------------------------------------------------- FirstLine II 42 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. We accept 1035 exchanges with outstanding loans. 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 also may 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 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. - -------------------------------------------------------------------------------- FirstLine II 43 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 also will 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 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. - -------------------------------------------------------------------------------- FirstLine II 44 (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 change 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 also will 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. 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. 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 - -------------------------------------------------------------------------------- FirstLine II 45 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. 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 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 outstanding Policy Loans and accrued loan interest and minus any Partial Withdrawals, unless otherwise required by law. If the Insured has been changed and the new Insured dies by suicide within two years of the change 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 Partial Withdrawals since the change 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, - -------------------------------------------------------------------------------- FirstLine II 46 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 also will 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 27. We may, however, postpone the processing of any such transactions at any of the following times: . 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 date of death of the Insured. The Death Proceeds will not be affected by changes in the values of the Divisions of the Variable Account subsequent to the date of death of the Insured. We will pay interest at the rate declared by us or at any higher rate required by law from the date of death of the Insured 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 require the Beneficiary and the Insured's next of kin to sign authorization forms 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 or a Policy Loan 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. - -------------------------------------------------------------------------------- FirstLine II 47 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 with which we enter into selling agreements 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 two through ten, the distribution 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 also may 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 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 be subject to our rules at the time of selection. Currently, these alternate payment options are available only 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 Settlement Option Table I in the Policy. Option II: Life Income with Payouts Guaranteed for a Designated Period: Payouts will be made in 1, 2, 4 or 12 installments per year throughout the payee's lifetime, or if longer, for a period of 5, 10, 15, or 20 years as elected. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of Account Value applied is shown in Settlement Option Table II in the Policy. This option is available only for ages shown in this Table. Option III: Hold at Interest: Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4 or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. 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 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 - -------------------------------------------------------------------------------- FirstLine II 48 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. 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 $3,750 200,000 51 Preferred Male 45 Nonsmoker 1 CVAT 100,000 $3,750 200,000 53 Preferred Male 45 Nonsmoker 1 GP 200,000 $3,750 200,000 55 Preferred
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 33) 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 persistency refund equivalent to 0.6% 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 .7178% 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 - -------------------------------------------------------------------------------- FirstLine II 49 Divisions of the Variable Account. Other expenses of the Portfolios are assumed at the rate of .1735% 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 .8913% 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 (1.63)%, on 6% it would be 4.32%, and on 12% it would be 10.28%. 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 II 50 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE II VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $3750.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------12.00%--------- PREMIUM CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3938 2358 871 200000 2707 1220 200000 2 3750 8072 4617 2942 200000 5630 3955 200000 3 3750 12413 6774 4911 200000 8789 6927 200000 4 3750 16971 8947 6897 200000 12336 10286 200000 5 3750 21757 11009 8809 200000 16177 13977 200000 6 3750 26783 12958 10758 200000 20346 18146 200000 7 3750 32059 14780 12580 200000 24864 22664 200000 8 3750 37600 16465 14540 200000 29764 27839 200000 9 3750 43417 18002 16352 200000 35079 33429 200000 10 3750 49525 19376 18001 200000 40848 39473 200000 15 3750 84966 24218 24218 200000 80997 80997 200000 20 3750 130197 23135 23135 200000 147144 147144 254853 25 3750 187925 11681 11681 200000 247489 247489 383608 30 3750 261603 - - 200000 394901 394901 555230 AGE 65 3750 140645 21848 21848 200000 164143 164143 277730 -----------6.00%---------- PREMIUM CASH ACCUMULATED ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT 1 3750 3938 2532 1045 200000 2 3750 8072 5113 3438 200000 3 3750 12413 7739 5877 200000 4 3750 16971 10536 8486 200000 5 3750 21757 13381 11181 200000 6 3750 26783 16273 14073 200000 7 3750 32059 19202 17002 200000 8 3750 37600 22160 20235 200000 9 3750 43417 25136 23486 200000 10 3750 49525 28119 26744 200000 15 3750 84966 44236 44236 200000 20 3750 130197 60328 60328 200000 25 3750 187925 74264 74264 200000 30 3750 261603 82222 82222 200000 AGE 65 3750 140645 63357 63657 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 II 51 PROSPECT: INSURED'S NAME: MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE II VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $3750.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
--------0.00%------ ---------12.00%--------- PREMIUM CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3938 2810 1323 200000 3188 1700 200000 2 3750 8072 5528 3853 200000 6655 4980 200000 3 3750 12413 8152 6290 200000 10429 5687 200000 4 3750 16971 10806 8756 200000 14673 12623 200000 5 3750 21757 13370 11170 200000 19311 17111 200000 6 3750 26783 15843 13643 200000 24385 22185 200000 7 3750 32059 18218 16018 200000 29934 27734 200000 8 3750 37600 20491 18566 200000 36006 34081 200000 9 3750 43417 22653 21003 200000 42652 41002 200000 10 3750 49525 24701 23326 200000 49935 48560 200000 15 3750 84966 34222 34222 200000 101868 101868 200000 20 3750 130197 40958 40958 200000 187147 187147 324139 25 3750 187925 43861 43861 200000 323092 323092 500792 30 3750 261603 40438 40438 200000 537759 537759 756090 AGE 65 3750 140645 41916 41916 200000 209560 209560 354576 ----------6.00%--------- PREMIUM CASH ACCUMULATED ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT 1 3750 3938 2999 1511 200000 2 3750 8072 6080 4405 200000 3 3750 12413 9245 7382 200000 4 3750 16971 12623 10573 200000 5 3750 21757 16103 13903 200000 6 3750 26783 19687 17487 200000 7 3750 32059 23374 21174 200000 8 3750 37600 27161 25236 200000 9 3750 43417 31049 29399 200000 10 3750 49525 35037 33662 200000 15 3750 84966 58436 58436 200000 20 3750 130197 86898 86898 200000 25 3750 187925 122418 122418 200000 30 3750 261603 166852 166852 234593 AGE 65 3750 140645 93368 93368 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 II 52 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE II VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $100000 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $100000 ANNUAL PREMIUM: $3750.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
--------0.00%---------- ----------12.00%-------- PREMIUM CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3938 2357 1519 200000 2706 1868 200000 2 3750 8072 4614 3589 200000 5627 4602 200000 3 3750 12413 6769 5669 200000 8784 7684 200000 4 3750 16971 8940 7840 200000 12327 11227 200000 5 3750 21757 11000 9900 200000 16166 15066 200000 6 3750 26783 12947 11847 200000 20331 19231 200000 7 3750 32059 14767 13667 200000 24845 23745 200000 8 3750 37600 16450 15488 200000 29740 28777 200000 9 3750 43417 17984 17159 200000 35050 34225 200000 10 3750 49525 19355 18667 200000 40812 40125 200000 15 3750 84966 24176 24176 200000 80911 80911 200000 20 3750 130197 23059 23059 200000 146997 146997 254598 25 3750 187925 11544 11544 200000 247263 247263 383258 30 3750 261603 - - 200000 394561 394561 554752 AGE 65 3750 140645 21762 21762 200000 163982 163982 277458 ------6.00%-------------- PREMIUM CASH ACCUMULATED ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT 1 3750 3938 2531 1693 200000 2 3750 8072 5109 4084 200000 3 3750 12413 7734 6634 200000 4 3750 16971 10529 9429 200000 5 3750 21757 13371 12271 200000 6 3750 26783 16261 15161 200000 7 3750 32059 19187 18087 200000 8 3750 37600 22141 21178 200000 9 3750 43417 25113 24288 200000 10 3750 49525 28091 27404 200000 15 3750 84966 44175 44175 200000 20 3750 130197 60205 60205 200000 25 3750 187925 74028 74028 200000 30 3750 261603 81757 81757 200000 AGE 65 3750 140645 63217 63217 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 II 53 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE II VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $100000 DEATH BENEFIT OPTION 1 INITIAL ADJUSTABLE TERM RIDER: $100000 ANNUAL PREMIUM: $3750.00 CASH VALUE ACCUMULATION TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%---------- ---------12.00%-------- PREMIUM CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3938 2985 2148 200000 3374 2537 200000 2 3750 8072 5882 4857 200000 7054 6029 200000 3 3750 12413 8689 7589 200000 11070 9970 200000 4 3750 16971 11534 10434 200000 15593 14493 200000 5 3750 21757 14301 13201 200000 20556 19456 200000 6 3750 26783 16994 15894 200000 26009 24909 200000 7 3750 32059 19609 18509 200000 32002 30902 200000 8 3750 37600 22145 21183 200000 38595 37633 200000 9 3750 43417 24599 23774 200000 45847 45022 200000 10 3750 49525 26966 26279 200000 53785 53097 200000 15 3750 84966 38398 38398 200000 109471 109471 214783 20 3750 130197 47372 47372 200000 199401 199401 345362 25 3750 187925 53308 53308 200000 342746 342746 531257 30 3750 261603 54611 54611 200000 569085 569085 800133 AGE 65 3750 140645 48845 48845 200000 233035 233035 377375 --------6.00%----------- PREMIUM CASH ACCUMULATED ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT 1 3750 3938 3180 2342 200000 2 3750 8072 6456 5431 200000 3 3750 12413 9832 8732 200000 4 3750 16971 13443 12343 200000 5 3750 21757 17181 16081 200000 6 3750 26783 21054 19954 200000 7 3750 32059 25067 23967 200000 8 3750 37600 29226 28264 200000 9 3750 43417 33534 32709 200000 10 3750 49525 37995 37307 200000 15 3750 84966 64366 64366 200000 20 3750 130197 96222 96222 200000 25 3750 187925 135547 135547 210099 30 3750 261603 182835 182835 257066 AGE 65 3750 140645 103427 103427 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 II 54 PROSPECT: INSURED'S NAME MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE II VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $3750.00 GUIDELINE PREMIUM TEST SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
--------0.00%------- --------12.00%-------- PREMIUM CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3938 2358 871 200000 2707 1220 200000 2 3750 8072 4617 2942 200000 5630 3955 200000 3 3750 12413 6774 4911 200000 8789 6927 200000 4 3750 16971 8947 6897 200000 12336 10286 200000 5 3750 21757 11009 8809 200000 16177 13977 200000 6 3750 26783 12958 10758 200000 20346 18146 200000 7 3750 32059 14780 12580 200000 24864 22664 200000 8 3750 37600 16465 14540 200000 29764 27839 200000 9 3750 43417 18002 16352 200000 35079 33429 200000 10 3750 49525 19376 18001 200000 40848 39473 200000 15 3750 84966 24218 24218 200000 80997 80997 200000 20 3750 130197 23135 23135 200000 148885 148885 200000 25 3750 187925 11681 11681 200000 266475 266475 309111 30 3750 261603 - - 200000 460135 460135 492345 AGE 65 3750 140645 21848 21848 200000 167894 167894 201472 --------6.00%-------- PREMIUM CASH ACCUMULATED ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT 1 3750 3938 2532 1045 200000 2 3750 8072 5113 3438 200000 3 3750 12413 7739 5877 200000 4 3750 16971 10536 8486 200000 5 3750 21757 13381 11181 200000 6 3750 26783 16273 14073 200000 7 3750 32059 19202 17022 200000 8 3750 37600 22160 20235 200000 9 3750 43417 25136 23486 200000 10 3750 49525 28119 26744 200000 15 3750 84966 44236 44236 200000 20 3750 130197 60328 60328 200000 25 3750 187925 74264 74264 200000 30 3750 261603 82222 82222 200000 AGE 65 3750 140645 63357 63357 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 II 55 PROSPECT: INSURED'S NAME: MALE 45 NON-SMOKER PRESENTED BY: SECURITY LIFE FIRSTLINE II VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $200000 DEATH BENEFIT OPTION 1 ANNUAL PREMIUM: $3750.00 GUIDELINE PREMIUM TEST SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-------0.00%------- --------12.00%-------- PREMIUM CASH CASH ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 3750 3938 2810 1323 200000 3188 1700 200000 2 3750 8072 5528 3853 200000 6655 4980 200000 3 3750 12413 8152 6290 200000 10429 8567 200000 4 3750 16971 10806 8756 200000 14673 12623 200000 5 3750 21757 13370 11170 200000 19311 17111 200000 6 3750 26783 15843 13643 200000 24385 22185 200000 7 3750 32059 18218 16018 200000 29934 27734 200000 8 3750 37600 20491 18566 200000 36006 34081 200000 9 3750 43417 22653 21003 200000 42652 41002 200000 10 3750 49525 24701 23326 200000 49935 48560 200000 15 3750 84966 34222 34222 200000 101868 101868 200000 20 3750 130197 40958 40958 200000 190705 190705 232660 25 3750 187925 43861 43861 200000 339660 339660 394005 30 3750 261603 40438 40438 200000 587436 587436 628557 AGE 65 3750 140645 41916 41916 200000 214826 214826 257791 --------6.00%-------- PREMIUM CASH ACCUMULATED ACCOUNT SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT 1 3750 3938 2999 1511 200000 2 3750 8072 6080 4405 200000 3 3750 12413 9245 7382 200000 4 3750 16971 12623 10573 200000 5 3750 21757 16103 13903 200000 6 3750 26783 19687 17487 200000 7 3750 32059 23374 21174 200000 8 3750 37600 27161 25236 200000 9 3750 43417 31049 29399 200000 10 3750 49525 35037 33662 200000 15 3750 84966 58436 58436 200000 20 3750 130197 86898 86898 200000 25 3750 187925 122418 122418 200000 30 3750 261603 168735 168735 200000 AGE 65 3750 140645 93368 93368 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 II 56 ADDITIONAL INFORMATION Directors and Officers Set forth below is information regarding the directors and principal officers of Security Life of Denver Insurance Company. Security Life's address, and the business address of each person named, except as noted with one or two asterisks (*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699. The business address of each person denoted with one asterisk (*) is ING North America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of each person denoted with two asterisks (**) is Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273.
Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- R. Glenn Hilliard* Chief Executive Officer Stephen M. Christopher Director, President and Chief Operating Officer Catherine T. Fitzgerald* Executive Vice President Keith T. Glover* Executive Vice President James L. Livingston, Jr. Executive Vice President, Operations Jeffrey R. Messner Executive Vice President and Chief Marketing Officer Thomas F. Conroy Director and President, Security Life Reinsurance Michael W. Cunningham* Director, Executive Vice President Linda B. Emory* Director, Vice President and Appointed Actuary Jess A. Skriletz President, Institutional Markets 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, Variable Philip R. Kruse Senior Vice President, Sales & Marketing Charles LeDoyen** Senior Vice President, Structured Settlements
- -------------------------------------------------------------------------------- FirstLine II 57
Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- Timothy P. McCarthy Senior Vice President, Marketing Services Jeffery W. Seel* Senior Vice President and Chief Investment Officer Lawrence D. Taylor Senior Vice President and Chief Actuary 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 C. Lynn McPherson* Vice President Sue A. Miskie Vice President, Corporate Services
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Name and Principal Business and Address Position and Offices with Security Life of Denver - -------------------- ------------------------------------------------- Donna T. Mosely Vice President, Valuation Daniel G. Patsey Vice President, Strategic Technology 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 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 Relda A. Fleshman Deputy General Counsel 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
- -------------------------------------------------------------------------------- FirstLine II 59 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, of our operations and finances to the Insurance Departments of the various jurisdictions in which we do business to determine solvency and compliance with state insurance laws and regulations. We are also subject to various Federal securities laws and regulations. Legal Matters The legal matters in connection with the Policy described in this prospectus have been passed on by the General Counsel of Security Life 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, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and the financial statements of the Separate Account L1 at December 31, 1997, and for each of the two years in the period ended December 31, 1997, 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 firm as experts in accounting and auditing. Actuarial matters in this prospectus have been examined by Lawrence D. Taylor, F.S.A., M.A.A.A., who is the Senior Vice President and Chief Actuary of Security Life. His opinion on actuarial matters is filed as an exhibit to the Registration Statement we filed with the SEC. Registration Statement We have filed a Registration Statement relating to the 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. Year 2000 Preparedness Security Life is aware of potential computer system challenges associated with the year 2000. We plan to upgrade our current variable life administration system by early 1999. It is expected that this upgrade will make our system year 2000 compatible. We do not anticipate delays or problems in processing or administering variable life products in the year 2000 or beyond. - -------------------------------------------------------------------------------- FirstLine II 60 FINANCIAL STATEMENTS The consolidated financial statements of Security Life of Denver Insurance Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, are prepared in accordance with generally accepted accounting principles and start on page . The financial statements included for the Security Life Separate Account L1 at December 31, 1996 and for each of the two years in the period ended December 31, 1997, 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 II 61 Consolidated Financial Statements Security Life of Denver Insurance Company and Subsidiaries Years ended December 31,1997, 1996 and 1995 with Report of Independent Auditors - -------------------------------------------------------------------------------- FirstLine II 62 Financial Statements Security Life Separate Account L1 Year ended December 31,1997 with Report of Independent Auditors - -------------------------------------------------------------------------------- FirstLine II 63 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. - -------------------------------------------------------------------------------- FirstLine II 64 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. - -------------------------------------------------------------------------------- FirstLine II 65 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. - -------------------------------------------------------------------------------- FirstLine II 66 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. - -------------------------------------------------------------------------------- FirstLine II 67 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. - -------------------------------------------------------------------------------- FirstLine II 68 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. - -------------------------------------------------------------------------------- FirstLine II 69 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. - -------------------------------------------------------------------------------- FirstLine II 70 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. - -------------------------------------------------------------------------------- FirstLine II 71 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. - -------------------------------------------------------------------------------- FirstLine II 72 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 . This prospectus also contains illustrations based on assumed rates of return. See Illustrations of Death Benefits, Account Values, Surrender Values and Accumulated Premiums, page . - -------------------------------------------------------------------------------- FirstLine II 73 HYPOTHETICAL ILLUSTRATIONS Nonsmoker Male Age 45 Cash Value Accumulation Test Standard Risk Class Death Benefit Option 1 Stated Death Benefit $200,000 Annual Premium $3,750 - --------------------------------------------------------------------------------
Neuberger & Berman AMT Limited Maturity Bond Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 7.17% 1,576 3,064 200,000 12/31/89 10.77% 4,822 6,497 200,000 12/31/90 8.32% 8,125 9,988 200,000 12/31/91 11.34% 12,165 14,215 200,000 12/31/92 5.18% 15,582 17,782 200,000 12/31/93 6.63% 19,561 21,761 200,000 12/31/94 (0.15)% 22,047 24,247 200,000 12/31/95 10.94% 27,735 29,660 200,000 12/31/96 4.31% 31,758 33,409 200,000 12/31/97 6.74% 36,728 38,103 200,000 Neuberger & Berman AMT Growth Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 25.97% 2,170 3,657 200,000 12/31/89 29.47% 6,743 8,418 200,000 12/31/90 (8.19)% 8,304 10,166 200,000 12/31/91 29.73% 14,801 16,851 200,000 12/31/92 9.54% 19,210 21,410 200,000 12/31/93 6.79% 23,454 25,654 200,000 12/31/94 (4.99)% 24,538 26,738 200,000 12/31/95 31.73% 36,655 38,580 200,000 12/31/96 9.14% 43,041 44,691 200,000 12/31/97 29.01% 59,324 60,699 200,000 Neuberger & Berman AMT Partners Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 36.47% 2,502 3,990 200,000 12/31/96 29.57% 7,178 8,853 200,000 12/31/97 31.25% 13,398 15,260 200,000
The assumptions underlying these values are described in Performance Information, page 73. * 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 II 74 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 $3,750 - --------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/89 64.48% 3,393 4,881 200,000 12/31/90 8.71% 6,661 8,336 200,000 12/31/91 57.54% 15,724 17,586 200,000 12/31/92 3.55% 18,981 21,031 200,000 12/31/93 13.28% 24,668 26,868 200,000 12/31/94 (4.38)% 25,930 28,130 200,000 12/31/95 44.31% 42,201 44,401 200,000 12/31/96 4.18% 46,832 48,757 200,000 12/31/97 11.39% 55,280 56,930 200,000 Alger American MidCap Growth Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 (1.54)% 1,303 2,790 200,000 12/31/95 44.45% 6,512 8,187 200,000 12/31/96 11.90% 10,350 12,213 200,000 12/31/97 15.01% 15,192 17,242 200,000 Alger American Growth Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 4.14% 1,481 2,968 200,000 12/31/91 40.39% 6,521 8,196 200,000 12/31/92 12.38% 10,414 12,276 200,000 12/31/93 22.47% 16,411 18,461 200,000 12/31/94 1.45% 19,228 21,428 200,000 12/31/95 36.37% 30,699 32,899 200,000 12/31/96 13.35% 37,964 40,164 200,000 12/31/97 25.75% 51,715 53,640 200,000 Alger American Leveraged All Cap Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 12.04% 1,730 3,217 200,000 12/31/97 19.68% 5,555 7,230 200,000
The assumptions underlying these values are described in Performance Information, page 73. * 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 II 75 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 $3,750 - --------------------------------------------------------------------------------
Fidelity VIP Growth Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 15.58% 1,841 3,329 200,000 12/31/89 31.51% 6,451 8,126 200,000 12/31/90 (11.73)% 7,643 9,505 200,000 12/31/91 45.51% 15,938 17,988 200,000 12/31/92 9.32% 20,403 22,603 200,000 12/31/93 19.37% 27,943 30,143 200,000 12/31/94 (0.02)% 30,430 32,630 200,000 12/31/95 35.36% 45,684 47,609 200,000 12/31/96 14.71% 55,679 57,329 200,000 12/31/97 23.48% 72,271 73,646 200,000 Fidelity VIP Overseas Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/88 8.13% 1,607 3,094 200,000 12/31/89 26.28% 5,819 7,494 200,000 12/31/90 (1.67)% 8,146 10,009 200,000 12/31/91 8.00% 11,751 13,801 200,000 12/31/92 (10.72)% 12,473 14,673 200,000 12/31/93 37.35% 21,695 23,895 200,000 12/31/94 1.72% 24,672 26,872 200,000 12/31/95 9.74% 30,280 32,206 200,000 12/31/96 13.15% 37,507 39,157 200,000 12/31/97 11.56% 44,874 46,249 200,000
The assumptions underlying these values are described in Performance Information, page 73. * 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 II 76 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 $3,750 - --------------------------------------------------------------------------------
Fidelity VIP Money Market Portfolio Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/88 7.39% 1,583 3,071 200,000 12/31/89 9.12% 4,728 6,403 200,000 12/31/90 8.04% 7,997 9,860 200,000 12/31/91 6.09% 11,344 13,394 200,000 12/31/92 3.90% 14,511 16,711 200,000 12/31/93 3.23% 17,754 19,954 200,000 12/31/94 4.25% 21,256 23,456 200,000 12/31/95 5.87% 25,523 27,448 200,000 12/31/96 5.41% 29,791 31,441 200,000 12/31/97 5.51% 34,211 35,586 200,000 Fidelity VIP II Asset Manager Portfolio Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/90 6.72% 1,562 3,049 200,000 12/31/91 22.56% 5,533 7,208 200,000 12/31/92 11.71% 9,240 11,103 200,000 12/31/93 21.23% 14,804 16,854 200,000 12/31/94 (6.09)% 16,107 18,307 200,000 12/31/95 16.96% 22,320 24,520 200,000 12/31/96 14.60% 28,842 31,042 200,000 12/31/97 20.65% 38,546 40,471 200,000 Fidelity VIP II Index 500 Portfolio Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/93 9.74% 1,657 3,145 200,000 12/31/94 1.04% 4,303 5,978 200,000 12/31/95 37.19% 10,181 12,043 200,000 12/31/96 22.82% 16,180 18,230 200,000 12/31/97 32.82% 25,663 27,863 200,000
The assumptions underlying these values are described in Performance Information, page 73. * 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 II 77 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 $3,750 - --------------------------------------------------------------------------------
INVESCO VIF Total Return Portfolio Year Annual Total Cash Surrender Account Benefit Ended Return * Value Value Death 12/31/95 22.79% 2,069 3,557 200,000 12/31/96 12.18% 5,459 7,134 200,000 12/31/97 22.91% 10,301 12,163 200,000 INVESCO VIF Industrial Income Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 29.25% 2,274 3,761 200,000 12/31/96 22.28% 6,382 8,057 200,000 12/31/97 28.17% 12,041 13,877 200,000 INVESCO VIF High Yield Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 19.76% 1,973 3,461 200,000 12/31/96 16.59% 5,642 7,317 200,000 12/31/97 17.33% 9,945 11,807 200,000 INVESCO VIF Utilities Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 9.08% 1,636 3,124 200,000 12/31/96 12.76% 5,012 6,688 200,000 12/31/97 23.41% 9,803 11,665 200,000 Van Eck Worldwide Hard Assets Fund Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/91 (2.93)% 1,259 2,746 200,000 12/31/92 (4.09)% 3,603 5,278 200,000 12/31/93 64.83 % 11,541 13,404 200,000 12/31/94 (4.78)% 13,298 15,348 200,000 12/31/95 10.99 % 17,836 20,036 200,000 12/31/96 18.04 % 24,583 26,783 200,000 12/31/97 (1.67)% 26,593 28,793 200,000
The assumptions underlying these values are described in Performance Information, page 73. * 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 II 78 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 $3,750 - --------------------------------------------------------------------------------
Van Eck Worldwide Bond Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 11.25% 1,705 3,192 200,000 12/31/91 18.39% 5,444 7,119 200,000 12/31/92 (5.25)% 7,416 9,279 200,000 12/31/93 7.79% 10,940 12,990 200,000 12/31/94 (1.32)% 13,257 15,457 200,000 12/31/95 17.30% 19,062 21,262 200,000 12/31/96 2.53% 22,199 24,399 200,000 12/31/97 2.38% 25,566 27,491 200,000 Van Eck Worldwide Emerging Markets Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 26.82% 2,197 3,684 200,000 12/31/97 (11.61)% 3,989 5,664 200,000 AIM VI Capital Appreciation Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 2.50% 1,429 2,917 200,000 12/31/95 35.69% 6,165 7,840 200,000 12/31/96 17.58% 10,582 12,445 200,000 12/31/97 13.51% 15,225 17,275 200,000 AIM VI Government Securities Portfolio Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 (3.73%) 1,234 2,721 200,000 12/31/95 15.56% 4,724 6,399 200,000 12/31/96 2.29% 7,449 9,312 200,000 12/31/97 8.16% 11,021 13,071 200,000
The assumptions underlying these values are described in Performance Information, page 73. *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 II 79 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 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 prospectuses. FirstLine FirstLine II 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: Lawrence D. Taylor (See Exhibit 6B). Mayer, Brown & Platt (See Exhibit 7B). II-1 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 with Compensation Schedule. (i) Broker/Dealer Supervisory and Selling Agreement for Variable Contracts with Paine Webber Incorporated.(7) (c) Commission Schedule for Policies. (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) (v) Specimen Variable Universal Life Insurance Policy (Form No. 2502 (VUL)-6/98). (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).(10) (7) Not Applicable. (8) (a) Participation Agreements 3 and Addendum to Sales Agreement.(1) (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. (b) Amendments to Participation Agreements.1 (i) First Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Investment Trust and Van Eck Associates Corporation. (ii) Second Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Worldwide Insurance Trust and Van Eck Associates Corporation. (iii) Assignment and Modification Agreement between Neuberger & Berman Advisers Management Trust, Neuberger & Berman Management Incorporated, Neuberger & Berman Advisers Management Trust, Advisers Managers Trust and Security Life of Denver Insurance Company. (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. II-2 (10) (a) Specimen Flexible Premium Variable Life Insurance Application (Form No. Q-1155).(1) (i) Specimen Variable Life Insurance Application (Form No. Q- 2006-9/97).(8) (ii) Specimen Variable Life Insurance Application (Form No. Q- 1155-98).(9) (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.A Opinion and Consent of Shirley A. Knarr.(10) B Opinion and Consent of Lawrence D. Taylor. 7.A Consent of Ernst & Young LLP.(10) B Consent of Mayer, Brown and Platt. 8. Not Applicable. _______________ (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. (9) To be used on or before May 1, 1998, where Exhibit 1.A(10)(a)(i) has not been approved. II-3 (10) Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on October 29, 1997 (File No. 33-74190). II-4 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 2nd day of March, 1998. 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 II-5 Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 6 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 - ---------------------- 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 II-6 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 with Compensation Schedule. 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.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)(a)(v) Specimen Variable Universal Life Insurance Policy (Form No. 2502 (VUL)-6/98). 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).(10) 1.A(7) Not Applicable. 1.A(8)(a) Participation Agreements 3 and Addendum to Sales Agreement.(1) 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. 1.A(8)(b) Amendments to Participation Agreements.(1) II-7 I.A(8)(b)(i) First Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Investment Trust and Van Eck Associates Corporation. 1.A(8)(b)(ii) Second Amendment to Fund Participation Agreement between Security Life of Denver, Van Eck Worldwide Insurance Trust and Van Eck Associates Corporation. 1.A(8)(b)(iii) Assignment and Modification Agreement between Neuberger & Berman Advisers Management Trust, Neuberger & Berman Management Incorporated, Neuberger & Berman Advisers Management Trust, Advisers Managers Trust and Security Life of Denver Insurance Company. 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) Specimen Variable Life Insurance Application (Form No. Q-2006- 9/97).(8,10) 1.A(10)(a)(ii) Specimen Variable Life Insurance Application (Form No. Q-1155- 98).(9,10) 1.A(10)(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.A Opinion and Consent of Shirley A. Knarr.(10) B Opinion and Consent of Lawrence D. Taylor. 7.A Consent of Ernst & Young LLP.(10) B Consent of Mayer, Brown and Platt. 8. Not Applicable. ___________________ (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). II-8 (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. (10) Incorporated herein by reference to Post-Effective Amendment No. 5 to the Form S-6 Registration Statement of Security Life of Denver Insurance Company and its Security Life Separate Account L1, filed with the Securities and Exchange Commission on October 29, 1997 (File No. 33-74190). II-9 EX-1.A(3)(B) 2 BROKER-DEALER SUPERVISORY/SELLING AGMT. EXHIBIT 1.A(3)(b) BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT FOR VARIABLE CONTRACTS This Broker-Dealer Supervisory and Selling Agreement (the "Agreement") is made this _____ day of _________________, 19___, by and among the "INSURER" (either SECURITY LIFE OF DENVER INSURANCE COMPANY "SECURITY LIFE" or FIRST ING LIFE INSURANCE COMPANY OF NEW YORK "FIRST ING", whichever is the issuer of the Contracts), ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES"), a broker-dealer registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1934 (the "1934 Act") and a member of the National Association of Securities Dealers, Inc. ("NASD"), _____________________________________________ ("SELLING BROKER-DEALER"), also a broker-dealer registered with the SEC under the 1934 Act and a member of the NASD, and any insurance AGENCY subsidiaries or affiliates ("AGENCY OR Agencies") of SELLING BROKER-DEALER, as listed on the signature pages of this Agreement. RECITALS WHEREAS, the INSURER issues certain variable life insurance policies and variable annuity contracts (the "Contracts") and offers for sale such Contracts in accordance with federal securities laws and the applicable laws of those states in which the Contracts have been qualified for sale; and WHEREAS, the INSURER has authorized ING AMERICA EQUITIES, as principal underwriter and distributor of the Contracts, to enter into agreements, subject to the consent of the INSURER, with SELLING BROKER-DEALERS and the Agencies for the distribution of the Contracts; and WHEREAS, SELLING BROKER-DEALER and the Agencies wish to participate in the distribution of the Contracts, which are deemed to be securities under the Securities Act of 1933 (the "1933 Act"); and WHEREAS, SELLING BROKER-DEALER has registered representatives ("Representatives") who are also licensed and appointed as life insurance agents of the INSURER, who will solicit and sell the Contracts; and WHEREAS, SELLING BROKER-DEALER proposes to undertake certain supervisory and administrative obligations described below in connection with the distribution of the Contracts. AGREEMENTS NOW THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as follows: 1. RELATIONSHIP OF PARTIES. The INSURER is the Insurer and issuer of ----------------------- Contracts covered by this Agreement. ING AMERICA EQUITIES is the principal underwriter and distributor of the Contracts. SELLING BROKER-DEALER represents that it is a registered broker-dealer under the 1934 Act and a member of the NASD. The INSURER hereby appoints the Agencies under the insurance laws and the INSURER and ING AMERICA EQUITIES authorize the SELLING BROKER-DEALER under the securities laws to distribute the Contracts. SELLING BROKER-DEALER agrees to supervise the Representatives in connection with the distribution, solicitation and sale of the Contracts and to perform other services as described below. 2. AUTHORITY AND DUTIES OF SELLING BROKER-DEALER. SELLING BROKER-DEALER --------------------------------------------- agrees that it shall, at all times when performing its functions under this Agreement, be registered as a securities broker-dealer with the SEC and will maintain its membership with the NASD, and shall be licensed or registered as a securities broker-dealer in the states that require such licensing or registration in connection with supervision and other services pertaining to Contract sales activities. SELLING BROKER-DEALER shall distribute the Contracts and agrees that it shall have all the attendant duties, responsibilities and liabilities associated with that function, for compliance, supervision and servicing purposes. SELLING BROKER-DEALER agrees to use its best efforts to find suitable purchasers for the Contracts. a) SELECTION AND SUPERVISION OF REPRESENTATIVES. SELLING BROKER-DEALER -------------------------------------------- shall select and employ Representatives and shall have full responsibility for the training, supervision and control of such Representatives as contemplated by Section 15(b)(4)(E) of the 1934 Act and applicable NASD Rules. Such Representatives shall be subject to the control of SELLING BROKER-DEALER with respect to such persons' securities-regulated activities in connection with the Contracts. SELLING BROKER-DEALER shall cause such Representatives to be NASD registered representatives and appropriately licensed with SELLING BROKER-DEALER before such Representatives engage in the solicitation of applications for the Contracts and shall cause such Representatives to limit solicitation of applications for the Contracts to jurisdictions where such Representatives are licensed and where the INSURER has authorized solicitations of its Contracts. SELLING BROKER-DEALER agrees that it will permit only its Representatives who are appointed with the INSURER to solicit and sell the Contracts. The INSURER and ING AMERICA EQUITIES shall not have any responsibility for the supervision of any Representative or any other associated person or affiliate of SELLING BROKER-DEALER. If the act or omission of a Representative or any other associated person or affiliate of SELLING BROKER-DEALER is the proximate cause of any claim, damage or liability (including reasonable attorneys' fees) to the INSURER or ING AMERICA EQUITIES, SELLING BROKER-DEALER shall be entirely responsible and liable therefor. 2 b) NOTICE OF REPRESENTATIVE'S NONCOMPLIANCE. In the event a ---------------------------------------- Representative fails or refuses to submit to supervision of SELLING BROKER-DEALER, ceases to be a Representative of SELLING BROKER-DEALER, or fails to meet the rules and standards imposed by SELLING BROKER- DEALER on its Representatives, SELLING BROKER-DEALER shall certify such fact to the INSURER in writing immediately, and shall immediately notify such Representative that he or she is no longer authorized to sell the Contracts. c) COMPLIANCE WITH NASD RULES OF FAIR PRACTICE AND FEDERAL AND STATE ----------------------------------------------------------------- SECURITIES LAWS. SELLING BROKER-DEALER shall fully comply with the --------------- requirements of the 1934 Act and all other applicable federal or state laws and with the rules of the NASD and shall establish such rules and procedures as may be necessary to cause diligent supervision of the securities activities of Representatives. SELLING BROKER-DEALER agrees to maintain appropriate books, records and supervisory procedures as are required by the SEC, NASD and other regulatory Agencies having jurisdiction. d) PURCHASER SUITABILITY. SELLING BROKER-DEALER shall be responsible for --------------------- suitability and shall take reasonable steps to ensure that its Representatives shall not make recommendations to applicants to purchase Contracts in the absence of reasonable grounds to believe the purchase of each Contract is suitable for the applicant. The procedure shall include review of all proposals and applications for Contracts for suitability and completeness and correctness as to form as well as review and endorsement on an internal record of SELLING BROKER-DEALER of the transactions. SELLING BROKER-DEALER shall promptly forward to the INSURER'S Customer Service Center all applications found suitable, together with any payments received with the applications, without deduction or reduction. The INSURER reserves the right to reject any Contract application and return any payment made in connection with an application which is rejected. Unless otherwise agreed, Contracts issued on applications accepted by the INSURER shall be forwarded to the Representative of SELLING BROKER-DEALER for delivery to the Contract owner. 3 e) PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION. ING AMERICA -------------------------------------------------- EQUITIES shall provide SELLING BROKER-DEALER with prospectuses and any supplements or amendments thereto, and the Statement of Additional Information ("SAI") describing the Contracts subject to this Agreement. The INSURER is responsible for maintaining in effect, in accordance with the requirements of the SEC, each Registration Statement of which the prospectus is part. The INSURER shall immediately notify SELLING BROKER-DEALER of the issuance of any stop order or any federal or state regulatory proceeding which would prevent the sale of their respective Contracts in any state or jurisdiction. SELLING BROKER-DEALER shall ensure compliance with the prospectus delivery requirements of the 1933 Act. SELLING BROKER- DEALER agrees to deliver a copy of the SAI concurrently with a copy of the prospectus to all California Contract applicants and to Contract applicants in other jurisdictions where such delivery may be required. f) ADVERTISING AND SALES PROMOTION MATERIALS. SELLING BROKER-DEALER ----------------------------------------- shall perform the selling functions required by this Agreement only in accordance with the terms and conditions of the then current prospectus applicable to the Contracts and shall make no representations not included in the prospectus or in any authorized supplemental material, including illustrations. SELLING BROKER-DEALER warrants that only advertising and sales materials, including illustrations, approved by the INSURER and ING AMERICA EQUITIES will be used by its Representatives in the solicitation and sale of the Contracts. g) SECURING APPLICATION. Each application for a Contract shall be made -------------------- on an application form provided by the INSURER and all payments collected by SELLING BROKER-DEALER or any of its Representatives shall be remitted promptly in full, together with such application form and any other required documentation directly to the INSURER at the address indicated on such application or to such other address as may be designated by the INSURER. All such payments and documents shall be the property of the INSURER. SELLING BROKER-DEALER shall review all such applications for completeness and for compliance with the conditions herein including the suitability and prospectus delivery requirements set forth above under Sections 2(d) and (e). Check or money order in payment of such Contracts should be made payable to the order of SECURITY LIFE or First ING, whichever is the issuer of the Contracts. All applications are subject to acceptance or rejection by the Insurer in its sole discretion. 3. AUTHORITY AND DUTIES OF AGENCY. ------------------------------ a. RESPONSIBILITIES OF THE AGENCY. ------------------------------ (i) The AGENCY agrees to procure applications for the Insurer's Contracts. Production must be through the SELLING BROKER-DEALER 4 and subagents appointed by the AGENCY, who are duly appointed by the Insurer. (ii) The AGENCY warrants that it and all of its subagents appointed pursuant to this Agreement shall not solicit nor aid, directly or indirectly, in the solicitation of any application for any Contract until they are fully licensed by the proper authorities under the applicable insurance laws within the applicable jurisdictions where the AGENCY and subagents propose to offer the Contracts, where the Insurer is authorized to conduct business and where the Contracts may be lawfully sold. (iii) The AGENCY shall periodically provide the Insurer with a list of all subagents appointed by the AGENCY and the jurisdictions where such subagents are licensed to solicit sales of the Contracts. (iv) The AGENCY shall prepare and transmit the appropriate appointment forms to the Insurer. The AGENCY shall pay all fees to state insurance regulatory authorities, all initial appointment and renewal fees in connection with obtaining necessary licenses and authorizations for AGENCY and subagents to solicit and sell the Contracts. The Insurer may refuse for any reason to apply for the appointment of a subagent and may cancel any existing appointment at any time. (v) The AGENCY shall supervise all subagents appointed pursuant to this Agreement to solicit sales of the Contracts and bear responsibility for all acts and omissions of each subagent. The AGENCY shall comply with and exercise all responsibilities required by applicable federal and state law and regulations. The AGENCY shall train and supervise its subagents to ensure that purchase of a Contract is not recommended to an applicant in the absence of reasonable grounds to believe the purchase of the Contract is suitable for that applicant. While not limited to the following, a determination of suitability shall be based on information furnished to a subagent after reasonable inquiry of such applicant concerning the applicant's insurance and investment objectives, financial situation and needs, and the likelihood that the applicant will continue to make any premium payments contemplated by the Contracts and will keep the Contract in force. 5 (vi) The AGENCY and SELLING BROKER-DEALER hereby warrant and represent that before a subagent is permitted to sell the Contracts, the AGENCY, SELLING BROKER-DEALER and subagent shall have entered into a written agreement pursuant to which: (i) subagent is appointed a subagent of the AGENCY and a Representative of SELLING BROKER-DEALER, (ii) subagent agrees that his or her selling activities relating to the Contracts shall be under the supervision and control of SELLING BROKER- DEALER; and (iii) that subagent's right to continue to sell such Contracts is subject to his or her continued compliance with such agreement and any procedures, rules or regulations implemented by SELLING BROKER-DEALER and the AGENCY. (vii) The AGENCY agrees to treat money received or collected for the Insurer as property held in trust, and to remit such money promptly in full, together with the application form and any other required documentation, to the Insurer's Customer Service Center at the address shown on the application form for the Contract. All such payment and documents shall be the property of the Insurer. (viii) The AGENCY agrees to adhere to the "cash with application" requirements as set forth in the Insurer's rules and regulations, a copy of which the AGENCY acknowledges it has received. The AGENCY further agrees, when applicable, to provide the proper form of interim coverage and inform the applicant of the specific conditions of the coverage. (ix) The AGENCY agrees to comply with the underwriting and issue requirements of the Insurer and the applicable insurance laws and regulations of the state or states in which the AGENCY operates. Such laws and regulations include, but are not limited to, those pertaining to client funds, privacy and confidentiality, licensing, rebating, replacements, solicitation and advertising. (x) The AGENCY agrees to inform the Insurer of all material facts of which the AGENCY is aware relating to insurance of insureds or proposed insureds. (xi) The AGENCY agrees to train and exercise general supervision over subagents. b. REJECTION OF SUBAGENT. --------------------- The Insurer may refuse for any reason, by written notice to the AGENCY, to permit any subagent the right to solicit applications for the sale of any of 6 the Contracts. Upon receipt of such notice, AGENCY immediately shall cause such subagent to cease such solicitations of sales and cancel the appointment of any subagent under this Agreement. c. LIMITATION OF AUTHORITY. ----------------------- (i) The AGENCY shall have no authority and agrees not to bind the INSURER by any promise or agreement; incur any debt, expense, or liability whatever in its name or account; or receive any money due or to become due to the INSURER except first premiums on applications or Contracts and except where the INSURER otherwise agrees in writing. (ii) The AGENCY shall have no authority and agrees not to deliver any policy or allow any policy to be delivered until the first premium has been paid in full. No delivery shall take place if, after an inquiry, the AGENCY or subagent is aware that any person proposed for insurance is not in the same condition of health, habits, occupation and other facts as are represented in the application. (iii) The AGENCY shall have no authority and agrees not to make, modify or discharge any Contract, or bind the INSURER by making any promises respecting any Contract, except when authorized in writing to do so by an authorized officer of the INSURER. (iv) The AGENCY shall have no authority and agrees not to authorize or allow a subagent to do any act prohibited under this contract. d. GENERAL PROVISIONS. ------------------ (i) The AGENCY may not assign the rights to procure applications or be relieved of the obligations of the AGENCY under this Agreement without the INSURER'S prior written consent. (ii) The AGENCY shall be solely responsible for hiring any staff the AGENCY may desire and for maintaining office space and meeting necessary expenses without reimbursement from the INSURER. (iii) The AGENCY and its subagents shall be free to exercise independent judgment as to the time, place and means of performing all acts under this Agreement, and the relationship of the AGENCY and its subagents to the INSURER shall be that of an independent contractor. Nothing in this Agreement shall be construed to create the relationship of employer and employee between the AGENCY (or any of its subagents) and the INSURER. 7 (iv) The INSURER and the AGENCY recognize and respect each other's interest in providing continuing service to those who purchase Contracts. Each party agrees to provide the others relevant information regarding the Contracts on a reasonable basis, as done in the normal course of business. (v) Failure of the AGENCY or the INSURER to insist upon strict compliance with any of the conditions of this agreement shall not be construed as a waiver of any such conditions. (vi) No oral promises or representations shall be binding nor shall this Agreement be modified except by agreement in writing, executed on behalf of the INSURER and ING AMERICA EQUITIES by a duly authorized officer of each of them. (vii) This Agreement supersedes all previous contracts and agreements between the AGENCY and the INSURER made for the procurement of variable products; but it shall not affect any contract or agreement between the AGENCY and the INSURER made for the procurement of non-variable insurance products, or the economic obligations of either party on existing policies which exist under any such previous or continuing contracts or agreements. (viii) The provisions under this Section shall survive any termination of this Agreement. (ix) The AGENCY hereby grants a limited Power of Attorney to the SELLING BROKER-DEALER, to execute any amendments, modifications or waivers with respect to this Agreement. 4. PROPERTY OF INSURER. All money payable in connection with any of the ------------------- Contracts, whether as premium, purchase payment or otherwise and whether paid by or on behalf of any contract owner or anyone else having an interest in the Contracts, is the property of the INSURER and shall be transmitted immediately in accordance with the administrative procedures of the INSURER without any deduction or offset for any reason including, but not limited to, any deduction or offset for compensation claimed by SELLING BROKER-DEALER or the AGENCY. 5. COMPENSATION. While this Agreement is in force, ING AMERICA EQUITIES shall ------------ arrange for payment to SELLING BROKER-DEALER of compensation payable on sales of the Contracts solicited in accordance with the compensation schedules attached hereto, as in effect at the time the Contract premiums or purchase payments (both referred to as "Premiums") are received by the INSURER. Compensation to the AGENCY and the Representative for Contracts solicited and sold by the 8 Representative shall be governed by an agreement between SELLING BROKER- DEALER and its Representative, and to the extent deemed necessary by the SELLING BROKER-DEALER, by an agreement between the SELLING BROKER-DEALER and the AGENCY. Upon termination of this Agreement, all compensation to SELLING BROKER- DEALER hereunder shall cease. However, SELLING BROKER-DEALER shall be entitled to receive compensation for all new and additional premium payments which are in process at the time of termination, and shall continue to be liable for any charge-backs pursuant to the provisions of Exhibit A or B and for any other amount advanced by or otherwise due the INSURER or ING AMERICA EQUITIES. SELLING BROKER-DEALER represents that no commissions or other compensation based upon a percentage of premiums or based upon a percentage of assets or other valuable consideration will be paid for services rendered in soliciting the purchase of the Contracts by any person or entity which is not duly licensed and registered by the required authority and appointed by the INSURER to sell the Contracts in the state of such solicitation or sale; provided, however, that this representation shall not prohibit the payment of compensation to the surviving spouse or other beneficiary of a person entitled to receive such compensation pursuant to a bona fide written contract that calls for such payment. SELLING BROKER-DEALER agrees that no compensation of any kind other than described in this Section 5 of this Agreement is payable by the INSURER or ING AMERICA EQUITIES to SELLING BROKER-DEALER. The amount of compensation, if any, and its time of payment for replacements, changes, conversions, exchanges, term renewals, term conversions, premiums paid in advance, policies issued on a "guaranteed issue" basis, or other special cases and programs, shall be governed by the INSURER'S underwriting and administrative rules then in effect. a. COMPENSATION FOR VARIABLE LIFE CONTRACTS. In the case of variable ---------------------------------------- life Contracts, SELLING BROKER-DEALER agrees that in the event a Representative ceases to be an associated person of SELLING BROKER- DEALER or ceases to be validly licensed or registered, SELLING BROKER- DEALER shall not receive any compensation based on any Contract or on premiums or purchase payments thereafter received by the INSURER from such former Representative's customers. Provided however, 9 (i) if the former Representative becomes registered and licensed with another SELLING BROKER-DEALER which has a valid Selling Agreement with the INSURER and ING AMERICA EQUITIES, the Representative is appointed by the INSURER for the sale of Contracts, and a Contract owner files a written request (change of dealer authorization) with ING AMERICA EQUITIES that such owner's Contracts be serviced through the Representative's new SELLING BROKER-DEALER, then such Contracts may be transferred by the INSURER to the Representative's new SELLING BROKER- DEALER, the compensation not paid shall be payable to the new SELLING BROKER-DEALER and the commission portion thereof shall be passed on to the Representative; (ii) if within 60 days after the former Representative's retirement, disability or death, SELLING BROKER-DEALER notifies the INSURER and ING AMERICA EQUITIES that a bona fide written contract exists between the Representative and SELLING BROKER-DEALER which calls for the payment of compensation to the retired Representative, surviving spouse or other beneficiary, and SELLING BROKER-DEALER agrees to continue to service each affected account, then compensation shall continue to be paid to the SELLING BROKER-DEALER as it would have been if the Representative were still licensed with the SELLING BROKER- DEALER; and (iii) if within 180 days after the former Representative ceases to be a Representative of SELLING BROKER-DEALER, if neither (i) nor (ii) has occurred, and SELLING BROKER-DEALER designates another Representative of SELLING BROKER-DEALER who is assigned by SELLING BROKER-DEALER to service the former Representative's business, and such assigned Representative is licensed with and approved by the INSURER, then the compensation not paid shall be payable to SELLING BROKER-DEALER and the commission portion thereof shall be passed on to the assigned Representative who is servicing the former Representative's customers. If an assigned Representative is not designated within such 180 day period, SELLING BROKER-DEALER may not thereafter designate a replacement Representative for such Contracts and shall not be entitled to such compensation. If a Contract owner files a written request (change of dealer authorization) with ING AMERICA EQUITIES that such owner's Contracts be serviced through a new SELLING BROKER-DEALER which has a valid Selling Agreement with the INSURER, the owner's request will be honored in all cases, for purposes of servicing only. Compensation based on any Contract sold through the original SELLING BROKER-DEALER shall continue to be paid to the original SELLING BROKER-DEALER, including compensation due to an increase in coverage, as long as the Representative remains with the original SELLING 10 BROKER-DEALER. Any compensation already paid pursuant to subparagraphs (i), (ii) or (iii) prior to ING AMERICA EQUITIES' receipt and acceptance of such written request shall not be affected. Compensation shall continue to be paid pursuant to subparagraph (i) and (ii), if applicable, regardless of any such change or additional change of broker-dealer. b. COMPENSATION FOR VARIABLE ANNUITIES. In the case of variable annuity ----------------------------------- Contracts, the INSURER recognizes the Contract owners' right on issued Contracts to terminate SELLING BROKER-DEALER and/or change a SELLING BROKER-DEALER, provided that the Contract owner notifies ING AMERICA EQUITIES in writing. When a Contract owner terminates SELLING BROKER- DEALER, no further compensation on any payments due or received shall be payable to that SELLING BROKER-DEALER after the notice of termination is received and accepted by ING AMERICA EQUITIES. However, (i) when a Contract owner designates a SELLING BROKER-DEALER other than the SELLING BROKER-DEALER of record, compensation on any payments due or received shall be payable to the new SELLING BROKER-DEALER in accordance with the Compensation Schedule in effect at the time of issuance of the Contract; (ii) A change of dealer authorization shall be honored only if there exists a valid Selling Agreement between the INSURER, ING AMERICA EQUITIES and the new SELLING BROKER-DEALER and (A) the Contract --- owner(s) requests in writing that the subagent remains as representative of record, or (B) both the former and future -- SELLING BROKER-DEALERS direct the INSURER and ING AMERICA EQUITIES in a joint writing to transfer all policies and future compensation to the new SELLING BROKER-DEALER, or (C) the NASD approves and effects a bulk transfer of all representatives to a new SELLING BROKER-DEALER. 6. TRAIL COMMISSIONS. For any Contracts for which a trail commission is paid, ------------------ such commission shall be credited on an annualized basis. Such commissions shall be computed monthly as of the end of each policy month on the Contract's Accumulated Value less policy debt. The trail commission shall be payable as specified in the applicable Compensation Schedule, on each Contract anniversary at the end of the Contract year. Trail commission shall be paid only if the Contract is in force on the date the trail commission becomes payable. No trail commissions whatsoever may be earned, paid, credited or accrued in any way with respect to sales in the State of New York. 7. REFUND OF COMPENSATION. No compensation shall be payable, and SELLING ---------------------- BROKER-DEALER and AGENCY jointly and severally agree to reimburse ING AMERICA EQUITIES promptly, and in any event within 30 days, for any compensation paid to SELLING BROKER-DEALER or its Representatives under each of the following 11 conditions: a) if the INSURER, in its sole discretion, determines not to issue the Contract applied for; b) if the INSURER refunds the premiums or purchase payments upon the applicant's surrender or withdrawal pursuant to any "free-look" privilege; c) if the INSURER refunds the premiums or purchase payments paid by applicant as a result of a complaint by applicant, recognizing that the INSURER has sole discretion to refund premiums or purchase payments; d) if the INSURER determines that any person signing an application who is required to be licensed or any other person or entity receiving compensation for soliciting purchase of the Contracts is not duly licensed to sell the Contracts in the jurisdiction of such sale or attempted sale; e) if a Contract is surrendered, lapsed or exchanged within six months of the date it was issued by the INSURER; and f) as may be otherwise provided in the Compensation Schedule. 8. INDEBTEDNESS AND RIGHT OF SETOFF. Nothing contained herein shall be -------------------------------- construed as giving SELLING BROKER-DEALER or Representative the right to incur any indebtedness on behalf of the INSURER or ING AMERICA EQUITIES. SELLING BROKER-DEALER hereby authorizes the INSURER and ING AMERICA EQUITIES to set off liabilities, however created, of SELLING BROKER-DEALER and Representative to the INSURER and ING AMERICA EQUITIES against any and all amounts otherwise payable to SELLING BROKER-DEALER. 9. TERMINATION. This Agreement may not be assigned except by written mutual ----------- consent and shall continue for an indefinite term, subject to the termination by any party upon ten-days' advance written notice to the other parties, except that in the event ING AMERICA EQUITIES or SELLING BROKER- DEALER ceases to be a registered broker-dealer or a member of the NASD, this Agreement shall immediately terminate. Upon its termination, all authorizations, rights and obligations shall cease, except the agreements in Sections 3, 7, 8, 12 and 13 and the payment of any accrued but unpaid compensation to SELLING BROKER-DEALER or refund of compensation due to ING AMERICA EQUITIES and the INSURER. 10. NON-EMPLOYEE RELATIONSHIP. For the purpose of compliance with any ------------------------- applicable federal or state securities laws or regulations, SELLING BROKER- DEALER acknowledges and agrees that in performing the services covered by this Agreement, it is acting in the capacity of an independent "broker" or "dealer" as defined in the By-Laws of the NASD and not as an agent or employee of the INSURER or ING AMERICA EQUITIES or any registered investment company. In furtherance of its responsibilities as a broker or dealer, SELLING BROKER-DEALER acknowledges that it is responsible for statutory and regulatory compliance in securities transactions involving any business produced by its Representatives concerning the Contracts. 11. NON-EXCLUSIVITY. SELLING BROKER-DEALER agrees that no territory or product --------------- is assigned exclusively hereunder and that the INSURER and ING AMERICA EQUITIES reserve the right in their discretion to enter into Selling Agreements with other 12 broker-dealers, and to contract with or establish one or more insurance Agencies in any jurisdiction in which SELLING BROKER-DEALER transacts business hereunder. 12. CO-OPERATION IN INVESTIGATION. SELLING BROKER-DEALER, AGENCY, ING AMERICA ----------------------------- EQUITIES, and the INSURER jointly agree to cooperate fully in any insurance, securities or other regulatory investigation or proceeding or judicial proceeding arising in connection with any Contract. Without limiting the foregoing: a. SELLING BROKER-DEALER shall promptly notify the INSURER and ING AMERICA EQUITIES of any customer complaint or notice of any regulatory authority investigation or proceeding or judicial proceeding which it might receive with respect to any Contract. b. In the case of a substantive customer complaint, the parties shall cooperate in investigating and responding to such complaint. Any response shall be sent to the other parties to this Agreement for approval not less than five business days prior to its being sent to the customer or regulatory authority, except that if a more prompt response is required, the proposed response shall be communicated by telephone and facsimile transmission. 13. INDEMNIFICATION. --------------- a. The INSURER and ING AMERICA EQUITIES (referred to jointly in this Section 13 as "SLD") agree to indemnify and hold harmless SELLING BROKER-DEALER and Agencies (referred to jointly in this Section 13 as the "SELLING GROUP") and such associated persons as its officers, directors, agents and employees, against any losses, claims, damages or liabilities, joint or several, to which SELLING GROUP or such associated persons may become subject under the 1933 Act, the 1934 Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact required to be stated therein or necessary to make the statements therein not misleading contained (i) in any Registration Statement, any prospectus or any document executed by SLD specifically for the purpose of qualifying a Contract for sale under the laws of any jurisdiction or (ii) in any written information or sales material authorized for and supplied or furnished to SELLING GROUP and its agents or representatives by SLD, their employees or agents, in connection with the sale of the Contract. SLD shall reimburse SELLING GROUP and each such associated person for legal or other expenses reasonably incurred by SELLING GROUP or such associated person in connection with investigating or defending any such loss, claim, damage, liability or action. 13 b. The SELLING GROUP jointly and severally agree to indemnify and hold harmless SLD, and their affiliates and such associated persons as their officers, directors, agents and employees, against any losses, claims, damages or liabilities to which SLD and any such associated person may become subject under the 1933 Act, the 1934 Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any unauthorized use of sales materials or any oral or written misrepresentations or any unlawful sales practices concerning a Contract by the SELLING GROUP, its officers, directors, employees, agents, Representatives or associated persons; and (ii) claims by agents or Representatives or employees of the SELLING GROUP for commissions or other compensation or remuneration of any type; and (iii) failure by agents, Representatives or employees of the SELLING GROUP to comply with all applicable state insurance laws and regulations including but not limited to state licensing requirements, rebate statutes and replacement regulations, and the provisions of this Agreement; and (iv) telephone instructions by a Representative to SLD in connection with any Contracts. The SELLING GROUP shall reimburse SLD and any director, officer, employee or agent for any legal or other expenses reasonably incurred by SLD or such associated person in connection with investigating or defending any such loss, claim, damage, liability or action. This indemnity provision shall be in addition to any liability which the SELLING GROUP may otherwise have. c. After a party entitled to indemnification receives notice of the commencement of any action, if a claim in respect thereof is to be made against any person obligated to provide indemnification, such indemnified party shall notify the indemnifying party in writing of the commencement thereof as soon as practicable thereafter. However, the omission to so notify the indemnifying party shall not relieve it from any liability except to the extent that the omission results in a failure of actual notice to the indemnifying party, and such indemnifying party is damaged solely as a result of the failure to give such notice. 14. FIDELITY BOND AND ERRORS AND OMISSIONS INSURANCE. SELLING BROKER-DEALER ------------------------------------------------ shall secure and maintain a fidelity bond (including coverage for larceny and 14 embezzlement), issued by a reputable bonding company, covering all of its directors, officers, agents, Representatives, associated persons and employees who have access to funds of the INSURER or ING AMERICA EQUITIES. This bond shall be maintained at SELLING BROKER-DEALER's expense in at least the amount prescribed under Article III, Section 32 of the NASD Rules of Fair Practice or future amendments thereto. SELLING BROKER-DEALER shall provide ING AMERICA EQUITIES with a copy of said bond or verification of an applicable exception before executing this Agreement. SELLING BROKER-DEALER shall also secure and maintain errors and omissions insurance acceptable to the INSURER and covering SELLING BROKER-DEALER and Representatives. SELLING BROKER-DEALER hereby assigns any proceeds received from a fidelity bonding company, errors and omissions or other liability coverage, to the INSURER or ING AMERICA EQUITIES as their interest may appear, to the extent of their loss due to activities covered by the bond, policy or other liability coverage. If there is any deficiency amount, whether due to a deductible or otherwise, SELLING BROKER-DEALER shall promptly pay such amounts on demand. SELLING BROKER-DEALER hereby indemnifies and holds harmless the INSURER and ING AMERICA EQUITIES from any such deficiency and from the costs of collection thereof, including reasonable attorneys' fees. 15. NOTICES. All notices to the INSURER or ING AMERICA EQUITIES should be ------- mailed to: ING America Equities, Inc. Attn: Chief Compliance Officer 1290 Broadway Denver, CO 80203-5699 All notices to SELLING BROKER-DEALER and Agencies shall be duly given if mailed to: -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- -------------------------------------------------------------- 16. GOVERNING LAW AND VENUE. This Agreement shall be governed by and construed ----------------------- in accordance with the laws of the State of Colorado. The parties agree that the District Court for the City and County of Denver, Colorado shall have jurisdiction and be the appropriate venue for any required judicial interpretation and enforcement of this Agreement. 17. AMENDMENT OF AGREEMENT. The INSURER or ING AMERICA EQUITIES may amend this ---------------------- Agreement, including any Exhibits and Schedules hereto, upon at least ten (10) days' prior written notice to SELLING BROKER-DEALER. The submission of an 15 application for the Contracts by SELLING BROKER-DEALER after the effective date of any such amendment shall constitute agreement to such amendment. Additional Agencies may be added as parties to this Agreement at any time by a written amendment signed by the INSURER, ING AMERICA EQUITIES, SELLING BROKER-DEALER and such additional Agencies. All Agencies which are parties to this Agreement at the time of such amendment hereby consent and agree in advance to the addition of such additional Agencies. 18. BINDING EFFECT. This Agreement shall be binding on and shall inure to the -------------- benefit of the parties to it and their respective successors in interest. If any provision of the Agreement conflicts with any other provision, or if any provision shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 19. EFFECTIVE DATE AND MERGER. This Agreement shall be effective as of the ------------------------- date it is fully executed by all parties. This Agreement, including all Exhibits and Schedules hereto, constitutes the entire Agreement between the parties and supersedes in its entirety any and all previous agreements among the parties with respect to the Contracts. 20. 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. 16 In reliance on the representations set forth and in consideration of the undertakings described, the parties represented below do hereby contract and agree. SECURITY LIFE OF DENVER ING AMERICA EQUITIES, INC. INSURANCE COMPANY By: By: --------------------------- ------------------------------ Title: Title: ------------------------ --------------------------- (or) FIRST ING LIFE INSURANCE COMPANY OF NEW YORK By: --------------------------- Title: ------------------------ - ------------------------------ --------------------------------- SELLING BROKER-DEALER AGENCY By: By: --------------------------- ------------------------------ Name: Name: ------------------------- ---------------------------- Title: Title: ------------------------ --------------------------- 17 - ------------------------------ --------------------------------- AGENCY AGENCY By: By: --------------------------- ------------------------------ Name: Name: ------------------------- ---------------------------- Title: Title: ------------------------ --------------------------- Date: Date: ------------------------- ---------------------------- - ------------------------------ --------------------------------- AGENCY AGENCY By: By: --------------------------- ------------------------------ Name: Name: ------------------------- ---------------------------- Title: Title: ------------------------ --------------------------- Date: Date: ------------------------- ---------------------------- - ------------------------------ --------------------------------- AGENCY AGENCY By: By: --------------------------- ------------------------------ Name: Name: ------------------------- ---------------------------- Title: Title: ------------------------ --------------------------- Date: Date: ------------------------- ---------------------------- 18 SCHEDULE A COMPENSATION SCHEDULE TO ING AMERICA EQUITIES SELLING AGREEMENT FOR SECURITY LIFE EXCHEQUER ANNUITY A FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED & VARIABLE ANNUITY CONTRACT FORM 1192 (VA) & 1198 (VA) This Schedule is an amendment to the Broker-Dealer Supervisory and Selling Agreement for Variable Contracts ("SELLING AGREEMENT") among ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES"), SECURITY LIFE OF DENVER INSURANCE COMPANY ("SECURITY LIFE") and the broker-dealer and agency(s) signatory thereto, pursuant to paragraph 17 of that Selling Agreement, effective as of January 30, 1997, or as set forth below. The provisions of this Schedule will apply only to Security Life Variable Annuity Flexible Premium Deferred Combination Fixed and Variable Annuity Contracts Form 1192 (VA) & 1198 (VA) ("Contract"), solicited and issued while this Schedule is in effect. All compensation payable under this Schedule will be subject to the terms and conditions contained herein at the time of issue of the Contract by SECURITY LIFE. ELECTION OF SCHEDULE - -------------------- The Representative of the SELLING BROKER-DEALER shall elect for each Contract the option under which commission payments will be based for that Contract. Once an option for a Contract is elected, such option cannot thereafter be changed for such Contract. The Representative of the SELLING BROKER-DEALER may elect to be paid under either Option A or Option B, as described below. To elect Option B, the Representative of the SELLING BROKER-DEALER must designate "Option B" or "trails" in the "Representative's Report" section of the Contract application form. If Option B is not so designated on the Contract application, Option A will automatically be in effect for that Contract. Purchase payments received for Contracts issued on or after the effective date of this Schedule will have the following commission structure: Option A - -------- 6.0% for attained annuitant ages 0 - 74 5.0% for attained annuitant ages 75 - 79 4.0% for attained annuitant ages 80 and above Option B - -------- 5.0% + 0.20% trail for attained annuitant ages 0 - 74 4.0% + 0.20% trail for attained annuitant ages 75 - 79 3.0% + 0.20% trail for attained annuitant ages 80 and above Schedule A Form No. 1192 (VA) & 1198 (VA) 01/97 The sliding commission scales set forth above shall apply to all purchase payments made at these attained annuitant ages, regardless of the age of the annuitant at the time of Contract issuance. Commissions for purchase payments received for Contracts issued prior to the effective date of this Schedule will be paid according to the Compensation Schedule in effect at the time of such Contract issuance. 1. Commission Calculation: Commissions based on purchase payments will be ---------------------- calculated only on funds actually received and accepted by SECURITY LIFE. Commissions will be paid only on an earned basis. 2. Trail Commission: Under Option B, a trail commission (the percentage ---------------- indicated) on an annualized basis is calculated at the end of each month based on the Contract's Accumulation Value at the end of the prior month. The trail commission will be payable annually at the end of a Contract year prior to the annuity date provided the Contract is in force on such date. 3. Compensation Payments: Compensation on initial purchase payment will be --------------------- due to the SELLING BROKER-DEALER at the time of issuance of the Contract and for all other purchase payments at the time of the receipt and acceptance of the purchase payments by SECURITY LIFE, except that the amount, if any, and the time of payment of compensation on replacements, reissues, changes, conversions, exchanges, term renewals, term conversions, premiums paid in advance, policies issued and "guaranteed issue" basis and other special cases and programs will be governed by SECURITY LIFE'S underwriting and administrative rules then in effect. 4. Commission Chargeback: In the event that a Contract for which a commission --------------------- has been paid is surrendered by the Contract Owner or is returned to SECURITY LIFE during the Free Look Period as described in the Contract, SECURITY LIFE and ING AMERICA EQUITIES will require reimbursement from SELLING BROKER-DEALER as follows: . 100% of commissions paid if the event occurs during the first six months of the Contract. . 50% of commissions paid if the event occurs during the second six months of the Contract. If a purchase payment for which a commission has been paid is refunded by SECURITY LIFE, a reimbursement of the commissions paid on the amount refunded will be due from the SELLING BROKER-DEALER. The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any subsequent, commission payment to SELLING BROKER-DEALER. If the amount to be reimbursed exceeds compensation otherwise due, SELLING BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next commission cycle. 5. Termination and Amendment: SECURITY LIFE and ING AMERICA EQUITIES reserve ------------------------- the right to terminate or amend this Schedule by providing written notification to the SELLING BROKER-DEALER in accordance with Sections 9, 15 and 17 of the Selling Agreement. With the exception of the terms changed by any such Amendment, all other terms and conditions of the original Schedule shall remain in full force and effect. This Schedule shall be effective as of January 30, 1997, or the date the operative Selling Agreement is accepted and executed by SECURITY LIFE, whichever is later. Schedule A Form No. 1192 (VA) & 1198 (VA) 01/97 SCHEDULE B COMPENSATION SCHEDULE TO SELLING AGREEMENT FOR SECURITY LIFE FIRSTLINE VARIABLE LIFE POLICY FORM 1191 (VUL) & 1197 (VUL) This Schedule is an amendment to the ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES") Selling Agreement by and among the parties pursuant to paragraph 17 of that Selling Agreement, effective as of May 1, 1995, or as set forth below. The provisions of this Schedule shall apply only to Security Life FirstLine Flexible Premium Variable Universal Life policies Form 1191 (VUL) & 1197 (VUL), solicited and issued while this Schedule is in effect. All compensation payable under this Schedule shall be subject to the terms and conditions contained herein at the time of issue of the policy by SECURITY LIFE OF DENVER INSURANCE COMPANY ("SECURITY LIFE"). Commissions On Premium Payments ----------------- A B C ----------------- Fully Underwritten (Non-Guaranteed Issue) 95% 4% 2% Notes 1. Commission Structure: -------------------- TARGET PREMIUM CALCULATION First target A% of all premium allocated to the first target, regardless of policy year. Renewals B% of all premium above the first target in policy years 1-10 Ultimate C% of all premium received after the 10th policy anniversary 2. Target Premium: The target premium is an amount determined from tables -------------- published by SECURITY LIFE with respect to a policy or rider upon which commissions are based. As it applies to future business, the target premium may be changed from time to time by SECURITY LIFE. The target premium applicable to a particular coverage shall be determined from the table in force when the first premium for such coverage is entered as paid in the accounting records of SECURITY LIFE. Schedule B Form No. 1191 (VUL) & 1197 (VUL) 05/1/95 3. Trail Commissions: A trail commission of 0.10% on an annualized basis is ----------------- calculated at the end of each month based on the policy's Account Value less policy debt at the end of the prior month. The trail commission begins at the earlier of: a. the tenth policy anniversary, or b. the end of the policy year in which the cumulative premium payments less partial withdrawals equals or exceeds the guideline single premium as defined by the Internal Revenue Code. The trail commission is payable annually at the end of a policy year provided the policy is in force (and not subject to the Grace Period provision) on such date. If trail commissions begin prior to the tenth policy anniversary pursuant to b) above, the trail commission in the first year will be calculated for the entire year. 4. Riders: Waiver of Cost of Insurance Rider, Additional Insured Rider, ------ Children's Insurance Rider, Guaranteed Insurability Rider, Accidental Death Benefit Rider and Waiver of Specified Premium Rider are commissionable and will have a separate target premium which is set at issue and is level thereafter. The Adjustable Term Insurance Rider has no target premium associated with it. Flat extra ratings with a duration of six years or more are commissionable and substandard table ratings are commissionable based upon the first year additional cost of insurance charge. The only rider available for Guaranteed Issue is the Adjustable Term Rider. 5. Commission Calculation: Commissions shall be calculated only on premium ---------------------- actually received and accepted by SECURITY LIFE. Commissions shall be paid only on an earned basis. 6. Premium Allocation: If the Stated Death Benefit has been increased since ------------------ the policy date, premiums received are allocated to the coverage segments in the same proportion that the guideline annual premium for each segment bears to the total guideline annual premium of the policy. 7. Guaranteed Issue: First year commission rates will be reduced for ---------------- Guaranteed Issue for all issue ages. SECURITY LIFE offers two Guaranteed Issue programs known as Regular and Select. The commission levels for each of these programs for first target as described under Commission Structure are shown in the tables below. The commission levels for renewals, ultimate and trail, are the same as the fully underwritten version. Schedule B Form No. 1191 (VUL) & 1197 (VUL) 05/1/95 Guaranteed Issue: First Year Commission Rate -------------------------- Issue Age Non-Smokers Smokers Regular Guaranteed Issue: 0-40 77% 48% 41-45 77% 43% 46-50 61% 27% 51-55 35% 11% 56-60 17% 4% 61-65 8% 4% 66+ 4% 4% Select Guaranteed Issue: 0-40 82% 65% 41-45 82% 57% 46-50 70% 38% 51-55 52% 15% 56-60 34% 4% 61-65 14% 4% 66+ 4% 4% Guaranteed Issue is available for ages 71 and above by exception only. 8. Compensation Payments: Compensation on initial premium shall be due to the --------------------- SELLING BROKER-DEALER at the time of the issuance of the policy and for all other premium payments at the time of the receipt and acceptance of premium by SECURITY LIFE, except that the amount, if any, and the time of payment of compensation on replacements, reissues, changes, conversions, exchanges, term renewals, term conversions, premiums paid in advance, policies issued on a "guaranteed issue" basis, policies requiring facultative reinsurance arrangements, and other special cases and programs shall be governed by SECURITY LIFE'S underwriting and administrative rules then in effect. The Compensation shall be payable to the SELLING BROKER-DEALER in accordance with the Schedule B in effect at the time of issue of the policy. 9. Commission Chargeback: In the event that a policy for which a commission --------------------- has been paid is lapsed or surrendered by the Policy Owner during the first six months, or is returned to SECURITY LIFE for refund of premium during the Free Look Period as described in the policy, SECURITY LIFE and ING AMERICA EQUITIES shall require reimbursement from SELLING BROKER-DEALER equal to 100% of the commission paid. If a premium payment for which a commission has been paid is refunded by SECURITY LIFE, a reimbursement of the commission paid on the amount refunded will be due from the SELLING BROKER-DEALER. Schedule B Form No. 1191 (VUL) & 1197 (VUL) 05/1/95 The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any subsequent, commission payment to SELLING BROKER-DEALER. If the amount to be reimbursed exceeds compensation otherwise due, SELLING BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next commission cycle. 10. Broker-Dealer Transfer: In the event that a Representative terminates from ---------------------- the SELLING BROKER-DEALER of record, the compensation provisions set forth in the Selling Agreement will apply. 11. Production Credits: Representatives may receive Production Credits from ------------------ SECURITY LIFE which may result in an award of trips, bonuses or other items of monetary value. 12. Internal Exchanges: Commissions on the exchange of any SECURITY LIFE ------------------ policy for FirstLine will be paid in accordance with the exchange procedures in effect at SECURITY LIFE on the date the exchange is completed. The commission rates and/or target premiums may be adjusted in accordance with the rules in effect at the time of the exchange. If the Representative responsible for the exchange is not the producer of the original policy, and the original producer is still active with SECURITY LIFE, no commission will be payable to the Representative or the SELLING BROKER-DEALER. 13. Termination and Amendment: SECURITY LIFE and ING AMERICA EQUITIES reserve ------------------------- the right to terminate or amend this Schedule by providing written notification to the SELLING BROKER-DEALER in accordance with Sections 9, 15 and 17 of the Selling Agreement. With the exception of the terms changed by any such Amendment, all other terms and conditions of the original Schedule shall remain in full force and effect. This Schedule shall be effective as of September 1, 1995, or the date the operative Selling Agreement is accepted and executed by SECURITY LIFE, whichever is later. Schedule B Form No. 1191 (VUL) & 1197 (VUL) 05/1/95 SCHEDULE D COMPENSATION SCHEDULE TO SELLING AGREEMENT FOR SECURITY LIFE STRATEGIC ADVANTAGE VARIABLE LIFE POLICY FORM 1195 (VUL) This Schedule is an amendment to the ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES") Selling Agreement by and among the parties pursuant to paragraph 17 of that Selling Agreement effective as of September 1, 1995, or as set forth below. The provisions of this Schedule shall apply only to Security Life Strategic Advantage Flexible Premium Variable Universal Life policies Form 1195 (VUL), solicited and issued while this Schedule is in effect. All compensation payable under this Schedule shall be subject to the terms and conditions contained herein at the time of issue of the policy. by SECURITY LIFE OF DENVER INSURANCE COMPANY ("SECURITY LIFE"). 1. Fully Underwritten (Non-Guaranteed Issue) and Guaranteed Issue: -------------------------------------------------------------- Commissions Up to Annual Target Above Annual Target All Premiums ------------------- ------------------- ------------ Policy Policy Policy Policy Year Years Years Years 1 2-5 1-5 6+ ------ ------ ------ ------ 15% 10% 3% 3% 2. Target Premium: The target premium is an annual amount determined from -------------- tables published by SECURITY LIFE with respect to a policy or rider upon which commissions are based. As it applies to future business, the target premium may be changed from time to time by SECURITY LIFE. The target premium applicable to a particular coverage shall be determined from the table in force when the first premium for such coverage is entered as paid in the accounting records of SECURITY LIFE. 3. Trail Commissions: A trail commission of 0.15% on an annualized basis is ----------------- calculated at the end of each month based on the policy's Account Value less policy debt at the end of the prior month. The trail commission begins on the sixth policy anniversary. The trail commission is payable annually at the end of a policy year provided the policy is in force (and not subject to the Grace Period provision) on such date. 4. Riders: Waiver of Cost of Insurance Rider, Additional Insured Rider, ------ Guaranteed Insurability Rider, Accidental Death Benefit Rider and Waiver of Specified Premium Rider are Schedule D Form No. 1195 (VUL) 09/01/95 commissionable and will have a separate target premium which is set at issue and is level thereafter. The Adjustable Term Insurance Rider has no target premium associated with it. Flat extra ratings with a duration of six years or more are commissionable and substandard table ratings are commissionable based upon the first year additional cost of insurance charge. 5. Commission Calculation: Commissions shall be calculated only on premium ---------------------- actually received and accepted by SECURITY LIFE. Commissions shall be paid only on an earned basis. 6. Premium Allocation: If the Stated Death Benefit has been increased since ------------------ the policy date, premiums received are allocated to the coverage segments in the same proportion that the guideline annual premium for each segment bears to the total guideline annual premium of the policy. 7. Guaranteed Issue: Commission rates for Guaranteed Issue are the same as for ---------------- fully underwritten cases. SECURITY LIFE offers two Guaranteed Issue programs known as Regular and Select. Guaranteed Issue is available for ages 71 and above by exception only. 8. Compensation Payments: Compensation on initial premium shall be due to the --------------------- SELLING BROKER-DEALER at the time of the issuance of the policy and for all other premium payments at the time of the receipt and acceptance of premium by SECURITY LIFE, except that the amount, if any, and the time of payment of compensation on replacements, reissues, changes, conversions, exchanges, term renewals, term conversions, premiums paid in advance, policies issued on a "guaranteed issue" basis, policies requiring facultative reinsurance arrangements, and other special cases and programs shall be governed by SECURITY LIFE'S underwriting and administrative rules then in effect. The Compensation shall be payable to the SELLING BROKER-DEALER in accordance with the Schedule D in effect at the time of issue of the policy. 9. Commission Chargeback: In the event that a policy for which a commission --------------------- has been paid or is returned to SECURITY LIFE for refund of premium during the Free Look Period as described in the policy, SECURITY LIFE and ING AMERICA EQUITIES shall require reimbursement from SELLING BROKER-DEALER equal to 100% of the commission paid. In the event that a policy for which a commission has been paid is lapsed, surrendered or has a requested decrease to the Stated Death Benefit within the first three policy years, SECURITY LIFE and ING AMERICA EQUITIES shall require reimbursement from SELLING BROKER-DEALER. The chargebacks are based on the lesser of the target premium or the actual premium paid in that policy year. Schedule D Form No. 1195 (VUL) 09/01/95 Commission Chargeback Table Policy Percent of Annual Year Target Premium Paid ----- ------------------- 1 8% 2 4% 3 2% 4 0% If a premium payment for which a commission has been paid is refunded by SECURITY LIFE, a reimbursement of the commission paid on the amount refunded will be due from the SELLING BROKER-DEALER. The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any subsequent, commission payment to SELLING BROKER-DEALER. If the amount to be reimbursed exceeds compensation otherwise due, SELLING BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next commission cycle. 10. Broker-Dealer Transfer: In the event that a Representative terminates from ---------------------- the SELLING BROKER-DEALER of record, the compensation provisions set forth in the Selling Agreement will apply. 11. Production Credits: Representatives may receive Production Credits from ------------------ SECURITY LIFE which may result in an award of trips, bonuses or other items of monetary value. 12. Internal Exchanges: Commissions on the exchange of any SECURITY LIFE ------------------ policy for Strategic Advantage will be paid in accordance with the exchange procedures in effect at SECURITY LIFE on the date the exchange is completed. The commission rates and/or target premiums may be adjusted in accordance with the rules in effect at the time of the exchange. If the Representative responsible for the exchange is not the producer of the original policy, and the original producer is still active with SECURITY LIFE, no commission will be payable to the Representative or the SELLING BROKER-DEALER. 13. Termination and Amendment: SECURITY LIFE and ING AMERICA EQUITIES reserve ------------------------- the right to terminate or amend this Schedule by providing written notification to the SELLING BROKER-DEALER in accordance with Sections 9, 15 and 17 of the Selling Agreement. With the exception of the terms changed by any such Amendment, all other terms and conditions of the original Schedule shall remain in full force and effect. Schedule D Form No. 1195 (VUL) 09/01/95 This Schedule shall be effective as of September 1, 1995, or the date the operative Selling Agreement is accepted and executed by SECURITY LIFE, whichever is later. Schedule D Form No. 1195 (VUL) 09/01/95 SCHEDULE F COMPENSATION SCHEDULE TO ING AMERICA EQUITIES SELLING AGREEMENT FOR FIRST ING OF NEW YORK EXCHEQUER ANNUITY A FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED & VARIABLE ANNUITY CONTRACT FORM 1192 (VA) - NY This Schedule is an amendment to the Broker-Dealer Supervisory and Selling Agreement for Variable Contracts ("SELLING AGREEMENT") among ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES"), FIRST ING LIFE INSURANCE COMPANY OF NEW YORK ("FIRST ING OF NEW YORK") and the broker-dealer and agency(s) signatory thereto, pursuant to paragraph 17 of that Selling Agreement, effective as of January 30, 1997, or as set forth below. The provisions of this Schedule will apply only to First ING of New York Variable Annuity Flexible Premium Deferred Combination Fixed and Variable Annuity Contracts Form 1192 (VA) - NY ("Contract"), solicited and issued while this Schedule is in effect. All compensation payable under this Schedule will be subject to the terms and conditions contained herein at the time of issue of the Contract by FIRST ING OF NEW YORK. ELECTION OF SCHEDULE - -------------------- The Representative of the SELLING BROKER-DEALER shall elect for each Contract the option under which commission payments will be based for the Contract. Once an option for a Contract is elected, such option cannot thereafter be changed for such Contract. The Representative of the SELLING BROKER-DEALER may elect to be paid under either Option A or Option B, as described below. To elect Option B, the Representative of the SELLING BROKER-DEALER must designate "Option B" or "trails" in the "Representative's Report" section of the Contract application form. If Option B is not so designated on the Contract application, Option A will automatically be in effect for that Contract. Purchase payments received for Contracts issued on or after the effective date of this Schedule will have the following commission structure: Option A - -------- 6.0% for attained annuitant ages 0 - 74 5.0% for attained annuitant ages 75 - 79 4.0% for attained annuitant ages 80 and above Option B - -------- 5.0% + 0.20% trail for attained annuitant ages 0 - 74 4.0% + 0.20% trail for attained annuitant ages 75 -79 3.0% + 0.20% trail for attained annuitant ages 80 and above Schedule F Form No. 1192(VA) - NY The sliding commission scales set forth above shall apply to all purchase payments made at these attained annuitant ages, regardless of the age of the annuitant at the time of Contract issuance. Commissions for purchase payments received for Contracts issued prior to the effective date of this Schedule will be paid according to the Compensation Schedule in effect at the time of such Contract issuance. 1. Commission Calculation: Commissions based on purchase payments will be ---------------------- calculated only on funds actually received and accepted by FIRST ING OF NEW YORK. Commissions will be paid only on an earned basis. 2. Trail Commission: Under Option B, a trail commission (the percentage ---------------- indicated) on an annualized basis is calculated at the end of each month based on the Contract's Accumulation Value at the end of the prior month. The trail commission will be payable annually at the end of a Contract year prior to the annuity date provided the Contract is in force on such date. 3. Compensation Payments: Compensation on initial purchase payment will be --------------------- due to the SELLING BROKER-DEALER at the time of issuance of the Contract and for all other purchase payments at the time of the receipt and acceptance of the purchase payments by FIRST ING OF NEW YORK, except that the amount, if any, and the time of payment of compensation on replacements, reissues, changes, conversions, exchanges, term renewals, term conversions, premiums paid in advance, policies issued and "guaranteed issue" basis and other special cases and programs will be governed by FIRST ING OF NEW YORK'S underwriting and administrative rules then in effect. 4. Commission Chargeback: In the event that a Contract for which a commission --------------------- has been paid is surrendered by the Contract Owner or is returned to FIRST ING OF NEW YORK during the Free Look Period as described in the Contract, FIRST ING OF NEW YORK and ING AMERICA EQUITIES will require reimbursement from SELLING BROKER-DEALER as follows: . 100% of commissions paid if the event occurs during the first six months of the Contract. . 50% of commissions paid if the event occurs during the second six months of the Contract. If a purchase payment for which a commission has been paid is refunded by FIRST ING OF NEW YORK, a reimbursement of the commissions paid on the amount refunded will be due from the SELLING BROKER-DEALER. Schedule F Form No. 1192(VA) - NY The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any subsequent, commission payment to SELLING BROKER-DEALER. If the amount to be reimbursed exceeds compensation otherwise due, SELLING BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next commission cycle. 5. Termination and Amendment: FIRST ING OF NEW YORK and ING AMERICA ------------------------- EQUITIES reserve the right to terminate or amend this Schedule by providing written notification to the SELLING BROKER-DEALER in accordance with Sections 9, 15 and 17 of the Selling Agreement. With the exception of the terms changed by any such Amendment, all other terms and conditions of the original Schedule shall remain in full force and effect. This Schedule shall be effective as of June 16, 1997, or the date the operative Selling Agreement is accepted and executed by FIRST ING OF NEW YORK, whichever is later. Schedule F Form No. 1192(VA) - NY EX-1.A(3)(C) 3 COMMISSION SCHEDULE EXHIBIT 1.A(3)(c) Commissions: Expressed as a Percent of Premium Year Up To Target Above Target Asset Trail ---- ------------ ------------ ----------- 1 95% 4% none 2-10 4% 4% none 11+ 4% 4% 15bp* * Paid on account value on an annualized basis EX-1.A(5)(A)(V) 4 POLICY EXHIBIT 1.A(5)(a)(v) Security Life of Denver Insurance Company INSURED: JOHN DOE POLICY DATE: May 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 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. [ILLEGIBLE SIGNATURE] [ILLEGIBLE SIGNATURE] 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. There is no maturity date. Flexible premiums are payable by you during the lifetime of the insured until the policy anniversary nearest the insured's 100th birthday. SECURITY LIFE OF DENVER INSURANCE COMPANY A Stock Company Customer Service Center P. O. Box 173888; Denver, Colorado 80217 Toll Free Number: 1(800) 848-6362 Form 2502(VUL)-06/98 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 CONTINUATION OF COVERAGE AFTER AGE 100.................................. 9 PAYOUT OF PROCEEDS.......................................................9 PREMIUM PROVISIONS.............................................................9 INITIAL PREMIUM ALLOCATION...............................................9 SUBSEQUENT PREMIUM ALLOCATIONS..........................................10 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 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..........................................20 TERMINATION.............................................................20 REINSTATEMENT...........................................................21 DEFERRAL OF PAYMENT.....................................................21 GENERAL POLICY PROVISIONS.....................................................22 THE POLICY..............................................................22 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. SCHEDULE (Schedule Date: May 1, 1998) POLICY INFORMATION Policy Number 67000001 Initial Stated Death Benefit $100,000.00 Insured JOHN DOE Death Benefit Option OPTION 1 Age And Sex 35, Male Minimum Annual Premium $514.44 Premium Class Non-Smoker Policy Date May 1, 1998 Initial Scheduled Premium $1,200.00, Annually Guarantee Period Annual Premium: Definition of Life Insurance Test Guideline Premium/Cash Value Corridor Test CUSTOMER SERVICE CENTER: P. O. Box 173888, Denver, Colorado 80217 Coverage will if premiums are insufficient to continue coverage. Coverage will also be affected by Partial Withdrawals, policy loans, changes in the current cost of insurance rates, the actual credited interest rate for the Guaranteed Interest division and the investment experience of the variable account. SCHEDULE (Continued) BENEFIT PROFILE
- -------------------------------------------------------------------------------------------------------------------------------- Benefit Segment Effective Guideline Segment Description Amount Issue Age Date Annual Premium Target Premium - -------------------------------------------------------------------------------------------------------------------------------- Stated Death Benefit (Segment #1) $100,000.00 35 May 1, 1998 $1,433.68 $800.00 - --------------------------------------------------------------------------------------------------------------------------------
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: $13 per month for the first 36 months $ 3 per month thereafter. Monthly Administrative Charge: $0.025 per thousand of Stated Death Benefit (or Target Death Benefit, if greater), for all years. ANNUAL MORTALITY AND EXPENSE RISK CHARGE (Based on the percentage of assets in each Variable Account division) Mortality And Expense Risk Charge 0.75% 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 TOTAL MAXIMUM YEAR ENDING SURRENDER CHARGE --------------------------------------------------- 1998 $650.00 --------------------------------------------------- 1999 $650.00 --------------------------------------------------- 2000 $650.00 --------------------------------------------------- 2001 $650.00 --------------------------------------------------- 2002 $650.00 --------------------------------------------------- 2003 $650.00 --------------------------------------------------- 2004 $650.00 --------------------------------------------------- 2005 $568.75 --------------------------------------------------- 2006 $487.50 --------------------------------------------------- 2007 $406.25 --------------------------------------------------- 2008 $325.00 --------------------------------------------------- 2009 $243.75 --------------------------------------------------- 2010 $162.50 --------------------------------------------------- 2011 $81.25 --------------------------------------------------- 2012 0 --------------------------------------------------- Administrative Surrender Charge Table - -------------------------------------------------------------------------------- SEGMENT ADMINISTRATIVE SURRENDER CHARGE PER ISSUE 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 - -------------------------------------------------------------------------------- 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. SCHEDULE (Continued) POLICYHOLDER TRANSACTION CHARGES Requests for Sales Illustrations: First illustration each year is free of charge; thereafter $25 for each illustration requested. 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; charges for premium allocation changes; 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: 4.75% per year Guaranteed Interest Rate Credited To Loan Division: 4.00% 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: $25 Limit On Partial Withdrawals: One per policy year GUARANTEED INTEREST DIVISION Guaranteed Interest Rate For Guaranteed Interest Division 4.00% per year 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 AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR - ---------------------------------------------------------------------------------------------------------------------------- 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 and older 1.00 - ----------------------------------------------------------------------------------------------------------------------------
SCHEDULE (Continued) TABLE OF GUARANTEED RATES Guaranteed Maximum Cost of Insurance Rates Per $1000 (Policy)
- ------------------------------------------------------------------------------------------------------------------------------------ Attain Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate - ------------------------------------------------------------------------------------------------------------------------------------ 0 0.34845 26 0.14419 51 0.60870 76 5.91225 - ------------------------------------------------------------------------------------------------------------------------------------ 1 0.08917 27 0.14252 52 0.66377 77 6.46824 - ------------------------------------------------------------------------------------------------------------------------------------ 2 0.08251 28 0.14169 53 0.72636 78 7.04089 - ------------------------------------------------------------------------------------------------------------------------------------ 3 0.08167 29 0.14252 54 0.79730 79 7.64551 - ------------------------------------------------------------------------------------------------------------------------------------ 4 0.07917 30 0.14419 55 0.87326 80 8.30507 - ------------------------------------------------------------------------------------------------------------------------------------ 5 0.07501 31 0.14836 56 0.95591 81 9.03761 - ------------------------------------------------------------------------------------------------------------------------------------ 6 0.07167 32 0.15252 57 1.04192 82 9.86724 - ------------------------------------------------------------------------------------------------------------------------------------ 7 0.06667 33 0.15919 58 1.13378 83 10.80381 - ------------------------------------------------------------------------------------------------------------------------------------ 8 0.06334 34 0.16669 59 1.23235 84 11.82571 - ------------------------------------------------------------------------------------------------------------------------------------ 9 0.06167 35 0.17586 60 1.34180 85 12.91039 - ------------------------------------------------------------------------------------------------------------------------------------ 10 0.06084 36 0.18670 61 1.46381 86 14.03509 - ------------------------------------------------------------------------------------------------------------------------------------ 11 0.06417 37 0.20004 62 1.60173 87 15.18978 - ------------------------------------------------------------------------------------------------------------------------------------ 12 0.07084 38 0.21505 63 1.75809 88 16.36948 - ------------------------------------------------------------------------------------------------------------------------------------ 13 0.08251 39 0.23255 64 1.93206 89 17.57781 - ------------------------------------------------------------------------------------------------------------------------------------ 14 0.09584 40 0.25173 65 2.12283 90 18.82881 - ------------------------------------------------------------------------------------------------------------------------------------ 15 0.11085 41 0.27424 66 2.32623 91 20.14619 - ------------------------------------------------------------------------------------------------------------------------------------ 16 0.12585 42 0.29675 67 2.54312 92 21.57655 - ------------------------------------------------------------------------------------------------------------------------------------ 17 0.13919 43 0.32260 68 2.77350 93 23.20196 - ------------------------------------------------------------------------------------------------------------------------------------ 18 0.14836 44 0.34929 69 3.02328 94 25.28174 - ------------------------------------------------------------------------------------------------------------------------------------ 19 0.15502 45 0.37931 70 3.30338 95 28.27411 - ------------------------------------------------------------------------------------------------------------------------------------ 20 0.15836 46 0.41017 71 3.62140 96 33.10676 - ------------------------------------------------------------------------------------------------------------------------------------ 21 0.15919 47 0.44353 72 3.98666 97 41.68475 - ------------------------------------------------------------------------------------------------------------------------------------ 22 0.15752 48 0.47856 73 4.40599 98 58.01259 - ------------------------------------------------------------------------------------------------------------------------------------ 23 0.15502 49 0.51777 74 4.87280 99 83.33333 - ------------------------------------------------------------------------------------------------------------------------------------ 24 0.15169 50 0.55948 75 5.37793 - ------------------------------------------------------------------------------------------------------------------------------------ 25 0.14752 - ------------------------------------------------------------------------------------------------------------------------------------
The rates shown are for a 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 Smoker Composite Mortality Table (Male), age nearest birthday. 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 - A unit of measurement used to calculate the Account Value in each Division of the Variable Account. 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 - The Base Death Benefit is defined in the Base Death Benefit provision of the policy. Cash Surrender Value - The amount of your Account Value minus the Surrender Charge, if any. Customer Service Center - Our administrative office whose address is P. O. Box 173888; Denver, CO 80217. 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. 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. 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 five days and the Right to Examine Period. 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: 1) we receive the amount of premium required for coverage to begin under the policy; 2) we have approved the policy for issue, and 3) all issue requirements have been met and received in our Customer Service Center. Loan Division - Part of our General Account in which funds are set aside to secure any outstanding Policy Loan and accrued loan interest when due. Monthly Processing Date - The date each month on which the monthly deductions from the Account Value are due. The first Monthly Processing Date will be the policy date or the Investment Date, if later. Subsequent Monthly Processing Dates will be the same date as the policy date each month thereafter 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. Partial Withdrawal - The withdrawal of a portion of your Net Cash Surrender Value from the policy. The Partial Withdrawal may cause a Surrender Charge to be incurred and 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 - Each date as of which the net asset value of the shares of the portfolios and unit values of the Divisions are determined: Except for days that a Division's corresponding portfolio does not value its shares, a Valuation Date is any day: (a) The New York Stock Exchange ("NYSE") is open for trading and on which Security Life's Customer Service Center is open for business; or (b) as may be required by law. Valuation Period - The period which begins at 4:00 p.m. Eastern Time on Valuation Date and ends at 4:00 p.m. Eastern Time on the next succeeding Valuation Date. 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 the amount of premium required for coverage to begin under the policy 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 must equal at least the lesser of the Initial Stated Death Benefit or $50,000. Death Benefit Option Changes Beginning with the first policy anniversary and ending with the policy anniversary nearest the insured's 100th birthday, you may request a change to the death benefit option. Changes must be requested at least 30 days prior to the policy anniversary. 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. CONTINUATION OF COVERAGE AFTER AGE 100 If the policy is in force on the policy anniversary nearest the insured's 100th birthday, the policy will continue pursuant to the terms of the policy, except: on this date, the following will occur: (1) if an Adjustable Term Rider (ATR) is attached to the policy, the Target Death Benefit defined in Page 8 the ATR will become the Stated Death Benefit for the policy and the ATR will terminate; (2) All other riders attached to the policy will also terminate; (3) the portion of your Account Value invested in the divisions of the Variable Account will be transferred into the Guaranteed Interest Division and no further investment in the divisions of the Variable Account will be allowed;. and (4) If the death benefit option in force on the policy is Option II, the policy will be converted to death benefit option 1 in accordance with the procedures outlined in the Death Benefit Option Changes provision of the policy and no further changes will be allowed to the death benefit option. After the policy anniversary nearest the insured's 100th birthday, no further premiums will be accepted and no monthly deductions will be made. However, a one time administrative fee of $200 will be charged against the policy's Account. We will continue to credit interest to the Account Value. Policy loans and withdrawals continue to be available. Any existing policy loan will continue. Policy loan interest will continue to accrue. Payments on policy loans and policy loan interest will be accepted. The policy will enter the 61-day grace period if the surrender value is zero or less. PAYOUT OF PROCEEDS The proceeds is the amount we will pay: a) upon surrender of the policy, or b) upon the death of the insured. The proceeds upon surrender of this policy will be the Net Cash Surrender Value. 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 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 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 Page 9 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. CHANGES TO PREMIUM ALLOCATIONS You may change your premium allocation in accordance with instructions included in your annual policy prospectus. If the change causes a premium allocation charge to be incurred according to the Schedule, we will deduct a charge from the 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. SCHEDULED PREMIUMS The Scheduled Premium as shown in the Schedule may be paid while this policy is in force prior to the policy anniversary nearest the insured's 100th birthday. 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 described in the Guaranteed Minimum Death Benefit Rider, if attached to the policy, you may be required to make premium payments to keep the policy in force. You may pay premiums on a monthly basis through an automated payment facility. All payment modes are subject to our minimum requirements for the payment mode selected. UNSCHEDULED PREMIUMS You may make unscheduled premium payments at any time the policy is in force prior to the policy anniversary nearest the insured's 100th birthday, 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. No premium may be paid after the insured's death. 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 Initial Period and until the policy anniversary nearest the insured's 100th birthday, 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. On the policy anniversary nearest the insured's 100th birthday, your Account Value in each division of the Variable Account will be transferred into the Guaranteed Interest Division and no further transfers will be allowed. 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; 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. After the policy anniversary nearest the insured's 100th birthday, no further monthly deductions will be made. 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, we will credit your Net Account Value with a persistency refund for each Segment of the Stated Death Benefit which remains in force after its 10th Segment year. (Such a Segment is referred to as a qualifying segment.) The total monthly refund is equal to .005 times the Account Value allocated to the Divisions of the Variable Account and the Loan Division times the sum of the persistency factors for the qualifying segments. The persistency factor for a qualifying segment equals: the qualifying segment's Guideline Annual Premium multiplied by the number of years the qualifying segment has been in force, divided by the sum of the Guideline Annual Premium for each qualifying and non-qualifying segment multiplied by the number of years such 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 Page 15 Account Value in each division bears to your Net Account Value as of the Monthly Processing Date. 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 Page 16 which no longer requires the Base Death Benefit to be increased for Internal Revenue Code 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 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 lesser of the Initial Stated Death Benefit or $50,000. 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 Three Year Continuation Period described below has expired or the required premium for the three year continuation period has not been paid; and c) The Guarantee Period described below has expired or been terminated.. 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 During the first 3 policy years, your policy will remain in force regardless of the Net Account Value, if, on a Monthly Processing Date, 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 during the 3 year period. GUARANTEE PERIOD The policy will not terminate during the guarantee period even if the Net Account Value is zero except as provided below. Each monthly guarantee period premium equals 1/12 of the guarantee period annual premium. The guarantee period 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 period annual premium for subsequent policy years. The guarantee period will expire on the later of the 10th policy anniversary or the policy anniversary nearest the Insured's 65th birthday. 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 on the policy effective date 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; or c) 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 for a full surrender will be mailed within 7 days of receipt of the request in a form acceptable to us. However, we may postpone the processing of any such 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, 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 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 we receive due proof satisfactory to us of the insured's death. You may also elect to take the Net Cash Surrender Value of the policy upon its surrender other than in one sum. Satisfactory written request must be received at our Customer Service Center 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. Payouts for Payout Option II will be determined by using the 1983 Individual Annuity Mortality Table for the appropriate sex at 3 1/2% interest. OPTION III. Hold at Interest. Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4, or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. Page 24 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. 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. 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 --------------------------------------------------------------------------- SETTLEMENT OPTION TABLE II - -------------------------------------------------------------------------------- ( Per $1,000 of Net Proceeds) - -------------------------------------------------------------------------------- Age of Payee Nearest Monthly Birthday When First Installment Installment is Payable - -------------------------------------------------------------------------------- 5 Years 10 Years 15 Years 20 Years Male Certain Certain Certain Certain - -------------------------------------------------------------------------------- 15 3.28 3.28 3.27 3.27 - -------------------------------------------------------------------------------- 16 3.29 3.29 3.29 3.28 - -------------------------------------------------------------------------------- 17 3.31 3.31 3.30 3.30 - -------------------------------------------------------------------------------- 18 3.32 3.32 3.32 3.32 - -------------------------------------------------------------------------------- 19 3.34 3.34 3.34 3.33 - -------------------------------------------------------------------------------- 20 3.36 3.36 3.35 3.35 - -------------------------------------------------------------------------------- 21 3.38 3.38 3.37 3.37 - -------------------------------------------------------------------------------- 22 3.40 3.40 3.39 3.39 - -------------------------------------------------------------------------------- 23 3.42 3.42 3.41 3.41 - -------------------------------------------------------------------------------- 24 3.44 3.44 3.43 3.43 - -------------------------------------------------------------------------------- 25 3.46 3.46 3.45 3.45 - -------------------------------------------------------------------------------- 26 3.49 3.48 3.48 3.47 - -------------------------------------------------------------------------------- 27 3.51 3.51 3.50 3.49 - -------------------------------------------------------------------------------- 28 3.54 3.53 3.53 3.52 - -------------------------------------------------------------------------------- 29 3.56 3.56 3.55 3.54 - -------------------------------------------------------------------------------- 30 3.59 3.59 3.58 3.57 - -------------------------------------------------------------------------------- 31 3.62 3.62 3.61 3.60 - -------------------------------------------------------------------------------- 32 3.65 3.65 3.64 3.62 - -------------------------------------------------------------------------------- 33 3.68 3.68 3.67 3.65 - -------------------------------------------------------------------------------- 34 3.72 3.71 3.70 3.68 - -------------------------------------------------------------------------------- 35 3.75 3.75 3.73 3.72 - -------------------------------------------------------------------------------- 36 3.79 3.78 3.77 3.75 - -------------------------------------------------------------------------------- 37 3.83 3.82 3.81 3.78 - -------------------------------------------------------------------------------- 38 3.87 3.86 3.85 3.82 - -------------------------------------------------------------------------------- 39 3.92 3.90 3.89 3.86 - -------------------------------------------------------------------------------- 40 3.96 3.95 3.93 3.90 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ( Per $1,000 of Net Proceeds) - -------------------------------------------------------------------------------- Age of Payee Nearest Monthly Birthday When First Installments Installment is Payable - -------------------------------------------------------------------------------- 5 Years 10 Years 15 Years 20 Years Male Certain Certain Certain Certain - -------------------------------------------------------------------------------- 41 4.01 4.00 3.97 3.94 - -------------------------------------------------------------------------------- 42 4.06 4.04 4.01 3.98 - -------------------------------------------------------------------------------- 43 4.11 4.09 4.06 4.02 - -------------------------------------------------------------------------------- 44 4.16 4.14 4.11 4.06 - -------------------------------------------------------------------------------- 45 4.22 4.20 4.16 4.11 - -------------------------------------------------------------------------------- 46 4.28 4.25 4.21 4.16 - -------------------------------------------------------------------------------- 47 4.34 4.31 4.27 4.21 - -------------------------------------------------------------------------------- 48 4.41 4.38 4.33 4.26 - -------------------------------------------------------------------------------- 49 4.48 4.44 4.39 4.31 - -------------------------------------------------------------------------------- 50 4.55 4.51 4.45 4.36 - -------------------------------------------------------------------------------- 51 4.62 4.58 4.52 4.42 - -------------------------------------------------------------------------------- 52 4.70 4.66 4.58 4.48 - -------------------------------------------------------------------------------- 53 4.79 4.74 4.65 4.54 - -------------------------------------------------------------------------------- 54 4.88 4.82 4.73 4.60 - -------------------------------------------------------------------------------- 55 4.97 4.91 4.80 4.66 - -------------------------------------------------------------------------------- 56 5.07 5.00 4.88 4.72 - -------------------------------------------------------------------------------- 57 5.17 5.10 4.97 4.78 - -------------------------------------------------------------------------------- 58 5.29 5.20 5.05 4.85 - -------------------------------------------------------------------------------- 59 5.41 5.31 5.14 4.91 - -------------------------------------------------------------------------------- 60 5.53 5.42 5.23 4.97 - -------------------------------------------------------------------------------- 61 5.67 5.54 5.33 5.04 - -------------------------------------------------------------------------------- 62 5.81 5.67 5.42 5.10 - -------------------------------------------------------------------------------- 63 5.97 5.80 5.52 5.16 - -------------------------------------------------------------------------------- 64 6.13 5.94 5.62 5.22 - -------------------------------------------------------------------------------- 65 6.31 6.08 5.72 5.28 - -------------------------------------------------------------------------------- Page 28 SETTLEMENT OPTION TABLE II (Continued) - -------------------------------------------------------------------------------- (Per $1,000 of Net Proceeds) - -------------------------------------------------------------------------------- Age of Payee Nearest Birthday When First Installment is Payable Monthly Installment - -------------------------------------------------------------------------------- 5 Years 10 Years 15 Years 20 Years Male Certain Certain Certain Certain - -------------------------------------------------------------------------------- 66 6.49 6.23 5.82 5.33 - -------------------------------------------------------------------------------- 67 6.69 6.38 5.92 5.38 - -------------------------------------------------------------------------------- 68 6.90 6.54 6.02 5.43 - -------------------------------------------------------------------------------- 69 7.12 6.71 6.12 5.48 - -------------------------------------------------------------------------------- 70 7.35 6.87 6.21 5.52 - -------------------------------------------------------------------------------- 71 7.60 7.05 6.30 5.55 - -------------------------------------------------------------------------------- 72 7.86 7.22 6.39 5.59 - -------------------------------------------------------------------------------- 73 8.13 7.40 6.47 5.62 - -------------------------------------------------------------------------------- 74 8.42 7.57 6.55 5.64 - -------------------------------------------------------------------------------- 75 8.72 7.75 6.62 5.66 - -------------------------------------------------------------------------------- 76 9.04 7.92 6.69 5.68 - -------------------------------------------------------------------------------- 77 9.37 8.09 6.75 5.70 - -------------------------------------------------------------------------------- 78 9.72 8.26 6.81 5.71 - -------------------------------------------------------------------------------- 79 10.08 8.42 6.86 5.72 - -------------------------------------------------------------------------------- 80 10.44 8.57 6.90 5.73 - -------------------------------------------------------------------------------- 81 10.82 8.71 6.94 5.74 - -------------------------------------------------------------------------------- 82 11.21 8.85 6.97 5.74 - -------------------------------------------------------------------------------- 83 11.59 8.97 7.00 5.75 - -------------------------------------------------------------------------------- 84 11.99 9.09 7.02 5.75 - -------------------------------------------------------------------------------- 85 12.38 9.20 7.04 5.75 - -------------------------------------------------------------------------------- 86 12.76 9.29 7.05 5.75 - -------------------------------------------------------------------------------- 87 13.15 9.38 7.07 5.75 - -------------------------------------------------------------------------------- 88 13.53 9.46 7.08 5.75 - -------------------------------------------------------------------------------- 89 13.91 9.53 7.08 5.75 - -------------------------------------------------------------------------------- 90 14.28 9.59 7.09 5.75 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Age of Payee Nearest Birthday When First Installment is Payable Monthly Installment - -------------------------------------------------------------------------------- 5 Years 10 Years 15 Years 20 Years Male Certain Certain Certain Certain - -------------------------------------------------------------------------------- 91 14.64 9.64 7.09 5.75 - -------------------------------------------------------------------------------- 92 15.00 9.68 7.10 5.75 - -------------------------------------------------------------------------------- 93 15.34 9.72 7.10 5.75 - -------------------------------------------------------------------------------- 94 15.68 9.75 7.10 5.75 - -------------------------------------------------------------------------------- 95 16.00 9.78 7.10 5.75 - -------------------------------------------------------------------------------- 96 16.30 9.80 7.10 - -------------------------------------------------------------------------------- 97 16.59 9.81 7.10 - -------------------------------------------------------------------------------- 98 16.86 9.82 7.10 - -------------------------------------------------------------------------------- 99 17.11 9.83 7.10 - -------------------------------------------------------------------------------- 100 17.33 9.83 7.10 - -------------------------------------------------------------------------------- 101 17.53 9.83 - -------------------------------------------------------------------------------- 102 17.69 9.83 - -------------------------------------------------------------------------------- 103 17.82 9.83 - -------------------------------------------------------------------------------- 104 17.92 9.83 - -------------------------------------------------------------------------------- 105 18.00 9.83 - -------------------------------------------------------------------------------- 106 18.05 - -------------------------------------------------------------------------------- 107 18.08 - -------------------------------------------------------------------------------- 108 18.10 - -------------------------------------------------------------------------------- 109 18.11 - -------------------------------------------------------------------------------- 110 18.11 - -------------------------------------------------------------------------------- Page 29 [THIS PAGE LEFT BLANK 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. There is no maturity date. Flexible premiums are payable by you during the lifetime of the insured until the policy anniversary nearest the insured's 100th birthday. SECURITY LIFE OF DENVER INSURANCE COMPANY A Stock Company Customer Service Center P. O. Box 173888; Denver, Colorado 80217 Toll Free Number: 1(800)848-6362 EX-1.A(8)(A)(I) 5 PARTIC. AGMT. BY AIM & ING EXHIBIT 1.A(8)(a)(i) PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS, INC., SECURITY LIFE OF DENVER, ON BEHALF OF ITSELF AND ITS SEPARATE ACCOUNTS, AND ING AMERICA EQUITIES, INC. TABLE OF CONTENTS SECTION 1. AVAILABLE FUNDS............................................... 1 1.1 Availability......................................................... 1 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...................................................... 2 2.3 Applicable Price..................................................... 2 2.4 Dividends and Distributions.......................................... 3 2.5 Book Entry........................................................... 3 SECTION 3. COSTS AND EXPENSES............................................ 3 3.1 General.............................................................. 3 3.2 Registration......................................................... 3 3.3 Other (Non-Sales-Related)............................................ 3 3.4 Other (Sales-Related)................................................ 4 3.5 Parties To Cooperate................................................. 4 SECTION 4. LEGAL COMPLIANCE.............................................. 4 4.1 Tax Laws............................................................. 4 4.2 Insurance and Certain Other Laws..................................... 5 4.3 Securities Laws...................................................... 6 4.4 Notice of Certain Proceedings and Other Circumstances................ 6 4.5 SECURITY LIFE To Provide Documents: Information About AVIF........... 7 4.6 AVIF To Provide Documents; Information About SECURITY LIFE........... 7 SECTION 5. MIXED AND SHARED FUNDING...................................... 8 5.1 General.............................................................. 8 5.2 Disinterested Directors.............................................. 8 5.3 Monitoring for Material Irreconcilable Conflicts..................... 9 5.4 Conflict Remedies.................................................... 9 5.5 Notice to SECURITY LIFE.............................................. 10 5.6 Information Requested by Board of Directors.......................... 10 5.7 Compliance with SEC Rules............................................ 10 5.8 Other Requirements................................................... 10 SECTION 6. TERMINATION................................................... 11 6.1 Events of Termination................................................ 11 6.2 Notice Requirement for Termination................................... 11 6.3 Funds To Remain Available............................................ 12 6.4 Survival of Warranties and Indemnifications.......................... 12 6.5 Continuance of Agreement for Certain Purposes........................ 12 SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION................... 12 SECTION 8. ASSIGNMENT.................................................... 12 SECTION 9. NOTICES....................................................... 12
i SECTION 10. VOTING PROCEDURES............................................ 13 SECTION 11. FOREIGN TAX CREDITS.......................................... 13 SECTION 12. INDEMNIFICATION.............................................. 13 12.1 Of AVIF by SECURITY LIFE and ING.................................... 13 12.2 Of SECURITY LIFE and ING by AVIF.................................... 15 12.3 Effect of Notice.................................................... 16 12.4 Successors.......................................................... 16 SECTION 13. APPLICABLE LAW............................................... 16 SECTION 14. EXECUTION IN COUNTERPARTS.................................... 17 SECTION 15. SEVERABILITY................................................. 17 SECTION 16. RIGHTS CUMULATIVE............................................ 17 SECTION 17. HEADINGS..................................................... 17 SECTION 18. CONFIDENTIALITY.............................................. 17 SECTION 19. TRADEMARKS AND FUND NAMES.................................... 17 SECTION 20. PARTIES TO COOPERATE......................................... 18
ii PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 3rd day of December, 1997 ("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland corporation ("AVIF"); Security Life of Denver, a Colorado life insurance company ("SECURITY LIFE"), 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 ING America Equities, Inc., an affiliate of SECURITY LIFE and the principal underwriter of the Contracts ("ING') (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, SECURITY LIFE 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, SECURITY LIFE 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, SECURITY LIFE 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 WHEREAS, to the extent permitted by applicable insurance laws and regulations, SECURITY LIFE intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, ING is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 (" 1934 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 SECURITY LIFE 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 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 will be sold to the general public. SECTION 2. PROCESSING TRANSACTIONS 2.1 TIMELY PRICING AND ORDERS. (a) AVIF or its designated agent will use its best efforts to provide SECURITY LIFE 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) SECURITY LIFE is open for business. (b) SECURITY LIFE will use the data provided by AVIF each Business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. SECURITY LIFE 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 SECURITY LIFE 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 SECURITY LIFE. (c) With respect to payment of the purchase price by SECURITY LIFE and of redemption proceeds by AVIF, SECURITY LIFE 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), SECURITY LIFE 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 SECURITY LIFE. 2.2 TIMELY PAYMENTS. SECURITY LIFE 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 SECURITY LIFE 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 SECURITY LIFE 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. 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 SECURITY LIFE 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), SECURITY LIFE shall be the 2 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 suc h later time as computed in accordance with Section 2. 1 (b) hereof. (b) All other Share purchases and redemptions by SECURITY LIFE 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 SECURITY LIFE of any income dividends or capital gain distributions payable on the Shares of any Fund. SECURITY LIFE 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 SECURITY LIFE 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. SECURITY LIFE 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 SECURITY LIFE. Shares ordered from AVIF will be recorded in an appropriate title for SECURITY LIFE, 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. 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) SECURITY LIFE 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 (NON-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) SECURITY LIFE 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) SECURITY LIFE will print in quantity and deliver to existing Participants the documents described in Section 3.3(b) above 3 and the prospectus provided by AVIF in camera ready 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). SECURITY LIFE 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, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required. 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 SECURITY LIFE 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's 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 SECURITY LIFE 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 steps 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) SECURITY LIFE agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of SECURITY LIFE or, to SECURITY LIFE's knowledge, of any Participant, that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or SECURITY LIFE 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. SECURITY LIFE shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); ii. SECURITY LIFE shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure; iii. SECURITY LIFE 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 1.8175(a)(2), to the Commissioner of the IRS that such failure was inadvertent; iv. SECURITY LIFE 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 SECURITY LIFE will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; 4 v. any written materials to be submitted by SECURITY LIFE 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 SECURITY LIFE 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 SECURITY LIFE to any such person without the express written consent of AVIF which shall not be unreasonably withheld; vi. SECURITY LIFE 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 SECURITY LIFE) 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. SECURITY LIFE 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 SECURITY LIFE 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 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 SECURITY LIFE 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, SECURITY LIFE may, in its discretion, authorize AVIF or its affiliates to act in the name of SECURITY LIFE 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 SECURITY LIFE 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) SECURITY LIFE 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; SECURITY LIFE 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) SECURITY LIFE 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 contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. SECURITY LIFE 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 SECURITY LIFE, including, the furnishing of information not otherwise available to SECURITY LIFE which is required by state insurance law to enable SECURITY LIFE to obtain the authority needed to issue the Contracts in any applicable state. (b) SECURITY LIFE 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 Colorado 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 5 as a segregated asset account under Section 10-7-402 of the Colorado 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) SECURITY LIFE represents and warrants that (i) interests in each Account pursuant to the Contracts are or 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 Colorado 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) SECURITY LIFE 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 q@ 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 finance 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. (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-l 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 SECURITY LIFE 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, (ii) 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 SECURITY LIFE. 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 6 at the earliest possible time. (b) SECURITY LIFE 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 limitation, 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. SECURITY LIFE 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 SECURITY LIFE TO PROVIDE DOCUMENTS: INFORMATION ABOUT AVIF. (a) SECURITY LIFE 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) SECURITY LIFE 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 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 A I M as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to SECURITY LIFE in the manner required by Section 9 hereof. (c) Neither SECURITY LIFE 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) SECURITY LIFE 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 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. 4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT SECURITY LIFE. (a) AVIF will provide to SECURITY LIFE 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. 7 (b) AVIF will provide to SECURITY LIFE camera ready or computer diskette copies of all AVIF prospectuses and printed copies, in an amount specified by SECURITY LIFE, 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 SECURITY LIFE in a timely manner so as to enable SECURITY LIFE, 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 SECURITY LIFE or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which SECURITY LIFE, 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 SECURITY LIFE 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. SECURITY LIFE 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 SECURITY LIFE, 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 SECURITY LIFE for distribution; or (iii) in sales literature or other promotional material approved by SECURITY LIFE or its affiliates, except with the express written permission of SECURITY LIFE. (e) AVIF shall cause its principal underwriter to adopt and implement procedures reasonably designed to ensure that information concerning SECURITY LIFE, 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 SECURITY LIFE, 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. 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 SECURITY LIFE, 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 SECURITY LIFE 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 8 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 filled 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"). SECURITY LIFE 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; (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, SECURITY LIFE 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 SECURITY LIFE 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, SECURITY LIFE 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 "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of SECURITY LIFE's decision to disregard Participant voting instructions 9 and that decision represents a minority position or would preclude a majority vote, SECURITY LIFE 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 SECURITY LIFE that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by SECURITY LIFE for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to SECURITY LIFE conflicts with the majority of other state regulators, then SECURITY LIFE will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Directors informs SECURITY LIFE 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 SECURITY LIFE for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) SECURITY LIFE 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. SECURITY LIFE 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 SECURITY LIFE. AVIF will promptly make known in writing to SECURITY LIFE the Board of Directors' determination 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. SECURITY LIFE 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. 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.l(b), 4.l(d), 4.3(a), 4.4(b), 4.5(a), 5, and 10 of this Agreement. 10 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 SECURITY LIFE or its affiliates by the NASD, the SEC, any state insurance regulator or any other regulatory body regarding SECURITY LIFE'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 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 the Fund with respect to which the Agreement is to be terminated; or (c) at the option of SECURITY LIFE 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, SECURITY LIFE 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 SECURITY LIFE, 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 SECURITY LIFE; or (e) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (f) at the option of SECURITY LIFE if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if SECURITY LIFE reasonably believes that the Fund may fail to so qualify; or (g) at the option of SECURITY LIFE if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if SECURITY LIFE reasonably believes that the Fund may fail to so comply; or (h) at the option of AVIF if the Contracts issued by SECURITY LIFE 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. l (a) or 6. l(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 11 (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 SECURITY LIFE, 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. 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, this 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 SECURITY LIFE 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: 12 AIM VARIABLE INSURANCE FUNDS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. SECURITY LIFE OF DENVER 1290 Broadway Denver, CO 80203 Facsimile: (303) 860-2134 Attn: Anna M. Kautzman, Assistant General Counsel ING AMERICA EQUITIES, INC. 1290 Broadway Denver, CO 80203 Facsimile: (303) 860-2134 Attn: Anna M. Kautzman, Assistant General Counsel SECTION 10. VOTING PROCEDURES Subject to the cost allocation procedures set forth in Section 3 hereof, SECURITY LIFE 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. SECURITY LIFE will vote Shares in accordance with timely instructions received from Participants. SECURITY LIFE 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 SECURITY LIFE 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. SECURITY LIFE reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. SECURITY LIFE 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 SECURITY LIFE of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will 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 SECURITY LIFE 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. 13 SECTION 12. INDEMNIFICATION 12.1 OF AVIF BY SECURITY LIFE AND ING. (a) Except to the extent provided in Sections 12. 1 (b) and 12. 1 (c), below, SECURITY LIFE and ING 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 SECURITY LIFE and ING) 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 SECURITY LIFE or ING 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 SECURITY LIFE, ING or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of SECURITY LIFE, ING 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 SECURITY LIFE, ING 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 SECURITY LIFE or ING 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 SECURITY LIFE or ING in this Agreement or arise out of or result from any other material breach of this Agreement by SECURITY LIFE or ING; or v. arise as a result of failure by the Contracts issued by SECURITY LIFE to qualify as annuity contracts or life 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 SECURITY LIFE nor ING 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 of 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 SECURITY LIFE nor ING shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF shall have notified SECURITY LIFE and ING in writing within a reasonable time after the summons or other first legal 14 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 SECURITY LIFE and ING of any such action shall not relieve SECURITY LIFE and ING 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, SECURITY LIFE and ING 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 SECURITY LIFE or ING to such Indemnified Party of SECURITY LIFE's or ING's election to assume the defense thereof, the Indemnified Party will cooperate fully with SECURITY LIFE and ING and shall bear the fees and expenses of any additional counsel retained by it, and neither SECURITY LIFE nor ING 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 SECURITY LIFE AND ING 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 SECURITY LIFE, ING, their respective affiliates, and each person, if any, who controls SECURITY LIFE, ING or their respective 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 12.2) 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 SECURITY LIFE, ING 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 Tenn 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 SECURITY LIFE, ING or their respective affiliates by or on behalf of AVIF for use 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 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. 15 (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 SECURITY LIFE 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 SECURITY LIFE of Shares of another investment company or portfolio for those of any adversely affected Fund as a funding medium for each Account that SECURITY LIFE 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 SECURITY LIFE, ING, 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 incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, SECURITY LIFE, ING 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 SECURITY LIFE or ING hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by SECURITY LIFE 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 SECURITY LIFE 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. l(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 indemnifying@g 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. 16 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. 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 SECURITY LIFE or any of its affiliates (collectively, the "SECURITY LIFE 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 SECURITY LIFE Protected Parties or any of their employees or agents in connection with SECURITY LIFE's performance of its duties under this Agreement are the valuable property of the SECURITY LIFE Protected Parties. AVIF agrees that if it comes into possession of any list or compilation of the identities of or other information about the SECURITY LIFE Protected Parties' customers, or any other information or property of the SECURITY LIFE Protected Parties, other than such information as may be independently developed or compiled by AVIF from information supplied to it by the SECURITY LIFE Protected Parties' customers who also maintain accounts directly with AVIF, AVIF 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 SECURITY LIFE's prior written consent; or (b) as required by law or judicial process. SECURITY LIFE 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. SECURITY LIFE 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 SECURITY LIFE from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with SECURITY LIFE, SECURITY LIFE 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 17 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. 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 tradenames, trademarks and service marks as may be set forth on Schedule B, as amended from time to time by written notice from AIM to SECURITY LIFE (the "AIM licensed marks" or the "licensor's licensed marks") and is authorized to use and to license other persons to use such marks. SECURITY LIFE and its affiliates are hereby granted a non-exclusive license to use the AIM licensed marks in connection with SECURITY LIFE'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 SECURITY LIFE 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 SECURITY LIFE 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, SECURITY LIFE and its affiliates shall immediately cease to issue any new annuity 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 SECURITY LIFE 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. 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. ___________________________ 18 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: /s/ By: /s/ ------------------------------ ---------------------------- Nancy L. Martin Name: Robert H. Graham Assistant Secretary Title: President SECURITY LIFE OF DENVER, on behalf of itself and its separate accounts Attest: /s/ By: /s/ ------------------------------ --------------------------- Name: Anna M. Kautzman Name: Carol D. Hard Title: Assistant General Counsel Title: Senior Vice President ING AMERICA EQUITIES, INC. Attest: /s/ By: /s/ ------------------------------ --------------------------- Name: M. Kautzman Name: Carol D. Hard Title: Assistant General Counsel Title: President 19 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS - ----------------------------------- . AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund AIM V.I. Government Securities Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS - ------------------------------------- . SECURITY LIFE OF DENVER Separate Account Ll Separate Account Al CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS - ----------------------------------------- . STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE . STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE . FIRST LINE VARIABLE UNIVERSAL LIFE . FIRST LINE II VARIABLE UNIVERSAL LIFE . THE EXCHEQUER VARIABLE ANNUITY 20 SCHEDULE B . AIM VARIABLE INSURANCE FUNDS, INC. AIM V.I. Capital Appreciation Fund AIM V.I. Government Securities Fund . AIM and Design 21 EX-1.A(8)(B)(I) 6 1ST AMEND TO PARTIC. AGMT. EXHIBIT 1.A(8)(b)(i) FIRST AMENDMENT TO PARTICIPATION AGREEMENT THIS AGREEMENT is made by and among Security Life of Denver Insurance Company, Van Eck Investment Trust, and Van Eck Associates Corporation (collectively, the "Parties"). WHEREAS, the Parties executed a participation agreement dated August 31, 1994 (the "Participation Agreement"), governing how shares of Fund's portfolios are to be made available to certain variable life insurance and/or variable annuity contracts (the "Contracts') offered by Insurance Company through certain separate accounts (the "Separate Accounts"). WHEREAS, Section 17 of the Participation Agreement requires the Parties to share certain information with California Insurance regulators; WHEREAS, states other than California require access to such information before one can sell such insurance within their borders; WHEREAS, the parties have agreed that it is in their interests to make such information available to states which require it; NOW, THEREFORE, in consideration of their mutual promises, the Parties agree as follows: 1. The Participation Agreement is hereby amended by substituting for the first sentence of Section 17 the following amended sentence: Each party hereto agrees to furnish any state insurance regulatory agency with any information or reports in connection with services provided under this Agreement which such agency may request in order to ascertain whether the insurance operations of Insurance Company are being conducted in a manner consistent with the state's insurance regulations and any other applicable law and regulations. Executed this __ day of February, 1995. SECURITY LIFE OF DENVER INSURANCE COMPANY Attest: /s/ By: /s/ ------------------------- ------------------------------------------ VAN ECK INVESTMENT TRUST Attest: /s/ By: /s/ ------------------------- ------------------------------------------ VAN ECK ASSOCIATES CORPORATION Attest: /s/ By: /s/ ------------------------- ------------------------------------------ EX-1.A(8)(B)(II) 7 2ND AMEND TO PARTIC. AGMT. EXHIBIT 1.A(8)(b)(ii) SECOND AMENDMENT TO PARTICIPATION AGREEMENT THIS AGREEMENT is made by and among Security Life of Denver Insurance Company, Van Eck Worldwide Insurance Trust (formerly Van Eck Investment Trust), and Van Eck Associates Corporation (collectively, the "Parties"). WHEREAS, the Parties executed a participation agreement dated August 31, 1994, (the "Participation Agreement") governing how shares of Fund's portfolios are to be made available to certain variable life insurance and/or variable annuity contracts (the "Contracts") offered by Insurance company through certain separate accounts (the "Separate Accounts"). WHEREAS, the Fund portfolios available to the Separate Accounts are listed in Exhibit A of the Participation Agreement. WHEREAS, the Parties have agreed that it is in their interests to make three additional Fund portfolios available to the separate accounts. NOW, THEREFORE, in consideration of their mutual promises, Life Company, Fund and Adviser agree as follows: The Participation Agreement is hereby amended by substituting for the original Exhibit A an amended Exhibit A in the form attached hereto which adds the Worldwide Bond Fund, Worldwide Emerging Markets Fund, and Worldwide Real Estate Fund to the list of portfolios made available to the Separate Accounts. EXECUTED this 25th day of November, 1997. VAN ECK WORLDWIDE INSURANCE TRUST Attest: /s/________________________ By: /s/______________________________ Name: Susan I. Grant Name: Thaddeus Leszczynski Assistant Secretary Vice President and Secretary VAN ECK ASSOCIATES CORPORATION Attest: /s/________________________ By: /s/______________________________ Name: Bruce J. Smith Name: Thaddeus Leszczynski Treasurer Vice President and Secretary SECURITY LIFE OF DENVER INSURANCE COMPANY Attest: /s/________________________ By: /s/______________________________ Name: Anna M. Kautzman, Esq. Name: Carol D. Hard Assistant General Counsel Senior Vice President VanEck Amend2 EXHIBIT A FUND - ---- Worldwide Bond Fund Worldwide Emerging Markets Fund Worldwide Real Estate Fund Worldwide Balanced Fund Worldwide Hard Assets Fund (previously Gold and Natural Resources Fund) VanEck Amend2 EX-1.A(8)(B)(III) 8 ASSIGN/MODIF. AGMT. EXHIBIT 1.A(8)(b)(iii) ASSIGNMENT AND MODIFICATION AGREEMENT This Agreement is made by and between Neuberger & Berman Advisers Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman Management Incorporated ("N&B Management"), a New York corporation, Neuberger & Berman Advisers Management Trust ("Successor Trust"), a Delaware business trust, Advisers Managers Trust ("Managers Trust") and Security Life of Denver Insurance Company ("Life Company"), a life insurance company organized under the laws of the State of Colorado. WHEREAS, the Life Company has previously entered into a Sales Agreement dated September 28, 1994 (the "Sales Agreement") with the Trust and N&B Management regarding the purchase of shares of the Trust by Life Company; and WHEREAS, as part of the reorganization into a "master-feeder" fund structure (the "Reorganization"), the Trust will be converted into the Successor Trust, a Delaware business trust; and WHEREAS, as part of the Reorganization, each Portfolio of the Trust will transfer all of its assets to the corresponding Portfolio of the Successor Trust ("Successor Portfolio") and each Successor Portfolio will invest all of its net investable assets in a corresponding series of Managers Trust; and WHEREAS, as part of the Reorganization, an Order under Section 6(c) of the Investment Company Act of 1940 ("'40 Act") is expected to be issued by the Securities and Exchange Commission ("SEC") granting exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act and Rules 6e-2(b)(15) and 6e- 3(T)(b)(15) thereunder; and WHEREAS, the Order is expected to require that certain conditions (the "Conditions") as set forth in the Notice (Investment Company Act Release No. 21003 (April 12, 1995)) be made a part of the Sales Agreement; and WHEREAS, the parties hereto desire to assign the Sales Agreement form the Trust to the Successor Trust, to modify the Sales Agreement to include the Conditions and to rename the Sales Agreement; and WHEREAS, Managers Trust will become a party to the Sales Agreement as modified hereby, due to and for purposes of its obligations under the Conditions. NOW THEREFORE, in consideration of their mutual promises, Trust, N&B Management, Successor Trust, Managers Trust and Life Company agree as follows: 1. The Sales Agreement is hereby assigned by the Trust to the Successor Trust. 2. Pursuant to such assignment, the Successor Trust hereby accepts all rights and benefits of the Trust under the Sales Agreement and agrees to perform all duties and obligations of the Trust under the Sales Agreement. Upon the effectiveness of this Assignment and Modification Agreement, the Trust will be released from all obligations and duties under the Sales Agreement. 3. The Sales Agreement is hereby modified to include the Conditions as follows: Sections 13 and 14 of the Sales Agreement are replaced by the following: 13. a) The Board of Trustees of each of the Successor Trust and Managers Trust (the "boards") will monitor the Successor Trust and Managers Trust, respectively, (collectively the "Funds") for the existence of any material irreconcilable conflict between the interests of the contract owners of all insurance company separate accounts investing in the Funds. A material irreconcilable conflict may arise for a variety of reasons, including: (a) state insurance regulatory authority action; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant preceding; (d) the manner in which the investments of the Funds are being managed; (e) a difference in voting instructions given by variable annuity and variable life insurance contract owner or by contract owners of different participating insurance companies; or (f) a decision by a participating insurance company to disregard voting instructions of contract owners. b) Life Company, other participating insurance companies, N&B Management (or any other manager or administrator of the Funds), and any qualified pension and retirement plan that executes a fund participation agreement upon becoming an owner of 10% or more of the assets of the Funds (collectively, "Participants") will report any potential or existing conflicts to the Boards. Participants will be responsible for assisting the appropriate Board in carrying out its responsibilities under these Conditions by providing the Board with all information reasonably necessary for it to consider any issues raised. This responsibility includes, but is not limited to, an obligation by each Participant to inform the Board whenever variable contract owner voting instructions are disregarded. These responsibilities will be carried out with a view only to the interests of the contact owners. c) If a majority of the Board of a Fund or a majority of its disinterested trustees or directors, determines that a material irreconcilable conflict exists, the relevant Participant, at its expense and to the extent reasonably practicable (as determined by a majority of disinterested trustees or directors), will take any steps necessary to remedy or eliminate the irreconcilable material conflict, including: (a) withdrawing the assets allocable to some or all of the separate accounts from the Funds or any series thereof and reinvesting those assets in a different investment medium, which may include another series of the Successor Trust or Managers Trust, or another investment company or submitting the question as to whether such segregation should be implemented to a vote of all affected variable contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., variable annuity or variable annuity contract owners of one or more Participants) that votes in favor of such segregation, or offering to the affected variable contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. If a material irreconcilable conflict arises because of a Participant's decision to disregard contract owner voting instructions, and that decision represents a minority position or would preclude a majority vote, the Participant may be required, at the election of the relevant Fund, to withdraw its separate account's investment in such Fund, and no charge or penalty will be imposed as a result of such withdrawal. The responsibility to take remedial action in the event of a Board determination of an irreconcilable material conflict and to bear the cost of such remedial action shall be a contractual obligation of all Participants under their agreements governing their participation in the Funds. The responsibility to take such remedial action shall be carried out with a view only to the interests of the contract owners. For the purposes of Condition (c), a majority of the disinterested members of the applicable Board shall determine whether or not any proposed action adequately remedies any irreconcilable material conflict, but in no event will the relevant Fund or N&B Management (or any other investment adviser of the Funds) be required to establish a new funding medium for any variable contract. Further, no participant shall be required by this condition (c) to establish a new funding medium for any variable contract if any offer to do so has been declined by a vote of a majority of contract owners materially affected by the irreconcilable material conflict. d) Any board's determination of the existence of an irreconcilable material conflict and its implications shall be made known promptly and in writing to all Participants. 14. a) Participants will provide pass-through voting privileges to all contract owners so long as the SEC continues to interpret the '40 Act as requiring pass-through voting privileges for variable contract owners. This condition will apply to UIT-separate accounts investing in the Successor Trust and to managed separate accounts investing in Managers Trust to the extent a vote is required with respect to matters relating to Mangers Trust. Accordingly, the Participants, where applicable, will vote shares of a Fund held in their separate accounts in a manner consistent with voting instructions timely received from variable contract owners. Participants will be responsible for assuring that each of their separate accounts that participates in the Funds calculates voting privileges in a manner consistent with other Participants. The obligation to calculate voting privileges in a manner consistent with all other separate accounts investing in the Funds will be a contractual obligation of all Participants under the agreements governing participation in the Funds. Each Participant will vote shares for which it has not received timely voting instructions, as well as shares it owns, in the same proportion as its votes those shares for which it has received voting instructions. b) If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act or the rules thereunder with respect to mixed and shared funding on terms and conditions materially different from any exemptions granted in the order requested, then the Successor Trust, Managers Trust and/or the Participants, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable. c) No less than annually, the Participants shall submit to the Boards such reports, materials or data as such Boards may reasonably request so that the Boards may fully carry out the obligations imposed upon them by these Conditions. Such reports, materials, and data shall be submitted more frequently if deemed appropriate by the applicable Boards. 4. The sales Agreement shall be renamed Fund Participation Agreement. 5. This Assignment and Modification Agreement shall be effective on May 1, 1995, the closing date of the conversion. In the event of a conflict between the terms of this Assignment and Modification Agreement and the terms of the Sales Agreement, the terms of this Assignment and Modification Agreement shall control. 6. All other terms and conditions of the Sales Agreement remain in full force and effect. Executed this 1st day of May, 1995. NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST (A MASSACHUSETTS BUSINESS TRUST) Attest: /s/ By: /s/ -------------------------- --------------------------------------- Stanley Egener, Chairman NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST (A DELAWARE BUSINESS TRUST) Attest: /s/ By: /s/ -------------------------- --------------------------------------- Stanley Egener, Chairman ADVISERS MANAGERS TRUST Attest: /s/ By: /s/ -------------------------- --------------------------------------- NEUBERGER & BERMAN MANAGEMENT INCORPORATED Attest: /s/ By: /s/ -------------------------- --------------------------------------- SECURITY LIFE OF DENVER INSURANCE COMPANY Attest: /s/ By: /s/ -------------------------- --------------------------------------- EX-6.B 9 ACTUARIAL CONSENT LTR. - LAWRENCE D. TAYLOR EXHIBIT 6.B [LOGO OF SECURITY LIFE APPEARS HERE] March 2,1998 Security Life of Denver Insurance Company 1290 Broadway Denver, CO 80203-5699 Re: Security Life Separate Account L1 Post-Effective Amendment No. 6 SEC File No. 33-74190 Gentlemen: In my capacity as Senior Vice President and Chief Actuary of Security Life of Denver Insurance Company ("Security Life"), I have provided actuarial advice concerning: The preparation of Post-Effective Amendment No. 6 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" and "FirstLine II" variable universal life insurance policies; and The preparation of the policy forms for the variable universal life insurance policies described in Post-Effective Amendment No. 6 (the "Policies"). It is my professional opinion that 1. The aggregate fees and charges under the Policies 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 Policies. The rate structures of the Policies have 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 of 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 Policies 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. 6 to the Registration Statement and the use of my name under the heading "Experts" in the Prospectus. Sincerely, /s/ Lawrence D. Taylor Lawrence D. Taylor, F.S.A., M.A.A.A. LDT:tls EX-7.B 10 CONSENT OF 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. 6 to the Form S-6 Registration Statement of Security Life Separate Account L1 with respect to File No. 33-74190. /s/ ---------------------------------- MAYER, BROWN & PLATT Washington, D.C. February 27, 1998 -----END PRIVACY-ENHANCED MESSAGE-----