-----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, K9YQQEEDuelBFSbc6y/TYbsR9o5QCPRC+3fJhAMDVvxHAxE56MVCOdhKVjt/9jXY EDP8h9ojeVnpLZEIpRFB3w== 0001001980-00-000007.txt : 20000427 0001001980-00-000007.hdr.sgml : 20000427 ACCESSION NUMBER: 0001001980-00-000007 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000426 EFFECTIVENESS DATE: 20000426 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: 485BPOS SEC ACT: SEC FILE NUMBER: 033-74190 FILM NUMBER: 609396 BUSINESS ADDRESS: STREET 1: 1290 BROADWAY STREET 2: C/O SECURITY LIFE CENTER CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038601290 MAIL ADDRESS: STREET 1: 1290 BROADWAY CITY: DENVER STATE: CO ZIP: 80203-5699 485BPOS 1 PROSPECTUS + As filed with the Securities and Exchange Commission on April 26, 2000 Registration No. 33-97852 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 ----------------- SOUTHLAND SEPARATE ACCOUNT L1 (Exact Name of Trust) SOUTHLAND LIFE INSURANCE COMPANY (Name of Depositor) 5780 Powers Ferry Road, N.W. Atlanta, GA 30340 (Address of Depositor's Principal Executive Offices) Copy to: GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ. Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP 1290 Broadway 1275 Pennsylvania Avenue, NW Denver, Colorado 80203-5699 Washington, D.C. 20004-2415 (202) 383-0314 (Name and Address of Agent for Service) ---------------------------- It is proposed that this filing will become effective: ___ on ____________, 2000 pursuant to paragraph (a) of Rule 485 ___ 60 days after filing pursuant to paragraph (a) of Rule 485 _x_ on May 1, 2000 pursuant to paragraph (b) of Rule 485 ___ immediately upon filing pursuant to paragraph (b) of Rule 485 ___ this post-effective amendment designates a new effective date for a previously filed post-effective amendment Title of securities being registered: Variable life insurance policies. SOUTHLAND SEPARATE ACCOUNT L1 (File No. 33-97852) Cross-Reference Table Form N-8B-2 Item No. Caption in Prospectus 1, 2 Cover; Southland Life Insurance Company; Southland Separate Account L1 3 Inapplicable 4 Southland Life Insurance Company 5, 6 Southland Separate Account L1 7 Inapplicable 8 Financial Statements 9 Inapplicable 10(a), (b), (c), (d), (e) Policy Summary; Policy Values; Determining Values in the Variable Subaccounts; Charges, Deductions and Refunds; Surrender; Partial Withdrawals; The Guaranteed Interest Account; Transfers of Account Value; Right to Exchange Policy; Lapse; Reinstatement; Premiums 10(f) Voting Privileges; Right to Change Operations 10(g), (h) Right to Change Operations 10(i) Tax Considerations; Detailed Information about the Policy; General Policy Provisions; The Guaranteed Interest Account 11, 12 Southland Separate Account L1 13 Policy Summary; Charges, Deductions and Refunds; Group or Sponsored Arrangements, or Corporate Purchasers ii Form N-8B-2 Item No. Caption in Prospectus - -------------------- --------------------- 14, 15 Policy Summary; Free Look Period; General Policy Provisions; Applying for a Policy 16 Premiums; Allocation of Net Premiums; How We Calculate Accumulation Unit Values 17 Premium Payments Affect Your Coverage; Surrender; Partial Withdrawals 18 Policy Summary; Tax Considerations; Detailed Information about the Policy; Southland Separate Account L1; Persistency Refund 19 Reports to Owners; Notification and Claims Procedures; Performance Information (Appendix B) 20 See 10(g) & 10(a) 21 Policy Loans 22 Policy Summary; Premiums; Grace Period; Southland Separate Account L1; Detailed Information about the Policy 23 Inapplicable 24 Inapplicable 25 Southland Life Insurance Company 26 Inapplicable 27, 28, 29, 30 Southland Life Insurance Company 31, 32, 33, 34 Inapplicable 35 Inapplicable 36 Inapplicable iii Form N-8B-2 Item No. Caption in Prospectus - -------------------- --------------------- 37 Inapplicable 38, 39, 40, 41(a) General Policy Provisions; Distribution of the Policies; Southland Life Insurance Company 41(b), 41(c), 42, 43 Inapplicable 44 Determining Values in the Variable Subaccounts; How We Calculate Accumulation Unit Values 45 Inapplicable 46 Partial Withdrawals; Detailed Information about the Policy 47, 48, 49, 50 Inapplicable 51 Detailed Information about the Policy 52 Determining Values in the Variable Subaccounts; Right to Change Operations 53(a) Tax Considerations 53(b), 54, 55 Inapplicable 56, 57, 58 Inapplicable 59 Financial Statements iv Prospectus FUTURE DIMENSIONS A FLEXIBLE PREMIUM ADJUSTABLE COMBINATION FIXED AND VARIABLE UNIVERSAL LIFE INSURANCE POLICY issued by SOUTHLAND LIFE INSURANCE COMPANY AND SOUTHLAND SEPARATE ACCOUNT L1 Consider carefully the policy charges, deductions, and refunds beginning on page 44 in this prospectus. You should read this prospectus and keep it for future reference. A prospectus for each underlying fund portfolio must accompany and should be read together with this prospectus. This policy is not available in all jurisdictions. This policy is not offered in any jurisdiction where this type of offering is not legal. Depending on the state where it is issued, policy features may vary. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. Replacing your existing life insurance policy(ies) with this policy may not be beneficial to you. YOUR POLICY o is a flexible premium adjustable combination fixed and variable life insurance policy; o is issued by Southland Life Insurance Company; o is guaranteed not to lapse during the first three policy years if you meet certain requirements; and o is returnable by you during the free look period if you are not satisfied. YOUR POLICY PREMIUM PAYMENTS o are flexible, so the premium amount and frequency may vary; o are allocated to variable investment subaccounts and the guaranteed interest account, based on your instructions; o are invested in shares of the underlying investment portfolios under each variable subaccount; and o can be invested in as many as eighteen investment options over the policy's lifetime. YOUR ACCOUNT VALUE o is the sum of your holdings in the variable subaccounts, the guaranteed interest account and the loan account; o has no guaranteed minimum value under the variable subaccounts. The value varies with the value of the underlying investment portfolio; o has a minimum guaranteed rate of return if you have allocated for amounts in the guaranteed interest account; and o is subject to specified expenses and charges, including possible surrender charges. DEATH PROCEEDS o are paid if the policy is in force when the insured person dies; o are equal to the death benefit minus an outstanding policy loan, accrued loan interest and unpaid charges incurred before the insured person dies; o are calculated under your choice of options; * Option A- a stated death benefit; * Option B- a stated death benefit plus your account value; and o are generally not federally income taxed if your policy continues to meet the federal income tax definition of life insurance. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY INSURED OR BACKED BY ANY BANK OR GOVERNMENT AGENCY. DATE OF PROSPECTUS: MAY 1, 2000 ISSUED BY: ADMINISTERED BY: UNDERWRITTEN BY: Southland Life Insurance Southland Customer Service ING America Equities, Inc. Company Center P. O. Box 173789 P.O. Box 173789 P.O. Box 173789 Denver, CO 80217-3789 Denver, CO 80217-3789 Denver, CO 80217-3789 (800) 224-3035 ------------------------------------ THROUGH ITS: FOR OVERNIGHT DELIVERY: Southland Separate Account L1 1290 Broadway Denver, CO 80203
- -------------------------------------------------------------------------------- Future Dimensions 2 TABLE OF CONTENTS POLICY SUMMARY.................................................................4 Your Policy..............................................................4 Free Look Period ........................................................4 Premium Payments.........................................................4 Charges and Deductions...................................................4 Variable Subaccounts.....................................................6 Fees and Expenses of the Investment Portfolios ...................................................................6 Policy Values............................................................8 Transfers of Account Value...............................................8 Special Policy Features..................................................8 Policy Modification, Termination and Continuation Features...............................................9 Death Benefits...........................................................9 Tax Considerations......................................................10 SOUTHLAND, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS..............................................12 Southland Life Insurance Company........................................12 Southland Separate Account L1...........................................12 Investment Portfolio Objectives.........................................13 The Guaranteed Interest Account.........................................17 Maximum Number of Investment Options....................................18 DETAILED INFORMATION ABOUT THE POLICY..................................................................18 Applying for a Policy...................................................18 Temporary Insurance.....................................................18 Policy Issuance.........................................................19 Premiums................................................................19 Premium Payments Affect Your Coverage...................................21 Death Benefits..........................................................21 Riders..................................................................27 Special Features........................................................29 Policy Values...........................................................30 Transfers of Account Value..............................................31 Dollar Cost Averaging...................................................32 Automatic Rebalancing...................................................33 Policy Loans............................................................34 Partial Withdrawals.....................................................35 Lapse...................................................................36 Reinstatement...........................................................37 Surrender...............................................................38 General Policy Provisions...............................................38 Administrative Information About the Policy.............................42 CHARGES, DEDUCTIONS AND REFUNDS .......................................................................44 Deductions from Premiums................................................44 Policy Transaction Fees.................................................46 Persistency Refund......................................................47 Surrender Charge........................................................47 Group or Sponsored Arrangements, or Corporate Purchasers.........................................................50 TAX CONSIDERATIONS............................................................51 Tax Status of the Policy................................................51 Diversification Requirements............................................51 Tax Treatment of Policy Death Benefits..................................52 Modified Endowment Contracts............................................52 Multiple Policies.......................................................52 Distributions Other than Death Benefits from Modified Endowment Contracts.......................................52 Distributions Other than Death Benefits from Policies That Are Not Modified Endowment Contracts..........................................................53 Investment in the Policy................................................53 Policy Loans............................................................53 Section 1035 Exchanges..................................................53 Tax-exempt Policy Owners................................................53 Possible Tax Law Changes................................................53 Changes to Comply with the Law..........................................53 Other...................................................................54 ILLUSTRATIONS.................................................................55 ADDITIONAL INFORMATION........................................................59 Directors and Officers..................................................59 Regulation..............................................................60 Legal Matters...........................................................60 Legal Proceedings.......................................................60 Experts.................................................................60 Registration Statement..................................................60 FINANCIAL STATEMENTS..........................................................61 APPENDIX A...................................................................144 APPENDIX B...................................................................145 - -------------------------------------------------------------------------------- Future Dimensions 3 POLICY SUMMARY YOUR POLICY Your policy provides life insurance protection on the insured person. The policy includes the basic policy, applications, and riders, amendments or endorsements. As long as the policy remains in force, we pay a death benefit at the death of the insured person. While your policy is in force, you may access a portion of your policy value by taking loans or partial withdrawals. You may surrender your policy for its net cash surrender value. At the policy anniversary nearest the insured person's 100th birthday you may surrender your policy or continue it under the continuation of coverage option. SEE CONTINUATION OF COVERAGE, PAGE 29. LIFE INSURANCE IS NOT A SHORT-TERM INVESTMENT. YOU SHOULD EVALUATE YOUR NEED FOR LIFE INSURANCE COVERAGE AND THIS POLICY'S LONG-TERM INVESTMENT POTENTIAL AND RISKS BEFORE PURCHASING A POLICY. FREE LOOK PERIOD Within limits as specified by law, you have the right to examine your policy and return it for a refund of all premium payments we have received or the account value, if you are not satisfied for any reason. The policy is then void. SEE FREE LOOK PERIOD, PAGE 38. PREMIUM PAYMENTS The policy is a flexible premium policy because the amount and frequency of the premium payments you make may vary within limits. You must make premium payments: o for us to issue your policy; o sufficient to keep your policy in force; and o as necessary to continue certain benefits. Depending on the amount of premium you choose to pay it may not be enough to keep your policy or certain riders in force. SEE PREMIUMS, PAGE 19. ALLOCATION OF NET PREMIUMS This policy has premium-based charges which are subtracted from your payments. We add the balance, or net premium, to your policy based on your investment instructions. You may allocate the net premium among one or more variable subaccounts or the guaranteed interest account. SEE ALLOCATION OF NET PREMIUMS, PAGE 20. CHARGES AND DEDUCTIONS All charges presented here are current unless stated otherwise. - -------- This summary highlights some important points about your policy. The policy is more fully described in the attached, complete prospectus. Please read it carefully. "We," "us," "our" and the "company" refer to Southland Life Insurance Company. "You" and "your" refer to the policy owner. The owner is the individual, entity, partnership, representative or party who may exercise all rights over the policy and receive the policy benefits during the insured person's lifetime. State variations are covered in a special policy form used in that state. This prospectus provides a general description of the policy. Your actual policy and any riders are the controlling documents. If you would like to review a copy of the policy and riders, contact our customer service center or your agent/registered representative. - -------------------------------------------------------------------------------- Future Dimensions 4 POLICY CHARGES Other Than Investment Portfolio Annual Expenses (SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 44)
- -------------------------------------- ------------------------------------ ---------------------------------------------- Charge When Charge is Deducted Amount Deducted - -------------------------------------- ------------------------------------ ---------------------------------------------- Tax Charges Each premium payment received 2.5% for state and local taxes; 1.5% for estimated federal income tax treatment of deferred acquisition costs. - -------------------------------------- ------------------------------------ ---------------------------------------------- Sales Charge First ten target premiums from Guaranteed maximum of 4% of all premium premium payments received payments; currently, 4% of the first ten target premiums and none thereafter. - -------------------------------------- ------------------------------------ ---------------------------------------------- Surrender Charge First fourteen policy or segment Administrative surrender charge of $4 per years $1,000 of stated death benefit. Sales surrender charge of 46% of premium received up to one target premium plus 44% of premium received between one and two target premium. First two policy or segment years capped at 26% of premiums up to one target premium, plus 6% between one and two target premiums, plus 5% in excess of two target premiums. - -------------------------------------- ------------------------------------ ---------------------------------------------- Mortality & Expense Risk Charge Daily, included in unit value 0.002466% daily (0.90% annually) - -------------------------------------- ------------------------------------ ---------------------------------------------- Policy Charge Monthly from account value $20 monthly for first policy year. - -------------------------------------- ------------------------------------ ---------------------------------------------- Monthly Administrative Charge Monthly from account value $6 monthly with a guaranteed maximum of $10. - -------------------------------------- ------------------------------------ ---------------------------------------------- Cost of Insurance Charge Monthly from account value Varies based on current cost of insurance rates and net amount at risk. - -------------------------------------- ------------------------------------ ---------------------------------------------- Guaranteed Minimum Death Benefit Monthly from account value $0.005 per $1,000 of stated death benefit Charge with a guaranteed maximum of $0.01 per $1,000 of stated death benefit. - -------------------------------------- ------------------------------------ ---------------------------------------------- Rider Charges Monthly from account value Varies depending on the rider benefits you choose. - -------------------------------------- ------------------------------------ ---------------------------------------------- Partial Withdrawal Fee Transaction date from account value One free withdrawal per policy year, then up to $25. - -------------------------------------- ------------------------------------ ---------------------------------------------- Transfer Fee Transaction date from account value Twelve free transfers per policy year, then $25 per transfer. - -------------------------------------- ------------------------------------ ---------------------------------------------- Illustration Fee Transaction date from account value One free illustration per policy year, then a $25 fee may apply. - -------------------------------------- ------------------------------------ ---------------------------------------------- Premium Allocation Change Charge Transaction date from account value Twelve free premium allocation changes per policy year, then $25 per change. - -------------------------------------- ------------------------------------ ---------------------------------------------- Continuation of Coverage Policy anniversary nearest insured For "Type 1" there is no fee. For "Type 2" Administrative Fee person's 100th birthday from there is no fee on a current basis with a account value guaranteed maximum one-time fee of $200. - -------------------------------------- ------------------------------------ ----------------------------------------------
- -------------------------------------------------------------------------------- Future Dimensions 5 VARIABLE SUBACCOUNTS If you invest in any of the variable subaccounts under the separate account, you may make or lose money depending on market conditions. The variable subaccounts are described in the prospectuses for the underlying investment portfolios. Each investment portfolio has its own investment objective. SEE INVESTMENT PORTFOLIO OBJECTIVES, PAGE 13. These expenses are not direct charges against variable subaccount assets or reductions from contract values; rather these expenses are included in computing each underlying portfolio's net asset value, which is the share price used to calculate the unit values of the variable subaccounts. For a more complete description of the portfolios' costs and expenses, see the prospectuses for the portfolios. FEES AND EXPENSES OF THE INVESTMENT PORTFOLIOS The separate account purchases shares of the underlying investment portfolios at net asset value. This price reflects investment management fees and other direct expenses deducted from the portfolio assets. This table describes these fees and expenses in gross amounts and net amounts after waiver or reimbursement of fees or expenses by the investment portfolio advisers. Waivers or reimbursements are voluntary and subject to change. The portfolio expense information was provided to us by the portfolios and we have not independently verified this information. - -------------------------------------------------------------------------------- Future Dimensions 6 INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
Fees and Total Expenses Total Net Management Other Portfolio Waived or Portfolio Portfolio Fees Expenses Expenses Reimbursed Expenses --------- ---- -------- -------- ---------- -------- THE ALGER AMERICAN FUND Alger American Growth 0.75% 0.04% 0.79% N/A 0.79% Alger American Leveraged AllCap 0.85% 0.08%/1/ 0.93% N/A 0.93% Alger American MidCap Growth 0.80% 0.05% 0.85% N/A 0.85% Alger American SmallCap 0.85% 0.05% 0.90% N/A 0.90% FIDELITY VARIABLE INSURANCE PRODUCTS FUND VIP Equity - Income 0.48% 0.09% 0.57% N/A 0.57%/2/ VIP Growth 0.58% 0.08% 0.66% N/A 0.66%/2/ VIP High Income 0.58% 0.11% 0.69% N/A 0.69% VIP Money Market 0.18% 0.09% 0.27% N/A 0.27% VIP Overseas 0.73% 0.18% 0.91% N/A 0.91%/2/ FIDELITY VARIABLE INSURANCE PRODUCTS FUND II VIP II Asset Manager 0.53% 0.10% 0.63% N/A 0.63%/2/ VIP II Contrafund 0.58% 0.09% 0.67% N/A 0.67%/2/ VIP II Index 500 0.24% 0.10% 0.34% 0.06% 0.28% VIP II Investment Grade Bond 0.43% 0.11% 0.54% N/A 0.54% INVESCO VARIABLE INVESTMENT FUNDS, INC. INVESCO VIF - Equity Income /3/ 0.75% 0.44% 1.19% 0.02% 1.17% INVESCO VIF - Utilities /4/ 0.60% 1.08% 1.68% 0.47% 1.21% JANUS ASPEN SERIES/5/ Janus Aspen Aggressive Growth 0.65% 0.02% 0.67% N/A 0.67% Janus Aspen Balanced 0.65% 0.02% 0.67% N/A 0.67% Janus Aspen Growth 0.65% 0.02% 0.67% N/A 0.67% Janus Aspen International Growth 0.65% 0.11% 0.76% N/A 0.76% Janus Aspen Worldwide Growth 0.65% 0.05% 0.70% N/A 0.70%
- ---------------------------- /1/ Included in Alger American Leveraged AllCap portfolio's "Other Expenses" is 0.01% of interest expense. /2/ FMR absorbed a portion of the portfolio and custodian expenses for some portfolios with part of the brokerage commissions and un-invested cash balances. After this absorption, "Total Portfolio Expenses" are 0.56% for Equity Income portfolio, 0.65% for Growth portfolio, 0.87% for Overseas portfolio, 0.62% for Asset Manager portfolio and 0.65% for Contrafund portfolio. /3/ INVESCO absorbed a portion of VIF-Equity Income Fund's "Other Expenses" and "Total Portfolio Expenses." After this absorption, these expenses are 0.42% and 1.17%, respectively. /4/ INVESCO absorbed a portion of VIF-Utilities Fund's "Other Expenses" and "Total Portfolio Expenses." After this absorption, these expenses are 0.61% and 1.21%, respectively. /5/ Janus' expenses are based upon expenses for the fiscal year ended December 31, 1999, restated to reflect a reduction in the management fee for these portfolios. - -------------------------------------------------------------------------------- Future Dimensions 7 GUARANTEED INTEREST ACCOUNT The guaranteed interest account guarantees principal and is part of our general account. Any amount you direct into the guaranteed interest account is credited with interest at a fixed rate. SEE GUARANTEED INTEREST ACCOUNT, PAGE 17. POLICY VALUES Your policy account value is the amount you have in the guaranteed interest account, plus the amount you have in each variable subaccount. If you have an outstanding policy loan, your account value includes the amount in the loan account. SEE POLICY VALUES, PAGE 30 AND PARTIAL WITHDRAWALS, PAGE 35. YOUR ACCOUNT VALUE IN THE VARIABLE SUBACCOUNTS Accumulation units are the way we measure value in the variable subaccounts. Accumulation unit value is the value of one unit of a variable subaccount on a valuation date. Each variable subaccount has a different accumulation unit value. SEE DETERMINING VALUES IN THE VARIABLE SUBACCOUNTS, PAGE 30. The accumulation unit value for each variable subaccount reflects the investment performance of the underlying investment portfolio during the valuation period. Each accumulation unit value reflects asset-based charges under the policy, and the expenses of the investment portfolios. SEE DETERMINING VALUES IN THE VARIABLE SUBACCOUNTS, PAGE 30 AND HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 31. TRANSFERS OF ACCOUNT VALUE With some limitations, you may make twelve free transfers among the variable subaccounts or to the guaranteed interest account each policy year. We charge $25 for each transfer over twelve in a policy year. There are restrictions on transfers from the guaranteed interest division SEE TRANSFERS OF ACCOUNT VALUE, PAGE 31 AND POLICY TRANSACTION FEES, PAGE 46. SPECIAL POLICY FEATURES DESIGNATED DEDUCTION INVESTMENT OPTION You may designate one investment option from which we will deduct all of your monthly deductions. SEE DESIGNATED DEDUCTION INVESTMENT OPTION, PAGE 29. RIDERS You may attach additional benefits to your policy by rider. In most cases, we deduct a monthly charge from your account value for these benefits. SEE RIDERS, PAGE 27. DOLLAR COST AVERAGING Dollar cost averaging is a systematic plan of transferring account values to selected investment options. It is intended to protect your policy's value from short-term price fluctuations. However, dollar cost averaging does not assure a profit, nor does it protect against a loss in a declining market. Dollar cost averaging is free. SEE DOLLAR COST AVERAGING, PAGE 32. AUTOMATIC REBALANCING Automatic rebalancing periodically reallocates your net account value among your selected investment options to maintain your specified distribution of account value among those investment options. Automatic rebalancing is free. SEE AUTOMATIC REBALANCING, PAGE 33. LOANS You may take loans against your policy's net cash surrender value. We charge a maximum annual loan interest rate of 4% for preferred loans and 6% for other loans. We credit an annual interest rate of 4% on amounts held in the loan account as collateral for your loan. Beginning in your eleventh policy year, where permitted by law, we may include amounts in the loan division for calculation of your policy's persistency refund. SEE POLICY LOANS, PAGE 34. Loans may have tax consequences. SEE TAX CONSIDERATIONS, PAGE 51. PARTIAL WITHDRAWALS You may withdraw part of your net cash surrender value any time after your first or second policy anniversary depending on which death benefit option you choose. You may make up to twelve partial withdrawals per policy year. Partial withdrawals may reduce your policy's death benefit and will - -------------------------------------------------------------------------------- Future Dimensions 8 reduce your account value. Surrender charges may apply. SEE PARTIAL WITHDRAWALS, PAGE 35. Partial withdrawals may have tax consequences. SEE TAX CONSIDERATIONS, PAGE 51. PERSISTENCY REFUND Beginning in your eleventh policy year, where permitted by law, we add a persistency refund to your account value. SEE PERSISTENCY REFUND, PAGE 47. POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES RIGHT TO EXCHANGE POLICY For 24 months after the policy date you may convert, or exchange, your policy for a guaranteed policy, unless law requires differently. There is no charge for this exchange. SEE RIGHT TO EXCHANGE POLICY, PAGE 29. SURRENDER You may surrender your policy for its net cash surrender value at any time while the insured person is living. All insurance coverage ends on the date we receive your request. SEE SURRENDER, PAGE 38. LAPSE In general, insurance coverage continues as long as your net cash surrender value is enough to pay the monthly deductions. However, your policy and its riders are guaranteed not to lapse during the first three years of your policy if the conditions of the special continuation period have been met. SEE LAPSE, PAGE 36 AND SPECIAL CONTINUATION PERIOD, PAGE 20. REINSTATEMENT You may reinstate your policy and its riders within five years of its lapse if you still own the policy and the insured person meets our underwriting requirements. You will need to give proof of insurability. You will also need to pay required reinstatement premiums. If the guaranteed minimum death benefit lapses and you do not correct it, this feature terminates. Once it terminates, you cannot reinstate this feature. If you had a policy loan existing when coverage ended, we will reinstate it with accrued loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 37. POLICY MATURITY If the insured person is still living on the maturity date or the policy anniversary nearest the insured person's 100th birthday and you do not choose to let the continuation of coverage feature become effective, you must surrender your policy. We will pay the net account value. Your policy then ends. SEE POLICY MATURITY, PAGE 29. CONTINUATION OF COVERAGE At the policy anniversary nearest the insured person's 100th birthday, you may choose to let the continuation of coverage feature become effective. SEE CONTINUATION OF COVERAGE, PAGE 29. DEATH BENEFITS At the death of the insured person, we pay death proceeds to the beneficiary(ies) if your policy is still in force. Based on the death benefit option you have chosen, the base death benefit varies. We generally require a minimum stated death benefit of $50,000 to issue your policy. However, we may lower this minimum for group or sponsored arrangements, or corporate purchasers. SEE DEATH BENEFITS, PAGE 21. You may change your death benefit amount while your policy is in force, subject to certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 24. TAX CONSIDERATIONS Under current federal income tax law, death benefits of life insurance policies generally are not subject to income tax. In order for this treatment to apply, the policy must qualify as a life insurance contract. We believe it is reasonable to conclude that the policy will qualify as a life insurance contract. SEE TAX STATUS OF THE POLICY, PAGE 51. Assuming the policy qualifies as a life insurance - -------------------------------------------------------------------------------- Future Dimensions 9 contract under current federal income tax law, your account value earnings are generally not subject to income tax as long as they remain within your policy. However depending on circumstances, the following events may cause taxable consequences for you: o partial withdrawals; o surrender; or o lapse. In addition, if your policy is a modified endowment contract, a loan against or secured by the policy may cause income taxation. A penalty tax may be imposed on a distribution from a modified endowment contract as well. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 52. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new policy or a change in an existing policy should consult a tax adviser. You should consult a qualified legal or tax adviser before you purchase your policy. - -------------------------------------------------------------------------------- Future Dimensions 10 HOW THE POLICY WORKS YOUR PREMIUM Premium Deductions You make a premium ----------------------------> payment o sales charge o tax charges <---------------------------- NET PREMIUM We allocate the net premium to the investment options you choose | | ----------------------------------------- | | \/ \/ GUARANTEED VARIABLE INVESTMENT INVESTMENT PORTFOLIOS The investment INTEREST DIVISION OPTIONS The variable investment manager deducts Amounts you allocate Amounts you allocate are <-- options invest in investment are held in our general account held in our separate account --> investment portfolios ------> management fees | | and other ----------------------------------------- portfolio expenses | | | o persistency refund Refunds | ------------>| Monthly Deductions o initial policy charge | ---------------------> o cost of insurance | | charge | | o monthly administrative \/ | charge ACCUMULATED VALUE | o rider charges The total value of your --| o guaranteed minimum policy | death benefit charge | | Separate Account | | Deductions | |---------------------> o mortality and expense \/ | risk charge LOAN DIVISION | Amount set aside to | secure a policy loan | | | Transaction Fees o partial withdrawal fee ---------------------> o transfer fee o illustration fee o premium allocation change charge o surrender charge
- -------------------------------------------------------------------------------- Future Dimensions 11 SOUTHLAND, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS SOUTHLAND LIFE INSURANCE COMPANY Southland Life Insurance Company is a stock life insurance company organized under the laws of the State of Texas in 1908. Our headquarters are located at 5780 Powers Ferry Road, NW, Atlanta, Georgia 30327-4390. We are admitted to do business in the District of Columbia and all states except New York. Our total assets exceeded $2.5 billion, and our shareholder's equity exceeded $351 million on a generally accepted accounting principles basis as of December 31, 1999. (See Financial Statements.) We have a complete line of life insurance products, including: o annuities; o individual life; o group life; and o pension products. Southland is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING"). ING is one of the world's three largest diversified financial services organizations. ING is headquartered in Amsterdam, The Netherlands. It has consolidated assets over $495 billion on a Dutch (modified U.S.) generally accepted accounting principles basis, as of December 31, 1999. The principal underwriter and distributor for our policies is ING America Equities, Inc. ING America Equities is an affiliate of Southland and is a registered broker-dealer with the SEC and the NASD. ING America Equities is a stock corporation organized under the laws of the State of Colorado in 1993, and is located at 1290 Broadway, Denver, Colorado 80203-5699. SOUTHLAND SEPARATE ACCOUNT L1 SEPARATE ACCOUNT STRUCTURE We established Southland Separate Account L1 (the "separate account") on February 25, 1994, under Texas insurance law. It is a unit investment trust, registered with the SEC under the Investment Company Act of 1940. The SEC does not supervise our management of the separate account or Southland. The separate account is used to support our variable life insurance policies and for other purposes allowed by law and regulation. We keep the separate account assets separate from our general account and other separate accounts. We may offer other variable life insurance contracts with different benefits and charges that invest in the separate account. We do not discuss these contracts in this prospectus. The separate account may invest in other securities not available for the policy described in this prospectus. The company owns all the assets in the separate account. We credit gains to or charge losses against the separate account without regard to performance of other investment accounts. ORDER OF SEPARATE ACCOUNT LIABILITIES Law provides that we may not charge general account liabilities against separate account assets equal to its reserves and other liabilities. This means that if we ever become insolvent, the separate account assets will be used first to pay separate account policy claims. Only if separate account assets remain after these claims have been satisfied can these assets be used to pay other policy owners and creditors. The separate account may have liabilities from assets credited to other variable life policies offered by the separate account. If the assets of the separate account are greater than required reserves and policy liabilities, we may transfer the excess to our general account. VARIABLE SUBACCOUNTS Investment options include the variable subaccounts and the guaranteed interest account, but not the loan account. The separate account has several subaccounts which invest in shares of underlying investment portfolios. This means that the investment performance of a policy depends on the performance of the investment portfolios you choose. Each investment portfolio has its own investment objective. These investment portfolios are not available directly to individual investors. They are available only as underlying investments for variable annuity and variable life insurance contracts and certain pension accounts. - -------------------------------------------------------------------------------- Future Dimensions 12 INVESTMENT PORTFOLIOS Each of the investment portfolios is a separate series of an open-end management investment company. The investment company receives investment advice from a registered investment adviser who is not associated with us. The investment portfolios sell shares to separate accounts of insurance companies. These insurance companies may or may not be affiliated with us. This is known as "shared funding." Investment portfolios may sell shares as the underlying investment for both variable annuity and variable life insurance contracts. This process is known as "mixed funding." The investment portfolios may sell shares to certain qualified pension and retirement plans that qualify under Section 401 of the Internal Revenue Code ("IRC"). As a result, a material conflict of interest may arise between insurance companies, owners of different types of contracts and retirement plans or their participants. If there is a material conflict, we will consider what should be done, including removing the investment portfolio from the separate account. There are certain risks with mixed and shared funding, and with selling shares to qualified pension and retirement plans. See the investment portfolios' prospectuses. INVESTMENT PORTFOLIO OBJECTIVES Each investment portfolio has a different investment objective that it tries to achieve by following its own investment strategy. The objectives and policies of each investment portfolio affect its return and its risks. With this prospectus, you must receive the current prospectus for each investment portfolio. We summarize the investment objectives for each investment portfolio here. You should read each investment portfolio prospectus. Certain investment portfolios offered under this policy have investment objectives and policies similar to other funds managed by the portfolio's investment adviser. The investment results of a portfolio may be higher or lower than those of other funds managed by the same adviser. There is no assurance and no representation is made that the investment results of any investment portfolio will be comparable to those of another fund managed by the same investment adviser. Some investment portfolio advisers (or their affiliates) may pay us compensation, which may be significant, for servicing or administration expenses. The amount of compensation is usually based on the aggregate assets of the investment portfolio from contracts that we issue or administer. Some advisers may pay us more or less than others and our affiliates may pay us more. - -------------------------------------------------------------------------------- Future Dimensions 13
- -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO OBJECTIVES - ---------------------------------- -------------------------------- ------------------------------------------------------------ Variable Investment Option Investment Company/ Adviser/ Investment Objective Manager/ Sub-Adviser - ---------------------------------- -------------------------------- ------------------------------------------------------------ Alger American Growth Portfolio Investment Company: Seeks long-term capital appreciation by focusing on The Alger American Fund growing companies that generally have broad product lines, Investment Adviser: markets, financial resources and depth of management. Fred Alger Management, Inc. Under normal circumstances, the portfolio invests primarily in the equity securities of large companies. The portfolio considers a large company to have a market capitalization of $1 billion or greater. - ---------------------------------- -------------------------------- ------------------------------------------------------------ Alger American Leveraged AllCap Investment Company: Seeks long-term capital appreciation by investing, under Portfolio The Alger American Fund normal circumstances, in the equity securities of Investment Adviser: companies of any size which demonstrate promising growth Fred Alger Management, Inc. potential. The portfolio can leverage, that is, borrow money, up to one-third of its total assets to buy additional securities. By borrowing money, the portfolio has the potential to increase its returns if the increase in the value of the securities purchased exceeds the cost of borrowing, including interest paid on the money borrowed. - ---------------------------------- -------------------------------- ------------------------------------------------------------ Alger American MidCap Growth Investment Company: Seeks long-term capital appreciation by focusing on Portfolio The Alger American Fund midsize companies with promising growth potential. Under Investment Adviser: normal circumstances, the portfolio invests primarily in Fred Alger Management, Inc. the equity securities of companies having a market capitalization within the range of companies in the S&P MidCap 400 Index. - ---------------------------------- -------------------------------- ------------------------------------------------------------ Alger American Small Investment Company: Seeks long-term capital appreciation by focusing on small, Capitalization Portfolio The Alger American Fund fast-growing companies that offer innovative products, Investment Adviser: services or technologies to a rapidly expanding Fred Alger Management, Inc. marketplace. Under normal circumstances, the portfolio invests primarily in the equity securities of small capitalization companies. A small capitalization company is one that has a market capitalization within the range of the Russell 2000 Growth Index or the S&P SmallCap 600 Index. - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP Equity-Income Portfolio Investment Company: Fidelity Seeks reasonable income and potential for capital Variable Insurance Products appreciation. With a yield which exceeds the composite Fund yield on the securities comprising the S&P(R)500. Invests Investment Manager: in domestic and foreign issuers. Invests at least 65% of Fidelity Management & Research total assets in income-producing equity securities, which Company tend to lead to investments in large cap "value" stocks. Potentially invests in other types of equity securities and debt securities, including lower-quality debt securities. Uses fundamental analysis of each issuer's financial condition and industry position and market and economic conditions to select investments. - ---------------------------------- -------------------------------- ------------------------------------------------------------ - -------------------------------------------------------------------------------- Future Dimensions 14 - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO OBJECTIVES - ---------------------------------- -------------------------------- ------------------------------------------------------------ Variable Investment Option Investment Company/ Adviser/ Investment Objective Manager/ Sub-Adviser - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP Growth Portfolio Investment Company: Fidelity Seeks capital appreciation by investing in common stocks Variable Insurance of companies that it believes have above-average growth Products Fund potential, either domestic or foreign issuers. Investment Manager: Fidelity Management & Research Company - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP High Income Portfolio Investment Company: Fidelity Seeks a high level of current income while also Variable Insurance Products considering growth of capital by investing in domestic and Fund foreign issuers and companies in troubled or uncertain Investment Manager: financial condition. Invests at least 65% of total assets Fidelity Management & Research in income-producing debt securities, preferred stocks and Company convertible securities with an emphasis on lower-quality debt securities. Potentially invests in non-income producing debt securities, including defaulted securities and common stocks. Uses fundamental analysis of each issuer's financial condition, industry position, market and economic conditions to select investments. - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP Money Market Portfolio Investment Company: Fidelity Seeks as high a level of current income as is consistent Variable Insurance Products with the preservation of capital and liquidity by Fund investing in U.S. dollar-denominated money market Investment Manager: securities, including U.S. Government securities and Fidelity Management & Research repurchase agreements, and entering into reverse Company repurchase agreements. - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP Overseas Portfolio Investment Company: Fidelity Seeks long-term growth of capital by investing at least Variable Insurance Products 65% of total assets in foreign securities. Fund Investment Manager: Fidelity Management & Research Company - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP II Asset Manager Portfolio Investment Company: Fidelity Seeks high total return with reduced risk over the long Variable Insurance Products term by allocating its assets among stocks, bonds, and Fund II short-term instruments. Investment Manager: Fidelity Management & Research Company - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP II Contrafund Portfolio Investment Company: Fidelity Seeks long-term capital appreciation by investing Variable Insurance Products primarily in common "growth" stocks or "value" stocks or Fund II both of domestic and foreign issuers. Invests in Investment Manager: securities of companies whose value it believes is not Fidelity Management & Research fully recognized by the public. Uses fundamental analysis Company of each issuer's financial condition, industry position, market and economic conditions to select investments. - ---------------------------------- -------------------------------- ------------------------------------------------------------ - -------------------------------------------------------------------------------- Future Dimensions 15 - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO OBJECTIVES - ---------------------------------- -------------------------------- ------------------------------------------------------------ Variable Investment Option Investment Company/ Adviser/ Investment Objective Manager/ Sub-Adviser - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP II Index 500 Portfolio Investment Company: Fidelity Seeks investment results that correspond to the total Variable Insurance Products return of common stocks publicly traded in the United Fund II States as represented by the S&P(R) 500. Investment Manager: Fidelity Management & Research Company Sub-Advisor: Bankers Trust Company - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIP II Investment Grade Bond Investment Company: Fidelity Seeks as high level of current income as is consistent Portfolio Variable Insurance Products with the preservation of capital by investing in U.S. Fund II dollar-denominated investment grade bonds. Allocates Investment Manager: assets across different market sectors and maturities. Fidelity Management & Research Analyzes a security's structural features, current pricing Company and trading opportunities, and the credit quality of its issuer in selecting investments. Manages the portfolio to have similar overall interest rate risk to Lehman Brothers Aggregate Bond Index(R). - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIF-Equity Income Fund Investment Company: INVESCO Seeks high current income, with growth of capital as a Variable Investment Funds, Inc. secondary objective by investing at least 65% of its Investment Adviser: assets in dividend-paying common and preferred stocks. INVESCO Funds Group, Inc. The rest of the fund's assets are invested in debt Sub-Advisor: securities, and lower-grade debt securities. INVESCO Capital Management, Inc. - ---------------------------------- -------------------------------- ------------------------------------------------------------ VIF-Utilities Fund Investment Company: INVESCO Seeks capital appreciation and income by investing at Variable Investment Funds, Inc. least 80% of its assets in companies doing business in the Investment Adviser: utilities economic sector. The remainder of the fund's INVESCO Funds Group, Inc. assets are not required to be invested in the utilities Sub-Advisor: economic sector. INVESCO Capital Management, Inc. - ---------------------------------- -------------------------------- ------------------------------------------------------------ Aspen Aggressive Growth Portfolio Investment Company: Janus Seeks long-term growth of capital by investing primarily Aspen Series in common stocks selected for their growth potential and Investment Adviser: normally investing at least 50% of its equity assets in Janus Capital medium-sized companies which fall within the range of companies in the S&P(R) MidCap 400 Index. - ---------------------------------- -------------------------------- ------------------------------------------------------------ Aspen Balanced Portfolio Investment Company: Janus Seeks long-term growth of capital, consistent with Aspen Series preservation of capital and balanced by current income by Investment Adviser: normally investing 40-60% of its assets in securities Janus Capital selected primarily for their growth potential and 40-60% of its assets in securities selected primarily for their income potential. The portfolio normally invests at least 25% of its assets in fixed-income securities. - ---------------------------------- -------------------------------- ------------------------------------------------------------ - -------------------------------------------------------------------------------- Future Dimensions 16 - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT PORTFOLIO OBJECTIVES - ---------------------------------- -------------------------------- ------------------------------------------------------------ Variable Investment Option Investment Company/ Adviser/ Investment Objective Manager/ Sub-Adviser - ---------------------------------- -------------------------------- ------------------------------------------------------------ Aspen Growth Portfolio Investment Company: Janus Seeks long-term growth of capital in a manner consistent Aspen Series with preservation of capital by investing primarily in Investment Adviser: common stocks selected for their growth potential. Janus Capital Although the portfolio can invest in companies of any size, it generally invests in larger, more established companies. - ---------------------------------- -------------------------------- ------------------------------------------------------------ Aspen International Growth Investment Company: Janus Seeks long-term growth of capital by investing at least Portfolio Aspen Series 65% of its total assets in securities of issuers from at Investment Adviser: least five different countries, excluding the United Janus Capital States. Although the portfolio intends to invest substantially all of its assets in issuers located outside the United States, it may at times invest in U.S. issuers and it may at times invest all of its assets in fewer than five countries or even a single country. - ---------------------------------- -------------------------------- ------------------------------------------------------------ Aspen Worldwide Growth Portfolio Investment Company: Janus Seeks long-term growth of capital in a manner consistent Aspen Series with preservation of capital by investing primarily in Investment Adviser: common stocks of companies of any size throughout the Janus Capital world. The portfolio normally invests in issuers from at least five different countries, including the United States. The portfolio may at times invest in fewer than five countries or even in a single country. - ---------------------------------- -------------------------------- ------------------------------------------------------------
THE GUARANTEED INTEREST ACCOUNT You may allocate all or a part of your net premium and transfer your net account value into the guaranteed interest account. The guaranteed interest account guarantees principal and is part of our general account. It pays interest at a fixed rate that we declare. The general account contains all of our assets other than those held in the separate account (variable subaccounts) or other separate accounts. The general account supports our non-variable insurance and annuity obligations. We have not registered interests in the guaranteed interest account under the Securities Act of 1933. Also, we have not registered the guaranteed interest account or the general account as an investment company under the Investment Company Act of 1940 (because of exemptive and exclusionary provisions). This means that the general account, the guaranteed interest account and its interests are generally not subject to regulation under these Acts. The SEC staff has not reviewed the disclosures in this prospectus relating to the general account and the guaranteed interest account. These disclosures, however, may be subject to certain requirements of the federal securities law regarding accuracy and completeness of statements made. The amount you have in the guaranteed interest account is all of the net premium you allocate to that account, plus transfers you make to the guaranteed interest account plus interest earned. Amounts you transfer out of or withdraw from the guaranteed interest account reduce this amount. It is also reduced by deductions for charges from your account value allocated to the guaranteed interest account. We declare the interest rate that applies to all amounts in the guaranteed interest account. This interest rate is never less than the minimum guaranteed interest rate of 3.5%. The credited interest rate will be in effect for an initial twelve-month period. Thereafter, the credited interest rate will be similarly guaranteed for a successive period of at least twelve months at the interest rate current at that time. Interest compounds - -------------------------------------------------------------------------------- Future Dimensions 17 daily at an effective annual rate that equals the declared rate. We credit interest to the guaranteed interest account on a daily basis. We pay interest regardless of the actual investment performance of our account. We bear all of the investment risk for the guaranteed interest account. MAXIMUM NUMBER OF INVESTMENT OPTIONS There are three accounts: the separate account, the guaranteed interest account and the loan account. Under the separate account, there are numerous variable subaccounts. SEE SOUTHLAND SEPARATE ACCOUNT L1, PAGE 12 AND INVESTMENT PORTFOLIO OBJECTIVES, PAGE 13. You may invest in a total of eighteen investment options over the life of your policy. Investment options include the variable subaccounts and the guaranteed interest account, but not the loan account. As an example, if you have had funds in seventeen variable subaccounts and the guaranteed interest account, these are the only investment options to which you may later add or transfer funds. However, you could still take a policy loan and access the loan division. You may want to use fewer investment options in the early years of your policy, so that you can invest in others in the future. If you invest in eighteen variable subaccounts, you will not be able to invest in the guaranteed interest account. DETAILED INFORMATION ABOUT THE POLICY This prospectus describes our standard variable life insurance policy. There may be differences in the policy because of state requirements where we issue your policy. We will describe any such differences in your policy. The illustrations beginning on page 55 show how the policies work. APPLYING FOR A POLICY You purchase this variable universal life policy by submitting an application to us. On the policy date, the insured person must be no older than age 75. We may, in our sole discretion, issue a policy covering an insured over age 75. The insured person is the person on whose life we issue a policy and upon whose death we pay death proceeds. You may request that we back-date the policy up to six months to allow the insured person to give proof of a younger age for the purposes of your policy. TEMPORARY INSURANCE If you apply and qualify, we may issue temporary insurance in an amount equal to the face amount of the permanent insurance for which you applied. The maximum amount of temporary insurance is $1 million, which includes any other in-force coverage you have with us. Temporary coverage begins when: 1. you have completed and signed our conditional receipt or temporary insurance agreement, as applicable; 2. we receive and accept a premium payment of at least your scheduled premium (selected on your application); and 3. parts I and II of the application are complete. Temporary life insurance coverage ends on the earliest of: o the date we return your premium payments; o five days after we mail notice of termination to the address on your application; o the date your policy coverage starts; o the date we refuse to issue a policy based on your application; or o 90 days after you sign our conditional receipt or temporary insurance agreement, as applicable. There is no death benefit under the temporary insurance agreement if: o there is a material misrepresentation in statements on your application; o the person or persons intended to be insured die by suicide or self-inflicted injury; or o the bank does not honor your premium check. - -------------------------------------------------------------------------------- Future Dimensions 18 POLICY ISSUANCE Before we issue a policy, we require satisfactory evidence of insurability of the insured person and payment of your initial premium. This evidence may include a medical examination and completion of all underwriting and issue requirements. The policy date shown on your policy schedule determines: o monthly processing dates; o policy months; o policy years; and o policy anniversaries. The policy date is not affected by when you receive the policy. We charge monthly deductions from the policy date unless your policy specifies otherwise. The policy date is determined one of three ways: 1. the date you designate on your application, subject to our approval; 2. the back-date of the policy to save age, subject to our approval and law; or 3. if there is no designated date or back-date, the policy date is: o the date all underwriting and administrative requirements have been met if we receive your initial premium before we issue your policy; or o the date we receive your initial premium if it is after we approve your policy for issue. DEFINITION OF LIFE INSURANCE We apply a test to make sure that your policy meets the federal income tax definition of life insurance. The guideline premium/cash value corridor test applies to your policy. We may limit premium payments relative to your policy death benefit under this test. SEE TAX STATUS OF THE POLICY, PAGE 51. PREMIUMS You may choose the amount and frequency of premium payments, within limits. You cannot make premium payments after the death of the insured person or after the continuation of coverage period begins. SEE CONTINUATION OF COVERAGE, PAGE 29. We consider payments we receive to be premium payments if you do not have an outstanding loan and your policy is not in the continuation of coverage period. After we deduct certain charges from your payment, we add the remaining net premium to your policy. SCHEDULED PREMIUMS Your premiums are flexible. You may select your scheduled premium (within our limits) when you apply for your policy. The scheduled premium, shown in your policy and schedule, is the amount you choose to pay over a stated time period. THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You may receive premium reminder notices for the scheduled premium on a quarterly, semi-annual or annual basis. You are not required to pay the scheduled premium. You may choose to pay your premium by electronic funds transfer each month. This option is not available for your initial premium. The financial institution that makes your electronic funds transfer may charge for this service. You can change the amount of your scheduled premium within our minimum and maximum limits at any time. If you fail to pay your scheduled premium or if you change the amount of your scheduled premium, your policy performance will be affected. During the special continuation period, your scheduled premium should not be less than the minimum annual premium shown in your policy. If you want one of two guaranteed minimum death benefit choices, your scheduled premium should not be less than the guarantee period annual premium shown in your policy. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25. UNSCHEDULED PREMIUM PAYMENTS Generally speaking, you may make unscheduled premium payments at any time, however: 1. We may limit the amount of your unscheduled premium payments that would result in an increase in the base death benefit amount required by the federal income tax law definition of life insurance. We may require satisfactory evidence that the insured - -------------------------------------------------------------------------------- Future Dimensions 19 person is insurable at the time that you make the unscheduled premium payment if the death benefit is increased due to your unscheduled premium payments; 2. We may require proof that the insured person is insurable if your unscheduled premium payment will cause the net amount at risk to increase; and 3. We will return premium payments which are greater than the "seven-pay" limit for your policy if your payment would cause your policy to become a modified endowment contract, unless you have acknowledged in writing the new modified endowment contract status for your policy. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 52 AND CHANGES TO COMPLY WITH THE LAW, PAGE 53. If you have an outstanding policy loan and you make an unscheduled payment, we will consider it a loan repayment, unless you tell us otherwise. If your payment is a loan repayment, we do not take tax or sales charges which apply to premium payments. TARGET PREMIUM Target premium is not based on your scheduled premium. Target premium is actuarially determined based on the age, gender and premium class of the insured person. The target premium is used in determining your sales charge, surrender charge and the distribution allowance we pay to broker/dealers. It may or may not be enough to keep your policy in force. You are not required to pay the target premium and there is no penalty for paying more or less. The target premium for your policy and each additional segment listed in your policy schedule. SEE PREMIUMS, PAGE 19. MINIMUM ANNUAL PREMIUM To qualify for the special continuation period, you must pay a minimum annual premium during each of your first three policy years. Your minimum annual premium is based on: o the insured person's age, gender and premium class; o the stated death benefit of your policy; and o riders on your policy. Your minimum annual premium is shown in the schedule pages of your policy. We may reduce the minimum annual premium for group or sponsored arrangements, or for corporate purchasers. SPECIAL CONTINUATION PERIOD The special continuation period, or no lapse guarantee period, is the first three policy years. Under the special continuation period, we guarantee that your policy will not lapse, regardless of its net cash surrender value, if on a monthly processing date: o the sum of all premiums you have paid, minus partial withdrawals that you have taken, minus policy loans that you have taken, including accrued loan interest, is greater than or equal to; o the minimum monthly premiums for each policy month from the first month of your policy through the current policy monthly processing date. The minimum monthly premium is one-twelfth of the minimum annual premium. During the first three years of your policy, if there is not enough net cash surrender value to pay the monthly deductions and you have satisfied our requirements, we do not allow your policy to lapse. We do not permanently waive policy charges. Instead, we continue to deduct these charges which may result in a negative net cash surrender value, unless you pay enough premium to prevent this. The negative balance is your unpaid monthly deductions owing. At the end of the special continuation period to avoid lapse of your policy you must pay enough premium to bring the net cash surrender value to zero plus the amount that covers your estimated monthly deductions for the following two months. SEE LAPSE, PAGE 38. INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS The net premium is the balance remaining after we deduct tax and sales charges from your premium payment. Insurance coverage does not begin until we receive your initial premium. It must be at least equal to the sum of your scheduled premiums due from your policy date through your investment date. The investment date is the first date we apply the net premium we have received to your policy. - -------------------------------------------------------------------------------- Future Dimensions 20 We apply the initial net premium to your policy after: a) we receive the required amount of premium; b) all issue requirements have been received by our customer service center; and c) we approve your policy for issue. Amounts you designate for the guaranteed interest account will be allocated to that account on the investment date. If your state requires the return of your premium during the free look period, we initially invest amounts you have designated for the variable subaccounts into the Fidelity VIP Money Market Portfolio. We later transfer these amounts from the Money Market Portfolio to your selected variable subaccounts, based on your most recent premium allocation instructions, at the earlier of the following dates: o five days after we mailed your policy plus your state free look period has ended; or o we have received your delivery receipt plus your state free look period has ended. If your state provides for return of account value during the free look period or no free look period, we invest amounts you designated for the variable subaccounts directly into your selected investment portfolios. We allocate all later premium payments to your policy on the valuation date of receipt. We use your most recent premium allocation instructions specified in whole number percentages totaling 100% and using up to eighteen investment options over the life of your policy. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 18. You may make twelve free premium allocation changes per year, after which a $25 transaction fee applies. If you change your designated deduction investment option from which monthly deductions are taken, we consider this a premium allocation change for which there may be a charge. SEE DESIGNATED DEDUCTION INVESTMENT OPTION, PAGE 29 AND POLICY TRANSACTION FEES, PAGE 46. PREMIUM PAYMENTS AFFECT YOUR COVERAGE Unless you have the guaranteed minimum death benefit feature or your policy is in the special continuation period, your coverage lasts only as long as your net cash surrender value is enough to pay the monthly charges and your account value minus any surrender charge is more than your outstanding policy loan plus accrued loan interest. If you do not meet these conditions, your policy will enter the 61-day grace period and you must make a premium payment to avoid lapse. SEE LAPSE, PAGE 36 AND SEE GRACE PERIOD, PAGE 36. If you pay your minimum annual premium each year during the first three policy years and take no policy loan or withdrawals, we guarantee your policy and riders will not lapse during the special continuation period, regardless of your net cash surrender value. SEE SPECIAL CONTINUATION PERIOD, PAGE 20. Under the guaranteed minimum death benefit, the base death benefit portion of your policy remains effective until the end of the guarantee period. The guaranteed minimum death benefit feature does not apply to riders which can lapse and terminate during the guarantee period. You must meet all conditions of the guarantee. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25. MODIFIED ENDOWMENT CONTRACTS There are special federal income tax rules for distributions from life insurance policies which are modified endowment contracts. These rules apply to policy loans, surrenders and partial withdrawals. Whether or not these rules apply depends upon whether or not the premiums we receive are greater than the "seven-pay" limit. If we find that your scheduled premium causes your policy to be a modified endowment contract on your policy date, we will require you to acknowledge that you know the policy is a modified endowment contract. We will issue your policy based on the scheduled premium you selected. If you do not want your policy to be issued as a modified endowment contract, you may reduce your scheduled premium to a level which does not cause your policy to be a modified endowment contract. We will then issue your policy based on the revised scheduled premium. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 52. DEATH BENEFITS You can decide the amount of insurance you need, now and in the future. You can combine the long-term advantages of permanent life insurance (base coverage) with the flexibility and short-term advantages of term life insurance. Both permanent and term life insurance are available with your one - -------------------------------------------------------------------------------- Future Dimensions 21 policy. The stated death benefit is the permanent element of your policy. The adjustable term insurance rider is the term insurance element of your policy. SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 27. Generally we require a minimum stated death benefit of $50,000. We may reduce the minimum stated death benefit for group or sponsored arrangements, or corporate purchasers. Our underwriting procedures in effect at the time you apply may limit the maximum stated death benefit. When we issue your policy, we base the initial insurance coverage on the instructions in your application. The death benefit at issue may vary from the stated death benefit plus adjustable term insurance coverage for some 1035 exchanges. Your death benefit is calculated as of the date of death of the insured person. Coverage provided by the adjustable term insurance rider is not included in the guaranteed minimum death benefit. It may be to your economic advantage to include part of your insurance coverage under the adjustable term insurance rider. Both the cost of insurance under the adjustable term insurance rider and the cost of insurance for the base death benefit are deducted monthly from your account value and generally increase with the age of the insured person. Use of the adjustable term insurance rider may reduce the distribution, but may increase the monthly cost of insurance. SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 27. - -------------------------------------------------------------------------------- Future Dimensions 22 DEATH BENEFIT SUMMARY THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES AND NO REQUESTED OR SCHEDULED INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL WITHDRAWALS ARE LESS THAN THE PREMIUM WE RECEIVE.
OPTION A OPTION B ========================= ====================================================== ================================================= STATED DEATH The amount of policy death benefit at issue, The amount of policy death benefit at issue, BENEFIT not including rider coverage. This amount not including rider coverage. This amount stays level throughout the life of the policy. stays level throughout the life of the policy. BASE DEATH The greater of the stated death benefit or the The greater of the stated death benefit plus BENEFIT account value multiplied by the appropriate the account value or, the account value death benefit corridor factor. multiplied by the appropriate death benefit corridor factor. TARGET DEATH Stated death benefit plus adjustable term Stated death benefit plus adjustable term BENEFIT insurance rider benefit. This amount insurance rider benefit. This amount remains level throughout the life of the remains level throughout the life of the policy. policy. TOTAL DEATH It is the greater of the target death benefit or It is the greater of the target death benefit BENEFIT the base death benefit. plus the account value or the base death benefit. ADJUSTABLE TERM The adjustable term insurance rider benefit The adjustable term insurance rider benefit INSURANCE RIDER is the total death benefit minus base death is the total death benefit minus the base BENEFIT benefit, but it will not be less than zero. If death benefit, but it will not be less than the account value multiplied by the death zero. If the account value multiplied by the benefit corridor factor is greater than the death benefit corridor factor is greater than stated death benefit, the adjustable term the stated death benefit plus the account insurance benefit will be decreased. It will value, the adjustable term insurance rider be decreased so that the sum of the base benefit will be decreased. It will be death benefit and the adjustable term decreased so that the sum of the base death insurance rider benefit is not greater than benefit and the adjustable term insurance the target death benefit. If the base death rider benefit is not greater than the target benefit becomes greater than the target death benefit plus the account value. If the death benefit, then the adjustable term base death benefit becomes greater than the insurance rider benefit is zero. target death benefit plus the account value, then the adjustable term insurance rider benefit is zero. ========================= ====================================================== =================================================
BASE DEATH BENEFIT Your base death benefit can be different from your stated death benefit as a result of: o your choice of death benefit option; o increases or decreases in the stated death benefit; or o a change in your death benefit option. Federal income tax law requires that your death benefit be at least as much as your account value multiplied by a factor defined by law. This factor is based on: o the insured person's age; o the insured person's gender; and o the guideline premium/cash value corridor test for the federal income tax law definition of life insurance. SEE APPENDIX A, PAGE 144. As long as your policy is in force, we will pay the death proceeds to your beneficiary(ies) calculated at the death of the insured person. The beneficiary(ies) is(are) the person (people) you name to receive the death proceeds from your policy. The death proceeds are: - -------------------------------------------------------------------------------- Future Dimensions 23 o your base death benefit; plus o rider benefits; minus o your outstanding policy loan with accrued loan interest; minus o outstanding policy charges incurred before the insured person's death. There could be outstanding policy charges if the insured person dies while your policy is in the grace period or in the three-year special continuation period. DEATH BENEFIT OPTIONS You have a choice of two death benefit options: option A or option B (described below). Your choice may result in your base death benefit being greater than your stated death benefit. Under death benefit option A, your base death benefit is the greater of: 1. your stated death benefit on the date of the insured person's death; or 2. your account value on the date of the insured person's death multiplied by the appropriate "Death Benefit Corridor Factor" from the table in Appendix A. With option A, positive investment performance generally reduces your net amount at risk, which lowers your policy's cost of insurance charge. Option A offers insurance coverage that is a set amount with potentially lower cost of insurance charges over time. Under death benefit option B, your base death benefit is the greater of: 1. your stated death benefit plus your account value on the date of the insured person's death; or 2. your account value on the date of the insured person's death multiplied by the appropriate "Death Benefit Corridor Factor" from the table in Appendix A. CHANGES IN DEATH BENEFIT OPTIONS You may request a change in your death benefit option A or B at any time on or after your first monthly processing date and before the continuation of coverage period begins. You may change from death benefit option A to option B, or from option B to option A. For you to change from death benefit option A to option B. We may require proof that the insured person is insurable under our normal rules of underwriting. A death benefit option change applies to your entire stated or base death benefit. Your death benefit option change is effective on your next monthly processing date after we approve it, so long as at least one day remains before your monthly processing date. If less than one day remains before your monthly processing date, the change will be effective on your second following monthly processing date. After we approve your request, we send a new policy schedule page to you. You should attach it to your policy. We may ask you to return your policy to our customer service center so that we can make this change for you. We may not approve a death benefit option change if it reduces the target or stated death benefit below the minimum we require to issue your policy. On the effective date of your option change, your stated death benefit changes as follows: Change Change Stated Death Benefit From To Following Change: ---- -- ---------------- Option A Option B your stated death benefit before the change minus your account value as of the effective date of the change. Option B Option A your stated death benefit before the change plus your account value as of the effective date of the change. We increase or decrease your stated death benefit to keep the net amount at risk the same on the date of your death benefit option change. There is no change to the amount of coverage under your adjustable term insurance rider. SEE COST OF INSURANCE CHARGE, PAGE 45. If you change your death benefit option, we adjust the stated death benefit for each of your segments by allocating your account value to each benefit segment. For example, if you change from death benefit option A to option B, your stated death benefit is decreased by the amount of your account - -------------------------------------------------------------------------------- Future Dimensions 24 value allocation to that segment. If you change from death benefit option B to option A, your stated death benefit is increased by the amount allocated to that segment. We do not impose a surrender charge for any decrease in your stated death benefit due to your changing your death benefit option. We do not adjust the target premium when you change your death benefit option. SEE SURRENDER CHARGE, PAGE 47. Changing your death benefit option may reduce or increase your target death benefit, as well as your stated death benefit. Changing your death benefit option may have tax consequences. You should consult a tax adviser before changing your death benefit option. CHANGES IN DEATH BENEFIT AMOUNTS Contact your agent/registered representative or our customer service center to request a change in your policy's death benefit. The request is effective on the next monthly processing date after we receive and approve your request. There may be underwriting or other requirements which must be met before your request can be approved. Your requested change must be for at least $10,000. After we make your requested change, we will send you a new policy schedule page. Keep it with your policy. We may ask you to send your policy to us so that we can make the change for you. You may change the target death benefit once in a policy year. We may not approve a requested change if it will disqualify your policy as life insurance under federal income tax law. If we disapprove a change for any reason, we provide you with a notice of our decision. SEE TAX CONSIDERATIONS, PAGE 51. If you decrease your death benefit, you may not decrease your target death benefit below the minimum we require to issue your policy. You cannot decrease the stated death benefit below $50,000, or the minimum we require to issue your policy. You may reduce your death benefit on or after your second policy anniversary. Requested reductions in the death benefit will be applied first to decrease the target death benefit. We decrease your stated death benefit only after your adjustable term insurance rider coverage is reduced to zero. If you have more than one segment, we divide decreases in stated death benefit among your benefit segments pro rata unless law requires differently. You may increase your target or stated death benefit after your first policy anniversary and before the insured person's 75th birthday. You must provide satisfactory evidence that the insured person is still insurable to increase your death benefit. Unless you tell us differently, we assume your request for an increase in your target death benefit is also a request for an increase to your stated death benefit. Thus, the amount of your adjustable term insurance rider will not change. The initial death benefit segment, or first segment, is the stated death benefit on your policy's effective date. A requested increase in stated death benefit will cause a new segment to be created. Once created, it is permanent unless law requires differently. The segment year runs from the segments effective date to its anniversary. Each new segment may have: o a new minimum annual premium during the special continuation period; o a new sales charge; o new cost of insurance charges, guaranteed and current; o a new incontestability period; o a new suicide exclusion period; and o a new target premium. We allocate the net amount at risk among segments in the same proportion that each segment bears to the total stated death benefit. Premiums we receive after an increase are applied to your policy segments in the same proportion as the target premium for each segment bears to the total target premium for all segments. There may be tax consequences as a result of a change in your death benefit amount. You should consult a tax adviser before changing your death benefit amount SEE TAX STATUS OF THE POLICY, PAGE 51 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 52. - -------------------------------------------------------------------------------- Future Dimensions 25 GUARANTEED MINIMUM DEATH BENEFIT Usually, your coverage lasts only as long as your net cash surrender value is enough to pay the monthly charges and your account value is more than your outstanding policy loan plus accrued loan interest. Your account value depends on: 1. timing and amount of any premium payments; 2. the investment performance of the variable subaccounts; 3. the interest you earn in the guaranteed interest account; 4. the amount of your monthly charges; 5. partial withdrawals you take; and 6. loan activity you may have. The guaranteed minimum death benefit rider may be put in force only at policy issue. By adding the guaranteed minimum death benefit rider to your policy, you can put one of two guarantee period options in force. These options extend the period that your policy's stated death benefit remains in effect even if the variable subaccounts perform poorly. The two guarantee period options vary primarily by the length of time for the guarantee period. The guarantee period options provide for a guarantee period that lasts: 1. under one guaranteed minimum death benefit option, the later of ten policy years or until the policy anniversary nearest insured person's 65th birthday; or 2. under the other guaranteed minimum death benefit option, the earlier of: the lifetime of the insured person so long as your policy is still in force; or until the maturity date. The guaranteed minimum death benefit coverage does not apply to any riders, including the adjustable term insurance rider. Therefore, if your net cash surrender value is not enough to pay the deductions as they come due on your policy and if your policy is no longer in the special continuation period, only the stated death benefit portion of your coverage is guaranteed to stay in force. Charges for your guaranteed minimum death benefit and base coverage are deducted each month to the extent that there is sufficient net account value to pay these charges. If there is not sufficient net account value to pay a charge, it is permanently waived. Deduction of charges will resume once there is sufficient net account value. The guaranteed minimum death benefit is not available in some states. During the guarantee period, we will deduct a monthly charge for this rider from your account value. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 45. REQUIREMENTS TO MAINTAIN THE GUARANTEE PERIOD To qualify for the guaranteed minimum death benefit you must pay an annual premium higher than the minimum annual premium. This higher premium is called the guarantee period annual premium. The guarantee period monthly premium is equal to one-twelfth of the guarantee period annual premium. Your net account value must also meet certain diversification requirements. Although the required guarantee period annual premium level is different for the two guaranteed period options, the guaranteed minimum death benefit operates similarly for either option. Your guarantee period annual premium depends on which of the two guarantee periods you choose, as well as: o your policy's stated death benefit; o the insured person's age, gender, premium class and underwriting characteristics; o the death benefit option you choose; o additional rider coverage on your policy; and o other additional benefits on your policy. For most policies, the guarantee period annual premium for the guarantee period for life will be equal to the guideline annual premium determined under the federal income tax law definition of life insurance. For most policies, the guarantee period annual premium for the ten year or age 65 guarantee period will be the greater of the target premium or the minimum annual premium for each segment. The guarantee period annual premium for the guarantee period for life will be greater than that required for the ten year or age 65 guarantee period. At each monthly processing date we test to see if you have paid enough premium to keep your guarantee in - -------------------------------------------------------------------------------- Future Dimensions 26 place. We calculate: o actual premiums paid; minus o the amount of any partial withdrawals you make; minus o policy loans you take with accrued loan interest. This amount must equal or exceed: o the sum of the guarantee period monthly premium payments for each policy month starting with your first policy month through the end of the policy month that begins on the current monthly processing date. You must continually meet the requirements of the guarantee period for this feature to remain in effect. We show the guarantee period annual premium on your policy schedule. If your policy benefits increase, the guarantee period annual premium increases. The guarantee period ends if your net account value on any monthly processing date is not diversified as follows: 1. you must invest your net account value in at least five investment options; and 2. you may invest no more than 35% of your net account value in any one investment option. Your policy will continue to meet the diversification requirements if: 1. you have automatic rebalancing and you meet the two diversification tests listed above; or 2. you have dollar cost averaging which results in transfers into at least four investment options with no more than 35% of any transfer directed to any one investment option. SEE DOLLAR COST AVERAGING, PAGE 32 AND AUTOMATIC REBALANCING, PAGE 33. If you choose to activate the guaranteed minimum death benefit, you must make sure your policy satisfies the premium test and diversification test continuously from your policy date. If you fail to satisfy either test and you do not correct it, this feature terminates. Once it terminates, you cannot reinstate the guaranteed minimum death benefit feature. The guarantee period annual premium then no longer applies to your policy. RIDERS Your policy may include benefits, attached by rider. A rider may have an additional cost. You may cancel riders at any time. Periodically we may offer other riders not listed here. Contact your agent/registered representative for a complete list of riders available. Adding or canceling riders may have tax consequences. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 52. ADJUSTABLE TERM INSURANCE RIDER You may increase your death proceeds by adding an adjustable term insurance rider. This rider allows you to schedule the pattern of death benefits appropriate for anticipated needs. The amount we pay is the term death benefit in force at the time of the death of the insured person. As the name suggests, the adjustable term insurance rider adjusts over time to maintain your desired level of coverage. You specify a target death benefit when you apply for this rider. The target death benefit can be level for the life of your policy or can be scheduled to change at the beginning of a selected policy year(s). SEE DEATH BENEFITS, PAGE 21. We generally require a minimum stated death benefit of $50,000. We generally restrict your target death benefit to an amount not more than eleven times your stated death benefit at issue. In other words, if your stated death benefit is $100,000, then the maximum amount of target death benefit we allow you is $1,100,000. The adjustable term insurance rider death benefit is the difference between your target death benefit and your base death benefit, but not less than zero. The rider's death benefit automatically adjusts daily as your base death benefit changes. Your death benefit depends on which death benefit option is in effect: OPTION A: If option A is in effect, the total death benefit is the greater of: a. the target death benefit; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. - -------------------------------------------------------------------------------- Future Dimensions 27 OPTION B: If option B is in effect, the total death benefit is the greater of: a. the target death benefit plus the account value; or b. the account value multiplied by the appropriate factor from the death benefit corridor factors in the policy. For example, under option A, assume your base death benefit changes as a result of a change in your account value. The adjustable term insurance rider adjusts to provide death benefits equal to your target death benefit in each year: Target Base Death Death Adjustable Term Benefit Benefit Insurance Rider Amount ------- ------- ---------------------- $201,500 $250,000 $48,500 202,500 250,000 47,500 202,250 250,000 47,750 It is possible that the amount of your adjustable term insurance may be zero if your base death benefit increases enough. Using the same example, if the base death benefit under your policy grew to $250,000 or more, the adjustable term insurance would be zero. Even when the adjustable term insurance is reduced to zero, your rider remains in effect until you remove it from your policy. Therefore, if later the base death benefit drops below your target death benefit, the adjustable term insurance rider coverage reappears to maintain your target death benefit. You may change the target death benefit schedule after it is issued, based on our rules. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 24. We may deny future, scheduled increases to your target death benefit if you cancel a scheduled change or if you ask for an unscheduled decrease in your target death benefit. Partial withdrawals, changes from death benefit option A to option B and base decreases may reduce your target death benefit. SEE PARTIAL WITHDRAWALS, PAGE 35 AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 24. There is no defined premium for a given amount of adjustable term insurance coverage. Instead, we deduct a separate monthly cost of insurance charge from your account value. The cost of insurance for this rider is calculated as the monthly cost of insurance rate for the rider coverage multiplied by the adjustable term death benefit in effect at the monthly processing date. The cost of insurance rates are determined by us from time to time. They will be based on the rider issue age, gender and premium class of the person insured, as well as the length of time since your policy date. The only charge for this coverage is the cost of insurance charges. The total charges you pay may be less if you have greater coverage under an adjustable term insurance rider rather than as base death benefit. The monthly guaranteed maximum cost of insurance rates for this rider are in your policy. SEE COST OF INSURANCE CHARGE, PAGE 45. There are no sales charges or surrender charges for this coverage. If the target death benefit is increased by you after the adjustable term insurance rider is issued, we use the same cost of insurance rate schedule for the entire coverage for this rider. These rates are based on the original premium classes even though satisfactory new evidence of insurability is required for the increased schedule. SEE COST OF INSURANCE CHARGE, PAGE 45. Not all policy features apply to the adjustable term insurance rider. The rider does not contribute to the policy account value nor to surrender value. It does not affect investment performance and cannot be used for a policy loan. The adjustable term insurance rider provides benefits only at the insured person's death. ACCIDENTAL DEATH BENEFIT RIDER This rider will pay the benefit amount selected by you if the insured dies due to an accident. The insured person may be no less than age 5 and no more than age 69. The minimum coverage is $10,000 and the maximum coverage is the lesser of the stated death benefit; or, $100,000 for an insured person age 5 through 25 and $300,000 for an insured person age 26 through 69. The monthly charge for this rider is $0.08 to $0.15 per $1,000 of rider coverage depending on the insured person's age. - -------------------------------------------------------------------------------- Future Dimensions 28 ADDITIONAL INSURED RIDER This rider provides death benefits upon the death of immediate family members other than the insured person. At issue of the rider, the insured person under the rider must be no more than age 75. You may add up to nine additional insured person riders to your policy using this rider. We require proof of insurability for each additional insured person. The minimum amount of coverage for each rider is $10,000. The maximum coverage for all additional insured persons is five times your total stated death benefit. The monthly charge for this rider is included as part of the cost of insurance charge. SEE COST OF INSURANCE CHARGE, PAGE 45. CHILDREN'S INSURANCE RIDER This rider will allow you to add death benefit coverage on your children. You may cover children upon birth or legal adoption without presenting evidence of insurability to us. Each child must be at least 7 days old and no more than age 18. The primary insured person must be no less than age 15 and no more than age 55. The minimum coverage per child is $1,000. If your policy date is before May 1, 2000, the maximum coverage is $10,000 per child. If your policy date is on or after May 1, 2000, the maximum coverage is $25,000 per child. The monthly charge for this rider is $0.50 per $1,000 of rider coverage. GUARANTEED INSURABILITY RIDER This rider will allow you to increase your stated death benefit without providing us with evidence that the insured person remains insurable while the policy is in force. The insured person may be no more than age 39. Increases are limited in amount and timing. The monthly charge for this rider is $0.04 to $0.19 per $1,000 of coverage depending on the insured person's age. If you add this rider to your policy, you may not add the guaranteed minimum death benefit rider. GUARANTEED MINIMUM DEATH BENEFIT RIDER This rider provides that your stated death benefit will remain in force for the selected guarantee period regardless of the amount of your net cash surrender value, provided certain conditions are met. The monthly rider charge is $0.005 per $1,000 of stated death benefit, guaranteed never to exceed $0.01 per $1,000 of stated death benefit. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25. WAIVER OF COST OF INSURANCE RIDER If the insured person becomes totally disabled while your policy is in force, this rider provides that we waive the monthly expense charges, cost of insurance charges and rider charges during the disability period. The insured person must be no less than age 5 and no more than age 59. If you add this rider to your policy, you may not add the waiver of specified premium rider. The rider charges are part of the cost of insurance charge. SEE COST OF INSURANCE CHARGE, PAGE 45. WAIVER OF SPECIFIED PREMIUM RIDER If the insured person becomes totally disabled while your policy is in force, this rider provides that after a waiting period, we credit a specified premium amount monthly to your policy during the disability period. The insured person must be no less than age 5 and no more than age 59. The monthly charge for this rider is $2.15 to $13.00 per $100 of rider coverage depending on the insured person's age and gender. If you add this rider to your policy, you may not add the waiver of cost of insurance rider. SPECIAL FEATURES DESIGNATED DEDUCTION INVESTMENT OPTION You may designate an investment option from which we will deduct your monthly charges. You may make this designation at any time. You may not use the loan account as your designated deduction option. You may elect not to choose a designated deduction investment option or the amount in your designated deduction investment option may not be enough to cover the monthly deductions. If so, these charges are taken from the variable subaccounts and guaranteed interest division in the same proportion that your account value in each has to your total net account value on the monthly processing date. If you change your designated deduction investment option, we consider this a premium allocation change for which there may be a charge. SEE POLICY TRANSACTION FEES, PAGE 46. RIGHT TO EXCHANGE POLICY During the first 24 months after your policy date, you have the right to exchange your policy for a guaranteed policy, unless law requires differently. - -------------------------------------------------------------------------------- Future Dimensions 29 We transfer the amount you have in the variable division to the guaranteed interest division. We allocate all of your future net premiums only to the guaranteed interest division. We do not allow future payments or transfers to the variable subaccounts after you exercise this right. We will not charge you for this exchange. SEE THE GUARANTEED INTEREST ACCOUNT, PAGE 17. POLICY MATURITY If the insured person is still living on the maturity date or the policy anniversary nearest the insured person's 100th birthday and if you do not want the continuation of coverage feature, the policy matures. You must then surrender the policy for the net account value and end coverage. Part of this payment may be taxable. You should consult your tax adviser. CONTINUATION OF COVERAGE The continuation of coverage feature is not available in all states. Where it is available, it allows your insurance coverage to continue in force beyond policy maturity. On the policy anniversary nearest the insured person's 100th birthday, you may accept the continuation of coverage feature by not surrendering your policy. Your policy date determines your policy's coverage during the continuation of coverage period and the fee, if any. You will have "Type 1" coverage if your policy is issued before August 1, 2000, or after that date but before your state permits us to issue "Type 2" coverage. You will have "Type 2" coverage if your policy date is on or after August 1, 2000, and your state permits us to issue "Type 2." The differences between the two types are shown below. CONTINUATION OF COVERAGE
Death Benefit Option Stated Death Benefit Administrative Fee During Continuation of During Continuation of Continuation of Coverage Current/Guaranteed Coverage Period Coverage Period - ------------------------ ------------------ --------------- --------------- Type 1 None/None Option B Zero Type 2 None/$200 Option A Target Death Benefit as of the policy maturity date
With either type of coverage, the insurance coverage continues until the death of the insured person, unless the policy lapses or is surrendered. We accept no further premium payments and deduct no further monthly deductions. However, all riders terminate and your account value is transferred into the guaranteed interest account. You no longer have access to the variable subaccounts. You may take policy loans or partial withdrawals. If we pay a persistency refund on the guaranteed interest account, it will be credited to your policy. SEE PERSISTENCY REFUND, PAGE 47. If you wish to stop coverage during the continuation of coverage period, you may surrender your policy and receive the net account value with no surrender charge. All normal consequences of surrender apply. SEE SURRENDER, PAGE 38. The tax consequences of coverage continuing beyond the policy anniversary nearest the insured person's 100th birthday are uncertain. You should consult a tax adviser as to those consequences. POLICY VALUES ACCOUNT VALUE Your account value, or accumulation value, is the total amount you have in the guaranteed interest account, the variable subaccounts, and the loan account. Your account value reflects: o net premiums applied; o charges deducted; o partial withdrawals taken; o investment performance of the variable subaccounts; o interest earned on the guaranteed interest account; and o interest earned on the loan account. - -------------------------------------------------------------------------------- Future Dimensions 30 NET ACCOUNT VALUE Your policy's net accumulation value, or net account value, is your account value minus the amount of your outstanding policy loan and accrued loan interest, if any. NET CASH SURRENDER VALUE Your net cash surrender value is your account value minus any surrender charge minus your outstanding policy loan balance and accrued loan interest, if any. DETERMINING VALUES IN THE VARIABLE SUBACCOUNTS The amounts in the variable subaccounts are measured by accumulation units and accumulation unit values. The value of each variable subaccount is the accumulation unit value for that subaccount multiplied by the number of accumulation units you own in that subaccount. Each variable subaccount has a different accumulation unit value. The accumulation unit value is the value of one accumulation unit determined on each valuation date. The accumulation unit value of each variable subaccount varies with the investment performance of the underlying portfolio. It reflects: o investment income; o realized and unrealized gains and losses; o investment portfolio expenses; and o daily mortality and expense risk charges we take from the separate account. SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 31. You purchase accumulation units when you allocate premium or make transfers to a variable subaccount, including transfers from the loan account. We redeem accumulation units: o when amounts are transferred from a variable subaccount (including transfers to the loan account); o for your policy's monthly deductions from your account value; o for policy transaction charges; o for surrender charges; o when you take a partial withdrawal; o when you surrender your policy; and o to pay the death proceeds. We calculate the number of accumulation units purchased or sold by: 1. dividing the dollar amount of your transaction by: 2. the subaccount's accumulation unit value for that variable subaccount calculated at the close of business on the valuation date of the transaction. A valuation date is one on which the net asset value of the investment portfolio shares and unit values of the variable subaccounts are determined. A valuation date is each day the New York Stock Exchange and the company's customer service center are open for business, except for days on which an investment portfolio does not value its shares or any other day as required by law. Each valuation date ends at 4:00 p.m. Eastern time. The date of a transaction is the date we receive your premium or transaction request at our customer service center, so long as the date of receipt is a valuation date. We use the accumulation unit value which is next calculated after we receive your premium or transaction request and we use the number of accumulation units attributable to your policy on the date of receipt. We take monthly deductions from your account value on the monthly processing date. If your monthly processing date is not a valuation date, the monthly deduction is processed on the next valuation date. The value of amounts allocated to the variable subaccounts goes up or down depending on investment performance of the underlying investment portfolio. FOR AMOUNTS IN THE VARIABLE SUBACCOUNTS, THERE IS NO GUARANTEED MINIMUM VALUE FOR ACCOUNT VALUE. HOW WE CALCULATE ACCUMULATION UNIT VALUES We determine accumulation unit values on each valuation date. We generally set the accumulation unit value for a variable subaccount at $10 when the subaccount is first opened. After that first date, the accumulation unit value on any valuation date is: 1. the accumulation unit value for the preceding valuation date multiplied by - -------------------------------------------------------------------------------- Future Dimensions 31 2. the variable subaccount's accumulation experience factor for the valuation period. Every valuation period begins at 4:00 p.m. Eastern time on a valuation date and ends at 4:00 p.m. Eastern time on the next valuation date. We calculate an accumulation experience factor for each variable subaccount every valuation date as follows: 1. We take the share value of the underlying portfolio shares as reported to us by the investment portfolio managers as of the close of business on that valuation date. 2. We add dividends or capital gain distributions declared per share and reinvested by the investment portfolio on the date that the share value is affected. If applicable, we subtract a charge for taxes. 3. We divide the resulting amount by the value of the shares in the underlying investment portfolio at the close of business on the previous valuation date. 4. We then subtract the mortality and expense risk charge under your policy. The daily charge is .002466% (.90% annually) of the accumulation unit value. If the previous day was not a valuation date, the charge is multiplied by the number of days since the last valuation date. TRANSFERS OF ACCOUNT VALUE You may make twelve free transfers among the variable subaccounts, or the guaranteed interest account in each policy year with a $25 fee per transaction after that. If your state requires a refund of premium during the free look period, you may not make transfers until after your free look period ends. We do not limit the number of transfers you may make. Transfers for automatic rebalancing or dollar cost averaging do not count toward your twelve free transfers. You may not make transfers during the continuation of coverage period. SEE POLICY TRANSACTION FEES, PAGE 46 AND CONTINUATION OF COVERAGE, PAGE 29. You may make transfer requests in writing, or by telephone if you have telephone privileges, to our customer service center. Your transfer takes effect on the valuation date we receive your request. The minimum amount you may transfer is $100. This minimum does not need to come from one investment option or be transferred to one investment option as long as the total amount you transfer is at least $100. However, if the amount remaining in an investment option is less than $100 and you make a transfer request from that investment option, we transfer the entire amount. EXCESSIVE TRADING Excessive trading activity can disrupt investment portfolio management strategies and increase portfolio expenses through: o increased trading and transaction costs; o forced and unplanned portfolio turnover; o lost opportunity costs; and o large asset swings that decrease the investment portfolio's ability to provide maximum investment return to all policyowners. In response to excessive trading, we may place restrictions or refuse transfers made by third-party agents acting on behalf of owners such as market timing services. We will refuse or place restrictions on transfers when we determine, in our sole discretion, that transfers are harmful to the investment portfolios or to policyowners as a whole. GUARANTEED INTEREST DIVISION TRANSFERS Transfers into the guaranteed interest account are not restricted. You may transfer amounts from the guaranteed interest account only in the first 30 days of each policy year. Transfer requests received within 30 days before your policy anniversary will be processed on your policy anniversary. A request received by us within 30 days after your policy anniversary is effective on the valuation date we receive it. Transfer requests made at any other time will not be processed. Transfers from the guaranteed interest account in each policy year are limited to the largest of: o 25% of your guaranteed interest account balance at the time of your first transfer or withdrawal out of it in that policy year; o the sum of the amounts you have transferred and withdrawn from the guaranteed interest account in the prior policy year; or o $100. - -------------------------------------------------------------------------------- Future Dimensions 32 DOLLAR COST AVERAGING If your policy has at least $10,000 invested in the Fidelity VIP Money Market Portfolio subaccount, you may elect dollar cost averaging. The main goal of dollar cost averaging is to protect your policy values from short-term price changes. DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A LOSS IN A DECLINING MARKET. This systematic plan of transferring account values is intended to reduce the risk of investing too much when the price of an investment portfolio's shares is high. It is intended to reduce the risk of investing too little when the price of an investment portfolio's shares is low. Since you transfer the same dollar amount to other subaccounts each period, you purchase more units in a subaccount when the unit value is low and you purchase fewer units if the unit value is high. We do not count dollar cost averaging transfers toward your twelve free transfers per policy year. There is no charge for this feature. You may add dollar cost averaging to your policy at any time. The first dollar cost averaging date must be at least one day after we receive your dollar cost averaging request. If your state requires refund of all premiums we receive during the free look period, dollar cost averaging cannot begin until your free look period has ended. With dollar cost averaging, you designate either a dollar amount, or a percentage of your account value, for automatic transfer from the Fidelity VIP Money Market subaccount. Each period we automatically transfer the amount you select from the Fidelity VIP Money Market subaccount to one or more other variable subaccounts. You may not use the guaranteed interest account or the loan account in dollar cost averaging. The minimum percentage you may transfer to any one subaccount is 1% of the total amount you transfer. You must transfer at least $100 on each dollar cost averaging transfer date. Dollar cost averaging may occur on the same day of the month on a monthly, quarterly, semi-annual, or annual basis. Unless you tell us otherwise, dollar cost averaging automatically takes place monthly, on the monthly processing date. You may have both dollar cost averaging and automatic rebalancing at the same time. However, the Fidelity VIP Money Market subaccount cannot be included in your automatic rebalancing program. CHANGING DOLLAR COST AVERAGING You may change your dollar cost averaging program one time per policy year. If you have telephone privileges, you may change the program by telephoning our customer service center. SEE TELEPHONE PRIVILEGES, PAGE 40. TERMINATING DOLLAR COST AVERAGING You may cancel dollar cost averaging by sending satisfactory notice to our customer service center. We must receive it at least one day before the next dollar cost averaging date. Dollar cost averaging will terminate on the date: 1. you specify; or 2. your balance in the Fidelity VIP Money Market subaccount reaches a dollar amount you set; or 3. the amount in the Fidelity VIP Money Market subaccount is equal to or less than the amount to be transferred on a dollar cost averaging date. We will then transfer the remaining amount and dollar cost averaging ends. AUTOMATIC REBALANCING Automatic rebalancing is a method of maintaining a consistent approach to investing account values over time and simplifying the process of asset allocation among your chosen investment options. Transfers made for automatic rebalancing do not count toward your twelve free transfers per policy year. There is no charge for this feature. If you choose this feature, on each rebalancing date, we transfer amounts among the investment options to match your pre-set automatic rebalancing allocation. After the transfer, the ratio of your account value in each investment option to your total account value for all investment options included in automatic rebalancing matches the automatic rebalancing - -------------------------------------------------------------------------------- Future Dimensions 33 allocation percentage you set for that investment option. This action rebalances the amounts in the investment options that do not match your set allocation. This mismatch can happen if an investment option outperforms the other investment options for that time period. You may choose the automatic rebalancing feature on your application or later by completing our customer service form. Automatic rebalancing may occur on the same day of the month on a monthly, quarterly, semi-annual, or annual basis. If you do not specify a frequency, automatic rebalancing will occur quarterly. The first transfer occurs on the date you select (after your free look period ends if your state requires return of premium during the free look period). If you elect this feature after your policy date, we process the first transaction on the date you request. When you choose automatic rebalancing allocations, you may choose up to eighteen total investment options. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 18. You may have both automatic rebalancing and dollar cost averaging at the same time. However, the Fidelity VIP Money Market subaccount used for your dollar cost averaging cannot be included in your automatic rebalancing program. You may not include the loan account in your automatic rebalancing program. CHANGING AUTOMATIC REBALANCING You may change your allocation percentages for automatic rebalancing at any time. Your allocation change is effective on the valuation date that we receive it at our customer service center. If you reduce the amount allocated to the guaranteed interest account, it is considered a transfer from that account. You must meet the requirements for the maximum transfer amount and time limitations on transfers from the guaranteed interest account. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 31. If you have automatic rebalancing and the guaranteed minimum death benefit and you ask for an allocation which does not meet the guaranteed minimum death benefit diversification requirements, we will notify you that the allocation needs to be changed and ask you for revised instructions. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25. TERMINATING AUTOMATIC REBALANCING You may terminate automatic rebalancing at any time, as long as we receive your notice of termination at least one day before the next automatic rebalancing date. If you have the guaranteed minimum death benefit and you terminate the automatic rebalancing feature, you still must meet the diversification requirements for the guarantee period to continue. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25. POLICY LOANS The loan account is part of our general account specifically designed to hold money used as collateral for loans and loan interest. You may borrow from your policy at any time after the first monthly processing date, by using your policy as security for a loan, or as otherwise required by law. The amount you borrow is called a policy loan. Your policy loan is: 1. the total amount you borrow from your policy; plus 2. policy loan interest that is capitalized when due; minus 3. policy loan or interest repayments you make. Unless law requires differently, a new policy loan must be at least $100. The maximum amount you may borrow on any valuation date, unless required differently by law, is 90% of your net cash surrender value. Your request for a policy loan must be directed to our customer service center. If you have telephone privileges, you may request a policy loan of less than $25,000 by telephoning our customer service center. SEE TELEPHONE PRIVILEGES, PAGE 40. When you request a loan you may specify one investment option from which the loan will be taken. If you do not specify one, the loan will be taken proportionately from each active investment option you have, including the guaranteed interest account. Loan interest charges on your policy loan accrue daily at a maximum annual interest rate of 4% for preferred loans and 6% for other loans. Interest is due in arrears on each policy anniversary. If you do - -------------------------------------------------------------------------------- Future Dimensions 34 not pay your interest when it is due, we add it to your policy loan balance. When you take a policy loan, we transfer an amount equal to your policy loan to the loan account. We follow this same process for loan interest due at your policy anniversary. We credit the loan account with interest at an annual rate of 4%. If you request an additional loan, we add the new loan amount to your existing policy loan. This way, there is only one loan outstanding on your policy at any time. LOAN REPAYMENT You may repay your policy loan at any time while your policy is in force. We assume that payments you make, other than scheduled premiums, are policy loan repayments. You must tell us if you want payments to be premium payments. When you make a loan repayment, we transfer an amount equal to your payment from the loan account to the variable subaccounts and the guaranteed interest account in the same proportion as your current premium allocation, unless you tell us otherwise. PREFERRED LOANS A preferred loan amount is an amount taken after the earlier of: 1. the tenth policy anniversary, or; 2. the fifth policy anniversary if the insured person's age is 60 or greater. Loan interest charges on your preferred loan amount accrue daily at a maximum annual interest rate of 4%. For each policy year in which your policy qualifies for preferred loan eligibility, the first loan amount you take during that year will be considered a preferred loan amount up to a maximum of 10% of the net account value. Any amount loaned later in that policy year will not be considered a preferred loan amount. Beginning in the 21st policy year and thereafter, we will consider all loan balances to be preferred loan amounts. If the preferred loan amount you take during any policy year is less than the maximum allowed, you may not carry over the balance to increase the eligible preferred loan amount in any following policy year. EFFECTS OF A POLICY LOAN ON YOUR POLICY Taking a loan decreases the amount you have in the investment options. Accruing loan interest will change your net account value as compared to what it would have been if you did not take a loan. Even if you repay your loan, it has a permanent effect on your account value. The benefits under your policy may be affected. The loan is a first lien on your policy. If you do not repay your policy loan, we deduct your outstanding policy loan and accrued loan interest from the death proceeds payable and the account value payable on surrender. Failure to repay your loan may affect the guaranteed minimum death benefit feature and the length of time your policy remains in force. If you use the continuation of coverage feature and you have a policy loan, loan interest continues to accrue. If you do not make loan payments your policy could lapse. POLICY LOANS MAY CAUSE YOUR POLICY TO LAPSE IF YOUR NET CASH SURRENDER VALUE IS NOT ENOUGH TO PAY YOUR DEDUCTIONS EACH MONTH. SEE LAPSE, PAGE 36. Policy loans may have tax consequences. If your policy lapses with a loan outstanding, you may have further tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 52, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 53. PARTIAL WITHDRAWALS By contacting our customer service center, you may request a partial withdrawal to be processed on any valuation date after your first policy anniversary for death benefit option B and after your second policy anniversary for option A. You make a partial withdrawal when you withdraw part of your net account value. If your request is by telephone, it must be for less than $25,000 and may not cause a decrease in your death benefit. Otherwise, your request must be in writing. SEE TELEPHONE PRIVILEGES, PAGE 40. - -------------------------------------------------------------------------------- Future Dimensions 35 You may take twelve partial withdrawals per policy year. The minimum partial withdrawal you may take is $100. The maximum partial withdrawal you may take is the amount which leaves $500 as your net cash surrender value. If you request a withdrawal of more than this maximum, we require you to surrender your policy or reduce the withdrawal. When you take a partial withdrawal, we deduct your withdrawal amount plus a service fee from your account value. A surrender charge may also apply. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 44. Unless you tell us otherwise, we will make a partial withdrawal from the guaranteed interest account and the variable subaccounts in the same proportion that each has to your net account value immediately before your withdrawal. You may select one investment option from which your partial withdrawal will be taken. If you select the guaranteed interest account however, the amount withdrawn from it may not be for more than your total withdrawal multiplied by the ratio of your account value in the guaranteed interest account to your total net account value immediately before the partial withdrawal transaction. Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 52, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 53. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION A If you selected death benefit option A, no more than fifteen years have passed since your policy date and the insured person is not yet age 81, you may make a partial withdrawal, of up to 5% of your stated death benefit in a policy year without decreasing your stated death benefit. Otherwise, amounts you withdraw will reduce your stated death benefit by the amount of the withdrawal and may be subject to a surrender charge, unless your policy death benefit has been increased due to the federal income tax definition of life insurance. If your policy death benefit has been increased due to the federal income tax definition of life insurance at the time of the partial withdrawal, then at least part of your partial withdrawal may be made without reducing your stated death benefit. PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION B If you have selected death benefit option B, a partial withdrawal does not reduce your stated or target death benefit. However because your account value is reduced, we reduce the total death benefit by at least the partial withdrawal amount. STATED DEATH BENEFIT AND TARGET DEATH BENEFIT REDUCTIONS Regardless of your chosen death benefit option, partial withdrawals do not reduce your stated death benefit if: o your base death benefit has been increased to qualify your policy as life insurance under the federal income tax laws; and o you withdraw an amount that is no greater than the amount that reduces your account value to a level which no longer requires your base death benefit to be increased to qualify as life insurance for federal income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE 51. We require a minimum stated death benefit and a minimum target death benefit to issue your policy. You may not take a partial withdrawal if it reduces your stated death benefit or target death benefit below this minimum. SEE POLICY ISSUANCE, PAGE 50. We will send a new policy schedule page for your policy showing the effect of your withdrawal if there is any change to your stated death benefit or your target death benefit. In order to make this change, we may ask that you return the policy to our customer service center. Your withdrawal and any reductions in the death benefits are effective as of the valuation date on which we receive your request. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 52, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 53. LAPSE Your insurance coverage continues as long as your net cash surrender value is enough to pay your deductions each month. Lapse does not apply if either the guaranteed minimum death benefit feature or the special continuation period is in effect and you have met all requirements. SEE SPECIAL CONTINUATION PERIOD, PAGE 21 AND GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25. - -------------------------------------------------------------------------------- Future Dimensions 36 GRACE PERIOD Your policy enters a 61-day lapse grace period if, on a monthly processing date: 1. your net cash surrender value is zero (or less); and 2. the three-year special continuation period has expired, or you have not paid the required special continuation period premium; and 3. you do not have the guaranteed minimum death benefit or it has expired or terminated. We notify you that your policy is in a grace period at least 30 days before it ends. We send this notice to you (or a person to whom you have assigned your policy) at your last known address in our records. We notify you of the premium payment necessary to prevent your policy from lapsing. This amount is generally the past due charges, plus your estimated monthly policy and rider deductions for the next two months. If the insured person dies during the grace period we do pay death proceeds to your beneficiary(ies), but with reductions for your policy loan balance, accrued loan interest and monthly deductions owed. No lapse notice will be sent to you if the guaranteed minimum death benefit is going to lapse. If we receive payment of the required amount before the end of the grace period, we apply it to your account value in the same manner as your other premium payments, then we deduct the overdue amounts from your account balance. If you do not pay the full amount within the 61-day grace period, your policy and its riders lapse without value. We withdraw your remaining account balance from the variable subaccounts and the guaranteed interest account. We deduct amounts you owe us including any surrender charges and inform you that your policy coverage has ended. IF YOU HAVE THE GUARANTEED MINIMUM DEATH BENEFIT IN EFFECT After the special continuation period has ended and if the guaranteed minimum death benefit is in effect, your policy's stated death benefit will not lapse during the guarantee period. This is true even if your net cash surrender value is not enough to cover all of the deductions from your account value on any monthly processing date. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25. - -------------------------------------------------------------------------------- Future Dimensions 37
LAPSE SUMMARY SPECIAL CONTINUATION PERIOD | GUARANTEED MINIMUM DEATH BENEFIT ===================================================================|================================================================ IF YOU DO NOT MEET THE | IF YOU DO NOT MEET THE IF YOU MEET THE REQUIREMENTS OR IT IS NO | IF YOU MEET THE REQUIREMENTS OR IT IS NO REQUIREMENTS LONGER IN EFFECT | REQUIREMENTS LONGER IN EFFECT - -------------------------------------------------------------------|---------------------------------------------------------------- | Your policy does not lapse if Your policy enters the grace |Your policy does not lapse if Your policy enters the grace you do not have enough net period if your net cash |you do not have enough net period if your net cash cash surrender value to pay surrender value is not |cash surrender value to pay surrender value is not the monthly charges. The enough to pay the monthly |the monthly charges. enough to pay the monthly charges are deducted and charges, or if your loan plus |However, if you have any charges, or if your loan plus may cause a negative accrued loan interest is more |riders, they lapse after the accrued loan interest is more account value until the than your account value |grace period and only your than your account value earlier of: 1) the date you minus any surrender charge. |base coverage remains in minus any surrender charge. have enough net cash If you do not pay enough |force. Charges for your base If you do not pay enough surrender value to cover the premium to cover the past |coverage are then deducted premium to cover the past monthly charge, or 2) until due monthly charges and |each month to the extent that due monthly charges and the end of the special interest due plus the monthly |there is sufficient net interest due, plus the continuation period. charges and interest due |account value to pay these monthly charges and interest through the end of the grace |charges. If there is not due through the end of the period, your policy lapses. |sufficient net account value grace period, your |to pay a charge, it is policy lapses. |permanently waived. ================================ ==================================|================================== =============================
REINSTATEMENT If you do not pay enough premium before the end of the grace period, your policy lapses. You may still reinstate your policy and its riders (other than the guaranteed minimum death benefit) within five years of the end of the grace period if you still own the policy and the insured person meets our underwriting requirements. Unless law requires differently, we will reinstate your policy and riders if: 1. you have not surrendered your policy; 2. you provide satisfactory evidence to us that the insured person (and any people insured under your riders) is still insurable according to our normal rules of underwriting; and 3. we receive enough premium from you to keep your policy and its riders in force from the beginning to the end of the grace period and for two months after the reinstatement date. Reinstatement is effective on the monthly processing date following our approval of your reinstatement application. When we reinstate your policy, we also reinstate the surrender charges for the amount and time remaining when your policy lapsed. If you had a policy loan when coverage ended, we reinstate it with accrued loan interest to the date of lapse. The cost of insurance charges at the time of reinstatement are adjusted to reflect the time since the lapse. We apply net premiums received after reinstatement according to your most recent instructions which may be the premium allocation instructions in effect at the start of the grace period. SURRENDER You may surrender your policy for its net cash surrender value any time while the insured person is living. You may take your net cash surrender value in more than one payment. We compute your net cash surrender value as of the valuation date we receive your written surrender request and policy at our customer service center. - -------------------------------------------------------------------------------- Future Dimensions 38 All insurance coverage ends on the date we receive your surrender request and policy. SEE POLICY VALUES, PAGE 30 AND SETTLEMENT PROVISIONS, PAGE 41. We do not pro-rate or add back charges or expenses which we deducted before your surrender to your account value. If you surrender your policy during the first fourteen policy years or segment years, we deduct a surrender charge from your net account value. A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 52, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 53. GENERAL POLICY PROVISIONS FREE LOOK PERIOD You have the right to examine your policy. The right to examine your policy, often called the free look period, starts on the date you receive your policy and is a length of time specified by law. If for any reason you do not want it, you may return your policy to us or your agent/registered representative within the period shown on the policy's face page. If you return your policy to us within that time period, we will consider it canceled as of your policy date. If you cancel your policy during this free look period, you will receive a refund as determined under law. Generally, there are two types of free look refunds: o some states require a return of all premiums we receive; o other states require payment of account value plus a refund of all charges deducted. Your policy will specify what type of free look refund applies in your state. The type of free look refund in your state will affect when the net premium we receive before the end of the free look period is invested into the variable subaccounts. SEE INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS, PAGE 20. YOUR POLICY The entire contract between you and us is the combination of: o your policy; o a copy of your original application and any applications for benefit increases or decreases; o all of your riders; o endorsements; o policy schedule pages; and o reinstatement applications. If you make a change to your coverage, we give you a copy of your changed application and new policy schedules. If you send your policy to us, we attach these items to your policy and return it to you. Otherwise, you need to attach them to your policy. Unless there is fraud, we consider all statements made in an application to be representations and not guarantees. We use no statement to deny a claim, unless it is in an application. A president or an officer of our company and our secretary or assistant secretary must sign all changes or amendments we make to your policy. No other person may change the terms or conditions of your policy. AGE The age stated in your policy schedule is the age of the insured person we use to issue your policy. The insured person must be no more than age 75. Tobacco users must be at least age 15 at policy issue. There is no minimum issue age for non-smokers. Age is measured as the age of the insured person on the birthday nearest the policy anniversary. Generally, we use age to calculate rates, charges and values. We determine age at any given time by adding the number of completed policy years to the age calculated at issue. The policy anniversary nearest the insured person's 100th birthday is the date used for policy maturity and continuation of coverage. OWNERSHIP The original owner is the person named as the owner in the policy application. The owner can exercise all rights and receive benefits until the insured person's death. This includes the right to change the owner, beneficiary(ies) or the method designated to pay death proceeds. - -------------------------------------------------------------------------------- Future Dimensions 39 As a matter of law, all rights of ownership are limited by the rights of any person who has been assigned rights under the policy, and any irrevocable beneficiary(ies). You may name a new owner by giving us written notice. The effective date of the change to the new owner is the date the prior owner signs the notice. However, we will not be liable for any action we take before a change is recorded at our customer service center. A change in ownership may cause the prior owner to recognize taxable income on gain under the policy. BENEFICIARY(IES) You, as owner, name the beneficiary(ies) when you apply for your policy. The primary beneficiary(ies) who survives the insured person receives the death proceeds. Other surviving beneficiary(ies) receive death proceeds only if there is no surviving primary beneficiary(ies). If more than one beneficiary(ies) survives the insured person, they share the death proceeds equally, unless you have told us otherwise. If none of your policy beneficiaries has survived the insured person, we pay the death proceeds to you or to your estate, as owner. Once you tell us who the beneficiary(ies) is/are, we keep this information on file. You may name a new beneficiary(ies) any time before the death of the insured person. We pay the death proceeds to the beneficiary (ies) whom you have most recently named according to our records. We do not make payments to multiple sets of beneficiaries. COLLATERAL ASSIGNMENT You may assign your policy by sending written notice to us. After we record the assignment, your rights as owner and the beneficiary's(ies') rights (unless the beneficiary(ies) was made an irrevocable beneficiary(ies) under an earlier assignment) are subject to the assignment. It is your responsibility to make sure the assignment is valid. INCONTESTABILITY If your policy has been in force and the insured person is alive for two years from your policy date, we will not question the validity of the statements in your application. If your policy has been in force while the insured person is alive for two years from the effective date of a new segment or from the effective date of an increase in any other benefit, with respect to the insured person (such as an increase in stated death benefit) we will not contest the statements in your application for the new segment or other increase. If this policy has been in force while the insured person is alive for two years from the effective date of reinstatement, we will not contest the statements in your application for reinstatement. MISSTATEMENTS OF AGE OR GENDER If an insured person's age or gender has been misstated, we adjust the death benefit to the amount which would have been purchased for the insured person's correct age and gender. We base the adjusted death benefit on the cost of insurance charges deducted from your account value on the last monthly processing date before the insured person's death, or as otherwise required by law. If unisex cost of insurance rates apply, we do not make any adjustments for a misstatement of gender. SUICIDE If the insured person commits suicide (while that insured person is sane or insane) within two years of your policy date, unless otherwise required by law, we limit death proceeds payable in one sum to: 1. the total of all premiums we receive to the time of death; minus 2. outstanding policy loan amounts and accrued loan interest; minus 3. partial withdrawals you have taken. We make a limited payment to the beneficiary(ies) for a new segment or other increase if the death of the insured person is due to suicide (while that insured person is sane or insane), within two years of the effective date of a new segment or within two years of an increase in any other benefit, unless otherwise required by law. The limited payment we make is equal to the cost of insurance and monthly expense charges which were deducted for such increase. TRANSACTION PROCESSING Generally, within seven days of when we receive all - -------------------------------------------------------------------------------- Future Dimensions 40 information required to process a payment, we pay: o death proceeds; o net cash surrender value upon surrender; o partial withdrawals; and o loan proceeds. We may delay processing these transactions if: o the NYSE is closed for trading; o trading on the NYSE is restricted by the SEC; o there is an emergency so that it is not reasonably possible to sell securities in the variable subaccounts or to determine the value of a variable investment option's assets; or o a governmental body with jurisdiction over the separate account allows suspension by its order. SEC rules and regulations determine whether or not these conditions exist. We execute transfers among the variable subaccounts as of the valuation date of our receipt of your request at our customer service center. We determine the death benefit as of the insured person's date of death. The death proceeds are not affected by changes in the value of the variable subaccounts after that date. We may delay payment from our guaranteed interest division for up to six months, unless law requires otherwise of surrender proceeds, withdrawal amounts or loan amounts. If we delay payment more than 30 days, we pay interest at our declared rate (or at a higher rate if required by law) from the date we receive your complete request. NOTIFICATION AND CLAIMS PROCEDURES Except for certain authorized telephone requests, we must receive in writing any election, designation, change, assignment or request made by the owner. You must use a form acceptable to us. We are not liable for actions taken before we receive and record the written notice. We may require you to return your policy for policy changes and at the time of surrender. If the insured person dies while your policy is in force, please let us or your agent/registered representative know as soon as possible. We will immediately send you instructions on how to make a claim at the insured person's death. As proof of the deceased insured person's death, we may require you to provide proof of the deceased insured person's age, and a certified copy of the deceased insured person's death certificate. The beneficiary(ies) and the deceased insured person's next of kin may need to sign authorization forms. These forms allow us to get information about the deceased insured person. This information may include medical records of doctors and hospitals used by the deceased insured person. TELEPHONE PRIVILEGES If your policy was delivered on or after May 1, 1999, telephone privileges are automatically provided to you and your agent/registered representative, unless you decline it on the application or contact our customer service center. Telephone privileges allow you or your agent/registered representative, if applicable, to call our customer service center to: o make transfers; o change premium allocations; o change features in your dollar cost averaging and automatic rebalancing programs; o request partial withdrawals; or o request a policy loan. Our customer service center uses reasonable procedures to make sure that instructions received by telephone are genuine. These procedures may include: 1. requiring some form of personal identification; 2. providing written confirmation of any transactions; and 3. tape recording telephone calls. By accepting automatic telephone privileges, you authorize us to record your telephone calls with us. If we use reasonable procedures to confirm instructions, we are not liable for losses due to unauthorized or fraudulent instructions. We may discontinue this privilege at any time. NON-PARTICIPATION Your policy does not participate in the surplus earnings of Southland. - -------------------------------------------------------------------------------- Future Dimensions 41 DISTRIBUTION OF THE POLICIES The principal underwriter (distributor) for our policies is ING America Equities, Inc. ING America Equities, Inc. is an affiliate of Southland. It is registered as a broker-dealer with the SEC and the NASD. We pay ING America Equities, Inc. for acting as the principal underwriter under a distribution agreement. We sell our policies through licensed insurance agents who are registered representatives of other broker-dealers including, but not limited to: 1. VESTAX Securities Corporation, an indirect affiliate of Southland Life Insurance Company; 2. Locust Street Securities, Inc., an indirect affiliate of Southland Life Insurance Company; 3. Multi-Financial Securities, Corp., an indirect affiliate of Southland Life Insurance Company; and 4. IFG Network Securities, Inc., an indirect affiliate of Southland Life Insurance Company. All broker-dealers who sell this policy have entered into selling agreements with us. Under these selling agreements, we pay a distribution allowance to broker-dealers, who pay commissions to the agents/registered representatives who sell this policy. During the first policy year, the distribution allowance is 85% of the premium we receive up to target. For premium we receive over target, the distribution allowance is 4% in policy years one through ten. Broker-dealers receive annual renewal payments (trails) of 0.25% of the average net account value for policy years six through twenty. Compensation arrangements may vary. Some broker/dealers may receive a slightly lower distribution allowance because we provide them with greater marketing and administrative support. In addition to the distribution allowance, we may pay wholesaler fees and marketing or training allowances. We pay all allowances from our resources which include sales charges deducted from premiums. ADVERTISING PRACTICES AND SALES LITERATURE We may use advertisements and sales literature to promote this product, including: o articles on variable life insurance and other information published in business or financial publications; o indices or rankings of investment securities; and o comparisons with other investment vehicles, including tax considerations. We may use information regarding the past performance of the variable subaccounts. However, past performance is not indicative of future performance of the subaccounts or the policies and is not reflective of the actual investment experience of policyowners. We may feature certain investment options and their managers, as well as describe asset levels and sales volumes. We may refer to past, current, or prospective economic trends, and investment performance or other information we believe may be of interest to our customers. SETTLEMENT PROVISIONS You may elect to have the beneficiary(ies) receive the death proceeds other than in one payment. If you make this election, you must do so before the death of the insured person. If you have not made this election, the beneficiary(ies) may do so within 60 days after we receive proof of the death of the insured person. You may take your net cash surrender value in other than one payment. The investment performance of the variable subaccounts does not affect payments under these settlement options. Instead, interest accrues at a fixed rate based on the option you choose. Payment options are subject to our rules at the time you make your selection. Currently, a periodic payment must be at least $20 and the total proceeds must be $2,000 or more. OPTION I: PAYOUTS FOR A DESIGNATED (FIXED) PERIOD OPTION II: LIFE INCOME WITH PAYOUTS GUARANTEED FOR A DESIGNATED PERIOD - -------------------------------------------------------------------------------- Future Dimensions 42 OPTION III: HOLD AT INTEREST (INTEREST ONLY) OPTION IV: PAYOUTS OF A DESIGNATED AMOUNT (FIXED INSTALLMENTS) OPTION V: OTHER OPTIONS WE OFFER AT THE TIME WE PAY THE BENEFIT ADMINISTRATIVE INFORMATION ABOUT THE POLICY VOTING PRIVILEGES We invest the variable subaccounts' assets in shares of investment portfolios. We are the legal owner of the shares held in the separate account and we have the right to vote on certain issues. Among other things, we may vote on issues described in the fund's current prospectus or issues requiring a vote by shareholders under the Investment Company Act of 1940. Even though we own the shares, we give you the opportunity to tell us how to vote the number of shares attributable to your account value. We count fractional shares. If you have a voting interest, we send you proxy material and a form on which to give us your voting instructions. Each investment portfolio share has the right to one vote. The votes of all investment portfolio shares are cast together on a collective basis, except on issues for which the interests of the portfolios differ. In these cases, voting is done on a portfolio-by-portfolio basis. Examples of issues that require a portfolio-by-portfolio vote are: 1. changes in the fundamental investment policy of a particular investment portfolio; or 2. approval of an investment advisory agreement. We vote the shares in accordance with your instructions at meetings of investment portfolio shareholders. We vote any investment portfolio shares that are not attributable to policies and any investment portfolio shares for which the owner does not give us instructions, the same way we vote as if we did receive owner instructions. We reserve the right to vote investment portfolio shares without getting instructions from policy owners if the federal securities laws, regulations or their interpretations change to allow this. You may instruct us only on matters relating to the investment portfolios corresponding to variable subaccounts in which you have invested assets as of the record date set by the investment portfolio's board for the portfolio's shareholders meeting. We determine the number of investment portfolio shares in each variable subaccount that we attribute to your policy by dividing your account value allocated to that variable subaccount by the net asset value of one share of the matching investment portfolio. MATERIAL CONFLICTS We are required to track events to identify any material conflicts arising from using investment portfolios for both variable life and variable annuity separate accounts. The boards of the investment portfolios, Southland, and other insurance companies participating in the investment portfolios, have this same duty. There may be a material conflict if: o state insurance law or federal income tax law changes; o investment management of an investment portfolio changes; or o voting instructions given by owners of variable life insurance policies and variable annuity contracts differ. The investment portfolios may sell shares to certain qualified pension and retirement plans qualifying under Code Section 401. These include cash or deferred arrangements under Code Section 401(k). Therefore, there is a possibility that a material conflict may arise between the interests of owners in general or between certain classes of owners; and these retirement plans or participants in these retirement plans. If there is a material conflict, we have the duty to determine appropriate action including removing the portfolios involved from our variable subaccounts. We may take other action to protect policy owners. This could mean delays or interruptions of the variable operations. When state insurance regulatory authorities require it, we may ignore voting instructions relating to changes - -------------------------------------------------------------------------------- Future Dimensions 43 in an investment portfolio's adviser or its investment policies. If we do ignore voting instructions, we give you a summary of our actions in our next semi-annual report to owners. Under the Investment Company Act of 1940, we must get your approval for certain actions involving our separate account. In this case, you have one vote for every $100 of value you have in the variable subaccounts. We cast votes credited to amounts in the variable subaccounts, but not credited to policies in the same proportion as votes cast by owners. RIGHT TO CHANGE OPERATIONS Subject to state limitations, we may from time to time make any of the following changes to our separate account: 1. Change the investment objective. 2. Offer additional variable subaccounts which will invest in portfolios we find appropriate for policies we issue. 3. Eliminate variable investment subaccounts. 4. Combine two or more variable subaccounts. 5. Substitute a new investment portfolio for a portfolio in which the subaccount currently invests. A substitution may become necessary if, in our judgment: o a portfolio no longer suits the purposes of your policy; o there is a change in laws or regulations; o there is a change in a portfolio's investment objectives or restrictions; o the portfolio is no longer available for investment; or o another reason we deem a substitution is appropriate. 6. Transfer assets related to your policy class to another separate account. 7. Withdraw the separate account from registration under the 1940 Act. 8. Operate the separate account as a management investment company under the 1940 Act. 9. Cause one or more variable subaccounts to invest in a mutual fund other than, or in addition to, the investment portfolios. 10. Stop selling these policies. 11. End any employer or plan trustee agreement with us under the agreement's terms. 12. Limit or eliminate any voting rights for the separate account. 13. Make any changes required by the 1940 Act or its rules or regulations. We will not make a change until it is effective with the SEC and approved by the appropriate state insurance departments, if necessary. We will notify you of changes. If you wish to transfer the amount you have in the affected subaccount to another variable subaccount, or to the guaranteed interest account, you may do so free of charge. Just notify us at our customer service center. REPORTS TO OWNERS At the end of each policy year we send a report to you that shows: o your total net policy death benefit (your stated death benefit plus adjustable term insurance rider death benefit, if any); o your account value; o your policy loan, if any, plus accrued interest; o your net cash surrender value; o information about the variable subaccounts; and o your account transactions during the policy year showing net premiums, transfers, deductions, loan amounts and withdrawals. We also send semi-annual reports with financial information on the investment portfolios, including a list of the investment holdings of each portfolio to you. We send confirmation notices to you throughout the year for certain policy transactions. CHARGES, DEDUCTIONS AND REFUNDS The amount of a charge may not correspond to the cost incurred by us to provide the service or benefits . - -------------------------------------------------------------------------------- Future Dimensions 44 For example, our sales charge may not cover all of the sales and distribution expenses. Some proceeds from other charges, including the mortality and expense risk charge or cost of insurance charges, may be used to cover such expenses. DEDUCTIONS FROM PREMIUMS We consider payments we receive to be premium payment if you do not have an outstanding loan and your policy is not in the continuation of coverage period. After we deduct certain charges from your premium payment, we add the remaining net premium to your policy. SALES CHARGE We deduct a percentage from each premium payment to compensate us for the costs we incur in selling the policies. The sales charge helps cover the costs of distribution, preparing our sales literature, promotional expenses and other direct and indirect expenses. Currently, we charge 4% of each premium we receive until the total sum of your premium payments for your stated death benefit and any added increases in stated death benefit equals ten times the target premium for your policy. We guarantee that the sales charge percentage we impose on a premium payment will never exceed 4%. These premium deductions are in addition to any surrender charge that may be assessed upon surrender, withdrawal or reduction in the stated death benefit during the 14 policy years following the policy date or 14 years following an increase in the stated death benefit. SEE SALES SURRENDER CHARGE, PAGE 48. To determine your applicable sales charge, premiums you pay after an increase in stated death benefit are allocated to your policy segments in the same proportion that the guideline annual premium (defined by federal income tax law) for each segment bears to the total guideline annual premium for your stated death benefit. We may reduce or waive the sales charge for certain group or sponsored arrangements or for corporate purchasers. SEE GROUP OR SPONSORED ARRANGEMENTS AND CORPORATE PURCHASERS, PAGE 50. TAX CHARGES We pay state and local taxes in almost all states. These taxes vary in amount from state to state and may vary from jurisdiction to jurisdiction within a state. Currently, state and local taxes range from 0.5% to 5% with some states not imposing these types of taxes. We deduct 2.5% of each premium payment to cover these taxes. This rate approximates the average tax rate we expect to pay in all states. We also deduct 1.5% of each premium payment to cover our estimated costs for the federal income tax treatment of deferred acquisition costs. This cost is determined solely by the amount of life insurance premiums we receive. We reserve the right to increase or decrease your premium expense charge for taxes as a result of changes in the tax law, within limits set by law. We also reserve the right to increase or decrease your premium expense charge for the federal income tax treatment of deferred acquisition costs based on any change in that cost to us. DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT MORTALITY AND EXPENSE RISK CHARGE We deduct 0.002466% per day (0.90% annually) of the amount you have in the variable subaccounts for the mortality and expense risks we assume. This charge is deducted as part of the calculation of the daily unit values for the variable subaccounts and does not appear as a separate charge on your statement or confirmation. The mortality risk is that insured people, as a group, may live less time than we estimated. The expense risk is that the costs of issuing and administering the - -------------------------------------------------------------------------------- Future Dimensions 45 policies and in operating the variable subaccounts are greater than the amount we estimated. The mortality and expense risk charge does not apply to your account value in the guaranteed interest account or the loan account. MONTHLY DEDUCTIONS FROM ACCOUNT VALUE We deduct charges from your account value on each monthly processing date. INITIAL POLICY CHARGE The initial policy charge is $20 per month for the first year of your policy. This charge compensates us for such costs as: o application processing; o medical examinations; o establishment of policy records; and o insurance underwriting costs. MONTHLY ADMINISTRATIVE CHARGE For this policy, we charge a per month administrative charge of $6. We guarantee that this charge will never be higher than $10 per month. This charge is designed to compensate us for ongoing costs such as: o premium billing and collections; o claim processing; o policy transactions; o record keeping; o reporting and communications with policy owners; and o other expenses and overhead. COST OF INSURANCE CHARGE The cost of insurance charge compensates us for the ongoing costs of providing insurance coverage under the policy, including the expected cost of paying death proceeds that may be more than your account value at the insured person's death. The cost of insurance charge is equal to our current monthly cost of insurance rate multiplied by the net amount at risk for each portion of your death benefit. We calculate the net amount at risk monthly, at the beginning of each policy month. For the base death benefit, the net amount at risk is calculated using the difference between the current base death benefit and your account value. We determine your account value after we deduct your policy and rider charges due on that date other than cost of insurance charges for the base death benefit, adjustable term insurance rider and waiver of cost of insurance rider. If your base death benefit at the beginning of a month increases (due to requirements of the federal income tax law definition of life insurance), the net amount at risk for your base death benefit for that month also increases. Similarly, the net amount at risk for your adjustable term insurance rider decreases. This means that your cost of insurance charge varies from month to month with changes in your net amount at risk, changes in the death benefit and with the increasing age of the insured person. We allocate the net amount at risk to segments in the same proportion that each segment has to the total stated death benefit for all coverage segments as of the monthly processing date. We base your current cost of insurance rates on the insured person's age, gender and premium class on the policy and each segment date. We apply unisex rates where appropriate under the law. This currently includes the state of Montana and policies purchased by employers and employee organizations in connection with employment-related insurance or benefit programs. Separate cost of insurance rates apply to: o each segment of the base death benefit; o your adjustable term insurance rider; and o your waiver of cost of insurance rider. We may make changes in the cost of insurance or rider charges for a class of insured persons. We base the new charge on changes in expectations about: o investment earnings; o mortality; o the time policies remain in effect; o expenses; and o taxes. These rates are never more than the guaranteed maximum rates shown in your policy. Current rates are greater for policies with a stated death benefit (or target death benefit, if any) that is less than $250,000 on the policy date. The guaranteed maximum rates are based on the 1980 Commissioner's Standard Ordinary Sex Distinct Mortality Table. - -------------------------------------------------------------------------------- Future Dimensions 46 The maximum rates for the initial and each new segment will be printed in your policy schedule pages. GUARANTEED MINIMUM DEATH BENEFIT CHARGE If you choose the guaranteed minimum death benefit feature, we currently charge $0.005 per $1,000 of stated death benefit each month during the guarantee period. This charge is guaranteed never to be more than $0.01 per $1,000 of stated death benefit each month POLICY TRANSACTION FEES We charge fees for certain transactions under your policy. We take these fees from the variable subaccounts and the guaranteed interest account pro rata to the account value in each. If applicable, we add the persistency refund to the variable subaccounts but not the guaranteed interest account or loan account in the same proportion that your account value in each subaccount has to your net account value in all of the variable subaccounts as of the monthly processing date. RIDER CHARGES On each monthly processing date, we deduct the cost of your riders. Rider charges do not include the riders which are included as a cost of insurance. SEE RIDERS, PAGE 27. PARTIAL WITHDRAWALS We deduct the lesser of a $25 service fee or 2% of the requested partial withdrawal from your account value for each partial withdrawal you take to cover our costs. WE MAY ALSO DEDUCT A SURRENDER CHARGE FROM YOUR ACCOUNT VALUE. SEE PARTIAL WITHDRAWALS, PAGE 35. TRANSFERS There is a $25 fee to cover our costs for each transfer over twelve free transfers per policy year. If you include multiple transfers in one transfer request, it counts as one transfer. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 31. ILLUSTRATIONS The first policy illustration you request in a policy year is free. After that, we charge a fee of up to $25 for each policy illustration. PREMIUM ALLOCATION CHANGE You may make twelve free premium allocation changes per policy year. After the twelve free changes, we charge $25 for each additional premium allocation change in that policy year. If you change your designated deduction investment option, we consider it a premium allocation change. SEE MONTHLY DEDUCTIONS FROM ACCOUNT VALUE, PAGE 45. ACCOUNTS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS
MONTHLY CHARGES: COST OF LOANS AND INSURANCE CHARGES, RIDER TRANSACTION FEES PARTIAL WITHDRAWALS CHARGES AND ADMINISTRATIVE FEES - ------------- ---------------------------------------- -------------------------------- ------------------------------------ Choice May choose a designated deduction Proportionally among May choose any investment investment option, including variable subaccounts option or combination of guaranteed interest account and guaranteed investment options interest account Default Proportionally among variable Proportionally among Proportionally among variable subaccounts and guaranteed variable subaccounts subaccounts and guaranteed interest account and guaranteed interest account interest account - ------------- ---------------------------------------- -------------------------------- ------------------------------------
- -------------------------------------------------------------------------------- Future Dimensions 47 PERSISTENCY REFUND Where law allows us, we pay long-term policy owners a persistency refund. Each month your policy remains in force after your tenth policy anniversary, we credit your account value with a refund of 0.0375% of account value. This refund is 0.45% of your account value on an annual basis. We add the persistency refund to the variable subaccounts in the same proportion that your account value in each subaccount has to your total account value in all of the variable subaccounts as of the monthly processing date. Here are two examples of how the persistency refund may affect your account value each month: EXAMPLE 1: YOUR POLICY HAS NO LOAN: o account value = $10,000 (all in the variable subaccounts) o monthly persistency refund rate = .000375 o persistency refund = 10,000 x .000375 = $3.75 Before After Persistency Persistency Refund Refund ------ ------ Variable subaccounts $10,000.00 $10,003.75 EXAMPLE 2: YOUR POLICY DOES HAVE A LOAN: o account value = $10,000 o account value in the variable subaccounts = $6,000 o account value in the loan account = $4,000 o monthly persistency refund rate = .000375 o persistency refund = 6,000 x .000375 = $2.25 Before After Persistency Persistency Refund Refund ------ ------ Variable subaccounts $6,000.00 $6,002.25 Loan $4,000.00 $4,000.00 SURRENDER CHARGE We may deduct a surrender charge from your account value during the first fourteen years of your policy or coverage segment if you: o surrender your policy; o reduce your stated death benefit; o allow your policy to lapse; or o take a partial withdrawal which decreases your stated death benefit. The surrender charge compensates us for issuing and distributing policies. We deduct surrender charges proportionately based on the account value in each investment option. The surrender charge is made up of two parts: 1. an administrative surrender charge, and 2. a sales surrender charge. A change to your death benefit option may decrease your stated death benefit. Under these circumstances, we do not deduct a surrender charge from your account value and we do not reduce future surrender charges. A change to your death benefit option may increase the stated death benefit. We do not increase your surrender charge in this case. However, all other increases in your stated death benefit create a new segment which will be subject to its own fourteen year surrender charge period. If your surrender charge changes, we send you a new policy schedule showing the change. For each segment, the maximum surrender charge remains level for the first nine years of each coverage segment and then decreases at the beginning of each following policy year by one-sixth of the amount in effect at the end of the ninth policy year. This continues until your surrender charge reaches zero at the earlier of the beginning of your fifteenth policy year, or the year when the insured person reaches age 98. We may reduce or waive the surrender charge for certain group or sponsored arrangements, or for corporate purchasers. ADMINISTRATIVE SURRENDER CHARGE The administrative surrender charge is $4 per $1,000 - -------------------------------------------------------------------------------- Future Dimensions 48 of the stated death benefit for each death benefit segment. During the first fourteen years of your policy your administrative surrender charge may decrease. This happens if you request a decrease in your stated death benefit or you take a partial withdrawal which causes your stated death benefit to decrease. Your administrative surrender charge decreases in the same proportion that your stated death benefit decreases. Under these circumstances we then deduct from your account value the amount by which your administrative surrender charge decreased. We designed your administrative surrender charge to cover part of our administrative expenses for your policy, such as: o application processing; o establishing your policy records; o insurance underwriting; and o costs associated with developing and operating our systems to administer the policies. SALES SURRENDER CHARGE We calculate the sales surrender charge for each segment by applying the premiums you paid to each segment in the same proportion that the guideline annual premium for each segment (as defined by the federal income tax laws) has to the sum of the guideline annual premiums for all segments. The sales surrender charge is: 1. 46% of the premiums we receive up to target premium for each segment (this is known as the base standard target premium); plus 2. 44% of the premiums we receive between one and two target premiums for each segment. In the first two policy years or first two years after an increase in stated death benefit, we cap the sales surrender charge at 26% of premiums we receive up to one target premium, plus 6% of premiums we receive between one and two target premiums, plus 5% of premiums we receive in excess of two target premiums. We do not determine target premiums on your scheduled premium. We determine target premiums actuarially, based on the age and gender of the insured person. Your policy schedule shows the initial target premium for your policy and the target premium for any added segments. The schedule also shows the maximum sales surrender charge for your stated death benefit. If your stated death benefit decreases, we reduce your target premium for each segment in the same proportion that we reduce your stated death benefit. We do not do this if the reduction is a result of a death benefit option change. In that case, we will send a new schedule page to you. You should attach this new page to your policy. In some instances, we may ask you to send your policy to us so that we can make this change for you. If your new target premium for each segment is greater than or equal to the premiums we receive for that segment, then we reduce your future maximum sales surrender charge, but we do not deduct a sales surrender charge from your account value. If your new target premium for each segment is less than the sum of the premiums we receive for that segment, we reduce the future maximum sales surrender charge and we deduct a sales surrender charge from your account value equal to the difference between your sales surrender charge before the decrease and your sales surrender charge after the decrease. We recalculate your new sales surrender charge as if your new target premium was always in effect for that segment. We reduce your future maximum sales surrender charge in the same proportion that we reduce your stated death benefit if: 1. you make a decrease to your stated death benefit more than nine years after your policy date; or 2. you make a partial withdrawal from your policy which reduces the stated death benefit and you make your request more than nine years after the date you added the additional segment. - -------------------------------------------------------------------------------- Future Dimensions 49 CALCULATION OF SURRENDER CHARGE EXAMPLE An example of the calculation of surrender charges follows: Assume the stated death benefit on your policy is $200,000 and the insured person is age 45 when we issued your policy. The target premium on your policy is $2,800. Assuming that we receive a $2,500 premium at the beginning of each policy year, the resulting actual surrender charge for each policy year is: Administrative Sales Actual Policy Year Surrender Charge Surrender Charge Surrender Charge - ----------- ---------------- ---------------- ---------------- 1 $ 800 $ 650 $ 1450 2 800 860 1660 3 800 2520 3320 4 800 2520 3320 5 800 2520 3320 6 800 2520 3320 7 800 2520 3320 8 800 2520 3320 9 800 2520 3320 10 667 2100 2767 11 533 1680 2213 12 400 1260 1660 13 267 840 1107 14 133 420 553 15 0 0 0 You should review the surrender charges table in your policy schedule pages for your specific charge amount each year. OTHER CHARGES Under current law, we pay no tax on investment income and capital gains included in variable life insurance policy reserves. This means that no charge is currently made to any variable subaccount for our federal income taxes. If the tax law changes and we have federal income tax chargeable to the variable subaccounts, we may make such a charge in the future. In most states, we must pay state and local taxes. If these taxes increase, we may charge for such taxes. GROUP OR SPONSORED ARRANGEMENTS, OR CORPORATE PURCHASERS Individuals, corporations or other institutions may purchase this policy. For group or sponsored arrangements (including employees and certain family members of employees of Southland, its affiliates and appointed sales agents), corporate purchasers, or special exchange programs which we may offer from time to time, we may reduce or waive the: o surrender charge, including the surrender charge on partial withdrawals; o length of time a surrender charge applies; o administrative charge; o minimum stated death benefit; o minimum target death benefit; o minimum annual premium; o target premium; o sales charges; o cost of insurance charges; or o other charges normally assessed. We can reduce or waive these items based on expected economies under a group or sponsored arrangement or with a corporate purchaser. Group arrangements include those in which there is a trustee, an employer or an association. The group either purchases policies covering a group of individuals on a group basis or endorses a policy to a group of individuals. Sponsored arrangements include those in which an employer or association allows us to offer policies to its employees or members on an individual basis. - -------------------------------------------------------------------------------- Future Dimensions 50 Our sales, administration and mortality costs generally vary with the size and stability of the group, among other factors. We take all these factors into account when we reduce charges. A group or sponsored arrangement must meet certain requirements to qualify for reduced charges. We make reductions to charges based on our rules in effect when we approve a policy application. We may change these rules from time to time. Each sponsored arrangement or corporation may have different group premium payments and premium requirements. We will not be unfairly discriminatory in any variation in the surrender charge, administrative charge, or other charges, fees and privileges. These variations are based on differences in costs or services. TAX CONSIDERATIONS The following summary provides a general description of the federal income tax considerations associated with the policy and does not purport to be complete or to cover all tax situations. This discussion is not intended as tax advice. Counsel or other competent tax advisers should be consulted for more complete information. This discussion is based upon our understanding of the present federal income tax laws. No representation is made as to the likelihood of continuation of the present federal income tax laws or as to how they may be interpreted by the Internal Revenue Service. TAX STATUS OF THE POLICY This policy is designed to qualify as a life insurance contract under the Internal Revenue Code. All terms and provisions of the policy shall be construed in a manner which is consistent with that design. In order to qualify as a life insurance contract for federal income tax purposes and to receive the tax treatment normally accorded life insurance contracts under federal tax law, a policy must satisfy certain requirements which are set forth in the Internal Revenue Code. Specifically, the policy must meet the requirements of the "guideline premium/cash value corridor test," as specified in Code section 7702. While there is very little guidance as to how these requirements are applied, we believe it is reasonable to conclude that our policies satisfy the applicable requirements. If it is subsequently determined that a policy does not satisfy the applicable requirements, we will take appropriate and reasonable steps to bring the policy into compliance with such requirements and we reserve the right to restrict policy transactions or modify your policy in order to do so. The guideline premium/cash value corridor test provides for a maximum premium in relation to the death benefit, and a minimum "corridor" of death benefit in relation to account value. SEE APPENDIX A, PAGE 144 FOR A TABLE OF THE GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST FACTORS. DIVERSIFICATION REQUIREMENTS In addition to meeting the Code Section 7702 guideline premium/cash corridor test, Code Section 817(h) requires separate account investments, such as our separate account, to be adequately diversified. The Treasury has issued regulations which set the standards for measuring the adequacy of any diversification. To be adequately diversified, each variable subaccount must meet certain tests. If your variable life policy is not adequately diversified under these regulations, it is not treated as life insurance under Code Section 7702. You would then be subject to federal income tax on your policy income as you earn it. Our variable subaccounts' investment portfolios have promised they will meet the diversification standards that apply to your policy. In certain circumstances, you, as owner of a variable life insurance contract, may be considered the owner for federal income tax purposes of the separate account assets used to support your contract. Any income and gains from the separate account assets are includable in the gross income from your policy under these circumstances. The IRS has stated in published rulings that a variable contract owner is considered the owner of separate account assets if the contract owner has "indicia of ownership" in those assets. "Indicia of ownership" includes the ability to exercise investment control over the assets. Your ownership rights under your policy are similar to, but different in some ways from those described by the IRS in rulings in which it determined that policy owners are not owners of separate account assets. For example, you have flexibility in allocating your premium payments and in your policy values. These differences could result in the IRS - -------------------------------------------------------------------------------- Future Dimensions 51 treating you as the owner of a pro rata share of the separate account assets. We do not know what standards will be set forth in the future, if any, in Treasury regulations or rulings. We reserve the right to modify your policy, as necessary, to try to prevent you from being considered the owner of a pro rata share of the separate account assets, or to otherwise qualify your policy for favorable tax treatment. We will at all times assure that the policy meets the statutory definition which qualifies the policy as life insurance for federal income tax purposes. In addition, as long as the policy remains in force, increases in account value as a result of interest or investment experience will not be subject to federal income tax unless and until there is a distribution from the policy, such as a partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE 52. The following discussion assumes that the policy will qualify as a life insurance contract for federal income tax purposes. TAX TREATMENT OF POLICY DEATH BENEFITS We believe that the death benefit under a policy is generally excludable from the gross income of the beneficiary(ies) under section 101(a)(1) of the Code. However, there are exceptions to this general rule. Additionally, federal and local transfer, estate inheritance and other tax consequences of ownership or receipt of policy proceeds depend on the circumstances of each policy owner or beneficiary(ies). A tax adviser should be consulted about these consequences. Generally, the policy owner will not be taxed on any of the policy account value until there is a distribution. When distributions from a policy occur, or when loan amounts are taken from or secured by a policy, the tax consequences depend on whether or not the policy is a "modified endowment contract." Special rules also apply if you are subject to the alternative minimum tax. You should consult a tax adviser if you are subject to the alternative minimum tax. MODIFIED ENDOWMENT CONTRACTS Under the Internal Revenue Code, certain life insurance contracts are classified as "modified endowment contracts" and are given less favorable tax treatment than other life insurance contracts. Due to the flexibility of the policies as to premiums and benefits, the individual circumstances of each policy will determine whether or not it is classified as a modified endowment contract. The rules are too complex to be summarized here, but generally depend on the amount of premiums we receive during the first seven policy years. Certain changes in a policy after it is issued could also cause it to be classified as a modified endowment contract. A current or prospective policy owner should consult with a competent adviser to determine whether or not a policy transaction will cause the policy to be classified as a modified endowment contract. If a policy becomes a modified endowment contract, distributions that occur during the policy year will be taxed as distributions from a modified endowment contract. In addition, distributions for a policy within two years before it becomes a modified endowment contract will be taxed in this manner. This means that a distribution made from a policy that is not a modified endowment contract could later become taxable as a distribution form a modified endowment contract. MULTIPLE POLICIES All modified endowment contracts that are issued by us (or our affiliates) to the same policy owner during any calendar year are treated as one modified endowment contract for purposes of determining the amount includable in the policy owner's income when a taxable distribution occurs. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS Once a policy is classified as a modified endowment contract, the following tax rules apply both prospectively and to any distributions made in the prior two years: 1. All distributions other than death benefits, including distributions upon surrender and withdrawals, from a modified endowment contact will be treated first as distributions of gain taxable as ordinary income and as - -------------------------------------------------------------------------------- Future Dimensions 52 tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. 2. Loan amounts taken from or secured by a policy classified as a modified endowment contract are treated as distributions and taxed first as distributions of gain taxable as ordinary income and as tax-free recovery of the policy owner's investment in the policy only after all gain has been distributed. 3. A 10% additional income tax penalty may be imposed on the distribution amount subject to income tax. Consult a tax adviser to determine whether or not you may be subject to this penalty tax. DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS Distributions other than death benefits from a policy that is not classified as a modified endowment contract are generally treated first as a recovery of the policy owner's investment in the policy. Only after the recovery of all investment in the policy, is there taxable income. However, certain distributions which must be made in order to enable the policy to continue to qualify as a life insurance contract for federal income tax purposes, if policy benefits are reduced during the first fifteen policy years, may be treated in whole or in part as ordinary income subject to tax. Loan amounts from or secured by a policy that is not a modified endowment contract are generally not treated as distributions. The tax consequences associated with preferred loans is less certain and a tax advisor should be consulted about such loans. Finally, neither distributions from, nor loan amounts from or secured by, a policy that is not a modified endowment contract are subject to the 10% additional income tax. INVESTMENT IN THE POLICY Your investment in the policy is generally the total of your aggregate premiums. When a distribution is taken from the policy, your investment in the policy is reduced by the amount of the distribution that is tax free. POLICY LOANS In general, interest on a policy loan will not be deductible. Moreover, the tax consequences associated with a low-cost loan such as the loan available in the policy are uncertain. Before taking out a policy loan, you should consult a tax adviser as to the tax consequences. If a loan from a policy is outstanding when the policy is canceled or lapses, then the amount of the outstanding indebtedness will be added to the amount treated as a distribution from the policy and will be taxed accordingly. SECTION 1035 EXCHANGES Code Section 1035 generally provides that no gain or loss shall be recognized on the exchange of one life insurance policy for another life insurance policy or for an endowment or annuity contract. We accept 1035 exchanges with outstanding loans. Special rules and procedures apply to Section 1035 exchanges. If you wish to take advantage of Section 1035, you should consult your tax adviser. TAX-EXEMPT POLICY OWNERS Special rules may apply to a policy that is owned by a tax-exempt entity. Tax-exempt entities should consult their tax adviser regarding the consequences of purchasing and owning a policy. These consequences could include an effect on the tax-exempt status of the entity and the possibility of the unrelated business income tax. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative action is uncertain, there is always the possibility that the tax treatment of the policy could be changed by legislation or otherwise. You should consult a tax adviser with respect to legislative developments and their effect on the policy. CHANGES TO COMPLY WITH THE LAW So that your policy continues to qualify as life - -------------------------------------------------------------------------------- Future Dimensions 53 insurance under the Code, we reserve the right to refuse to accept all or part of your premium payments or to change your death benefit. We may refuse to allow you to make partial withdrawals that would cause your policy to fail to qualify as life insurance. We also may: o make changes to your policy or its riders; or o take distributions from your policy to the degree that we deem necessary to qualify your policy as life insurance for tax purposes. If we make any change of this type, it applies the same way to all affected policies. The tax law limits the amount we can charge for mortality costs and other expenses used to calculate whether your policy qualifies as life insurance for federal income tax purposes. We must base these calculations on reasonable mortality charges and as permitted, other charges reasonably expected to be paid. The Treasury issued proposed regulations on what it considers reasonable mortality charges. We believe that the charges used for your policy should meet the Treasury's current requirement for "reasonableness." We reserve the right to make changes to the mortality charges if future regulations have standards which make changes necessary in order to continue to qualify your policy as life insurance for federal income tax purposes. Additionally, assuming that you do not want your policy to be or to become a modified endowment contract, we include a policy endorsement under which we have the right to amend your policy, including riders. We do this to attempt to enable your policy to continue to meet the seven-pay test for federal income tax purposes. If the policy premium you pay is more than the seven-pay limit, we have the right to remove any excess premium or to make any appropriate adjustments to your policy's account value and death benefit. It is not clear, however, whether we can take effective action pursuant to this endorsement under all possible circumstances to prevent a policy that has exceeded the premium limitation from being classified as a modified endowment contract. Any increase in your death benefit will cause an increase in your cost of insurance charges. OTHER Policy owners may use our policies in various arrangements, including: o qualified plans; o non-qualified deferred compensation or salary continuance plans; o split dollar insurance plans; o executive bonus plans; o retiree medical benefit plans; and o other plans. The tax consequences of these plans may vary depending on the particular facts and circumstances of each arrangement. If you want to use any of your policies in this type of arrangement, you should consult a qualified tax adviser regarding the tax issues of your particular arrangement. In recent years, Congress has adopted new rules relating to life insurance owned by businesses. Any business contemplating the purchase of a new policy or a change in an existing policy should consult a tax adviser. The IRS requires us to withhold income taxes from any portion of the amounts individuals receive in a taxable transaction. We do not withhold income taxes if you elect in writing not to have withholding apply. If the amount withheld for you is insufficient to cover income taxes, you may have to pay income taxes and possibly penalties later. The transfer of the policy or designation of a beneficiary may have federal, state and/or local transfer and inheritance tax consequences, including the imposition of gift, estate and generation-skipping transfer taxes. For example the transfer of the policy to, or the designation as a beneficiary of, or the payment of proceeds to a person who is assigned to a generation which is two or more generations below the generation assignment of the policy owner may have generation skipping transfer tax consequences under federal tax law. The individual situation of each policy owner or beneficiary will determine the extent, if any, to which federal, state and local transfer and inheritance taxes may be imposed and how ownership or receipt of policy proceeds will be treated for purposes of federal, state and local estate, inheritance, generation skipping and other taxes. YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS. - -------------------------------------------------------------------------------- Future Dimensions 54 ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, AND ACCUMULATED PREMIUMS The following tables are intended to show how the policy works, including how benefits and values can vary over time. Each table compares these values with total premiums we receive with interest. The policy illustrated uses the following assumptions:
Tobacco User* Death Benefit Stated Target Death Gender Age Status Option Death Benefit Premium Benefit - ------ --- ------ ------ ------------- ------- ------- Male 45 Preferred A $250,000 $4,500 $250,000 Non-tobacco
- ------------------ * "Tobacco User" includes the use of cigarettes, cigars, pipes, chewing tobacco, nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based product. The tables show how death benefits, account values, and net cash surrender value of a hypothetical policy could vary over an extended period of time, assuming the variable subaccounts had constant hypothetical gross annual investment returns of 0%, or 10% over the periods indicated in each table. Values would differ from those shown in the tables if the annual investment returns were not constant. The amounts shown would differ if we had used female or unisex rates. These illustrations assume there is no policy loan. We illustrate premium payments as if they were made at the beginning of the year. Each table shows what would happen if an amount equal to the assumed premiums earned interest, after taxes, of 5% compounded annually. The difference between the account value and the net cash surrender value in the first fourteen years of the policy shows the effect of the surrender charge. The net investment return on your policy is lower than the gross investment return on the variable subaccounts as a result of the mortality and expense risk charge, the portfolio management fees and portfolio expenses. We show the effect of the net investment return in the amounts for death benefits, account values and account value minus any surrender charge. The tables reflect annual investment management fees of 0.61% of the portfolios' aggregate average daily net assets. This hypothetical rate is a simple average of the investment advisory fees applying to the investment portfolios for the year ending December 31, 1999. We assume other portfolio expenses at the rate of 0.12% of the portfolios' average daily net assets. This is an average of all the portfolios' other expenses for the year ending December 31, 1999 after any absorption by investment portfolio managers has been made. The average of all portfolios' total expenses is 0.73%. Actual fees vary by portfolio. The portfolio fees and expenses used in the illustrations are the net amounts shown after expense reimbursements or waivers of fees and expenses by the portfolio's investment manager. Absent such expense reimbursements or waivers, the total average investment management fees, average other portfolio expenses and the average of all portfolios' total expenses used in the illustrations would have been higher (0.61%, 0.14% and 0.75%, respectively). The tables assume that the current expense reimbursement arrangements will continue. However, they may not continue through 2000. The effect of these portfolio charges and expenses, and mortality and expense risk charges result in a net rate of return of : o (1.62)% on a 0% gross rate of return; and o 8.29% on a 10% gross rate of return. - -------------------------------------------------------------------------------- Future Dimensions 55 The tables assume that charges have been deducted including deductions for premiums, cost of insurance rider charges, monthly deductions, mortality and expense risk charges, and administrative and sales charges. The tables show charges at our current rates which includes a persistency refund. The tables also show charges at the maximum rates we guarantee in our policies. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 45. The tables reflect that we do not currently charge against the separate account for state or federal taxes. If we charge for the taxes in the future, it will take a higher gross rate of return than the rates shown to produce the same death benefits, account values and account value minus any surrender charge. If we are asked to do so, we will give you a comparable personal illustration based on: o the insured person's age and gender; o standard premium class assumptions; o initial stated death benefit; o the chosen death benefit option; o scheduled premiums consistent with your policy form; and o special features elected on your policy. At issue, we deliver an individualized illustration showing the scheduled premium you chose and the insured person's actual risk class. After we issue the policy, if you ask us to, we will give you an illustration of future policy benefits. We base these hypothetical future benefits on both guaranteed and current cost factor assumptions and actual account value. - -------------------------------------------------------------------------------- Future Dimensions 56 SOUTHLAND LIFE FUTURE DIMENSIONS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $250,000 ANNUAL PREMIUM: $4,500 MALE 45 PREFERRED NON-TOBACCO DEATH BENEFIT OPTION A SUMMARY PAGE ASSUMING GUARANTEED CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------10.00%--------- PREMIUM NET CASH CASH ACCUMULATED ACCM SURR DEATH NET ACCM SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 2904 934 250000 3252 1282 250000 2 4500 9686 5943 3723 250000 6968 4748 250000 3 4500 14896 8874 4724 250000 10933 6783 250000 4 4500 20365 11696 7546 250000 15168 11018 250000 5 4500 26109 14401 10251 250000 19688 15538 250000 6 4500 32139 16990 12840 250000 24518 20368 250000 7 4500 38471 19448 15298 250000 29671 25521 250000 8 4500 45120 21763 17613 250000 35166 31016 250000 9 4500 52101 23926 19776 250000 41026 36876 250000 10 4500 59431 25921 22463 250000 47270 43812 250000 15 4500 101959 33674 33674 250000 87341 87341 250000 20 4500 156237 34846 34846 250000 146249 146249 250000 25 4500 225511 24364 24364 250000 238696 238696 276887 30 4500 313924 -- -- -- 380824 380824 407482 AGE 65 4500 168773 33885 33885 250000 161344 161344 250000
The expense charges and cost of insurance rates will never be greater than those which were used to calculate the above value. The hypothetical gross rates of return shown are illustrative only and are not a representation of past or future investment results. Actual investment results may be different from those shown and will depend on a number of factors, including selected investment allocations and investment experience. No representation is made that these hypothetical gross investment returns can be achieved 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% and 10.00% 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. - -------------------------------------------------------------------------------- Future Dimensions 57 SOUTHLAND LIFE FUTURE DIMENSIONS VARIABLE UNIVERSAL LIFE STATED DEATH BENEFIT: $250,000 ANNUAL PREMIUM: $4,500 MALE 45 PREFERRED NON-TOBACCO DEATH BENEFIT OPTION A SUMMARY PAGE ASSUMING CURRENT CHARGES Assuming Hypothetical Gross Investment Return of:
-----------0.00%-------- ---------10.00%--------- PREMIUM NET CASH NET CASH ACCUMULATED ACCM SURR DEATH ACCM SURR DEATH YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT 1 4500 4725 2953 983 250000 3304 1334 250000 2 4500 9686 6040 3820 250000 7075 4855 250000 3 4500 14896 9025 4875 250000 11107 6957 250000 4 4500 20365 11972 7822 250000 15490 11340 250000 5 4500 26109 14882 10732 250000 20255 16105 250000 6 4500 32139 17757 13607 250000 25435 21285 250000 7 4500 38471 20596 16446 250000 31066 26916 250000 8 4500 45120 23439 19289 250000 37231 33081 250000 9 4500 52101 26385 22235 250000 44085 39935 250000 10 4500 59431 29295 25837 250000 51536 48078 250000 15 4500 101959 44040 44040 250000 101851 101851 250000 20 4500 156237 54746 54746 250000 177570 177570 250000 25 4500 225511 60148 60148 250000 294245 294245 341324 30 4500 313924 57601 57601 250000 470395 470395 503323 AGE 65 4500 168773 56303 56303 250000 197105 197105 250000
The expense charges and cost of insurance rates are subject to change. Account values will vary from those illustrated if actual rates differ from those assumed. Current mortality charges 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 are not a representation of past or future investment results. Actual investment results may be different from those shown and will depend on a number of factors, including selected investment allocations and investment experience. No representation is made that these hypothetical gross investment returns can be achieved 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% and 10.00% 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. - -------------------------------------------------------------------------------- Future Dimensions 58 ADDITIONAL INFORMATION DIRECTORS AND OFFICERS Set forth below is information regarding the directors and principal officers of Southland Life Insurance Company. Southland's address, and the business address of each person named, except as noted 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 one asterisk (*) is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699.
Name Position and Offices with Southland Life - ---- ---------------------------------------- Stephen M. Christopher* Chairman and President Jerome J. Cwiok Director, Executive Vice President and Chief Operating Officer B. Scott Burton Director Valerie G. Brown Director P. Randall Lowery Director James D. Thompson Director Michael W. Cunningham Director Mark A. Tullis Director James L. Livingston, Jr.* Executive Vice President, CFO and Chief Actuary John R. Barmeyer Senior Vice President - Legal Services R. Thomas Daniel Senior Vice President and Chief Production Officer & Chief Marketing Officer Terry L. Morrison* Senior Vice President, New Business Operations Derek J. Reynolds Senior Vice President and Chief Information Officer Mark A. Smith* Senior Vice President, Insurance Services Samuel H. Turner Senior Vice President - Emerging Markets Gretta Ytterbo Senior Vice President - ING US Legal Services Gary W. Waggoner* Vice President, Secretary ING US Legal Services
- -------------------------------------------------------------------------------- Future Dimensions 59 REGULATION We are regulated and supervised by the Department of Insurance of the State of Texas 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 Southland. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on certain matters relating to the federal securities laws. LEGAL PROCEEDINGS Southland, as an insurance company, is ordinarily involved in litigation. We do not believe that any current litigation is material to Southland's ability to meet its obligations under the policy or to the separate account, and we do not expect to incur significant losses from such actions. ING America Equities, Inc., the principal underwriter and distributor of the policy, is not engaged in any litigation of any material nature. EXPERTS The financial statements of Southland Life Insurance Company at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, and the financial statements of the Southland Separate Account L1 at December 31, 1999, and for each of the three years in the period ended December 31, 1999, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. Actuarial matters in this prospectus have been examined by James L. Livingston, Jr., F.S.A., M.A.A.A., who is Executive Vice President, CFO and Chief Actuary of Southland. His opinion on actuarial matters is filed as an exhibit to the Registration Statement we filed with the SEC. REGISTRATION STATEMENT We have filed a Registration Statement relating to the separate account and the variable life insurance policy described in this prospectus with the SEC. The Registration Statement, which is required by the Securities Act of 1933, includes additional information that is not required in this prospectus under the rules and regulations of the SEC. The additional information may be obtained from the SEC's principal office in Washington, DC. There is a charge for this material. - -------------------------------------------------------------------------------- Future Dimensions 60 FINANCIAL STATEMENTS The financial statements of Southland Life Insurance company ("Southland") at December 31, 1999, and 1998, and for each of the three years in the period ended December 31, 1999, are prepared in accordance with accounting principles generally accepted in the United States and start on page 62. The financial statements included for the Southland Separate Account L1 at December 31, 1999 and for each of the three years in the period ended December 31, 1999, are prepared in accordance with accounting principles generally accepted in the United States and represent those divisions that had commenced operations by that date. The financial statements of Southland, as well as the financial statements included for the Southland Separate Account L1 referred to above have been audited by Ernst & Young LLP. The financial statements of Southland should be distinguished from the financial statements of the Southland Separate Account L1 and should be considered only as bearing upon the ability of Southland to meet its obligations under the policies. They should not be considered as bearing upon the investment experience of the divisions of Southland Separate Account L1. - -------------------------------------------------------------------------------- Future Dimensions 61 Financial Statements Southland Life Insurance Company Years ended December 31, 1999, 1998 and 1997 with Report of Independent Auditors - -------------------------------------------------------------------------------- Future Dimensions 62 Southland Life Insurance Company Financial Statements Years ended December 31, 1999, 1998 and 1997 Contents Report of Independent Auditors................................................64 Audited Financial Statements Balance Sheets................................................................65 Statements of Income..........................................................67 Statements of Changes in Stockholder's Equity.................................68 Statements of Cash Flows......................................................69 Notes to Financial Statements.................................................71 - -------------------------------------------------------------------------------- Future Dimensions 63 Report of Independent Auditors Board of Directors Southland Life Insurance Company We have audited the accompanying balance sheets of Southland Life Insurance Company as of December 31, 1999 and 1998, and the related statements of income, changes in stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southland Life Insurance Company at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Atlanta, Georgia March 28, 2000 - -------------------------------------------------------------------------------- Future Dimensions 64 Southland Life Insurance Company Balance Sheets
December 31 1999 1998 ----------------- ------------------- (In Thousands) ASSETS Investments (Notes 1, 2, 3 and 4): Fixed maturities: Available-for-sale, at fair value (amortized cost: 1999 - $1,338,052; 1998 - $1,140,483) $1,280,301 $1,186,813 Equity securities, at fair value (cost: 1999 - $8,529; 1998 - $5,941) 8,926 6,503 Mortgage loans on real estate 381,082 341,673 Real estate 1,300 - Policy loans 88,847 87,904 Short-term investments 30,079 - ----------------- ------------------- Total investments 1,790,535 1,622,893 Cash - 4,742 Accrued investment income 24,018 18,336 Reinsurance recoverable: Paid benefits 36,922 3,539 Unpaid benefits and IBNR 15,761 5,201 Prepaid reinsurance premiums 167,597 190,035 Deferred policy acquisition costs 292,521 223,949 Present value of future profits less accumulated amortization (1999 - $216,355; 1998 - $205,258) 62,860 59,628 Goodwill less accumulated amortization (1999 - $15,704; 1998 - $14,163) 44,756 46,298 Separate account assets (Note 13) 95,610 54,009 Federal taxes recoverable from related party (Note 8) - 6,598 Deferred federal income tax asset 4,056 - Other assets 11,485 16,626 ----------------- ------------------- Total assets $2,546,121 $2,251,854 ================= ===================
- -------------------------------------------------------------------------------- Future Dimensions 65 Southland Life Insurance Company Balance Sheets
December 31 1999 1998 ---------------------- --------------------- (In Thousands, Except Share Amounts) LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Future policy benefits: Life and annuity reserves $1,843,154 $1,549,782 Accident and health reserves 8,367 9,647 Guaranteed investment contracts 92,545 137,714 Policyholders' funds 2,463 2,632 Advance premiums 88 97 Accrued dividends and dividends on deposit 721 742 Unpaid claims 26,054 30,442 ---------------------- ---------------------- Total future policy benefits 1,973,392 1,731,056 Accounts payable and accrued expenses 7,897 12,204 Aggregate indebtedness to related parties 59,549 6,355 Other liabilities 56,700 36,437 Separate account liabilities (Note 13) 95,610 54,009 Federal income taxes payable (Note 8): Current 1,017 - Deferred - 31,425 ---------------------- ---------------------- Total liabilities 2,194,165 1,871,486 Stockholder's equity (Note 9): Common stock, $3 par value: Authorized - 2,550,000 shares Issued and outstanding - 2,500,000 shares 7,500 7,500 Additional paid-in capital 285,506 271,906 Accumulated other comprehensive income (19,308) 20,637 Retained earnings 78,258 80,325 ---------------------- ---------------------- Total stockholder's equity 351,956 380,368 ---------------------- ---------------------- Total liabilities and stockholder's equity $2,546,121 $2,251,854 ====================== ======================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 66 Southland Life Insurance Company Statements of Income
Year ended December 31 1999 1998 1997 ----------------- ------------------ ----------------- (In Thousands) Revenues: Traditional life insurance premiums $ 38,397 $ 36,383 $ 32,304 Health insurance premiums 80,470 68,947 69,997 Universal life and investment product charges 112,354 107,634 92,660 Reinsurance assumed - 397 570 ----------------- ------------------ ----------------- 231,221 213,360 195,531 Reinsurance ceded premiums (61,571) (52,378) (61,103) ----------------- ------------------ ----------------- 169,650 160,983 134,428 Net investment income 124,624 111,408 107,563 Net realized (losses) gains on investments (5,077) 19,296 25,294 Other revenues 8,510 7,712 11,293 ----------------- ------------------ ----------------- Total revenues 297,707 299,399 278,578 Benefits and expenses: Insurance claims and benefits incurred: Traditional life insurance: Death benefits 28,900 29,201 27,569 Other benefits 22,881 16,524 19,452 Universal life and investment contracts: Interest credited to account balances 65,332 57,581 46,182 Death benefit incurred in excess of account balances 37,773 27,753 21,102 Health benefits 63,137 62,470 53,613 (Decrease) increase in policy reserves and other funds (6,716) 960 (2,579) Reinsurance recoveries (55,520) (48,478) (43,814) ----------------- ------------------ ----------------- 155,787 146,011 121,525 Commissions 15,937 16,676 17,186 Insurance operating expenses (Note 11) 62,589 60,422 38,644 Amortization of goodwill 1,541 1,541 1,541 Amortization of present value of future profits, net of accrued interest 6,280 4,694 9,473 Amortization of deferred policy acquisition costs 29,154 30,925 27,572 ----------------- ------------------ ----------------- 271,288 260,269 215,941 ----------------- ------------------ ----------------- Income before federal income taxes 26,419 39,130 62,637 Federal income taxes (Note 8) 9,886 14,297 22,479 ----------------- ------------------ ----------------- Net income $ 16,533 $ 24,833 $ 40,158 ================= ================== =================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 67 Southland Life Insurance Company Statements of Changes in Stockholder's Equity
Accumulated Additional Other Common Paid-in Comprehensive Retained Stock Capital Income Earnings Total ------------- -------------- ------------------ ------------- ------------- (In Thousands) Balance at December 31, 1996 $7,500 $246,906 $ 19,013 $ 96,734 $370,153 Dividends to stockholder - - - (42,000) (42,000) Comprehensive income: Change in net unrealized investment gains net of deferred taxes of $3,255 - - 6,044 - - Effect on DPAC and PVFP of unrealized gains on fixed maturities, net of deferred taxes of ($397) - - (737) - - Net income - - - 40,158 - Total comprehensive income - - - - 45,465 -------------- -------------- ------------------ -------------- ------------- Balance at December 31, 1997 7,500 246,906 24,320 94,892 373,618 Dividends to stockholder - - - (39,400) (39,400) Contributed surplus - 25,000 - - 25,000 Comprehensive income: Change in net unrealized investment losses net of deferred taxes of ($996) - - (1,851) - - Effect on DPAC and PVFP of unrealized losses on fixed maturities, net of deferred taxes of ($987) - - (1,832) - - Net income - - - 24,833 - Total comprehensive income - - - - 21,150 -------------- -------------- ------------------ -------------- ------------- Balance at December 31, 1998 7,500 271,906 20,637 80,325 380,368 Dividends to stockholder - - - (18,600) (18,600) Contributed surplus - 13,600 - - 13,600 Comprehensive income: Change in net unrealized investment losses net of deferred taxes of ($36,486) - - (67,760) - - Effect on DPAC and PVFP of unrealized losses on fixed maturities, net of deferred taxes of $14,977 - - 27,815 - - Net income - - - 16,533 - Total comprehensive income - - - - (23,412) -------------- -------------- ------------------ -------------- ------------- Balance at December 31, 1999 $7,500 $285,506 $(19,308) $78,258 $351,956 ============== ============== ================== ============== =============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 68 Southland Life Insurance Company Statements of Cash Flows
Year ended December 31 1999 1998 1997 ------------------- --------------- ---------------- (In Thousands) OPERATING ACTIVITIES Net income $ 16,533 $ 24,833 $ 40,158 Adjustments to reconcile net income to net cash (used in) provided by operating activities: (Decrease) increase in future policy benefits (7,657) (78,110) 29,507 Net (decrease) increase in federal income taxes (6,357) (22,325) 4,121 Increase in accounts payable and accrued expenses and other liabilities 15,956 24,191 4,839 Increase in accrued investment income (5,682) (375) (652) Net realized investment losses (gains) 5,077 (19,296) (25,294) (Increase) decrease in reinsurance recoverable (43,943) 88 (26) Decrease (increase) in prepaid reinsurance premiums 22,438 85,119 (14,796) Amortization expense 7,822 6,235 11,125 Policy acquisition costs deferred (64,446) (64,456) (51,940) Amortization of deferred policy acquisition costs 29,154 30,925 27,572 Other, net 4,845 (10,280) (1,124) ------------------- --------------- ---------------- (26,260) (23,451) 23,379 Net cash (used in) provided by operating activities INVESTING ACTIVITIES Securities available-for-sale: Sales: Fixed maturities 520,010 1,936,423 608,076 Equity securities 3,190 883 335 Maturities - fixed maturities 63,320 71,935 79,378 Purchases: Fixed maturities (787,089) (2,150,706) (831,839) Equity securities (4,617) (3,442) (2,699) Sale, maturity or repayment of investments: Mortgage loans on real estate 25,104 42,185 40,060
- -------------------------------------------------------------------------------- Future Dimensions 69 Southland Life Insurance Company Statements of Cash Flows (continued)
Year ended December 31 1999 1998 1997 ------------------------- ----------------- ------------------ (In Thousands) INVESTING ACTIVITIES (CONTINUED) Purchase or issuance of investments: Mortgage loans on real estate (64,265) (46,886) (22,073) Real estate (1,300) - - Policy loans, net (943) (1,748) (4,016) Short-term investments, net (30,079) 3,311 11,838 ------------------------- ----------------- ------------------ Net cash used in investing activities (276,669) (148,045) (120,940) FINANCING ACTIVITIES Capital contribution accrued in the prior year 25,000 - - Increase (decrease) in indebtedness to related parties, net 55,794 13,252 (5,277) Receipts from interest sensitive products credited to policyholder account balances 301,228 238,468 162,826 Return of policyholder account balances on interest sensitive policies (51,235) (42,900) (33,077) Return of capital and dividends paid to stockholder (32,600) (39,400) (28,000) ------------------------- ----------------- ------------------ Net cash provided by financing activities 298,187 169,420 96,472 ------------------------- ----------------- ------------------ Net decrease in cash (4,742) (2,076) (1,089) Cash at beginning of year 4,742 6,818 7,907 ------------------------- ----------------- ------------------ Cash at end of year $ - $ 4,742 $ 6,818 ========================= ================= ==================
The Company paid interest of $540,000, $887,000 and $1,549,000 during 1999, 1998 and 1997, respectively. See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 70 Southland Life Insurance Company Notes to Financial Statements December 31, 1999 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION Southland Life Insurance Company (the Company) is a wholly-owned subsidiary of ING America Life Corporation (America Life), an indirect, wholly-owned subsidiary of ING Groep, N.V. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NATURE OF OPERATIONS The Company's market focus is on the middle-income consumer. The life insurance products offered address retirement accumulation, wealth transfer and estate planning, and death protection needs. Products include universal life, survivorship and traditional life and products with low expense loads to institutional and individual customers. Operations are conducted through independent producers. An increasing portion of the Company's business is no-load products sold to individuals, by fee-based financial planners, businesses and institutions. The Company is presently licensed in forty-eight states (all states except for New York and Vermont), the District of Columbia, and Puerto Rico. Prior to December 1999, the Company provided stop-loss coverage on group health insurance. Effective December 1, 1999, the Company entered into a reinsurance agreement with SAFECO Life Insurance Company to cede the Company's medical stop loss and group term life business. The commission and expense allowance received on this transaction resulted in a gain of $17,925,000. Of this gain, $16,166,000 has been deferred and will be recognized as income over the next twelve months. These policies will not be renewed by the Company at the end of their current terms. - -------------------------------------------------------------------------------- Future Dimensions 71 Southland Life Insurance Company Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NATURE OF OPERATIONS (CONTINUED) The significant accounting policies followed by the Company that materially affect the financial statements are summarized below. ACCOUNTING CHANGES In 1998, the Company adopted FASB Statement No. 130, Reporting Comprehensive Income. Statement No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. The adoption of this FASB had no impact on the Company's financial position or results from operations. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During 1998, the FASB issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective for fiscal years beginning after June 15, 2000. The Company plans to adopt this statement during 2001, and the effect of implementation on the Company's financial statements has not yet been determined. INVESTMENTS Investments are shown on the following bases: The carrying value of fixed maturities depends on the classification of the security: securities held-to-maturity, securities available-for-sale, and trading securities. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to- maturity securities are stated at amortized cost. Debt securities not classified as held-to-maturity and marketable equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of tax, and deferred acquisition cost and present value of future profit adjustments, reported in a separate component of stockholder's equity. - -------------------------------------------------------------------------------- Future Dimensions 72 Southland Life Insurance Company Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVESTMENTS (CONTINUED) All of the Company's securities were classified as available-for-sale at December 31, 1999 and 1998. The amortized cost of debt securities classified as held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization is included in interest income from investments. Interest and dividends are included in net investment income as earned. Equity securities are reported at fair value. Mortgage loans are carried at the unpaid balances. Policy loans are carried at unpaid balances. Short-term investments are carried at cost, which approximates fair value. Derivatives are accounted for on the same basis as the asset hedged. Realized gains and losses, and declines in value judged to be other-than-temporary are included in net realized gains (losses) on investments. The cost of securities sold is based on the specific identification method. RECOGNITION OF PREMIUM REVENUES AND COSTS For life and annuity contracts other than universal life or investment-type contracts, premiums are recognized as revenues over the premium-paying period, with valuation reserves for future benefits established on a pro-rata basis from such premiums. Revenues for universal life and investment-type contracts consist of policy charges for the cost of insurance and policy administration and surrender charges assessed during the period. Expenses include interest credited to policy account balances and benefits incurred in excess of policy account balances. Certain profits on limited-payment policies are deferred and recognized over the policy term. - -------------------------------------------------------------------------------- Future Dimensions 73 Southland Life Insurance Company Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECOGNITION OF PREMIUM REVENUES AND COSTS (CONTINUED) For accident and health policies, gross premiums are prorated over the contract term of the policies with the unearned premium included in the policy reserves. Anticipated investment income is considered in determining if a premium deficiency related to short-term contracts exists. DEFERRED POLICY ACQUISITION COSTS Commissions and other costs of acquiring traditional life insurance, universal life insurance (including interest sensitive products) and investment products that vary with and are primarily related to the production of new and renewal business have been deferred. Traditional life insurance acquisition costs are being amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance and investment products, acquisition costs are being amortized generally in proportion to the present value (using the assumed crediting rate) of expected gross profits from surrender charges and investment, mortality, and expense margins. This amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised. Deferred policy acquisition costs are adjusted to reflect changes that would have been necessary if unrealized investment gains and losses related to available-for-sale securities had been realized. The Company has reflected those adjustments in the asset balance with the offset as a direct adjustment to stockholder's equity. FUTURE POLICY BENEFITS Benefit reserves, with the exception of reserves for universal life-type policies and investment products, are computed using a net level premium method including assumptions as to investment yields, mortality, withdrawals and other assumptions based on the Company's and industry experience, modified as necessary to reflect anticipated trends to include provisions for possible unfavorable deviations. Reserve interest assumptions are those deemed appropriate at the time of policy issue, and range from 6% to 9%. Policy benefit claims are charged to expense in the year that the claims are incurred. Health reserves consist principally of unearned premiums and claim reserves. - -------------------------------------------------------------------------------- Future Dimensions 74 Southland Life Insurance Company Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FUTURE POLICY BENEFITS (CONTINUED) Benefit reserves for interest sensitive products (including universal life-type policies) and investment products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred during the year in excess of related policy account balances. Interest crediting rates for universal life and investment products range from 4.75% to 6.25% during 1999, from 4.5% to 6% during 1998, and from 4.75% to 6% during 1997. Included in life and annuity reserves is an unearned revenue reserve that reflects the unamortized balance of excess policy fees over ultimate policy fees on universal life and investment products. These excess fees have been deferred and are being recognized in income over the periods benefited, using the same assumptions and factors used to amortize deferred policy acquisition costs. UNPAID CLAIMS The liabilities for unpaid claims include estimates of amounts due on reported claims and claims that have been incurred but were not reported as of December 31. Such estimates are based on actuarial projections applied to historical claim payment data. Such liabilities are reasonable and adequate to discharge the Company's obligations for claims incurred but unpaid as of December 31. GOODWILL The excess cost of acquired subsidiaries over the sum of amounts assigned to identifiable assets at acquisition, less liabilities assumed, is recorded as goodwill. Generally, goodwill is amortized using the straight-line method over forty years. - -------------------------------------------------------------------------------- Future Dimensions 75 Southland Life Insurance Company Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRESENT VALUE OF FUTURE PROFITS The present value of future profits (PVFP) represents the profits to be realized from future premiums on insurance in-force (at the date of acquisition) from businesses acquired. The PVFP arises from the acquisition of the Company by America Life. The PVFP is being amortized over the years that it is anticipated such profits will be received. In general, this value is determined using the same assumptions applied to compute benefit reserves and deferred policy acquisition costs, discounted to provide an appropriate rate of return. Interest for traditional life business is accrued at a rate of 7.75% and 7.93% in 1999 and 1998, respectively, grading down to 6% over the next 12 years. Interest for universal life business is amortized based on the credited rate. An analysis of the PVFP for the years ended December 31 follows: 1999 1998 1997 ------------ ------------ ------------ (In Thousands) Balance at beginning of year $ 59,628 $64,363 $ 72,345 Interest accrued on unamortized balance 4,817 5,289 6,145 Amortization (11,097) (9,983) (15,618) FAS 115 adjustment 9,512 (41) 1,491 ------------ ------------ ------------ Balance at end of year $ 62,860 $59,628 $ 64,363 ============ ============ ============ - -------------------------------------------------------------------------------- Future Dimensions 76 Southland Life Insurance Company Notes to Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRESENT VALUE OF FUTURE PROFITS (CONTINUED) The estimated amount of amortization during each of the next five years is shown below: Amortization of PVFP ----------------------- (In Thousands) 2000 $8,498 2001 6,956 2002 6,353 2003 5,760 2004 5,433 FEDERAL INCOME TAXES Deferred federal income taxes have been provided or credited to reflect significant temporary differences between income reported for tax and financial reporting purposes using reasonable assumptions. CASH FLOW INFORMATION Cash includes cash on hand and demand deposits. RECLASSIFICATIONS Certain amounts in the 1997 and 1998 financial statements have been reclassified to conform to the 1999 presentation. - -------------------------------------------------------------------------------- Future Dimensions 77 Southland Life Insurance Company Notes to Financial Statements (continued) 2. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of the Company's financial instruments at December 31, 1999 and 1998 are summarized below:
December 31, 1999 December 31, 1998 ------------------------------- -------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value -------------------------------- ---------------- ---------------- (In Thousands) (In Thousands) ASSETS Fixed maturities: Available-for-sale $1,280,301 $1,280,301 $1,186,813 $1,186,813 Equity securities 8,926 8,926 6,503 6,503 Mortgage loans on real estate 381,082 378,086 341,673 370,736 Real estate 1,300 1,300 - - Policy loans 88,847 77,654 87,904 83,855 Short-term investments 30,079 30,079 - - LIABILITIES Supplemental contracts without life contingencies 866 866 1,079 1,079 Other policyholder funds left on deposit 3,272 3,272 3,471 3,471 Individual annuities, net of reinsurance 13,674 13,564 15,447 15,286
The following methods and assumptions were used by the Company in estimating the fair value disclosures for financial instruments: FIXED MATURITIES, EQUITY SECURITIES AND SHORT-TERM INVESTMENTS: The fair values for fixed maturities (including redeemable preferred stocks) are based on quoted market prices, where available. For fixed maturities not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements and collateralized mortgage obligations and other mortgage derivative investments, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values of equity securities are based on quoted market prices. The fair values of short-term investments approximate the carrying amount of such assets. - -------------------------------------------------------------------------------- Future Dimensions 78 Southland Life Insurance Company Notes to Financial Statements (continued) 2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) MORTGAGE LOANS ON REAL ESTATE: Estimated fair values for commercial real estate loans are generated using a discounted cash flow approach. Loans in good standing are discounted using interest rates determined by U.S. Treasury yields at December 31 and spreads required on new loans with similar characteristics. The amortizing features of all loans are incorporated in the valuation. Where data on option features is available, option values are determined using a binomial valuation method and are incorporated into the mortgage valuation. Restructured loans are valued in the same manner; however, these are discounted at a greater spread to reflect increased risk. Fair values for residential loans are based on discounted cash flows and approximate carrying value. POLICY LOANS: The fair values for policy loans are estimated by discounting cash flows at the interest rates charged on policy loans of similar policies currently being issued. Loans with similar characteristics are aggregated for purposes of the calculations. DERIVATIVE FINANCIAL INSTRUMENTS: Fair values for on-balance-sheet derivative financial instruments (swaps hedging fixed maturities) are based on broker/dealer valuations or on internal discounted cash flow pricing models taking into account current cash flow assumptions and the counterparties' credit standing. Swaps with a fair value of $(38,000) at December 31, 1999 and $1,219,000 at December 31, 1998 represent asset hedges and are reported as a component of fixed maturity securities on the accompanying balance sheets. OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the Company's deferred annuity contracts and supplemental contracts without life contingencies are estimated based on the cash surrender value. The carrying values of other liabilities including immediate annuities, dividend accumulations, and premium deposits approximate their fair values. - -------------------------------------------------------------------------------- Future Dimensions 79 Southland Life Insurance Company Notes to Financial Statements (continued) 3. INVESTMENTS The amortized cost and estimated fair value of investments in fixed maturities and equity securities are as follows at December 31, 1999:
Cost or Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------- -------------- -------------- -------------- (In Thousands) Available-for-sale: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 42,638 $ 297 $ 3,072 $ 39,863 States, municipalities and political subdivisions 8,528 24 9 8,543 Public utilities securities 82,057 1,417 5,605 77,869 Corporate securities 485,210 7,526 24,426 468,310 Mortgage-backed securities 478,721 742 25,572 453,891 Other asset-backed securities 240,898 1,460 10,495 231,863 Derivatives hedging fixed maturities - - 38 (38) -------------- -------------- -------------- -------------- Total fixed maturities 1,338,052 11,466 69,217 1,280,301 Equity securities 8,529 426 29 8,926 -------------- -------------- -------------- -------------- Total $1,346,581 $11,892 $69,246 $1,289,227 ============== ============== ============== ==============
- -------------------------------------------------------------------------------- Future Dimensions 80 Southland Life Insurance Company Notes to Financial Statements (continued) 3. INVESTMENTS (CONTINUED) The amortized cost and estimated fair value of investments in fixed maturities and equity securities are as follows at December 31, 1998:
Cost or Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------- -------------- -------------- -------------- (In Thousands) Available-for-sale: U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 48,127 $ 1,944 $ 113 $ 49,958 States, municipalities and political subdivisions 7,589 943 - 8,532 Public utilities securities 39,712 1,572 444 40,840 Corporate securities 516,585 32,408 7,060 541,933 Mortgage-backed securities 308,710 10,582 1,895 317,397 Other asset-backed securities 219,760 7,760 586 226,934 Derivatives hedging fixed maturities - 1,232 13 1,219 -------------- -------------- -------------- -------------- Total fixed maturities 1,140,483 56,441 10,111 1,186,813 Equity securities 5,941 767 205 6,503 -------------- -------------- -------------- -------------- Total $1,146,424 $57,208 $10,316 $1,193,316 ============== ============== ============== ==============
- -------------------------------------------------------------------------------- Future Dimensions 81 Southland Life Insurance Company Notes to Financial Statements (continued) 3. INVESTMENTS (CONTINUED) The amortized cost and estimated fair value of debt securities by contractual maturity and marketable equity securities at December 31, 1999 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Cost or Estimated Amortized Fair Cost Value -------------- ------------------- (In Thousands) Available-for-sale: Due in one year or less $ 2,872 $ 2,889 Due after one year through five years 91,371 92,889 Due after five years through ten years 274,997 264,698 Due after ten years 249,193 234,071 -------------- ------------------- 618,433 594,547 Mortgage-backed securities 478,721 453,891 Other asset-backed securities 240,898 231,863 Equity securities 8,529 8,926 -------------- ------------------- Total available-for-sale $1,346,581 $1,289,227 ============== =================== - -------------------------------------------------------------------------------- Future Dimensions 82 Southland Life Insurance Company Notes to Financial Statements (continued) 3. INVESTMENTS (CONTINUED) Changes in unrealized gains (losses) on investments in available-for-sale securities for the years ended December 31, 1999 and 1998 are summarized as follows:
December 31, 1999 Fixed Equity Total ------------------------------------ ----------------- (In Thousands) Gross unrealized gains $ 11,466 $ 426 $ 11,892 Gross unrealized losses (69,217) (29) (69,246) ------------------ ----------------- ------------------ Net unrealized gains (57,751) 397 (57,354) Deferred income tax benefit (expense) 20,212 (139) 20,073 ------------------ ----------------- ------------------ Net unrealized (losses) gains after taxes (37,539) 258 (37,281) Less: Balance at beginning of year 30,114 365 30,479 ------------------ ----------------- ------------------ Change in net unrealized (losses) gains $(67,653) $(107) $(67,760) ================== ================= ==================
December 31, 1998 Fixed Equity Total ------------------------------------ ----------------- (In Thousands) Gross unrealized gains $56,441 $ 767 $57,208 Gross unrealized losses (10,111) (205) (10,316) ------------------ ----------------- ------------------ Net unrealized gains 46,330 562 46,892 Deferred income tax expense (16,216) (197) (16,413) ------------------ ----------------- ------------------ Net unrealized gains after taxes 30,114 365 30,479 Less: Balance at beginning of year 32,247 83 32,330 ------------------ ----------------- ------------------ Change in net unrealized gains $(2,133) $ 282 $(1,851) ================== ================= ==================
- -------------------------------------------------------------------------------- Future Dimensions 83 Southland Life Insurance Company Notes to Financial Statements (continued) 3. INVESTMENTS (CONTINUED) As part of its overall investment management strategy, the Company has outstanding purchase commitments of $41,351,000 and $31,242,000 in 1999 and 1998, respectively. These commitments were settled in January 2000 and 1999, respectively. Major categories of investment income for the years ended December 31 are summarized as follows: 1999 1998 1997 --------------- ---------------- -------------- (In Thousands) Fixed maturities $ 92,897 $81,350 $ 75,326 Equity securities 33 236 29 Mortgage loans on real estate 30,539 29,000 30,454 Policy loans 5,216 5,200 5,232 Short-term investments 582 165 615 Other investments 238 358 (970) --------------- ---------------- -------------- 129,505 116,309 110,686 Investment expenses (4,881) (4,901) (3,123) --------------- ---------------- -------------- Net investment income $124,624 $111,408 $107,563 =============== ================ ============== Net realized gains (losses) on investments for the years ended December 31 are summarized as follows: 1999 1998 1997 ------------- ------------- ----------- (In Thousands) Fixed maturities $(6,419) $16,235 $19,881 Equity securities 1,120 310 81 Mortgage loans and other 222 2,357 1,177 Fixed maturities transferred to parent company in 1995 - 394 4,155 Net realized (losses) gains on ------------- ------------- ----------- investments $(5,077) $19,296 $25,294 ============= ============= =========== - -------------------------------------------------------------------------------- Future Dimensions 84 Southland Life Insurance Company Notes to Financial Statements (continued) 3. INVESTMENTS (CONTINUED) The above realized (losses) gains for fixed maturities and equity securities are shown net of related tax (benefit) expense of $(1,855,000), $5,929,000 and $8,441,000 for 1999, 1998 and 1997, respectively. As these (losses) gains were realized, they were reclassified from "Accumulated other comprehensive income" included in stockholder's equity to "Net realized (losses) gains on investments" in the accompanying Statements of Income. During 1999, 1998 and 1997, debt and marketable equity securities available-for-sale were sold with a fair value at the date of sale of $523,200,000, $1,937,306,000 and $608,411,000, respectively. Gross gains of $6,488,000, $26,416,000 and $23,870,000 and gross losses of $11,787,000, $9,871,000 and $3,908,000 were realized on those sales in 1999, 1998 and 1997, respectively. 4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING The Company enters into interest rate contracts to reduce and manage interest rate risk associated with individual assets and liabilities and its overall aggregate portfolio. Interest rate swap agreements generally involve the exchange of fixed and floating interest payments over the life of the agreement without an exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense or income. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The Company manages the potential credit exposure from interest rate contracts through careful evaluation of the counterparty credit standing and master netting agreements. The Company is exposed to credit loss in the event of nonperformance by counterparties on interest rate contracts; however, the Company does not anticipate nonperformance by any of these counterparties. The amount of such exposure is generally the unrealized gains in such contracts. - -------------------------------------------------------------------------------- Future Dimensions 85 Southland Life Insurance Company Notes to Financial Statements (continued) 4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING (CONTINUED) The table below summarizes the Company's interest rate contracts at December 31, 1999 and 1998:
December 31, 1999 ---------------------------------------------------------------------- Notional Amortized Fair Book Amount Cost Value Value ----------------- ------------------ --------------------------------- (In Thousands) Interest rate contracts: Swaps $25,330 $ - $ (38) $ (38) ----------------- ------------------ --------------------------------- Total swaps $25,330 $ - $ (38) $ (38) ================= ================== =================================
December 31, 1998 ---------------------------------------------------------------------- Notional Amortized Fair Book Amount Cost Value Value ----------------- ------------------ --------------------------------- (In Thousands) Interest rate contracts: Swaps $28,000 $ - $1,232 $1,232 Swaps-affiliates 2,000 - (13) (13) ----------------- ------------------ --------------------------------- Total swaps $30,000 $ - $1,219 $1,219 ================= ================== =================================
- -------------------------------------------------------------------------------- Future Dimensions 86 Southland Life Insurance Company Notes to Financial Statements (continued) 5. CONCENTRATIONS OF RISK At December 31, 1999, the Company held $122,791,000 in below-investment-grade bonds classified as available-for-sale. These holdings amounted to 9.6% of the Company's investment in bonds and 5% of total assets. The holdings of below-investment-grade bonds are widely diversified and of satisfactory quality based on the Company's investment policies and credit standards. At December 31, 1999, the Company's commercial mortgages involved a concentration of properties located in Florida (15%), Texas (10%) and Pennsylvania (9%). The remaining commercial mortgages relate to properties located in 25 other states. The portfolio is well diversified, covering many different types of income-producing properties on which the Company has first mortgage liens. The maximum mortgage outstanding on any individual property is $7,501,000. The Company also has a concentration of direct premium income in California (15%) and Pennsylvania (10%) for the year ended December 31, 1999. 6. EMPLOYEE BENEFIT PLANS The Company does not sponsor an employee retirement plan. Home office and field office services are provided to the Company by employees of Life Insurance Company of Georgia (Life of Georgia), an affiliated insurer. The Company reimburses Life of Georgia for the actual cost of salaries and fringe benefits of employees utilized in providing administrative services to the Company. The Company does not sponsor a deferred compensation plan, but reimburses Life of Georgia for the actual cost of fringe benefits for employees providing administrative services to the Company. The Company has an unfunded noncontributory, nonqualified deferred compensation plan covering certain agents in the General Agency Sales Division. - -------------------------------------------------------------------------------- Future Dimensions 87 Southland Life Insurance Company Notes to Financial Statements (continued) 7. REINSURANCE The Company is involved in both ceded and assumed reinsurance with other companies for the purpose of diversifying risk and limiting exposure on larger risks. Substantially all of the guaranteed investment contracts and the associated prepaid reinsurance premiums are ceded under a reinsurance agreement with an affiliate. As of December 31, 1999, the Company's retention limit for acceptance of risk on life insurance policies had been set at various levels up to $250,000. Reinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contacts. To the extent that the assuming companies become unable to meet their obligations under these treaties, the Company remains liable to its policyholders for the portion reinsured. Consequently, allowances are established for amounts deemed uncollectible. To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurer. The carrying values of amounts recoverable from reinsurers approximate their fair value. - -------------------------------------------------------------------------------- Future Dimensions 88 Southland Life Insurance Company Notes to Financial Statements (continued) 7. REINSURANCE (CONTINUED) Additional information regarding the Company's reinsurance activity for the years ended December 31, 1999, 1998 and 1997 is as follows:
Percentage Ceded to Assumed of Amount Gross Other from Other Net Assumed to Amount Companies Companies Amount Net ------------------- ----------------- ----------------------------------- ---------------- (In Thousands) 1999 Life insurance in force $30,169,561 $14,359,593 $1,301 $15,811,269 nil ================== ================== ================ ================= ================= Premiums: Life insurance $ 38,397 $18,557 $ - $19,840 nil Health insurance 80,470 43,014 - 37,456 nil ------------------ ------------------ ---------------- ----------------- ----------------- Total premiums $ 118,867 $61,571 $ - $57,296 nil ================== ================== ================ ================= ================= 1998 Life insurance in force $28,581,594 $8,681,450 $507 $19,900,651 nil ================== ================== ================ ================= ================= Premiums: Life insurance $ 36,383 $13,779 $ 13 $22,616 0.06% Health insurance 68,947 38,599 384 30,732 1.25% ------------------ ------------------ ---------------- ----------------- ----------------- Total premiums $ 105,330 $52,378 $397 $53,348 0.74% ================== ================== ================ ================= ================= 1997 Life insurance in force $22,777,781 $6,764,447 $529 $16,013,863 nil ================== ================== ================ ================= ================= Premiums: Life insurance $32,304 $11,715 $ 18 $20,607 0.09% Health insurance 69,997 49,388 552 21,161 2.61% ------------------ ------------------ ---------------- ----------------- ----------------- Total premiums $ 102,301 $61,103 $570 $41,768 1.36% ================== ================== ================ ================= =================
- -------------------------------------------------------------------------------- Future Dimensions 89 Southland Life Insurance Company Notes to Financial Statements (continued) 8. INCOME TAXES The Company files a consolidated federal income tax return with America Life's parent, ING America Insurance Holdings, Inc., a Delaware Corporation, and other US affiliates and subsidiaries. The Company's federal income tax return is consolidated with the following entities: ING America Insurance Holdings, Inc., ING North America Insurance Corporation, First Columbine Life Insurance Company, Security Life of Denver Insurance Company and its subsidiaries, ING Investment Management, Inc. and ING America Life Corporation and its subsidiaries. The method of tax allocation is governed by a written tax sharing agreement which was revised effective January 1, 1996. The tax sharing agreement provides that each member of the consolidated return shall reimburse ING America Insurance Holdings, Inc. for its respective share of the consolidated federal income tax liability for each taxable year subject to the tax sharing agreement. The current tax liability of $1,017,000 at December 31, 1999 and current tax receivable of $6,598,000 at December 31, 1998 are payable to and due from, respectively, America Life under the terms of the tax sharing agreement. - -------------------------------------------------------------------------------- Future Dimensions 90 Southland Life Insurance Company Notes to Financial Statements (continued) 8. INCOME TAXES (CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: December 31 1999 1998 ------------------------------------ (In Thousands) Deferred income tax liability: Deferred policy acquisition costs $66,596 $48,056 PVFP 22,001 20,869 Unrealized investment gains and losses - 17,352 Bond/mortgage loans market discount 238 132 Other reserves (292) (202) ------------------ ----------------- Total deferred income tax liability 88,543 86,207 Deferred income tax asset: Unrealized investment gains and losses 20,102 - Benefit reserves 56,791 44,539 Other assets 15,706 10,243 ------------------ ----------------- Total deferred income tax asset 92,599 54,872 ------------------ ----------------- Net deferred income tax asset (liability) $ 4,056 $(31,425) ================== ================= - -------------------------------------------------------------------------------- Future Dimensions 91 Southland Life Insurance Company Notes to Financial Statements (continued) 8. INCOME TAXES (CONTINUED) A reconciliation of the income tax attributable to continuing operations computed at U.S. federal statutory tax rates to the income tax expense included in the accompanying statements of income follows: Year ended December 31 1999 1998 1997 ---------- ----------- ----------- Statutory federal income tax rate 35.0% 35.0% 35.0% Goodwill 2.0 1.4 .6 Other items, net .4 .1 .3 ---------- ----------- ----------- Effective tax rate 37.4% 36.5% 35.9% ========== =========== =========== The components of federal income tax expense consist of the following: Year ended December 31 1999 1998 1997 ------------- ---------------- -------------- (In Thousands) Current $23,858 $27,757 $20,675 Deferred (13,972) (13,460) 1,804 ------------- ---------------- -------------- Federal income tax expense $9,886 $14,297 $22,479 ============= ================ ============== The Company made net income tax payments of $16,243,000 during 1999, $36,621,000 during 1998, and $18,359,000 during 1997 for current income taxes and settlements of prior year returns. 9. STATUTORY ACCOUNTING INFORMATION AND PRACTICES Statutory capital and surplus was $92,107,000 and $82,946,000 at December 31, 1999 and 1998, respectively. Statutory net income was $8,163,000, $18,073,000 and $38,211,000, for the years ended December 31, 1999, 1998 and 1997, respectively. - -------------------------------------------------------------------------------- Future Dimensions 92 Southland Life Insurance Company Notes to Financial Statements (continued) 9. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED) The Company exceeded its minimum statutory capital and surplus requirements at December 31, 1999. Additionally, the amount of dividends which can be paid by the Company to its stockholder without prior approval of the state insurance department is generally limited to the greater of 10% of statutory capital and surplus or the statutory net gain from operations. The Company's statutory-basis financial statements are prepared in accordance with accounting practices prescribed or permitted by the Texas Insurance Department. Currently, "prescribed" statutory accounting practices are interspersed throughout state insurance laws and regulations, the NAIC's Accounting Practices and Procedures Manual and a variety of other NAIC publications. "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, may differ from company to company within a state, and may change in the future. In 1998, the NAIC adopted codified statutory accounting principles ("Codification") effective January 1, 2001. Codification will likely change, to some extent, prescribed statutory accounting practices and may result in changes to the accounting practices that the Company uses to prepare its statutory-basis financial statements. Codification will require adoption by the various states before it becomes the prescribed statutory basis of accounting for insurance companies domesticated within those states. Accordingly, before Codification becomes effective for the Company, the state of Texas must adopt Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results to the Insurance Department. At this time it is anticipated that Texas will adopt Codification effective January 1, 2001. Management believes that the impact of Codification will not be material to the Company's statutory-basis financial statements. The NAIC has established certain Risk-Based Capital (RBC) requirements for life/health insurance companies. The NAIC RBC formula attempts to measure the risk profile of insurance companies in relation to actual capitalization levels. The Company exceeded the NAIC RBC minimum requirements for 1999 and 1998. At December 31, 1999 and 1998, bonds with an amortized cost of $9,376,000 and $9,468,000, respectively, were on deposit with various state insurance departments to meet regulatory requirements. - -------------------------------------------------------------------------------- Future Dimensions 93 Southland Life Insurance Company Notes to Financial Statements (continued) 10. COMMITMENTS AND CONTINGENT LIABILITIES The Company is assessed amounts by state guaranty funds to cover losses to policyholders of insolvent or rehabilitated insurance companies. Those mandatory assessments may be partially recovered through a reduction in future premium taxes in certain states. The Company has accrued for those assessments net of anticipated future premium tax deductions. The Company established an accrued liability of approximately $12,000,000 as of December 31, 1999 and 1998, respectively, related to certain potential litigation. The Company will vigorously defend its position in these cases. 11. SERVICE AGREEMENT WITH AFFILIATE The Company has a service agreement with Life of Georgia whereby this affiliate provides personnel, certain services and facilities for the conduct of the Company's operations in return for payment representing the costs incurred in providing such services and facilities. Substantially all insurance operating expenses and employment taxes are incurred under the terms of this service agreement. During 1999, 1998 and 1997, the Company reimbursed Life of Georgia $47,258,000, $32,353,000 and $26,627,000, respectively, under this agreement. The Company has a payable to Life of Georgia of $19,702,000 and $15,510,000 at December 31, 1999 and 1998, respectively, related to this agreement. This payable is included within indebtedness to related parties in the accompanying balance sheets. 12. FINANCING ARRANGEMENTS The Company has a revolving line of credit totaling $100,000,000, which matures 30 days from the date of advancement. This line of credit expires July 31, 2000. Interest rates on these borrowings are tied to the bank's cost of funds rate plus .25%. There were no outstanding borrowings under this agreement at December 31, 1999 and 1998. - -------------------------------------------------------------------------------- Future Dimensions 94 Southland Life Insurance Company Notes to Financial Statements (continued) 13. SEPARATE ACCOUNTS Separate account assets and liabilities represent funds segregated by the Company for the benefit of certain policyholders who bear the investment risk. The separate account assets and liabilities are carried at fair value. Revenues and expenses on the separate account assets and related liabilities equal the benefits paid to the separate account policyholders and are excluded from the amounts reported in the accompanying statements of income except for fees charged for administration services and mortality risk. 14. IMPACT OF YEAR 2000 (UNAUDITED) The Company utilizes data processing systems in the administration of the insurance and financial service products that it markets. Most of the Company's data processing systems have required modifications to enable them to process dates including the year 2000 and beyond. The Company converted, tested for Year 2000 compliance and put into production all of its core business applications prior to December 31, 1999. Through the end of March 2000, the Company has not experienced any Year 2000 related business operation problems. The Company conducts business with a multitude of business entities whose ability to comply with Year 2000 systems issues may affect the business operations of the Company. The Company has made an effort to determine whether such entities have adequate plans for Year 2000 compliance, and the Company is not aware of any instances where a key supplier or vendor is not compliant. The Company does not have the ability to assure with any certainty the compliance capacity of all third parties, and there can be no assurance that failure of such third parties to complete adequate preparations in a timely manner, and any resulting system interruption or other consequences, would not have an adverse effect, directly or indirectly, on the Company's operations. The Company has incurred most of the costs of the Year 2000 effort primarily from the testing and remediation of administrative systems. These systems support the administration of the Company and its affiliates. Therefore, the combined costs would represent substantially all of Year 2000 costs, which will be shared by the Company and its affiliates. Combined costs were approximately $19.4 million and $8.1 million in 1999 and 1998, respectively. - -------------------------------------------------------------------------------- Future Dimensions 95 Financial Statements Southland Separate Account L1 of Southland Life Insurance Company Years ended December 31, 1999, 1998 and 1997 with Report of Independent Auditors - -------------------------------------------------------------------------------- Future Dimensions 96 Southland Separate Account L1 Financial Statements Years ended December 31, 1999, 1998 and 1997 CONTENTS Report of Independent Auditors................................................98 Audited Financial Statements Statement of Net Assets.......................................................99 Statement of Operations......................................................104 Statement of Changes in Net Assets...........................................119 Notes to Financial Statements ...............................................134 - -------------------------------------------------------------------------------- Future Dimensions 97 Report of Independent Auditors Policyholders Southland Separate Account L1 of Southland Life Insurance Company We have audited the accompanying statement of net assets of Southland Separate Account L1 of Southland Life Insurance Company (comprising, respectively, the Alger American Fund (comprising the American Small Capitalization, American MidCap Growth, American Growth and American Leveraged AllCap Sub-Accounts) ("Alger"), the Fidelity Variable Insurance Products Fund and Variable Insurance Products Fund II (comprising the Asset Manager, Growth, Overseas, Money Market, Index 500, Equity-Income, High Income, Contrafund, and Investment Grade Bond Sub-Accounts) ("VIP and VIP II"), the INVESCO Variable Investment Funds, Inc. (comprising the Equity Income and Utilities Sub-Accounts) ("INVESCO") and the Janus Aspen Series (comprising the Growth, Aggressive Growth, Worldwide Growth, International Growth and Balanced Sub-Accounts) ("Janus")) as of December 31, 1999, and the related statements of operations and changes in net assets for each of the three years in the period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1999, by correspondence with the transfer agents. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southland Separate Account L1 at December 31, 1999, and the results of its operations and the changes in its net assets for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Atlanta, Georgia April 7, 2000 - -------------------------------------------------------------------------------- Future Dimensions 98 Southland Separate Account L1 Statement of Net Assets December 31, 1999
TOTAL TOTAL ALL TOTAL VIP & TOTAL TOTAL SUB-ACCOUNTS ALGER VIP II INVESCO JANUS --------------- -------------- --------------- ------------- ---------------- ASSETS Investments in mutual funds at market value (Note C) $63,122,241 $11,117,650 $26,303,077 $1,983,267 $23,718,247 --------------- -------------- --------------- ------------- ---------------- Total assets 63,122,241 11,117,650 26,303,077 1,983,267 23,718,247 --------------- -------------- --------------- ------------- ---------------- LIABILITIES Due to (from) Southland Life Insurance Company (496,172) (106,769) (132,655) (15,773) (240,975) --------------- -------------- --------------- ------------- ---------------- Total liabilities (496,172) (106,769) (132,655) (15,773) (240,975) --------------- -------------- --------------- ------------- ---------------- Net assets $63,618,413 $11,224,419 $26,435,732 $1,999,040 $23,959,222 =============== ============== =============== ============= ================ POLICYHOLDER RESERVES Reserve for policyholders (Note B) $63,618,413 $11,224,419 $26,435,732 $1,999,040 $23,959,222 --------------- -------------- --------------- ------------- ---------------- Total policyholder reserves $63,618,413 $11,224,419 $26,435,732 $1,999,040 $23,959,222 =============== ============== =============== ============= ================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 99 Southland Separate Account L1 Statement of Net Assets (continued) December 31, 1999
ALGER AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP ------------ --------------- -------------- ---------------- -------------- ASSETS Investments in mutual funds at market value (Note C) $11,117,650 $ 1,911,189 $ 1,834,565 $ 4,479,872 $ 2,892,024 ------------ --------------- -------------- ---------------- -------------- Total assets 11,117,650 1,911,189 1,834,565 4,479,872 2,892,024 ------------ --------------- -------------- ---------------- -------------- LIABILITIES Due to (from) Southland Life Insurance Company (106,769) (10,871) (17,578) (32,719) (45,601) ------------ --------------- -------------- ---------------- -------------- Total liabilities (106,769) (10,871) (17,578) (32,719) (45,601) ------------ --------------- -------------- ---------------- -------------- Net assets $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625 ============ =============== ============== ================ ============== POLICYHOLDER RESERVES Reserves for policyholders (Note B) $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625 ------------ --------------- -------------- ---------------- -------------- Total policyholder reserves $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625 ============ =============== ============== ================ ============== Number of sub-account units outstanding (Note G) 110,112.068 94,491.630 180,584.939 89,361.549 =============== ============== ================ ============== Net value per sub-account unit $ 17.46 $ 19.60 $ 24.99 $ 32.87 =============== ============== ================ ==============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 100 Southland Separate Account L1 Statement of Net Assets (continued) December 31, 1999
VIP & VIP II TOTAL ASSET MONEY EQUITY- VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500 INCOME ------------ ---------- ----------- --------- ----------- ------------- ----------- ASSETS Investments in mutual funds at market value (Note $26,303,077 $892,055 $3,045,618 $478,206 $5,047,949 $6,560,134 $2,511,928 ------------ ---------- ----------- ---------- ----------- ------------ ----------- Total assets 26,303,077 892,055 3,045,618 478,206 5,047,949 6,560,134 2,511,928 ------------ ---------- ----------- ---------- ----------- ------------ ----------- LIABILITIES Due to (from) Southland Life Insurance Company (132,655) (3,596) (21,850) (2,238) 7,231 (30,282) (14,371) ------------ ---------- ----------- ---------- ----------- ----------- ----------- Total liabilities (132,655) (3,596) (21,850) (2,238) 7,231 (30,282) (14,371) ------------ ---------- ----------- ---------- ----------- ------------ ----------- Net assets $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416 $2,526,299 ============ ========== =========== ========== =========== ============ =========== POLICYHOLDER RESERVES Reserves for policyholders (Note B) $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416 $2,526,299 ------------ ---------- ----------- ---------- ----------- ------------ ----------- Total policyholder reserves $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416 $2,526,299 ============ ========== =========== ========== =========== ============ =========== Number of sub-account units outstanding (Note G) 56,593.361 130,727.111 26,346.246 437,725.752 306,237.103 160,901.817 ========== =========== ========== =========== ============ =========== Net value per sub-account unit $ 15.83 $ 23.46 $ 18.24 $ 11.52 $ 21.52 $ 15.70 ========== =========== ========== =========== ============ =========== HIGH INVESTMENT INCOME CONTRAFUND GRADE BOND ------------- -------------- ----------- ASSETS Investments in mutual funds at market value (Note C) $1,044,297 $5,994,815 $728,075 ------------- -------------- ----------- Total assets 1,044,297 5,994,815 728,075 ------------- -------------- ----------- LIABILITIES Due to (from) Southland Life Insurance Company (2,430) (64,271) (848) ------------- -------------- ----------- Total liabilities (2,430) (64,271) (848) ------------- -------------- ----------- Net assets $1,046,727 $6,059,086 $728,923 ============= ============== =========== POLICYHOLDER RESERVES Reserves for policyholders (Note B) $1,046,727 $6,059,086 $728,923 ------------- -------------- ----------- Total policyholder reserves $1,046,727 $6,059,086 $728,923 ============= ============== =========== Number of sub-account units outstanding (Note G) 86,751.174 286,899.898 62,273.753 ============= ============== =========== Net value per sub-account unit $ 12.07 $ 21.12 $ 11.71 ============= ============== ===========
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 101 Southland Separate Account L1 Statement of Net Assets (continued) December 31, 1999
INVESCO Total Equity INVESCO Income Utilities --------------- --------------- --------------- ASSETS Investments in mutual funds at market value (Note C ) $1,983,267 $1,195,629 $787,638 --------------- --------------- --------------- Total assets 1,983,267 1,195,629 787,638 --------------- --------------- --------------- LIABILITIES Due to (from) Southland Life Insurance Company (15,773) (14,700) (1,073) --------------- --------------- --------------- Total liabilities (15,773) (14,700) (1,073) --------------- --------------- --------------- Net assets $1,999,040 $1,210,329 $788,711 =============== =============== =============== POLICYHOLDER RESERVES Reserves for policyholders (Note B) $1,999,040 $1,210,329 $788,711 --------------- --------------- --------------- Total policyholder reserves $1,999,040 $1,210,329 $788,711 =============== =============== =============== Number of sub-account units outstanding (Note G) 74,079.617 41,629.587 =============== =============== Net value per sub-account unit $ 16.34 $ 18.95 =============== ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 102 Southland Separate Account L1 Statement of Net Assets (continued) December 31, 1999
JANUS TOTAL AGGRESSIVE WORLDWIDE INTERNATIONAL JANUS GROWTH GROWTH GROWTH GROWTH BALANCED ---------------------------------------------------------------------------- ASSETS Investments in mutual funds at market value (Note C) $23,718,247 $3,978,416 $5,047,050 $5,264,566 $2,816,075 $6,612,140 ----------- ----------- ----------- ----------- ----------- ------------ Total assets 23,718,247 3,978,416 5,047,050 5,264,566 2,816,075 6,612,140 ----------- ----------- ----------- ----------- ----------- ------------ LIABILITIES Due to (from) Southland Life Insurance Company (240,975) (28,418) (71,342) (59,184) (24,608) (57,423) ----------- ----------- ----------- ----------- ----------- ------------ Total liabilities (240,975) (28,418) (71,342) (59,184) (24,608) (57,423) ----------- ----------- ----------- ----------- ----------- ------------ Net assets $23,959,222 $4,006,834 $5,118,392 $5,323,750 $2,840,683 $6,669,563 =========== =========== =========== =========== =========== ============ POLICYHOLDER RESERVES Reserves for policyholders (Note B) $23,959,222 $4,006,834 $5,118,392 $5,323,750 $2,840,683 $6,669,563 ----------- ----------- ----------- ----------- ----------- ------------ Total policyholder reserves $23,959,222 $4,006,834 $5,118,392 $5,323,750 $2,840,683 $6,669,563 =========== =========== =========== =========== =========== ============ Number of sub-account units outstanding (Note G) 168,076.782 159,640.347 201,891.184 108,181.477 320,650.834 ----------- ----------- ----------- ----------- ------------ Net value per sub-account unit $ 23.84 $ 32.06 $ 26.37 $ 26.26 $ 20.80 =========== =========== =========== =========== ============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 103 Southland Separate Account L1 Statement of Operations Year Ended December 31, 1999
TOTAL TOTAL ALL TOTAL VIP & TOTAL TOTAL SUB-ACCOUNTS ALGER VIP II INVESCO JANUS ------------------- --------------- --------------- -------------- --------------- INVESTMENT INCOME Dividends from mutual funds $ 1,567,924 $ 613,278 $ 679,599 $ 48,867 $ 226,180 Less valuation period deductions (Note B) 364,009 61,138 160,168 13,093 129,610 ------------------- --------------- --------------- -------------- --------------- Net investment income (loss) 1,203,915 552,140 519,431 35,774 96,570 ------------------- --------------- --------------- -------------- --------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 3,389,427 493,102 202,589 31,203 2,662,533 Net unrealized gains (losses) on investments 9,438,576 1,839,516 2,205,232 157,735 5,236,093 ------------------- --------------- --------------- -------------- --------------- Net realized and unrealized gains (losses) on investments 12,828,003 2,332,618 2,407,821 188,938 7,898,626 ------------------- --------------- --------------- -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $14,031,918 $2,884,758 $2,927,252 $224,712 $7,995,196 =================== =============== =============== ============== ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 104 Southland Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1999
ALGER AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP --------------- ----------------- -------------- -------------- ---------------- INVESTMENT INCOME Dividends from mutual funds $ 613,278 $142,584 $163,687 $239,881 $ 67,126 Less valuation period deductions (Note B) 61,138 11,332 11,010 26,013 12,783 --------------- ----------------- -------------- -------------- ---------------- Net investment income (loss) 552,140 131,252 152,677 213,868 54,343 --------------- ----------------- -------------- -------------- ---------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 493,102 1,868 22,744 219,461 249,029 Net unrealized gains (losses) on investments 1,839,516 407,699 229,004 479,515 723,298 --------------- ----------------- -------------- -------------- ---------------- Net realized and unrealized gains (losses) on investments 2,332,618 409,567 251,748 698,976 972,327 --------------- ----------------- -------------- -------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,884,758 $540,819 $404,425 $912,844 $1,026,670 =============== ================= ============== ============== ================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 105 Southland Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1999
VIP & VIP II TOTAL ASSET MONEY VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500 ------------- ----------- ----------- ---------- ------------- ---------------- INVESTMENT INCOME Dividends from mutual funds $ 679,599 $46,234 $139,663 $ 9,084 $145,790 $ 52,477 Less valuation period deductions (Note B) 160,168 6,250 16,898 2,665 26,430 40,684 ------------- ----------- ----------- ---------- ------------- ---------------- Net investment income (loss) 519,431 39,984 122,765 6,419 119,360 11,793 ------------- ----------- ----------- ---------- ------------- ---------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 202,589 4,860 34,293 2,960 - 65,194 Net unrealized gains (losses) on investments 2,205,232 26,606 507,468 112,027 - 782,740 ------------- ----------- ----------- ---------- ------------- ---------------- Net realized and unrealized gains (losses) on investments 2,407,821 31,466 541,761 114,987 - 847,934 ------------- ----------- ----------- ---------- ------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $2,927,252 $71,450 $664,526 $121,406 $119,360 $859,727 ============= =========== =========== ========== ============= ================ EQUITY- HIGH INVESTMENT INCOME INCOME CONTRAFUND GRADE BOND ----------- ------------ ------------ ------------ INVESTMENT INCOME Dividends from mutual funds $77,765 $66,122 $118,908 $ 23,556 Less valuation period deductions (Note B) 17,870 8,228 35,858 5,285 ----------- ------------ ------------ ------------ Net investment income (loss) 59,895 57,894 83,050 18,271 ----------- ------------ ------------ ------------ REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 19,680 (37,455) 118,307 (5,250) Net unrealized gains (losses) on investments 9,883 27,846 762,007 (23,345) ----------- ------------ ------------ ------------ Net realized and unrealized gains (losses) on investments 29,563 (9,609) 880,314 (28,595) ----------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $89,458 $48,285 $963,364 $(10,324) =========== ============ ============ ============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 106 Southland Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1999
INVESCO TOTAL EQUITY INVESCO INCOME UTILITIES ------------- ------------------ --------------- INVESTMENT INCOME Dividends from mutual funds $ 48,867 $ 42,139 $ 6,728 Less valuation period deductions (Note B) 13,093 8,847 4,246 ------------- ------------------ --------------- Net investment income (loss) 35,774 33,292 2,482 ------------- ------------------ --------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 31,203 19,906 11,297 Net unrealized gains (losses) on investments 157,735 91,686 66,049 ------------- ------------------ --------------- Net realized and unrealized gains (losses) on investments 188,938 111,592 77,346 ------------- ------------------ --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $224,712 $144,884 $79,828 ============= ================== ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 107 Southland Separate Account L1 Statement of Operations (continued) Year Ended December 31, 1999
JANUS TOTAL AGGRESSIVE WORLDWIDE INTERNATIONAL JANUS GROWTH GROWTH GROWTH GROWTH BALANCED ------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $ 226,180 $ 18,383 $ 74,622 $ 6,047 $ 4,512 $ 122,616 Less valuation period deductions (Note B) 129,610 21,873 21,939 29,897 16,037 39,864 ------------ ------------ ----------- -------------- ---------------- ------------- Net investment income (loss) 96,570 (3,490) 52,683 (23,850) (11,525) 82,752 ------------ ------------ ----------- -------------- ---------------- ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 2,662,533 248,417 1,836,755 147,241 179,464 250,656 Net unrealized gains (losses) on investments 5,236,093 758,550 757,939 1,825,033 1,137,882 756,689 Net realized and unrealized gains (losses) ------------ ------------ ----------- -------------- ---------------- ------------- on investments 7,898,626 1,006,967 2,594,694 1,972,274 1,317,346 1,007,345 ------------ ------------ ----------- -------------- ---------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $7,995,196 $1,003,477 $2,647,377 $1,948,424 $1,305,821 $1,090,097 ============ ============ =========== ============== ================ =============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 108 Southland Separate Account L1 Statement of Operations Year ended December 31, 1998
TOTAL TOTAL ALL TOTAL VIP & TOTAL TOTAL SUB-ACCOUNTS ALGER VIP II INVESCO JANUS ----------------- --------------- --------------- ------------ --------------- INVESTMENT INCOME Dividends from mutual funds $ 626,404 $179,195 $ 252,170 $37,292 $ 157,747 Less valuation period deductions (Note B) 119,686 17,962 61,507 4,011 36,206 ----------------- --------------- --------------- ------------ --------------- Net investment income (loss) 506,718 161,233 190,663 33,281 121,541 ----------------- --------------- --------------- ------------ --------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 127,820 25,905 31,103 5,430 65,382 Net unrealized gains (losses) on investments 2,657,680 642,532 1,033,851 41,691 939,606 ----------------- --------------- --------------- ------------ --------------- Net realized and unrealized gains (losses) on investments 2,785,500 668,437 1,064,954 47,121 1,004,988 ----------------- --------------- --------------- ------------ --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $3,292,218 $829,670 $1,255,617 $80,402 $1,126,529 ================= =============== =============== ============ ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 109 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1998
ALGER AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP ----------- ------------------ --------------- -------------- ----------------- INVESTMENT INCOME Dividends from mutual funds $179,195 $50,067 $ 30,380 $ 87,268 $ 11,480 Less valuation period deductions (Note B) 17,962 4,045 4,033 6,878 3,006 ----------- ------------------ --------------- -------------- ----------------- Net investment income (loss) 161,233 46,022 26,347 80,390 8,474 ----------- ------------------ --------------- -------------- ----------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 25,905 2,686 9,274 6,653 7,292 Net unrealized gains (losses) on investments 642,532 49,565 120,660 303,561 168,746 ----------- ------------------ --------------- -------------- ----------------- Net realized and unrealized gains (losses) on investments 668,437 52,251 129,934 310,214 176,038 ----------- ------------------ --------------- -------------- ----------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $829,670 $98,273 $156,281 $390,604 $184,512 =========== ================== =============== ============== =================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 110 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1998
VIP & VIP II TOTAL ASSET MONEY VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500 ---------------- ----------- ------------- ----------- ------------ ------------ INVESTMENT INCOME Dividends from mutual funds $ 252,170 $15,561 $ 37,137 $ 3,617 $104,324 $ 17,011 Less valuation period deductions (Note B) 61,507 2,798 5,164 924 17,651 11,910 ---------------- ----------- ------------- ----------- ------------ ------------ Net investment income (loss) 190,663 12,763 31,973 2,693 86,673 5,101 ---------------- ----------- ------------- ----------- ------------ ------------ REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 31,103 (2,166) 3,265 (1,636) - 12,724 Net unrealized gains (losses) on investments 1,033,851 28,383 189,989 11,290 - 332,201 ---------------- ----------- ------------- ----------- ------------ ------------ Net realized and unrealized gains (losses) on investments 1,064,954 26,217 193,254 9,654 - 344,925 ---------------- ----------- ------------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,255,617 $38,980 $225,227 $12,347 $ 86,673 $350,026 ================ =========== ============= =========== ============ ============ EQUITY- HIGH INVESTMENT INCOME INCOME CONTRAFUND GRADE BOND ----------- ------------- -------------- --------------- INVESTMENT INCOME Dividends from mutual funds $ 23,486 $ 16,684 $ 30,389 $ 3,961 Less valuation period deductions (Note B) 6,837 2,983 11,312 1,928 ----------- ------------- -------------- --------------- Net investment income (loss) 16,649 13,701 19,077 2,033 ----------- ------------- -------------- --------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 2,172 (2,338) 8,424 10,658 Net unrealized gains (losses) on investments 82,881 (39,195) 420,570 7,732 ----------- ------------- -------------- --------------- Net realized and unrealized gains (losses) on investments 85,053 (41,533) 428,994 18,390 ----------- ------------- -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $101,702 $(27,832) $448,071 $20,423 =========== ============= ============== ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 111 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1998
INVESCO TOTAL EQUITY INVESCO INCOME UTILITIES ----------- -------------- --------------- INVESTMENT INCOME Dividends from mutual funds $37,292 $34,407 $ 2,885 Less valuation period deductions (Note B) 4,011 3,474 537 ----------- -------------- --------------- Net investment income (loss) 33,281 30,933 2,348 ----------- -------------- --------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 5,430 4,916 514 Net unrealized gains (losses) on investments 41,691 23,002 18,689 ----------- -------------- --------------- Net realized and unrealized gains (losses) on investments 47,121 27,918 19,203 ----------- -------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $80,402 $58,851 $21,551 =========== ============== ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 112 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1998
JANUS TOTAL AGGRESSIVE WORLDWIDE JANUS GROWTH GROWTH GROWTH --------------- --------------- ----------------- ---------------- INVESTMENT INCOME Dividends from mutual funds $ 157,747 $ 36,308 $ - $ 52,078 Less valuation period deductions (Note B) 36,206 5,483 4,426 11,466 --------------- --------------- ----------------- ---------------- Net investment income (loss) 121,541 30,825 (4,426) 40,612 --------------- --------------- ----------------- ---------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 65,382 30,199 4,969 21,777 Net unrealized gains (losses) on investments 939,606 189,068 227,403 208,893 Net realized and unrealized gains (losses) --------------- --------------- ----------------- ---------------- on investments 1,004,988 219,267 232,372 230,670 --------------- --------------- ----------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,126,529 $250,092 $227,946 $271,282 =============== =============== ================= ================ INTERNATIONAL SHORT-TERM GROWTH BALANCED BOND ------------------ ---------------- ---------------- INVESTMENT INCOME Dividends from mutual funds $16,024 $ 49,352 $3,985 Less valuation period deductions (Note B) 6,089 8,447 295 ------------------ ---------------- ---------------- Net investment income (loss) 9,935 40,905 3,690 ------------------ ---------------- ---------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 2,697 9,053 (3,313) Net unrealized gains (losses) on investments 41,449 271,281 1,512 Net realized and unrealized gains (losses) ------------------ ---------------- ---------------- on investments 44,146 280,334 (1,801) ------------------ ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $54,081 $321,239 $1,889 ================== ================ ================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 113 Southland Separate Account L1 Statement of Operations Year ended December 31, 1997
TOTAL TOTAL ALL TOTAL VIP & TOTAL TOTAL SUB-ACCOUNTS ALGER VIP II INVESCO JANUS -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $ 47,219 $ 829 $29,532 $9,839 $ 7,019 Less valuation period deductions (Note B) 13,332 2,047 8,582 305 2,398 ------------ --------------- -------------- ---------------- ----------------- Net investment income (loss) 33,887 (1,218) 20,950 9,534 4,621 REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 18,964 4,877 6,680 604 6,803 Net unrealized gains (losses) on investments 118,688 26,112 69,730 (1,884) 24,730 ------------ --------------- -------------- ---------------- ----------------- Net realized and unrealized gains (losses) on investments 137,652 30,989 76,410 (1,280) 31,533 ------------ --------------- -------------- ---------------- ----------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $171,539 $29,771 $97,360 $8,254 $36,154 ============ =============== ============== ================ =================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 114 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1997
ALGER AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP -------------------------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $ 829 $ 319 $ 18 $ 492 $ - Less valuation period deductions (Note B) 2,047 550 511 543 443 --------- ---------- ------------- -------------- ------------- Net investment income (loss) (1,218) (231) (493) (51) (443) REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 4,877 988 1,017 1,571 1,301 Net unrealized gains (losses) on investments 26,112 7,706 1,036 9,623 7,747 --------- ---------- ------------- -------------- ------------- Net realized and unrealized gains (losses) on investments 29,771 8,463 1,560 11,143 8,605 --------- ---------- ------------- -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $29,771 $8,463 $1,560 $11,143 $8,605 ========= ========== ============= ============== =============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 115 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1997
VIP & VIP II TOTAL ASSET MONEY VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500 ------------- ----------- ------------ ------------ ------------ ------------- INVESTMENT INCOME Dividends from mutual funds $29,532 $ - $ - $ - $29,532 $ - Less valuation period deductions (Note B) 8,582 142 322 65 4,934 710 ------------- ----------- ------------ ------------ ------------ ------------- Net investment income (loss) 20,950 (142) (322) (65) 24,598 (710) REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 6,680 238 199 (3) - 2,043 Net unrealized gains (losses) on investments 69,730 2,096 2,921 (618) - 17,360 ------------- ----------- ------------ ------------ ------------ ------------- Net realized and unrealized gains (losses) on investments 76,410 2,334 3,120 (621) - 19,403 ------------- ----------- ------------ ------------ ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $97,360 $2,192 $2,798 $(686) $24,598 $18,693 ============= =========== ============ ============ ============ ============= EQUITY- HIGH INVESTMENT INCOME INCOME CONTRAFUND GRADE BOND --------------------------------------------------- INVESTMENT INCOME Dividends from mutual funds $ - $ - $ - $ - Less valuation period deductions (Note B) 431 398 1,381 199 --------------------------------------------------- Net investment income (loss) (431) (398) (1,381) (199) REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 660 817 2,545 181 Net unrealized gains (losses) on investments 9,223 7,284 28,977 2,487 --------------------------------------------------- Net realized and unrealized gains (losses) on investments 9,883 8,101 31,522 2,668 --------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $9,452 $7,703 $30,141 $2,469 ===================================================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 116 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1997
INVESCO TOTAL INDUSTRIAL INVESCO INCOME UTILITIES -------------- --------------- --------------- INVESTMENT INCOME Dividends from mutual funds $9,839 $9,766 $ 73 Less valuation period deductions (Note B) 305 300 5 -------------- --------------- --------------- Net investment income (loss) 9,534 9,466 68 REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 604 592 12 Net unrealized gains (losses) on investments (1,884) (2,062) 178 -------------- --------------- --------------- Net realized and unrealized gains (losses) on investments (1,280) (1,470) 190 -------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $8,254 $7,996 $258 ============== =============== ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 117 Southland Separate Account L1 Statement of Operations (continued) Year ended December 31, 1997
JANUS TOTAL AGGRESSIVE WORLDWIDE INTERNATIONAL JANUS GROWTH GROWTH GROWTH GROWTH ----------- ----------- ------------- ------------- --------------- INVESTMENT INCOME Dividends from mutual funds $ 7,019 $ 2,261 $ - $ 2,031 $ 226 Less valuation period deductions(Note B) 2,398 661 240 995 297 ----------- ----------- ------------- ------------- --------------- Net investment income (loss) 4,621 1,600 (240) 1,036 (71) REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 6,803 2,977 1,170 1,592 983 Net unrealized gains (losses) on investments 24,730 6,871 6,573 11,707 (1,597) ----------- ----------- ------------- ------------- --------------- Net realized and unrealized gains (losses) on investments 31,533 9,848 7,743 13,299 (614) ----------- ----------- ------------- ------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $36,154 $11,448 $7,503 $14,335 $(685) =========== =========== ============= ============= =============== SHORT-TERM BALANCED BOND ------------ -------------- INVESTMENT INCOME Dividends from mutual funds $ 825 $1,676 Less valuation period deductions(Note B) 184 21 ------------ -------------- Net investment income (loss) 641 1,655 REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) on investments 75 6 Net unrealized gains (losses) on investments 2,688 (1,512) ------------ -------------- Net realized and unrealized gains (losses) on investments 2,763 (1,506) ------------ -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $3,404 $ 149 ============ ==============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 118 Southland Separate Account L1 Statement of Changes in Net Assets Year ended December 31, 1999
TOTAL TOTAL ALL TOTAL VIP & SUB-ACCOUNTS ALGER VIP II ----------------- ---------------- ------------------ INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 1,203,915 $ 552,140 $ 519,431 Net realized gains (losses) on investments 3,389,427 493,102 202,589 Net unrealized gains (losses) on investments 9,438,576 1,839,516 2,205,232 ----------------- ---------------- ------------------ Increase (decrease) in net assets from operations 14,031,918 2,884,758 2,927,252 ----------------- ---------------- ------------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 31,028,249 3,825,150 19,754,907 Cost of insurance and administrative expenses (6,549,885) (1,178,979) (3,129,796) Benefit payments (3,452) (1,760) (1,091) Surrenders and withdrawals (475,433) (64,071) (292,903) Net transfers among sub-accounts (including the guaranteed interest account in the general account) (416,231) 1,280,792 (5,299,071) Other 551,597 107,303 133,434 ----------------- ---------------- ------------------ Increase from principal transactions 24,134,845 3,968,435 11,165,480 ----------------- ---------------- ------------------ Total increase in net assets 38,166,763 6,853,193 14,092,732 Net assets at beginning of year 25,451,650 4,371,226 12,343,000 ----------------- ---------------- ------------------ Net assets at end of year $63,618,413 $11,224,419 $26,435,732 ================= ================ ================== TOTAL TOTAL INVESCO JANUS ---------------- ----------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 35,774 $ 96,570 Net realized gains (losses) on investments 31,203 2,662,533 Net unrealized gains (losses) on investments 157,735 5,236,093 ---------------- ----------------- Increase (decrease) in net assets from operations 224,712 7,995,196 ---------------- ----------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 525,568 6,922,624 Cost of insurance and administrative expenses (213,204) (2,027,906) Benefit payments (154) (447) Surrenders and withdrawals (10,982) (107,477) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 574,602 3,027,446 Other (367) 311,227 ---------------- ----------------- Increase from principal transactions 875,463 8,125,467 ---------------- ----------------- Total increase in net assets 1,100,175 16,120,663 Net assets at beginning of year 898,865 7,838,559 ---------------- ----------------- Net assets at end of year $1,999,040 $23,959,222 ================ =================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 119 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1999
ALGER AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP ----------------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 552,140 $ 131,252 $ 152,677 $ 213,868 $ 54,343 Net realized gains (losses) on investments 493,102 1,868 22,744 219,461 249,029 Net unrealized gains (losses) on investments 1,839,516 407,699 229,004 479,515 723,298 ----------- ------------- -------------- -------------- ------------- Increase (decrease) in net assets from operations 2,884,758 540,819 404,425 912,844 1,026,670 ----------- ------------- -------------- -------------- ------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 3,825,150 573,686 573,435 1,729,161 948,868 Cost of insurance and administrative expenses (1,178,979) (216,805) (193,636) (506,613) (261,925) Benefit payments (1,760) (154) - - (1,606) Surrenders and withdrawals (64,071) (24,776) (9,869) (17,299) (12,127) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 1,280,792 145,564 146,550 531,839 456,839 Other 107,303 20,248 7,863 30,041 49,151 ----------- ------------- -------------- -------------- ------------- Increase from principal transactions 3,968,435 497,763 524,343 1,767,129 1,179,200 ----------- ------------- -------------- -------------- ------------- Total increase in net assets 6,853,193 1,038,582 928,768 2,679,973 2,205,870 Net assets at beginning of year 4,371,226 883,478 923,375 1,832,618 731,755 ----------- ------------- -------------- -------------- ------------- Net assets at end of year $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625 =========== ============= ============== ============== =============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 120 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1999
VIP & VIP II TOTAL ASSET MONEY VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500 ------------- ----------------------- ---------------------- ------------ INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 519,431 $ 39,984 $ 122,765 $ 6,419 $ 119,360 $ 11,793 Net realized gains (losses) on investments 202,589 4,860 34,293 2,960 - 65,194 Net unrealized gains (losses) on investments 2,205,232 26,606 507,468 112,027 - 782,740 ------------- ----------------------- ---------------------- ------------ Increase (decrease) in net assets from operations 2,927,252 71,450 664,526 121,406 119,360 859,727 ------------- ----------------------- ---------------------- ------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 19,754,907 312,583 1,016,105 170,489 12,459,659 2,184,085 Cost of insurance and administrative expenses (3,129,796) (89,058) (346,459) (46,035) (643,568) (783,092) Benefit payments (1,091) - - - - - Surrenders and withdrawals (292,903) (11,698) (41,167) (4,482) (26,778) (87,474) Net transfers among sub-accounts (including the guaranteed interest account in the general account) (5,299,071) 96,798 590,388 22,925 (9,142,874) 1,494,471 Other 133,434 11,589 23,910 18,690 (88,654) 38,397 ------------- ----------------------- ---------------------- ------------ Increase from principal transactions 11,165,480 320,214 1,242,777 161,587 2,557,785 2,846,387 ------------- ----------------------- ---------------------- ------------ Total increase in net assets 14,092,732 391,664 1,907,303 282,993 2,677,145 3,706,114 Net assets at beginning of year 12,343,000 503,987 1,160,165 197,451 2,363,573 2,884,302 ------------- ----------------------- ---------------------- ------------ Net assets at end of year $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416 ============= ======================= ====================== ============ EQUITY- HIGH INVESTMENT INCOME INCOME CONTRAFUND GRADE BOND ---------- ------------------------ ------------ INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 59,895 $ 57,894 $ 83,050 $ 18,271 Net realized gains (losses) on investments 19,680 (37,455) 118,307 (5,250) Net unrealized gains (losses) on investments 9,883 27,846 762,007 (23,345) ---------- ------------------------ ------------ Increase (decrease) in net assets from operations 89,458 48,285 963,364 (10,324) ---------- ------------------------ ------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 805,398 258,179 2,277,133 271,276 Cost of insurance and administrative expenses (316,586) (106,598) (720,827) (77,573) Benefit payments - (129) (962) - Surrenders and withdrawals (38,406) (6,638) (56,466) (19,794) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 469,853 213,288 803,946 152,134 Other 22,233 10,778 93,157 3,334 ---------- ------------------------ ------------ Increase from principal transactions 942,492 368,880 2,395,981 329,377 ---------- ------------------------ ------------ Total increase in net assets 1,031,950 417,165 3,359,345 319,053 Net assets at beginning of year 1,494,349 629,562 2,699,741 409,870 ---------- ------------------------ ------------ Net assets at end of year $2,526,299 $1,046,727 $6,059,086 $728,923 ========== ======================== ============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 121 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1999
INVESCO TOTAL EQUITY INVESCO INCOME UTILITIES ------------------ ------------------ ------------------ INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 35,774 $ 33,292 $ 2,482 Net realized gains (losses) on investments 31,203 19,906 11,297 Net unrealized gains (losses) on investments 157,735 91,686 66,049 ------------------ ------------------ ------------------ Increase (decrease) in net assets from operations 224,712 144,884 79,828 ------------------ ------------------ ------------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 525,568 312,962 212,606 Cost of insurance and administrative expenses (213,204) (127,281) (85,923) Benefit payments (154) - (154) Surrenders and withdrawals (10,982) (7,460) (3,522) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 574,602 186,124 388,478 Other (367) (9,896) 9,529 ------------------ ------------------ ------------------ Increase from principal transactions 875,463 354,449 521,014 ------------------ ------------------ ------------------ Total increase in net assets 1,100,175 499,333 600,842 Net assets at beginning of year 898,865 710,996 187,869 ------------------ ------------------ ------------------ Net assets at end of year $1,999,040 $1,210,329 $788,711 ================== ================== ==================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 122 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1999
JANUS TOTAL AGGRESSIVE WORLDWIDE JANUS GROWTH GROWTH GROWTH -------------- --------------- ---------------- ---------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 96,570 $ (3,490) $ 52,683 $ (23,850) Net realized gains (losses) on investments 2,662,533 248,417 1,836,755 147,241 Net unrealized gains (losses) on investments 5,236,093 758,550 757,939 1,825,033 -------------- --------------- ---------------- ---------------- Increase (decrease) in net assets from operations 7,995,196 1,003,477 2,647,377 1,948,424 -------------- --------------- ---------------- ---------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 6,922,624 1,525,533 1,177,003 1,318,769 Cost of insurance and administrative expenses (2,027,906) (464,803) (370,541) (414,064) Benefit payments (447) - - (447) Surrenders and withdrawals (107,477) (25,257) (43,008) (19,306) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 3,027,446 613,783 487,925 251,041 Other 311,227 53,770 88,867 82,161 -------------- --------------- ---------------- ---------------- Increase from principal transactions 8,125,467 1,703,026 1,340,246 1,218,154 -------------- --------------- ---------------- ---------------- Total increase in net assets 16,120,663 2,706,503 3,987,623 3,166,578 Net assets at beginning of year 7,838,559 1,300,331 1,130,769 2,157,172 -------------- --------------- ---------------- ---------------- Net assets at end of year $23,959,222 $4,006,834 $5,118,392 $5,323,750 ============== =============== ================ ================ INTERNATIONAL GROWTH BALANCED ---------------- ---------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ (11,525) $ 82,752 Net realized gains (losses) on investments 179,464 250,656 Net unrealized gains (losses) on investments 1,137,882 756,689 ---------------- ---------------- Increase (decrease) in net assets from operations 1,305,821 1,090,097 ---------------- ---------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 658,686 2,242,633 Cost of insurance and administrative expenses (184,897) (593,601) Benefit payments - - Surrenders and withdrawals (6,069) (13,837) Net transfers among sub-accounts (including the guaranteed interest account in the general account) (37,815) 1,712,512 Other 38,178 48,251 ---------------- ---------------- Increase from principal transactions 468,083 3,395,958 ---------------- ---------------- Total increase in net assets 1,773,904 4,486,055 Net assets at beginning of year 1,066,779 2,183,508 ---------------- ---------------- Net assets at end of year $2,840,683 $6,669,563 ================ ================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 123 Southland Separate Account L1 Statement of Changes in Net Assets Year ended December 31, 1998
TOTAL TOTAL ALL TOTAL VIP & TOTAL TOTAL SUB-ACCOUNTS ALGER VIP II INVESCO JANUS ------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 506,718 $ 161,233 $ 190,663 $ 33,281 $ 121,541 Net realized gains (losses) on investments 127,820 25,905 31,103 5,430 65,382 Net unrealized gains (losses) on investments 2,657,680 642,532 1,033,851 41,691 939,606 ------------- ------------- -------------- ------------- ------------- Increase (decrease) in net assets from operations 3,292,218 829,670 1,255,617 80,402 1,126,529 ------------- ------------- -------------- ------------- ------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 20,624,321 1,162,046 17,385,636 261,529 1,815,110 Cost of insurance and administrative expenses (2,903,575) (419,601) (1,693,394) (78,336) (712,244) Benefit payments (615) - (309) - (306) Surrenders and withdrawals (307,094) (53,131) (142,218) (4,788) (106,957) Net transfers among sub-accounts (including the guaranteed interest account in the general account) (121,358) 2,273,667 (7,539,680) 497,977 4,646,678 Other (99,262) (19,523) (59,568) (2,149) (18,022) ------------- ------------- -------------- ------------- ------------- Increase (decrease) from principal transactions 17,192,417 2,943,458 7,950,467 674,233 5,624,259 ------------- ------------- -------------- ------------- ------------- Total increase (decrease) in net assets 20,484,635 3,773,128 9,206,084 754,635 6,750,788 Net assets at beginning of year 4,967,015 598,098 3,136,916 144,230 1,087,771 ------------- ------------- -------------- ------------- ------------- Net assets at end of year $25,451,650 $4,371,226 $12,343,000 $898,865 $7,838,559 ============= ============= ============== ============= =============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 124 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1998
ALGER AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP -------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 161,233 $ 46,022 $ 26,347 $ 80,390 $ 8,474 Net realized gains (losses) on investments 25,905 2,686 9,274 6,653 7,292 Net unrealized gains (losses) on investments 642,532 49,565 120,660 303,561 168,746 ----------- --------------- ----------- ------------ ------------ Increase (decrease) in net assets from operations 829,670 98,273 156,281 390,604 184,512 ----------- --------------- ----------- ------------ ------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 1,162,046 285,818 203,624 475,150 197,454 Cost of insurance and administrative expenses (419,601) (97,991) (86,531) (160,700) (74,379) Benefit payments - - - - - Surrenders and withdrawals (53,131) (15,643) (12,779) (17,013) (7,696) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 2,273,667 446,424 502,094 987,565 337,584 Other (19,523) (774) (889) (15,121) (2,739) ----------- --------------- ----------- ------------ ------------ Increase (decrease) from principal transactions 2,943,458 617,834 605,519 1,269,881 450,224 ----------- --------------- ----------- ------------ ------------- Total increase (decrease) in net assets 3,773,128 716,107 761,800 1,660,485 634,736 Net assets at beginning of year 598,098 167,371 161,575 172,133 97,019 ----------- --------------- ----------- ------------ ------------- Net assets at end of year $4,371,226 $883,478 $923,375 $1,832,618 $731,755 =========== =============== =========== ============ =============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 125 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1998 VIP & VIP II
TOTAL ASSET MONEY VIP & VIP II MANAGER GROWTH OVERSEAS MARKET ----------------------- ---------------------- ------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 190,663 $ 12,763 $ 31,973 $ 2,693 $ 86,673 Net realized gains (losses) on investments 31,103 (2,166) 3,265 (1,636) - Net unrealized gains (losses) on investments 1,033,851 28,383 189,989 11,290 - ----------------------- ---------------------- ------------ Increase (decrease) in net assets from operations 1,255,617 38,980 225,227 12,347 86,673 ----------------------- ---------------------- ------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 17,385,636 150,080 324,965 91,305 14,635,587 Cost of insurance and administrative expenses (1,693,394) (54,468) (113,665) (25,461) (700,063 Benefit payments (309) - - - - Surrenders and withdrawals (142,218) (6,929) (28,566) (3,338) (12,212) Net transfers among sub-accounts (including the guaranteed interest account in the general account) (7,539,680) 295,904 509,516 83,279 (13,025,086) Other (59,568) (1,306) (4,893) (1,025) (31,073) ----------------------- ---------------------- ------------ Increase (decrease) from principal transactions 7,950,467 383,281 687,357 144,760 867,153 ----------------------- ---------------------- ------------ Total increase (decrease) in net assets 9,206,084 422,261 912,584 157,107 953,826 Net assets at beginning of year 3,136,916 81,726 247,581 40,344 1,409,747 ----------------------- ---------------------- ------------ Net assets at end of year $12,343,000 $503,987 $1,160,165 $197,451 $2,363,573 ======================= ====================== ============ EQUITY- HIGH INVESTMENT INDEX 500 INCOME INCOME CONTRAFUND GRADE BOND ---------------------------------------------- ------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 5,101 $ 16,649 $ 13,701 $ 19,077 $ 2,033 Net realized gains (losses) on investments 12,724 2,172 (2,338) 8,424 10,658 Net unrealized gains (losses) on investments 332,201 82,881 (39,195) 420,570 7,732 ---------------------------------------------- ------------ Increase (decrease) in net assets from operations 350,026 101,702 (27,832) 448,071 20,423 ---------------------------------------------- ------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 822,531 353,365 150,989 765,529 91,285 Cost of insurance and administrative expenses (304,160) (127,836) (45,807) (294,427) (27,507) Benefit payments - - - (309) - Surrenders and withdrawals (54,104) (8,634) (229) (28,154) (52) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 1,690,539 832,698 404,606 1,396,236 272,628 Other (18,689) (66) 8,758 (10,148) (1,126) ---------------------------------------------- ------------ Increase (decrease) from principal transactions 2,136,117 1,049,527 518,317 1,828,727 335,228 ---------------------------------------------- ------------ Total increase (decrease) in net assets 2,486,143 1,151,229 490,485 2,276,798 355,651 Net assets at beginning of year 398,159 343,120 139,077 422,943 54,219 ---------------------------------------------- ------------ Net assets at end of year $2,884,302 $1,494,349 $629,562 $2,699,741 $409,870 ============================================== ============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 126 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1998
INVESCO TOTAL EQUITY INVESCO INCOME UTILITIES ----------------- ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 33,281 $ 30,933 $ 2,348 Net realized gains (losses) on investments 5,430 4,916 514 Net unrealized gains (losses) on investments 41,691 23,002 18,689 ----------------- ------------------ ------------------ Increase (decrease) in net assets from operations 80,402 58,851 21,551 ----------------- ------------------ ------------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 261,529 200,531 60,998 Cost of insurance and administrative expenses (78,336) (61,807) (16,529) Benefit payments - - - Surrenders and withdrawals (4,788) (4,417) (371) Net transfers among sub-accounts (including the guaranteed 497,977 377,109 120,868 interest account in the general account) Other (2,149) (272) (1,877) ----------------- ------------------ ------------------ Increase (decrease) from principal transactions 674,233 511,144 163,089 ----------------- ------------------ ------------------ Total increase (decrease) in net assets 754,635 569,995 184,640 Net assets at beginning of year 144,230 141,001 3,229 ----------------- ------------------ ------------------ Net assets at end of year $898,865 $710,996 $187,869 ================= ================== ==================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 127 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1998
JANUS Total Aggressive Worldwide Janus Growth Growth Growth --------------- ---------------- --------------- --------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 121,541 $ 30,825 $ (4,426) $ 40,612 Net realized gains (losses) on investments 65,382 30,199 4,969 21,777 Net unrealized gains (losses) on investments 939,606 189,068 227,403 208,893 --------------- ---------------- --------------- --------------- Increase (decrease) in net assets from operations 1,126,529 250,092 227,946 271,282 --------------- ---------------- --------------- --------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 1,815,110 426,022 322,364 490,342 Cost of insurance and administrative expenses (712,244) (167,261) (104,466) (187,471) Benefit payments (306) (306) - - Surrenders and withdrawals (106,957) (34,731) (6,451) (63,558) Net transfers among sub-accounts (including the guaranteed 4,646,678 581,280 602,530 1,168,578 interest account in the general account) Other (18,022) (3,705) (6,883) (4,546) --------------- ---------------- --------------- --------------- Increase (decrease) from principal transactions 5,624,259 801,299 807,094 1,403,345 --------------- ---------------- --------------- --------------- Total increase (decrease) in net assets 6,750,788 1,051,391 1,035,040 1,674,627 Net assets at beginning of year 1,087,771 248,940 95,729 482,545 --------------- ---------------- --------------- --------------- Net assets at end of year $7,838,559 $1,300,331 $1,130,769 $2,157,172 =============== ================ =============== =============== International Short-Term Growth Balanced Bond --------------- --------------- ---------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 9,935 $ 40,905 $ 3,690 Net realized gains (losses) on investments 2,697 9,053 (3,313) Net unrealized gains (losses) on investments 41,449 271,281 1,512 --------------- --------------- ---------------- Increase (decrease) in net assets from operations 54,081 321,239 1,889 --------------- --------------- ---------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 200,143 367,935 8,304 Cost of insurance and administrative expenses (98,915) (151,467) (2,664) Benefit payments - - - Surrenders and withdrawals (1,162) (1,055) - Net transfers among sub-accounts (including the guaranteed 755,641 1,556,845 (18,196) interest account in the general account) Other 2,053 (4,471) (470) --------------- --------------- ---------------- Increase (decrease) from principal transactions 857,760 1,767,787 (13,026) --------------- --------------- ---------------- Total increase (decrease) in net assets 911,841 2,089,026 (11,137) Net assets at beginning of year 154,938 94,482 11,137 --------------- --------------- ---------------- Net assets at end of year $1,066,779 $2,183,508 $ - =============== =============== ================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 128 Southland Separate Account L1 Statement of Changes in Net Assets Year ended December 31, 1997
TOTAL TOTAL ALL TOTAL VIP & TOTAL TOTAL SUB-ACCOUNTS ALGER VIP II INVESCO JANUS -------------- ------------ -------------- ------------ ---------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 33,887 $ (1,218) $ 20,950 $ 9,534 $ 4,621 Net realized gains (losses) on investments 18,964 4,877 6,680 604 6,803 Net unrealized gains (losses) on investments 118,688 26,112 69,730 (1,884) 24,730 -------------- ------------ -------------- ------------ ------------ Increase (decrease) in net assets from operations 171,539 29,771 97,360 8,254 36,154 -------------- ------------ -------------- ------------ ------------ CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 5,248,437 102,293 4,858,995 34,087 253,062 Cost of insurance and administrative expenses (437,265) (55,276) (304,785) (8,313) (68,891) Surrenders (1,357) (346) (677) (8) (326) Net transfers among sub-accounts (including the guaranteed interest account in the general account) (14,339) 521,656 (1,513,977) 110,210 867,772 -------------- ------------ -------------- ------------ ------------ Increase from principal transactions 4,795,476 568,327 3,039,556 135,976 1,051,617 -------------- ------------ -------------- ------------ ------------ Total increase in net assets 4,967,015 598,098 3,136,916 144,230 1,087,771 Net assets at beginning of year - - - - - -------------- ------------ -------------- ------------ ------------ Net assets at end of year $4,967,015 $598,098 $3,136,916 $144,230 $1,087,771 ============== ============ ============== ============ ============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 129 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1997
ALGER AMERICAN AMERICAN AMERICAN TOTAL SMALL MIDCAP AMERICAN LEVERAGED ALGER CAPITALIZATION GROWTH GROWTH ALLCAP ---------------------------------------------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ (1,218) $ (231) $ (493) $ (51) $ (443) Net realized gains (losses) on investments 4,877 988 1,017 1,571 1,301 Net unrealized gains (losses) on investments 26,112 7,706 1,036 9,623 7,747 ----------- -------------- ----------- ----------- ----------- Increase (decrease) in net assets from operations 29,771 8,463 1,560 11,143 8,605 ----------- -------------- ----------- ----------- ----------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 102,293 19,354 41,846 21,286 19,807 Cost of insurance and administrative expenses (55,276) (14,992) (12,080) (17,070) (11,134) Surrenders (346) (127) (23) (180) (16) Net transfers among divisions (including the guaranteed interest account in the general account) 521,656 154,673 130,272 156,954 79,757 ----------- -------------- ----------- ----------- ----------- Increase from principal transactions 568,327 158,908 160,015 160,990 88,414 ----------- -------------- ----------- ----------- ----------- Total increase in net assets 598,098 167,371 161,575 172,133 97,019 Net assets at beginning of year - - - - - ----------- -------------- ----------- ----------- ----------- Net assets at end of year $598,098 $167,371 $161,575 $172,133 $97,019 =========== ============== =========== =========== ===========
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 130 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1997
VIP & VIP II TOTAL ASSET MONEY VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500 -------------- ---------------------------------- ---------------------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 20,950 $ (142) $ (322) $ (65) $ 24,598 $ (710) Net realized gains (losses) on investments 6,680 238 199 (3) - 2,043 Net unrealized gains (losses) on investments 69,730 2,096 2,921 (618) - 17,360 -------------- ---------------------------------- ---------------------------- Increase (decrease) in net assets from operations 97,360 2,192 2,798 (686) 24,598 18,693 -------------- ---------------------------------- ---------------------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 4,858,995 28,701 13,829 8,799 4,552,361 80,172 Cost of insurance and administrative expenses (304,785) (3,199) (8,783) (2,955) (215,522) (16,744) Surrenders (677) (16) (16) - - (58) Net transfers among sub-accounts (including the guaranteed interest account in the general account (1,513,977) 54,048 239,753 35,186 (2,951,690) 316,096 -------------- ---------------------------------- ---------------------------- Increase from principal transactions 3,039,556 79,534 244,783 41,030 1,385,149 379,466 -------------- ---------------------------------- ---------------------------- Total increase in net assets 3,136,916 81,726 247,581 40,344 1,409,747 398,159 Net assets at beginning of year - - - - - - -------------- ---------------------------------- ---------------------------- Net assets at end of year $3,136,916 $81,726 $247,581 $40,344 $1,409,747 $398,159 ============== ================================== ============================ EQUITY- HIGH INVESTMENT INCOME INCOME CONTRAFUND GRADE BOND ----------- ------------------------- ----------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ (431) $ (398) $ (1,381) $ (199) Net realized gains (losses) on investments 660 817 2,545 181 Net unrealized gains (losses) on investments 9,223 7,284 28,977 2,487 ----------- ------------------------- ----------- Increase (decrease) in net assets from operations 9,452 7,703 30,141 2,469 ----------- ------------------------- ----------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 26,271 49,548 80,795 18,519 Cost of insurance and administrative expenses (7,481) (9,095) (35,811) (5,195) Surrenders (8) - (579) - Net transfers among sub-accounts (including the guaranteed interest account in the general account 314,886 90,921 348,397 38,426 ----------- ------------------------- ----------- Increase from principal transactions 333,668 131,374 392,802 51,750 ----------- ------------------------- ----------- Total increase in net assets 343,120 139,077 422,943 54,219 Net assets at beginning of year - - - - ----------- ------------------------- ----------- Net assets at end of year $343,120 $139,077 $422,943 $54,219 =========== ========================= ===========
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 131 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1997
INVESCO Total Industrial INVESCO Income Utilities -------------- --------------- --------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 9,534 $ 9,466 $ 68 Net realized gains (losses) on investments 604 592 12 Net unrealized gains (losses) on investments (1,884) (2,062) 178 -------------- --------------- --------------- Increase (decrease) in net assets from operations 8,254 7,996 258 -------------- --------------- --------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 34,087 32,647 1,440 Cost of insurance and administrative expenses (8,313) (7,681) (632) Surrenders (8) - (8) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 110,210 108,039 2,171 -------------- --------------- --------------- Increase from principal transactions 135,976 133,005 2,971 -------------- --------------- --------------- Total increase in net assets 144,230 141,001 3,229 Net assets at beginning of year - - - Net assets at end of year $144,230 $141,001 $3,229 ============== =============== ===============
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 132 Southland Separate Account L1 Statement of Changes in Net Assets (continued) Year ended December 31, 1997
JANUS TOTAL AGGRESSIVE WORLDWIDE JANUS GROWTH GROWTH GROWTH -------------- ---------------- ---------------- ---------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ 4,621 $ 1,600 $ (240) $ 1,036 Net realized gains (losses) on investments 6,803 2,977 1,170 1,592 Net unrealized gains (losses) on investments 24,730 6,871 6,573 11,707 -------------- ---------------- ---------------- ---------------- Increase (decrease) in net assets from operations 36,154 11,448 7,503 14,335 -------------- ---------------- ---------------- ---------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 253,062 70,041 28,978 98,303 Cost of insurance and administrative expenses (68,891) (21,920) (10,113) (25,436) Surrenders (326) (246) (16) (64) Net transfers among sub-accounts (including the guaranteed interest account in the general account) 867,772 189,617 69,377 395,407 -------------- ---------------- ---------------- ---------------- Increase from principal transactions 1,051,617 237,492 88,226 468,210 -------------- ---------------- ---------------- ---------------- Total increase in net assets 1,087,771 248,940 95,729 482,545 Net assets at beginning of year - - - - -------------- ---------------- ---------------- ---------------- Net assets at end of year $1,087,771 $248,940 $95,729 $482,545 ============== ================ ================ ================ INTERNATIONAL SHORT-TERM GROWTH BALANCED BOND ---------------- ----------------- ----------------- INCREASE IN NET ASSETS OPERATIONS Net investment income (loss) $ (71) $ 641 $ 1,655 Net realized gains (losses) on investments 983 75 6 Net unrealized gains (losses) on investments (1,597) 2,688 (1,512) ---------------- ----------------- ----------------- Increase (decrease) in net assets from operations (685) 3,404 149 ---------------- ----------------- ----------------- CHANGES FROM PRINCIPAL TRANSACTIONS Net premiums 36,942 18,703 95 Cost of insurance and administrative expenses (7,255) (3,564) (603) Surrenders - - - Net transfers among sub-accounts (including the guaranteed interest account in the general account) 125,936 75,939 11,496 ---------------- ----------------- ----------------- Increase from principal transactions 155,623 91,078 10,988 ---------------- ----------------- ----------------- Total increase in net assets 154,938 94,482 11,137 Net assets at beginning of year - - - ---------------- ----------------- ----------------- Net assets at end of year $154,938 $94,482 $11,137 ================ ================= =================
See accompanying notes. - -------------------------------------------------------------------------------- Future Dimensions 133 Southland Separate Account L1 Notes to Financial Statements December 31, 1999 NOTE A. ORGANIZATION The Southland Separate Account L1 (the Separate Account) was established by resolution of the Board of Directors of Southland Life Insurance Company (the Company) on February 25, 1994. The Separate Account was inactive prior to January 31, 1997, except for matters relating to its organization as a unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. The Separate Account supports the operations of the Future Dimensions Variable Universal Life (Future Dimensions) policies offered by the Company. The Separate Account may be used to support other variable life policies as they are offered by the Company. The assets of the Separate Account are the property of the Company. However, the portion of the Separate Account's assets attributable to the policies will not be used to satisfy liabilities arising out of any other operations of the Company. As of December 31, 1999, the Separate Account consisted of twenty investment sub-accounts available to the policyholders, each of which invests in an independently managed mutual fund portfolio ("fund"). The funds are as follows: PORTFOLIO MANAGERS/PORTFOLIOS (FUNDS) The Alger American Fund (Alger): American Small Capitalization American MidCap Growth American Growth American Leveraged AllCap Fidelity Variable Insurance Products (VIP & VIP II) Funds: VIP II Asset Manager VIP Growth VIP Overseas VIP Money Market VIP II Index 500 VIP Equity-Income VIP High Income VIP II Contrafund VIP II Investment Grade Bond - -------------------------------------------------------------------------------- Future Dimensions 134 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE A. ORGANIZATION (CONTINUED) INVESCO Variable Investment Funds, Inc. (INVESCO): Equity Income (formerly known as "Industrial Income") Utilities Janus Aspen Series Funds (Janus): Growth Aggressive Growth Worldwide Growth International Growth Balanced The Future Dimensions policies allow the policyholders to specify the allocation of their net premiums to the various funds. They can also transfer their account values among the funds. The Future Dimensions product also provides the policyholders the option to allocate their net premiums, or to transfer their account values, to a Guaranteed Interest Account ("GIA") in the Company's General Account. The GIA guarantees a rate of interest to the policyholder, and it is not variable in nature. Therefore, it is not included in the Separate Account financial statements. Effective May 1, 1998, the sub-account of the Separate Account investing in Janus Aspen Series Short-Term Bond Fund no longer accepted any new investments. The Securities and Exchange Commission issued a substitution order and on September 28, 1998, shares of the Fidelity VIP Money Market Fund were exchanged for Janus Aspen Series Short-Term Bond Fund shares. NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the Separate Account have been prepared on the basis of accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of financial statements along with the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. - -------------------------------------------------------------------------------- Future Dimensions 135 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The accounting principles followed by the Separate Account and the methods of applying those principles are presented below or in the footnotes which follow: INVESTMENT VALUATION--The investments in shares of the funds are valued at the closing net asset value (market value) per share as determined by the funds on the day of measurement. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--The investments in shares of the funds are accounted for on the date the order to buy or sell is confirmed. Dividend income and distributions of capital gains are recorded on the ex-dividend date. Realized gains and losses from investment transactions are reported using the first-in, first-out ("FIFO") method of accounting for cost. The difference between cost and current market value of investments owned on the day of measurement is recorded as unrealized gain or loss on investments. VALUATION PERIOD DEDUCTIONS--Charges are made directly against the assets of the Separate Account sub-accounts, and are reflected daily in the computation of the unit values of the sub-accounts. For Future Dimensions policies, a daily deduction, at an annual rate of .90% of the daily asset value of the Separate Account sub-accounts, is charged to the Separate Account for mortality and expense risks assumed by the Company. Total mortality and expense charges for the years ended December 31, 1999, 1998 and 1997 were $364,009, $119,686 and $13,332, respectively. POLICYHOLDER RESERVES--Policyholder reserves are presented in the financial statements at the aggregate account values of the policyholders invested in the Separate Account sub-accounts. To the extent that benefits to be paid to the policyholders exceed their account values, the Company will contribute additional funds to the benefit proceeds. - -------------------------------------------------------------------------------- Future Dimensions 136 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE C. INVESTMENTS Fund shares are purchased at net asset value with net premiums (premium payments, less sales and tax loads charged by the Company) and sub-account transfers. Fund shares are redeemed at net asset value for the payment of benefits, for surrenders, for transfers to other sub-accounts, and for charges by the Company for certain cost of insurance and administrative charges. The cost of insurance and administrative charges for the years ended December 31, 1999, 1998 and 1997 were $6,549,885, $2,903,575 and $437,265, respectively. Dividends made by the funds are reinvested in the funds. The following is a summary of Fund shares owned as of December 31, 1999:
NUMBER NET ASSET VALUE OF VALUE OF SHARES COST OF FUND SHARES AT MARKET AT MARKET SHARES - ------------------------------------------------------ ----------------- -------------- ---------------- ------------- The Alger American Fund: American Small Capitalization 34,654.379 $55.15 $ 1,911,189 $ 1,446,219 American MidCap Growth 56,921.036 $32.23 1,834,565 1,483,865 American Growth 69,584.840 $64.38 4,479,872 3,687,174 American Leveraged AllCap 49,888.287 $57.97 2,892,024 1,992,232 Fidelity Variable Insurance Products (VIP & VIP II) Funds: VIP II Asset Manager 47,780.129 $18.67 892,055 834,970 VIP Growth 55,445.440 $54.93 3,045,618 2,345,240 VIP Overseas 17,427.332 $27.44 478,206 355,507 VIP Money Market 5,047,949.000 $1.00 5,047,949 5,047,949 VIP II Index 500 39,186.034 $167.41 6,560,134 5,427,832 VIP Equity-Income 97,702.373 $25.71 2,511,928 2,409,941 VIP High Income 92,333.952 $11.31 1,044,297 1,048,363 VIP II Contrafund 205,654.031 $29.15 5,994,815 4,783,263 VIP II Investment Grade Bond 59,874.589 $12.16 728,075 741,201 INVESCO Variable Investment Funds, Inc.: Equity Income 56,907.615 $21.01 1,195,629 1,083,003 Utilities 37,560.229 $20.97 787,638 702,722 Janus Aspen Series Funds: Growth 118,229.302 $33.65 3,978,416 3,023,926 Aggressive Growth 84,554.347 $59.69 5,047,050 4,055,135 Worldwide Growth 110,252.691 $47.75 5,264,566 3,218,933 International Growth 72,823.248 $38.67 2,816,075 1,638,342 Balanced 236,824.499 $27.92 6,612,140 5,581,483 --------------- --------------- Total $63,122,241 $50,907,300 =============== ===============
- -------------------------------------------------------------------------------- Future Dimensions 137 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE C. INVESTMENTS (CONTINUED) For the year ended December 31, 1999, the cost of purchases (plus reinvested dividends) and sales of investments are as follows:
BEGINNING END FUND OF YEAR PURCHASES SALES OF YEAR - ------------------------------------------------------ ------------- --------------- ---------------- --------------- The Alger American Fund: American Small Capitalization $ 823,924 $ 825,955 $ (203,660) $ 1,446,219 American MidCap Growth 802,289 953,090 (271,514) 1,483,865 American Growth 1,507,768 3,319,494 (1,140,088) 3,687,174 American Leveraged AllCap 555,761 1,838,565 (402,094) 1,992,232 Fidelity Variable Insurance Products (VIP & VIP II) Funds: VIP II Asset Manager 473,592 678,507 (317,129) 834,970 VIP Growth 965,803 1,616,620 (237,183) 2,345,240 VIP Overseas 186,648 227,208 (58,349) 355,507 VIP Money Market 2,150,214 15,166,614 (12,268,879) 5,047,949 VIP II Index 500 2,528,232 3,344,138 (444,538) 5,427,832 VIP Equity-Income 1,400,500 1,301,224 (291,783) 2,409,941 VIP High Income 661,323 632,166 (245,126) 1,048,363 VIP II Contrafund 2,247,256 3,088,063 (552,056) 4,783,263 VIP II Investment Grade Bond 399,984 546,152 (204,935) 741,201 INVESCO Variable Investment Funds, Inc.: Equity Income 690,059 572,001 (179,057) 1,083,003 Utilities 168,860 592,997 (59,135) 702,722 Janus Aspen Series Funds: Growth 1,102,020 2,594,606 (672,700) 3,023,926 Aggressive Growth 896,998 5,490,433 (2,332,296) 4,055,135 Worldwide Growth 1,936,293 1,652,387 (369,747) 3,218,933 International Growth 1,027,251 1,036,570 (425,479) 1,638,342 Balanced 1,901,160 4,666,548 (986,225) 5,581,483 ------------- --------------- ---------------- --------------- Total $22,425,935 $50,143,338 ($21,661,973) $50,907,300 ============= =============== ================ ===============
Aggregate proceeds from sales of investments for the year ended December 31, 1999 were $25,051,400. - -------------------------------------------------------------------------------- Future Dimensions 138 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE D. OTHER POLICY DEDUCTIONS The Future Dimensions policies provide for certain deductions for sales and tax loads from premium payments received from the policyholders and for surrender charges and taxes from amounts paid to policyholders. Such deductions are taken after the redemption of sub-account units in the Separate Account and are not included in the Separate Account financial statements. NOTE E. POLICY LOANS The Future Dimensions policies allow the policyholders to borrow against their policies by using them as collateral for a loan. At the time of borrowing against the policies, an amount equal to the loan amount is transferred from the Separate Account sub-accounts to a loan Guaranteed Interest Account in the Company's General Account to secure the loan. As payments are made on the policy loan, amounts are transferred back from the loan Guaranteed Interest Account to the Separate Account sub-accounts. Interest is credited to the balance in the loan Guaranteed Interest Account at a fixed rate. The loan Guaranteed Interest Account is not variable in nature and is not included in these Separate Account statements. NOTE F. FEDERAL INCOME TAXES The Separate Account is not taxed separately because the operations of the Separate Account are part of the total operations of the Company. The Company is taxed as a life insurance company under the Internal Revenue Code. The Separate Account is not taxed as a "Regulated Investment Company" under subchapter "M" of the Internal Revenue Code. - -------------------------------------------------------------------------------- Future Dimensions 139 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE G. SUMMARY OF CHANGES IN UNITS The following schedule summarizes the changes in sub-account units for the year ended December 31, 1999:
(DECREASE) INCREASE FOR OUTSTANDING FOR WITHDRAWALS OUTSTANDING AT BEGINNING PAYMENTS AND OTHER AT END SUB-ACCOUNT OF YEAR RECEIVED DEDUCTIONS OF YEAR - ------------------------------------------------------ -------------- ---------------- ---------------- -------------- The Alger American Fund: American Small Capitalization 71,702.588 57,637.460 (19,227.980) 110,112.068 American MidCap Growth 61,552.437 53,663.692 (20,724.499) 94,491.630 American Growth 96,519.612 153,296.175 (69,230.848) 180,584.939 American Leveraged AllCap 39,281.333 78,180.937 (28,100.721) 89,361.549 Fidelity Variable Insurance Products (VIP & VIP II) Funds: VIP II Asset Manager 35,040.789 48,638.027 (27,085.455) 56,593.361 VIP Growth 67,213.256 78,969.425 (15,455.570) 130,727.111 VIP Overseas 15,284.198 18,894.457 (7,832.409) 26,346.246 VIP Money Market 194,464.915 1,713,763.106 (1,470,502.269) 437,725.752 VIP II Index 500 159,598.401 175,786.128 (29,147.426) 306,237.103 VIP Equity-Income 100,106.288 83,760.337 (22,964.808) 160,901.817 VIP High Income 55,875.183 51,760.130 (20,884.139) 86,751.174 VIP II Contrafund 157,136.563 170,176.289 (40,412.954) 286,899.898 VIP II Investment Grade Bond 34,341.076 48,202.344 (20,269.667) 62,273.753 INVESCO Variable Investment Funds, Inc.: Equity Income 49,352.422 39,623.897 (14,896.702) 74,079.617 Utilities 11,674.130 35,720.305 (5,764.848) 41,629.587 Janus Aspen Series Funds: Growth 77,638.452 139,848.728 (49,410.398) 168,076.782 Aggressive Growth 78,750.742 242,015.598 (161,125.993) 159,640.347 Worldwide Growth 133,217.360 99,139.359 (30,465.535) 201,891.184 International Growth 73,359.684 69,642.489 (34,820.696) 108,181.477 Balanced 131,276.187 258,472.945 (69,098.298) 320,650.834
- -------------------------------------------------------------------------------- Future Dimensions 140 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED) The following schedule summarizes the changes in sub-account units for the year ended December 31, 1998:
(DECREASE) INCREASE FOR OUTSTANDING FOR WITHDRAWALS OUTSTANDING AT BEGINNING PAYMENTS AND OTHER AT END SUB-ACCOUNT OF YEAR RECEIVED DEDUCTIONS OF YEAR - ------------------------------------------------------ -------------- ---------------- ---------------- -------------- The Alger American Fund: American Small Capitalization 15,602.470 66,203.578 (10,103.460) 71,702.588 American MidCap Growth 13,909.250 55,156.739 (7,513.552) 61,552.437 American Growth 13,399.380 94,364.654 (11,244.422) 96,519.612 American Leveraged AllCap 8,148.770 36,679.921 (5,547.358) 39,281.333 Fidelity Variable Insurance Products (VIP & VIP II) Funds: VIP II Asset Manager 6,482.680 33,107.305 (4,549.196) 35,040.789 VIP Growth 19,868.310 56,789.233 (9,444.287) 67,213.256 VIP Overseas 3,494.450 14,053.495 (2,263.747) 15,284.198 VIP Money Market 115,644.200 1,334,612.678 (1,255,791.963) 194,464.915 VIP II Index 500 28,102.340 153,812.513 (22,316.452) 159,598.401 VIP Equity-Income 25,474.830 84,172.610 (9,541.152) 100,106.288 VIP High Income 11,714.000 48,130.308 (3,969.125) 55,875.183 VIP II Contrafund 31,768.100 146,734.981 (21,366.518) 157,136.563 VIP II Investment Grade Bond 4,900.060 31,738.917 (2,297.901) 34,341.076 INVESCO Variable Investment Funds, Inc.: Equity Income 11,223.700 43,201.975 (5,073.253) 49,352.422 Utilities 250.460 12,714.459 (1,290.789) 11,674.130 Janus Aspen Series Funds: Growth 20,034.700 71,997.593 (14,393.841) 77,638.452 Aggressive Growth 8,875.280 79,190.451 (9,314.989) 78,750.742 Worldwide Growth 38,107.830 111,570.199 (16,460.669) 133,217.360 International Growth 12,384.220 68,300.451 (7,324.987) 73,359.684 Balanced 7,592.840 134,182.102 (10,498.755) 131,276.187 Short-Term Bond 1,034.550 739.743 (1,774.293) -
- -------------------------------------------------------------------------------- Future Dimensions 141 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED) The following schedule summarizes the changes in sub-account units for the year ended December 31, 1997:
(DECREASE) INCREASE FOR OUTSTANDING FOR WITHDRAWALS OUTSTANDING AT BEGINNING PAYMENTS AND OTHER AT END SUB-ACCOUNT OF YEAR RECEIVED DEDUCTIONS OF YEAR - ------------------------------------------------------ -------------- ---------------- --------------- --------------- The Alger American Fund: American Small Capitalization - 15,614.280 (11.810) 15,602.470 American MidCap Growth - 13,911.240 (1.990) 13,909.250 American Growth - 13,413.360 (13.980) 13,399.380 American Leveraged AllCap - 8,150.060 (1.290) 8,148.770 Fidelity Variable Insurance Products (VIP & VIP II) Funds: VIP II Asset Manager - 6,483.960 (1.280) 6,482.680 VIP Growth - 19,869.540 (1.230) 19,868.310 VIP Overseas - 3,494.450 - 3,494.450 VIP Money Market - 418,912.020 (303,267.820) 115,644.200 VIP II Index 500 - 28,106.580 (4.240) 28,102.340 VIP Equity-Income - 25,475.490 (.660) 25,474.830 VIP High Income - 11,714.000 - 11,714.000 VIP II Contrafund - 31,812.080 (43.980) 31,768.100 VIP II Investment Grade Bond - 4,900.060 - 4,900.060 INVESCO Variable Investment Funds, Inc.: Industrial Income - 11,223.710 (.010) 11,223.700 Utilities - 251.170 (.710) 250.460 Janus Aspen Series Funds: Growth - 20,054.580 (19.880) 20,034.700 Aggressive Growth - 8,876.800 (1.520) 8,875.280 Worldwide Growth - 38,113.040 (5.210) 38,107.830 International Growth - 12,384.220 - 12,384.220 Balanced - 7,592.840 - 7,592.840 Short-Term Bond - 1,034.550 - 1,034.550
- -------------------------------------------------------------------------------- Future Dimensions 142 Southland Separate Account L1 Notes to Financial Statements (continued) NOTE H. NET ASSETS Net assets at December 31, 1999 consisted of the following:
ACCUMULATED NET NET REALIZED UNREALIZED ACCUMULATED GAINS GAINS PRINCIPAL INVESTMENT (LOSSES) ON (LOSSES) ON SUB-ACCOUNT TRANSACTIONS INCOME INVESTMENTS INVESTMENTS NET ASSETS - ----------------------------------------- ---------------- --------------- --------------- -------------- -------------- The Alger American Fund: American Small Capitalization $ 1,274,505 $ 177,043 $ 5,542 $ 464,970 $ 1,922,060 American MidCap Growth 1,289,879 178,529 33,035 350,700 1,852,143 American Growth 3,198,001 294,207 227,685 792,698 4,512,591 American Leveraged AllCap 1,717,839 62,372 257,622 899,792 2,937,625 Fidelity Variable Insurance Products (VIP & VIP II) Funds: VIP II Asset Manager 783,028 52,606 2,932 57,085 895,651 VIP Growth 2,174,916 154,417 37,757 700,378 3,067,468 VIP Overseas 347,376 9,048 1,321 122,699 480,444 VIP Money Market 4,810,086 230,632 - - 5,040,718 VIP II Index 500 5,361,968 16,185 79,961 1,132,302 6,590,416 VIP Equity-Income 2,325,687 76,113 22,512 101,987 2,526,299 VIP High Income 1,018,574 71,195 (38,976) (4,066) 1,046,727 VIP II Contrafund 4,617,512 100,746 129,276 1,211,552 6,059,086 VIP II Investment Grade Bond 716,354 20,106 5,589 (13,126) 728,923 INVESCO Variable Investment Funds, Inc.: Equity Income 1,021,786 50,503 25,414 112,626 1,210,329 Utilities 687,074 4,898 11,823 84,916 788,711 Janus Aspen Series Funds: Growth 2,741,818 28,933 281,593 954,490 4,006,834 Aggressive Growth 2,235,567 48,017 1,842,894 991,914 5,118,392 Worldwide Growth 3,089,710 17,797 170,610 2,045,633 5,323,750 International Growth 1,481,469 (1,663) 183,144 1,177,733 2,840,683 Balanced 5,254,823 124,299 259,784 1,030,657 6,669,563 ---------------- --------------- --------------- -------------- -------------- Total $46,147,972 $1,715,983 $3,539,518 $12,214,940 $63,618,413 ================ =============== =============== ============== ==============
- -------------------------------------------------------------------------------- Future Dimensions 143 APPENDIX A DEATH BENEFIT CORRIDOR FACTORS
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. - -------------------------------------------------------------------------------- Future Dimensions 144 APPENDIX B PERFORMANCE INFORMATION The following hypothetical illustrations demonstrate how the actual investment experience of each subaccount of the separate account affects the account value minus any surrender charge, account value and death benefit of a policy. These hypothetical illustrations are based on the actual historical return of each portfolio as if a policy had been issued on the date indicated. Each portfolio's annual total return is based on the total return calculated for each fiscal year. These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset based charges and deductions, which if reflected, would result in lower total return figures than those shown. The illustrations are based on the payment of a $4,500 annual premium, received at the beginning of each year, for a hypothetical policy with a $250,000 face amount, death benefit option A, issued to a preferred, nonsmoker male, age 45. In each case, it is assumed that all premiums are allocated to the subaccount 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 account value minus any surrender charge, account values and death benefits take into account the charges against premiums, current cost of insurance and monthly deductions, the daily charge against the separate account for mortality and expense risks, and each portfolio's charges and expenses. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 44. This prospectus also contains illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 55. Past performance is not an indication of future results. Actual investment results may be more or less than those shown in the hypothetical illustrations. - -------------------------------------------------------------------------------- Future Dimensions 145 HYPOTHETICAL ILLUSTRATIONS Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- ALGER AMERICAN GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 4.14% 1,153 3,123 250,000 12/31/91 40.39% 6,755 8,975 250,000 12/31/92 12.38% 9,412 13,562 250,000 12/31/93 22.47% 16,263 20,413 250,000 12/31/94 1.45% 19,589 23,739 250,000 12/31/95 36.37% 32,446 36,596 250,000 12/31/96 13.35% 40,681 44,831 250,000 12/31/97 25.75% 55,992 60,142 250,000 12/31/98 48.07% 89,524 93,674 250,000 12/31/99 33.74% 125,644 129,103 304,682 ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 12.04% 1,431 3,401 250,000 12/31/97 19.68% 5,690 7,910 250,000 12/31/98 57.83% 13,436 17,586 250,000 12/31/99 78.06% 32,906 37,056 250,000 ALGER AMERICAN MIDCAP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 -1.54% 954 2,924 250,000 12/31/95 44.45% 6,744 8,964 250,000 12/31/96 11.90% 9,339 13,489 250,000 12/31/97 15.01% 14,905 19,055 250,000 12/31/98 30.30% 24,722 28,872 250,000 12/31/99 31.85% 37,948 42,098 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 146 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 8.71% 1,314 3,284 250,000 12/31/91 57.54% 8,166 10,386 250,000 12/31/92 3.55% 9,761 13,911 250,000 12/31/93 13.28% 15,087 19,237 250,000 12/31/94 -4.38% 17,079 21,229 250,000 12/31/95 44.31% 31,005 35,155 250,000 12/31/96 4.18% 35,520 39,670 250,000 12/31/97 11.39% 43,348 47,498 250,000 12/31/98 15.53% 54,290 58,440 250,000 12/31/99 43.42% 84,828 88,286 250,000 FIDELITY VIP EQUITY-INCOME PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 -15.29% 475 2,445 250,000 12/31/91 31.44% 5,265 7,485 250,000 12/31/92 16.89% 8,243 12,393 250,000 12/31/93 18.29% 14,173 18,323 250,000 12/31/94 7.07% 18,705 22,855 250,000 12/31/95 35.09% 30,910 35,060 250,000 12/31/96 14.28% 39,306 43,456 250,000 12/31/97 28.11% 55,379 59,529 250,000 12/31/98 11.63% 65,661 69,811 250,000 12/31/99 6.33% 73,892 77,351 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 147 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 -11.73% 599 2,569 250,000 12/31/91 45.51% 6,299 8,519 250,000 12/31/92 9.32% 8,533 12,683 250,000 12/31/93 19.37% 14,689 18,839 250,000 12/31/94 -0.02% 17,673 21,823 250,000 12/31/95 35.36% 29,591 33,741 250,000 12/31/96 14.71% 37,966 42,116 250,000 12/31/97 23.48% 51,562 55,712 250,000 12/31/98 39.49% 77,917 82,067 250,000 12/31/99 37.44% 113,419 116,877 275,830 FIDELITY VIP HIGH INCOME Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 -2.23% 930 2,900 250,000 12/31/91 35.08% 6,097 8,317 250,000 12/31/92 23.17% 9,956 14,106 250,000 12/31/93 20.40% 16,561 20,711 250,000 12/31/94 -1.64% 19,143 23,293 250,000 12/31/95 20.72% 27,651 31,801 250,000 12/31/96 14.03% 35,513 39,663 250,000 12/31/97 17.67% 46,045 50,195 250,000 12/31/98 -4.33% 46,728 50,878 250,000 12/31/99 8.15% 54,853 58,312 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 148 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 8.04% 1,290 3,260 250,000 12/31/91 6.09% 4,591 6,811 250,000 12/31/92 3.90% 6,114 10,264 250,000 12/31/93 3.23% 9,591 13,741 250,000 12/31/94 4.25% 13,338 17,488 250,000 12/31/95 5.87% 17,564 21,714 250,000 12/31/96 5.41% 21,899 26,049 250,000 12/31/97 5.51% 26,517 30,667 250,000 12/31/98 5.46% 31,494 35,644 250,000 12/31/99 5.17% 37,294 40,752 250,000 FIDELITY VIP OVERSEAS PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 -1.67% 950 2,920 250,000 12/31/91 8.00% 4,356 6,576 250,000 12/31/92 -10.72% 4,395 8,545 250,000 12/31/93 37.35% 11,951 16,101 250,000 12/31/94 1.72% 15,290 19,440 250,000 12/31/95 9.74% 20,507 24,657 250,000 12/31/96 13.15% 27,161 31,311 250,000 12/31/97 11.56% 34,143 38,293 250,000 12/31/98 12.81% 42,571 46,721 250,000 12/31/99 42.55% 67,670 71,128 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 149 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- FIDELITY VIP II ASSET MANAGER PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 6.72% 1,244 3,214 250,000 12/31/91 22.56% 5,664 7,884 250,000 12/31/92 11.71% 8,115 12,265 250,000 12/31/93 21.23% 14,486 18,636 250,000 12/31/94 -6.09% 16,130 20,280 250,000 12/31/95 16.96% 23,139 27,289 250,000 12/31/96 14.60% 30,569 34,719 250,000 12/31/97 20.65% 41,395 45,545 250,000 12/31/98 15.05% 51,810 55,960 250,000 12/31/99 11.09% 62,069 65,527 250,000 FIDELITY VIP II CONTRAFUND PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/96 21.22% 1,755 3,725 250,000 12/31/97 24.14% 6,402 8,622 250,000 12/31/98 29.98% 11,159 15,309 250,000 12/31/99 24.25% 18,726 22,876 250,000 FIDELITY VIP II INDEX 500 PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/93 9.74% 1,350 3,320 250,000 12/31/94 1.04% 4,305 6,525 250,000 12/31/95 37.19% 9,175 13,325 250,000 12/31/96 22.82% 16,033 20,183 250,000 12/31/97 32.82% 26,781 30,931 250,000 12/31/98 28.31% 39,433 43,583 250,000 12/31/99 20.51% 51,920 56,070 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 150 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/90 6.21% 1,226 3,196 250,000 12/31/91 16.38% 5,222 7,442 250,000 12/31/92 6.65% 7,068 11,218 250,000 12/31/93 10.96% 11,709 15,859 250,000 12/31/94 -3.76% 13,986 18,136 250,000 12/31/95 17.32% 20,722 24,872 250,000 12/31/96 3.19% 24,582 28,732 250,000 12/31/97 9.06% 30,476 34,626 250,000 12/31/98 8.85% 36,943 41,093 250,000 12/31/99 -1.05% 40,220 43,678 250,000 INVESCO VIF-EQUITY INCOME FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 29.25% 2,039 4,009 250,000 12/31/96 22.28% 6,612 8,832 250,000 12/31/97 28.17% 11,205 15,355 250,000 12/31/98 15.30% 17,095 21,245 250,000 12/31/99 14.84% 23,738 27,888 250,000 INVESCO VIF-UTILITIES FUND Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 9.08% 1,327 3,297 250,000 12/31/96 12.76% 5,089 7,309 250,000 12/31/97 23.41% 8,746 12,896 250,000 12/31/98 25.48% 15,946 20,096 250,000 12/31/99 19.13% 23,436 27,586 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 151 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 16.33% 1,582 3,552 250,000 12/31/95 27.48% 6,428 8,648 250,000 12/31/96 7.95% 8,507 12,657 250,000 12/31/97 12.66% 13,573 17,723 250,000 12/31/98 34.26% 23,836 27,986 250,000 12/31/99 125.40% 66,242 70,392 250,000 JANUS ASPEN BALANCED PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 0.84% 1,038 3,008 250,000 12/31/95 24.79% 5,560 7,780 250,000 12/31/96 16.18% 8,505 12,655 250,000 12/31/97 22.10% 15,098 19,248 250,000 12/31/98 34.28% 25,878 30,028 250,000 12/31/99 26.76% 37,761 41,911 250,000 JANUS ASPEN GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 2.76% 1,105 3,075 250,000 12/31/95 30.17% 6,003 8,223 250,000 12/31/96 18.45% 9,285 13,435 250,000 12/31/97 22.75% 16,155 20,305 250,000 12/31/98 35.66% 27,619 31,769 250,000 12/31/99 43.98% 46,021 50,171 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 152 HYPOTHETICAL ILLUSTRATIONS (continued) Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A Stated Death Benefit $250,000 Annual Premium $4,500 - -------------------------------------------------------------------------------- JANUS ASPEN INTERNATIONAL GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/95 23.15% 1,823 3,793 250,000 12/31/96 34.71% 7,270 9,490 250,000 12/31/97 18.51% 10,785 14,935 250,000 12/31/98 17.23% 16,969 21,119 250,000 12/31/99 82.27% 40,202 44,352 250,000 JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO Year Annual Total Cash Surrender Account Death Ended: Return* Value Value Benefit 12/31/94 1.53% 1,062 3,032 250,000 12/31/95 27.37% 5,761 7,981 250,000 12/31/96 29.04% 10,221 14,371 250,000 12/31/97 22.15% 17,192 21,342 250,000 12/31/98 28.92% 27,343 31,493 250,000 12/31/99 64.45% 52,782 56,932 250,000 The assumptions underlying these values are described in Performance Information, page 145. * These annual total return figures reflect the portfolio's management fees and other operating expenses but do not reflect the policy level or separate account asset-based charges and deductions which, if reflected, would result in lower total return figures than those shown. - -------------------------------------------------------------------------------- Future Dimensions 153 Part II UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that section. RULE 484 UNDERTAKING Insofar as indemnification for liability arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Texas Business Corporations Act Article 2.02-1 is a comprehensive provision that defines the power of Texas corporations to provide for the indemnification of its directors, officers, employees and agents. This Article also grants to corporations the power to purchase director and officer insurance. Article XXVIII of the Southland Life Insurance Company Bylaws provides as follows: ARTICLE XXVIII INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS SECTION 1. Authorization for indemnification of Directors and officers in actions by or in the right of a company to procure a judgment in its favor. (a) Any person made party to an action by or in the right of the Company to procure a judgment in its favor by reason of the fact that he, his testator or intestate, is or was a Director or officer of the Company, shall be indemnified against the reasonable expenses, including attorneys' fees, actually and necessarily incurred by him in connection with the defense of such action, or in connection with an appeal therein, except in relation to matters as to which such Director or officer is adjudged to have breached his duty to the Company. (b) The indemnification authorized under paragraph (a) shall in no case include: (1) Amounts paid in settling or otherwise disposing of a threatened or a pending action with or without court approval; or - -------------------------------------------------------------------------------- Future Dimensions II - 1 (2) Expenses incurred in defending a threatened action or a pending action which is settled or otherwise disposed of without court approval. SECTION 2. Authorization for indemnification of Directors and officers in actions or proceedings other than by or in the right of a company to procure a judgment in its favor. (a) Any person made, or threatened to be made, a party in an action or proceeding other than one by or in the right of the company to procure a judgment in its favor, whether civil, criminal or administrative, including an action by or in the right of any other company of any type or kind, domestic or foreign, which any Director or officer of the Company, served in any capacity at the request of the Company, by reason of the fact that he, his testator or intestate, was a Director or officer of the Company, or served such other company in any capacity, shall be indemnified against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding, or any appeal therein, if such Director or officer acted, in good faith, for a purpose which he reasonably believed to be in the best interests of the Company and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. (b) The termination of any such civil or criminal action or proceeding by judgment, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not in itself create a presumption that any such Director or officer did not act in good faith for a purpose which he reasonably believed to be in the best interests of the Company or that he had reasonable cause to believe that this conduct was unlawful. SECTION 3. Payment of indemnification other than by court award. (a) A person who has been wholly successful, on the merits or otherwise, in the defense of a civil, criminal, or administrative action or proceeding of the character described in Section 1 or Section 2 above shall be entitled to indemnification as authorized in such Section 1 or Section 2. (b) Except as provided in Paragraph (a) of this Section 3, any indemnification under Section 1 or Section 2 above, unless ordered by a court, shall be made by the Company only if authorized in the specific case: (1) By the Board of Directors acting by a quorum consisting of Directors who are not parties to such action or proceeding upon a finding that the Director or officer has met the standard of conduct set forth in Section 1 or Section 2, as the case may be; or (2) If a quorum of the Board of Directors is not obtainable with due diligence: (A) By the Board of Directors upon the opinion in writing of independent legal counsel that indemnification is proper in the circumstances because the applicable standard of conduct set forth in Section 1 or Section 2 above has been met by such Director or officer, or (B) By the stockholder (excluding the director or officer) upon a finding that the Director or officer has met the applicable standard of conduct set forth in Section 1 or Section 2 above. - -------------------------------------------------------------------------------- Future Dimensions II - 2 (c) Reasonable expenses incurred in defending a civil, criminal or administrative action or proceeding may be paid by the Company in advance of the final disposition of such action or proceeding if authorized under paragraph (b) of this Section 3 and if the Director or officer submits a written affirmation that he meets the standards necessary for indemnification and if the facts known to those making the determination would not preclude indemnification, but subject to a written undertaking of repayment if ultimately found not to be entitled to indemnification under the provisions hereof. SECTION 4. General The foregoing provisions of this Article XXVIII shall be deemed to be a contract between the Company and each Director and officer who serves in such capacity at any time while this bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or therefore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any Director or officer may be entitled apart from the provisions of this Article XXVIII. The Board of Directors in its discretion shall have the power on behalf of the Company to indemnify any person, other than a Director or officer, made a party to any action, suit or proceeding by reason of the fact that he, his testator or intestate, is or was an employee of the company. Such indemnification shall be to the same extent and subject to the same standards as indemnification for a director or officer. SECTION 5. Liability Insurance The company and/or the Board of Directors may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the company or who is or was serving at the request of the company as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, other enterprise or employee benefit plan, against any and all liability asserted against him and/or incurred by him in such capacity or arising out of his status as such a person, whether or not such person would be subject to or eligible for indemnification under the other provisions of this Article XXVIII. REPRESENTATIONS PURSUANT TO SECTION 26(E)(2)(A) Southland Life Insurance Company hereby 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 Southland Life Insurance Company. CONTENTS OF REGISTRATION STATEMENT This Registration Statement comprises the following papers and documents: The facing sheet. - -------------------------------------------------------------------------------- Future Dimensions II - 3 The prospectus. Undertaking to file reports. Rule 484 undertaking. Representations pursuant to Section 26(e)(2)(A). The signatures. Written consents of the following persons: James L. Livingston, Jr. (See Exhibit 6A). Ernst & Young LLP (See Exhibit 7(a)). Sutherland Asbill & Brennan LLP (See Exhibit 7(b)). The following exhibits, corresponding to those required by paragraph A of the instructions as to exhibits in Form N-8B-2: 1. A. (1) Resolution of the Board of Directors of Southland Life Insurance Company establishing Southland Separate Account L1/1/ (2) Not Applicable (3) (a) Form of Underwriting Agreement between Southland Life Insurance Company and ING America Equities, Inc. /2/ (b) Form of Distribution Agreement /3/ (i) Amendment to Southland Life Insurance Company Distribution Agreement (c) Schedule of Sales Commissions /4/ (d) Form of Wholesaling Agreement (e) Form of IIG Master Sales and Supervisory Agreement (f) Form of Broker-Dealer Supervisory and Selling Agreement for Variable Contracts (4) Not applicable (5) (a) Specimen Flexible Premium Adjustable Combination Fixed and Variable Life Insurance Policy /5/ (i) Specimen Form of Montana Flexible Premium Adjustable Combination Fixed and Variable Life Insurance Policy /7/ (ii) Specimen Form of Texas Flexible Premium Adjustable Combination Fixed and Variable Life Insurance Policy /7/ (b) Adjustable Term Insurance Rider /4/ (c) Accidental Death Benefit Rider /4/ (d) Additional Insured Rider /4/ (e) Children's Insurance Rider /4/ (f) Exchange of Insured Rider /4/ (g) Guaranteed Insurability Rider /4/ (h) Waiver of the Cost of Insurance Rider /4/ (i) Waiver of Specified Premium Rider /4/ (j) Guaranteed Minimum Death Benefit Rider /6/ (k) Fail Safe Endorsement /8/ (l) Continuation of Coverage After Age 100 Endorsement (6) (a) Amended and restated Articles of Incorporation of Southland Life Insurance Company /3/ (b) By-laws of Southland Life Insurance Company /2/ (7) Not applicable (8) (a) Form of participation/distribution agreement between The Alger American Fund and the Company /3/ (b) Form of participation/distribution agreement between Fidelity Variable Insurance Products Fund and the Company /3/ (c) Form of participation/distribution agreement between Fidelity Variable Insurance Products Fund II and the Company /3/ - -------------------------------------------------------------------------------- Future Dimensions II - 4 (d) Form of participation/distribution agreement between INVESCO Variable Investment Funds, Inc. and the Company /3/ (e) Form of participation/distribution agreement between Janus Aspen Series and the Company /3/ (f) Form of administrative services agreement between Security Life of Denver Insurance Company and Southland Life Insurance Company (g) Form of administrative services agreement between INVESCO Funds Group, Inc. and Southland Life Insurance Company (9) Not applicable (10) Application form /5/ (11) Issuance, transfer and redemption procedures memorandum B. Not applicable C. Not applicable 2. Opinion and Consent of B. Scott Burton, Esquire /8/ 3. Not applicable 4. Not applicable 5. Not applicable 6.A. Opinion and consent of James L. Livingston, Jr. 7.(a) Consent of Ernst & Young LLP (b) Consent of Sutherland Asbill & Brennan LLP - ------------------- /1/ Incorporated by reference to the Registration Statement on Form S-6 for Southland Separate Account L1 (File No. 33-97852) filed with the Commission on October 6, 1995. /2/ Incorporated by reference to the Registration Statement on Form N-4 for Southland Separate Account A1 (File No. 33-89574) filed with the Commission on February 17, 1995. /3/ Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N- 4 for Southland Separate Account A1 (File No. 33-89574) filed with the Commission on September 29, 1995. /4/ Incorporated by reference to Pre-Effective Amendment No. 2 to the Registration Statement on Form S- 6 for Southland Separate Account L1 (File No. 33-97852) filed with the Commission on May 10, 1996. /5/ Incorporated by reference to Post-Effective Amendment No. 1 to the Registration Statement on Form S-6 for Southland Separate Account L1 (File No. 33-97852) filed with the Commission on July 30, 1996. /6/ Incorporated by reference to Post-Effective Amendment No. 2 to the Registration Statement on Form S-6 for Southland Separate Account L1 (File No. 33-97852) filed with the Commission on October 25, 1996. /7/ Incorporated by reference to Post-Effective Amendment No. 3 to the Registration Statement on Form S-6 for Southland Separate Account L1 (File No. 33-97852) filed with the Commission on April 30, 1997. /8/ Incorporated by reference to Post-Effective Amendment No. 5 to the Registration Statement on Form S-6 for Southland Separate Account L1 (File No. 33-97852) filed with the Commission on April 29, 1999. - -------------------------------------------------------------------------------- Future Dimensions II - 5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, Southland Life Insurance Company and the Registrant, Southland Separate Account L1, certify that they meet all the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and have duly caused this Post-Effective Amendment No. 6 to the Registration Statement to be signed on its behalf by the undersigned, hereunto duly authorized, and their seal to be hereunto affixed and attested, all in the County of Fulton and the State of Georgia, on the 19th day of April, 2000. Southland Life Insurance Company (Depositor) By: /s/ Stephen M. Christopher ----------------------------- Stephen M. Christopher President (Seal) Attest: /s/ Gary W. Waggoner - ------------------------------- Gary W. Waggoner Southland Separate Account L1 (Registrant) BY: Southland Life Insurance Company (Depositor) By: /s/ Stephen M. Christopher ----------------------------- Stephen M. Christopher President (Seal) Attest: /s/ Gary W. Waggoner - ------------------------------- Gary W. Waggoner - -------------------------------------------------------------------------------- Future Dimensions II - 6 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 indicated on the date(s) set forth below. PRINCIPAL EXECUTIVE OFFICERS: /s/ Stephen M. Christopher - ------------------------ Stephen M. Christopher President and Chairman /s/ James L. Livingston, Jr. - ------------------------ James L. Livingston, Jr. Executive Vice President, CFO and Chief Acutary PRINCIPAL ACCOUNTING OFFICER: /s/ Fred H. Wright - ------------------------ Fred H. Wright Vice President and Corporate Controller DIRECTORS: /s/ P. Randall Lowery - ------------------------ P. Randall Lowery /s/ Michael W. Cunningham - ------------------------ Michael W. Cunningham /s/ B. Scott Burton - ------------------------ B. Scott Burton /s/ Jerome J. Cwiok - ------------------------ Jerome J. Cwiok - -------------------------------------------------------------------------------- Future Dimensions II - 7 Exhibit Index 1.A.(3)(b)(i) Amendment to Southland Life Insurance Company Distribution Agreement 1.A.(3)(d) Form of Wholesaling Agreement 1.A.(3)(e) Form of IIG Master Sales and Supervisory Agreement 1.A.(3)(f) Form of Broker-Dealer Supervisory and Selling Agreement for Variable Contracts 1.A.5(l) Continuation of Coverage After Age 100 Endorsement 1.A.(8)(f) Form of Administrative Services Agreement between Security Life of Denver Insurance Company and Southland Life Insurance Company 1.A.(8)(g) Form of administrative services agreement between INVESCO Funds Group, Inc. and Southland Life Insurance Company 1.A.(11) Issuance, Transfer and Redemption Procedures Memorandum 6.A. Opinion and Consent of James L. Livingston, Jr. 7.(a) Consent of Ernst & Young LLP 7.(b) Consent of Sutherland, Asbill & Brennan LLP - -------------------------------------------------------------------------------- Future Dimensions II - 8 EX-1 2 AMDT TO DIST AGMT Exhibit 1.A(3)(b)(i) AMENDMENT TO SOUTHLAND LIFE INSURANCE COMPANY DISTRIBUTION AGREEMENT This Amendment is made and effective the 1st of March, 1999, and amends the Distribution Agreement (the "Agreement") dated April 1, 1996, between Southland Life Insurance Company, a Texas domestic insurance company ("Southland") on its own behalf and on behalf of Southland Life Insurance Company Separate Account A1 ("Separate Account A1") and Southland Life Insurance Company Separate Account L1 ("Separate Account L1" and both Separate Account A1 and Separate Account L1 collectively referred to as "Separate Accounts") and ING America Equities, Inc., a Colorado corporation ("ING America Equities"). WHEREAS, Southland and ING America Equities desire to make certain changes to the Agreement; NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, Southland and ING America Equities hereby agrees as follows: 1. Section 21 is hereby amended to read in its entirety as follows: 21. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with and governed by the laws of Colorado or Texas, as appropriate to the action being commenced. 2. A new section, Section 22 is hereby added: 22. TERM OF AGREEMENT. This Agreement is for a term of five years from its effective date and shall automatically renew for subsequent terms of five year periods, unless terminated under Section 17 by either party. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed. SOUTHLAND LIFE INSURANCE COMPANY ING AMERICA EQUITIES, INC. By: /s/ B. Scott Burton By: /s/ Gary W. Waggoner ---------------------------------- --------------------------------- Print Name: B. Scott Burton Print Name: Gary W. Waggoner -------------------------- -------------------------- Title: Title: Secretary ------------------------------- ------------------------------- EX-2 3 WHOLESALING AGMT Exhibit 1.A(3)(d) WHOLESALING AGREEMENT THIS WHOLESALING AGREEMENT ("Agreement"), made this ____ day of ____________, 20__, by and between SOUTHLAND LIFE INSURANCE COMPANY ("SOUTHLAND"), a Texas corporation, and ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES"), a Colorado corporation, and ________________________________ ("BROKER-DEALER"), a __________________ corporation, and ________________________________ ("WHOLESALER") (collectively "THE PARTIES"). RECITALS WHEREAS, SOUTHLAND issues certain variable life insurance policies described in this Agreement or in the Schedules attached hereto (the "CONTRACTS"), which are deemed securities under the Securities Act of 1933 ("1933 ACT"); and WHEREAS, ING America Equities and BROKER-DEALER are duly licensed as Broker-Dealers with the National Association of Securities Dealers ("NASD") and the U.S. Securities and Exchange Commission ("SEC"); and WHEREAS, WHOLESALER is a registered representative of BROKER-DEALER and a duly licensed insurance agent; and WHEREAS, SOUTHLAND has appointed ING AMERICA EQUITIES as the principal underwriter and distributor of the CONTRACTS; and WHEREAS, SOUTHLAND, ING AMERICA EQUITIES, BROKER-DEALER and WHOLESALER desire to establish an arrangement whereby Wholesaler will recommend to ING AMERICA EQUITIES certain Broker-Dealers to solicit sales of the CONTRACTS and/or recommend CONTRACTS to registered representatives of these Broker-Dealers for sale to customers; and WHEREAS, ING AMERICA EQUITIES delegates to BROKER-DEALER, to the extent legally permitted, certain training and administrative responsibilities and duties in connection with WHOLESALER'S activities pursuant to this Agreement. NOW THEREFORE, in consideration of the premises and mutual promises contained herein, THE PARTIES hereto agree as follows: 1) APPOINTMENT SOUTHLAND and ING AMERICA EQUITIES hereby appoint WHOLESALER to recommend certain Broker-Dealers to ING AMERICA EQUITIES to solicit sales of the CONTRACTS which are described in the Schedules attached hereto and/or recommend CONTRACTS to registered representatives of such Broker-Dealers for sale to customers. SOUTHLAND hereby appoints BROKER-DEALER and BROKER-DEALER accepts appointment to supervise WHOLESALER'S wholesaling activities. 1 2) REPRESENTATIONS a) Each party to this Agreement represents to the others, through the signatures below, that it has full power and authority to enter into this Agreement and to perform the services and obligations contemplated hereunder. b) ING AMERICA EQUITIES represents that it is a member of the NASD and is registered as a Broker-Dealer under the Securities Exchange Act of 1934 ("1934 ACT) and under the laws of each jurisdiction in which such registration is required for the sale of the CONTRACTS. c) BROKER-DEALER represents that it is a member of the NASD and is registered as a Broker-Dealer under the 1934 ACT and under the laws of each jurisdiction in which such registration is required for the sale of the CONTRACTS. d) SOUTHLAND represents that the CONTRACTS and related separate accounts do and will continue to comply with the registration and other applicable requirements of the 1933 ACT, the Investment Company Act of 1940 ("the 1940 Act"), and the rules and regulations thereunder, including the terms of any SEC order with respect thereto. e) SOUTHLAND represents that the CONTRACTS have been duly filed and accepted by the state insurance departments in jurisdictions where it is authorized to transact business. SOUTHLAND shall provide notice of such jurisdictions to THE PARTIES. f) SOUTHLAND represents that the CONTRACT prospectuses currently included in SOUTHLAND'S registration statement, as filed with the SEC, contain or will contain, all statements and information which are required to be stated therein by the 1933 ACT and in all respects conform to the requirements thereof. 3) COMPLIANCE WITH NASD CONDUCT RULES AND FEDERAL AND STATE LAWS BROKER-DEALER shall fully comply with the requirements of the 1934 Act and all other applicable federal and state laws and with the rules of the NASD. BROKER-DEALER shall establish such rules and procedures as are necessary to diligently supervise the securities activities of Representatives. BROKER-DEALER shall maintain appropriate books, records and supervisory procedures as required by the SEC, NASD or other regulatory agencies having jurisdiction. 4) LICENSING AND APPOINTMENT OF WHOLESALER AND BROKER-DEALERS WHOLESALER shall recommend that certain Broker-Dealers or registered representatives who desire to solicit CONTRACTS be contracted and appointed with SOUTHLAND and ING AMERICA EQUITIES in accordance with SOUTHLAND'S and ING AMERICA EQUITIES' procedures in effect at the time of contracting and appointment. SOUTHLAND and ING AMERICA EQUITIES shall have the right to reject or accept any such recommendation, but shall not do so arbitrarily or unreasonably. 5) QUALIFICATION AND SUPERVISION OF WHOLESALER a) Before WHOLESALER engages in the wholesaling activities described herein, BROKER-DEALER will cause the Wholesaler (i) to be a registered representative of BROKER-DEALER; (ii) to qualify under all applicable laws to engage in wholesaling activities; (iii) to be trained in the sale of the CONTRACTS; 2 and (iv) to limit wholesaling activities to jurisdictions where SOUTHLAND has authorized solicitation of the CONTRACTS. b) BROKER-DEALER shall have full responsibility for the training, supervision and control of WHOLESALER'S wholesaling activities. WHOLESALER shall be subject to the control of BROKER-DEALER with respect to activities in connection with the CONTRACTS. BROKER-DEALER shall comply with the administrative procedures of SOUTHLAND and ING AMERICA EQUITIES. Such procedures are subject to change and are freely amendable from time to time by SOUTHLAND and ING AMERICA EQUITIES. c) BROKER-DEALER has specific responsibility for supervising and reviewing WHOLESALER'S use of sales literature, advertising and all other communications in connection with the CONTRACTS. No sales solicitation, including delivery of supplemental sales literature shall occur, be delivered to, or used with a prospective purchaser unless accompanied or preceded by the then current prospectus(es). d) If WHOLESALER fails to comply with the BROKER-DEALER'S rules and standards, the BROKER-DEALER shall terminate the wholesaling activities of WHOLESALER relating to the CONTRACTS and shall promptly notify SOUTHLAND and ING AMERICA EQUITIES of such termination. e) Upon request by SOUTHLAND or ING AMERICA EQUITIES, BROKER-DEALER shall furnish appropriate records to evidence BROKER-DEALER'S diligent supervision. 6) ADVERTISING AND SALES PROMOTION MATERIALS BROKER-DEALER warrants that only advertising and sales materials, including illustrations, which have been approved in writing in advance of use by SOUTHLAND and ING AMERICA EQUITIES will be used by WHOLESALER. 7) COMPENSATION Compensation payable under this Agreement shall be paid to BROKER-DEALER in accordance with the Schedule(s) attached hereto as are in effect at the time premium payments are received by SOUTHLAND. SOUTHLAND reserves the right to revise the Schedule(s) at any time upon ten (10) days prior written notice to BROKER-DEALER. Compensation to WHOLESALER for wholesaling activities shall be governed by an agreement between BROKER-DEALER and WHOLESALER. 8) HOLD HARMLESS AND INDEMNIFICATION PROVISIONS No party to this Agreement will be liable for any obligation, act or omission of any other. Each party to this Agreement will hold harmless and indemnify SOUTHLAND, ING AMERICA EQUITIES, BROKER-DEALER and WHOLESALER, as appropriate, for losses or expenses suffered (including reasonable attorneys' fees) as a result of a violation or non-compliance by that party or ASSOCIATED PERSONS of that party of any applicable law or regulation. The term "ASSOCIATED PERSON" herein shall be defined consistently with such definition as contained in the NASD Membership and Conduct Rules. 9) NON-WAIVER PROVISION Failure of a party to terminate the Agreement for causes as set forth in this Agreement does not constitute a waiver of the right to terminate this Agreement at a later time. 3 10) AMENDMENTS Except as stated in Section 7, no amendment to this Agreement will be effective unless it is in writing and signed by all parties hereto. 11) INDEPENDENT CONTRACTOR BROKER-DEALER and WHOLESALER are independent contractors with respect to SOUTHLAND and ING AMERICA EQUITIES. 12) NOTIFICATION AND COOPERATION IN INVESTIGATION BROKER-DEALER and WHOLESALER agree to notify ING AMERICA EQUITIES promptly of any disciplinary proceedings against WHOLESALER or any threatened or filed arbitration action or civil litigation arising out of WHOLESALER'S activities. BROKER-DEALER, WHOLESALER, ING AMERICA EQUITIES and SOUTHLAND jointly agree to cooperate fully in any insurance, securities or other regulatory investigation or proceeding or judicial proceeding arising in connection with the activities contemplated hereunder with regard to any CONTRACT. 13) BOOKS AND RECORDS SOUTHLAND, ING AMERICA EQUITIES, BROKER-DEALER and WHOLESALER agree to maintain the books, accounts and records so as to clearly and accurately disclose the nature and details of transactions and to assist each other in the timely presentation of records. ING AMERICA EQUITIES, BROKER-DEALER and WHOLESALER shall each submit such records to the regulatory and administrative bodies which have jurisdiction over THE PARTIES hereto. 14) LIMITATIONS No party other than SOUTHLAND or ING AMERICA EQUITIES shall have the authority to make, alter or discharge any selling agreement on behalf of SOUTHLAND or ING AMERICA EQUITIES. No party other than SOUTHLAND shall have the authority to make, alter or discharge any CONTRACT issued by SOUTHLAND, or to substitute or alter the forms which SOUTHLAND may prescribe; or to enter into any proceeding in any forum, court or before a regulatory agency in the name of or on behalf of SOUTHLAND. 15) AUTHORIZED ACTIVITIES WHOLESALER's and BROKER-DEALER's activities related to, authorized by and on behalf of SOUTHLAND and ING AMERICA EQUITIES under this Agreement are limited to those described herein and specifically do not extend to retail solicitation and sales of the CONTRACTS. Such solicitation or sales are authorized only by an executed Selling and Supervisory Agreement. 16) TERMINATION This Agreement shall continue for an indefinite term, subject to the termination by any party upon ten (10) days advance written notice to the other parties, except that in the event ING AMERICA EQUITIES or BROKER-DEALER ceases to be a registered Broker-Dealer or a member of the NASD or in the event of a material breach of a representation or covenant of this Agreement, this 4 Agreement shall be immediately terminable. Upon termination of the Agreement, the authorizations, rights and obligations shall cease, except for the survival of the provisions and agreements in Sections 7, 8 and 12 and the payment of any accrued but unpaid compensation to BROKER-DEALER or refund of compensation due to ING AMERICA EQUITIES and SOUTHLAND, to the extent permitted by law. 17) NOTICES All notices to SOUTHLAND and ING AMERICA EQUITIES relating to this Agreement are deemed delivered when mailed to: Southland Life Insurance Company c/o Office of the General Counsel 1290 Broadway Denver, CO 80203-5699 with a copy to: ING America Equities, Inc. Attn: Chief Legal Officer 1290 Broadway Denver, CO 80203-5699 18) ASSIGNMENT This Agreement may not be assigned except by written mutual consent of THE PARTIES. 19) BINDING EFFECT; SEVERABILITY 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. 20) 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. 21) 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. 5 22) EFFECTIVE DATE; ENTIRE AGREEMENT This Agreement shall be effective as of the date first specified above. This Agreement, including all Schedules and exhibits hereto, constitutes the entire Agreement between THE PARTIES and supersedes in its entirety any and all previous agreements among THE PARTIES with respect to wholesale activities related to the CONTRACTS. IN WITNESS WHEREOF, this Agreement has been executed by THE PARTIES as of the effective date. SOUTHLAND LIFE INSURANCE COMPANY ING AMERICA EQUITIES, INC. By: By: --------------------------------- --------------------------------- Print Name: Print Name: ------------------------- -------------------------- Title: Title: ------------------------------ ------------------------------- - ------------------------------------ ------------------------------------- WHOLESALER BROKER-DEALER By: By: --------------------------------- ---------------------------------- Print Name: Print Name: ------------------------ -------------------------- Title: Title: ------------------------------ ------------------------------- - ------------------------------------ ------------------------------------- (Address) (Address) - ------------------------------------ ------------------------------------- (City, State, Zip Code) (City, State, Zip Code) 6 EX-3 4 MASTER SALES AGMT Exhibit 1.A(3)(e) MASTER SALES AND SUPERVISORY AGREEMENT LIFE INSURANCE THIS MASTER SALES AND SUPERVISORY AGREEMENT (the "Agreement") is made this ___ day of _____________, 20__, by and among Security Life of Denver Insurance Company, Southland Life Insurance Company, Equitable Life Insurance Company of Iowa and USG Annuity & Life Company (collectively, the "ING Insurers"), ING America Equities, Inc. (the "ING Broker-Dealer"), ______________________(the "Distributor") and the Distributor Agency or Distributor Agencies identified on the signature page (the "Distributor Agency(ies)"). WITNESSETH WHEREAS, the ING Insurers issue various life insurance contracts, both registered under the federal securities laws and non-registered, (the "Contracts"), and offer for sale such Contracts in accordance with federal securities laws and/or the applicable laws of those states in which the Contracts have been qualified for sale; and WHEREAS, the ING Insurers have authorized the ING Broker-Dealer (which is registered with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1934 (the "1934 Act") and is a member of the National Association of Securities Dealers (the "NASD") as principal underwriter and distributor of the variable Contracts to enter into, subject to the consent of the ING Insurers, with distributors for the distribution of the Contracts; and WHEREAS, the Distributor distributes registered and non-registered life insurance contracts through its registered representatives (the "Representatives") affiliated with the Distributor Agency(ies) in accordance with applicable federal securities laws and applicable laws of those states in which the Distributor does business; and WHEREAS, the Distributor proposes to undertake certain supervisory and administrative obligations discussed below in connection with the distribution of the Contracts and is authorized to enter into dealer agreements for distribution of Contracts; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and promises herein contained, the parties agree as follows: 1. Relationship of Parties. As set forth on Schedule 1, the ING Insurers are the issuers of the Contracts covered by this Agreement. Each Insurer shall have control over the offering of its Contracts and shall control the availability and rules regarding the offering of the Contracts. The ING Broker-Dealer is the principal underwriter and distributor of the respective Contracts (also as set forth on Schedule 1). The Distributor represents it is a registered broker-dealer under the 1934 Act and a member of the NASD. The ING Insurers hereby authorize the Distributor Agency under the insurance laws and each ING Insurer and ING Broker-Dealer authorizes the Distributor under the securities laws to distribute the Contracts. The Distributor agrees to supervise its Representatives in connection with the distribution, solicitation and sale of the Contracts and to perform other services as described below. 2. Responsibilities of the ING Insurers. The ING Insurers agree to: (a) After receipt of the required license appointment application forms, request all state life insurance appointments needed in order for the Distributor Agency(ies) and its Representatives to act as representatives of the ING Insurers. 1 (b) Review, accept, modify or reject applications for policies received from the Distributor Agency(ies) and its Representatives. (c) Pay compensation to the Distributor and or Distributor Agencies as outlined in Section 6 and on the Compensation Schedule. (d) Provide service to policyowners and relevant information to the Distributor, Distributor Agency(ies) and its Representatives regarding the policies written under this agreement, on a reasonable basis, as done in the normal course of business. (e) Accept sole responsibility for reviewing and paying, or declining to pay, all claims, according to the ING Insurers' normal business practices and administrative policies and procedures. 3. Authority and Duties of the Distributor. The Distributor agrees that it shall, at all times when performing functions under this Agreement, be registered as a securities broker-dealer with the SEC and will maintain its membership with the NASD. Additionally, the Distributor shall be licensed or registered as a securities broker-dealer in the states requiring such a license or registration in connection with supervision and other services pertaining to its Contract sales activities. The Distributor shall distribute the Contracts and shall have all attendant duties, responsibilities and liabilities associated with that function for compliance, supervision and servicing purposes. The Distributor agrees to use its best efforts to find suitable purchasers for the Contracts. (a) Selection and Supervision of Representatives. The Distributor 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 the Distributor with respect to such persons' securities-regulated activities in connection with the Contracts (where such Contracts require such regulation). In the case of registered Contracts, the Distributor shall cause its Representatives to be NASD registered representatives, appropriately licensed with the applicable state and appointed by the relevant ING Insurers before such Representatives engage in the solicitation of applications for such registered Contracts and in the case of all registered and non-registered Contracts, shall cause such Representatives to limit solicitation of applications to jurisdictions where such Representatives are licensed and appointed and where the Contracts being solicited have been approved for sale. The ING Insurers and Broker-Dealer shall not have any responsibility for the supervision of any Representative or any other associated person or affiliate of the Distributor. If the act or omission of a Representative or any other associated person or affiliate of the Distributor is the proximate cause of any claim, damage or liability (including reasonable attorneys' fees) to an ING Insurer or ING Broker-Dealer, the Distributor shall be entirely responsible and liable therefor. (b) Notice of Representative's Noncompliance. In the event a Representative fails or refuses to submit to the supervision of the Distributor, ceases to be a Representative of the Distributor, or fails to meet the rules and standards imposed by the Distributor on its Representatives, the Distributor shall communicate such fact to the ING Insurers and ING Broker-Dealer 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 Registration and Conduct Rules and Federal and State Securities Laws. In the case of registered Contracts, the Distributor shall fully comply with the 2 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 its Representatives. The Distributor 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. In the case of all Contracts, the Distributor shall be responsible for suitability and shall take reasonable steps to ensure that its Representatives make recommendations to applicants to purchase Contracts only if there are 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 the Distributor of the transactions. Neither the Distributor nor its Representatives shall engage, directly or indirectly, in the twisting or other solicitation of the policyowners of the ING Insurers for the purpose of inducing the termination or replacement of policies or contracts issued by the ING Insurers unless such termination is in the best interests of the policyowner. (e) Prospectus and Statement of Additional Information. In the case of registered Contracts, the ING Broker-Dealer shall provide the Distributor with prospectuses and any supplements or amendments thereto, and the Statement of Additional Information ("SAI") describing the Contracts subject to this Agreement. Each ING Insurer, with regard to Contracts it issues, is responsible for maintaining in effect, in accordance with the requirements of the SEC, each Registration Statement of which the prospectus is a part. Each ING Insurer shall immediately notify the Distributor 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. The Distributor shall ensure compliance with the prospectus delivery requirements of the 1933 Act. The Distributor agrees to deliver a copy of the SAI concurrently with a copy of the prospectus to Contract applicants in jurisdictions where such delivery may be required. (f) Advertising and Sales Promotion Materials. In the case of registered Contracts, the Distributor and the Distributor Agency(ies) shall perform the selling functions authorized 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. In the case of all Contracts, the Distributor shall use, and shall cause the Distributor Agency(ies) and its Representatives to use, in the solicitation and sale of the Contracts, only those advertising and sales materials, including illustrations, that are or have been approved by the appropriate ING Insurer and ING Broker-Dealer. In the event that the Distributor, Distributor Agency(ies) or any of its Representatives create advertising and sales promotion materials with respect to the Contracts, the materials may only be used with the prior written approval of the appropriate ING Insurer and ING Broker-Dealer. (g) Securing Applications. Each application for a Contract shall be made only on an application form provided by the appropriate ING Insurer. The Distributor shall review all such applications for completeness and for compliance with the conditions herein including, in the case of registered Contracts, the suitability and prospectus delivery requirements set forth above under Sections 2(d) and (e). All payments collected by the Distributor, or any of its Representatives, shall be remitted promptly, in full, without deduction or reduction, together with such application form and any other required documentation directly to the appropriate ING Insurer at the address indicated on such application or to such other address as may be designated by such ING Insurer. All such payments and documents shall be the property of the ING Insurers. Checks or 3 money orders in payment of such Contracts should be made payable to the order of the ING Insurer issuing the Contracts. The ING Insurers reserve the right to reject, in their sole discretion, 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 an ING Insurer shall be forwarded to the Representative of the Distributor for prompt delivery to the policyowner. 4. Authority and Duties of the Distributor Agency(ies) (a) Responsibilities of the Distributor Agency(ies) i. The Distributor agrees to procure applications for the ING Insurer's Contracts. Production must be through the Distributor Agency(ies) and Representatives of the Distributor Agency(ies), which are duly licensed and appointed by the ING Insurers in the applicable states. ii. The Distributor Agency(ies) shall recommend Representatives for appointment by the ING Insurers by causing such Representatives to complete any and all application forms required by the ING Insurers and to submit any other requirements that may be required under applicable law or by the ING Insurers. The Distributor Agency(ies) covenants and agrees that it and all of its Representatives 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 and appointed by the relevant ING Insurers under the applicable insurance laws within the applicable jurisdictions where the Distributor Agency(ies) and its Representatives propose to offer Contracts. The Distributor Agency(ies) further covenants and agrees that solicitations will only take place where the applicable ING Insurer is authorized to conduct business and where the Contracts may be lawfully sold. iii. The Distributor Agency(ies) shall periodically provide the ING Insurers with a list of all Representatives appointed by the Distributor Agency(ies) and the jurisdictions where such Representatives are licensed to solicit sales of the Contracts. The Distributor Agency(ies) shall provide immediate notice to the ING Insurers of any Representatives terminating their relationship with the Distributor Agency(ies). Upon such notice, the Representative's appointment with the ING Insurers shall be terminated and the Representative will no longer be authorized to represent the ING Insurers as contemplated by this Agreement. Notwithstanding such termination, the ING Insurers or any of them may, in their sole discretion reappoint and/or re-contract such Representatives. iv. The Distributor Agency(ies) shall prepare and transmit the appropriate appointment forms to the applicable ING Insurer at the address provided on the license appointment form. The ING Insurers may refuse, by written notice to the Distributor Agency(ies), for any reason, to apply for the appointment of a Representative and may cancel any existing appointment at any time. Upon receipt of such notice, the Distributor Agency(ies) agrees to immediately cause such Representative to cease solicitation of sales for the Contracts. v. The Distributor Agency(ies) shall supervise all Representatives appointed pursuant to this Agreement to solicit sales of the Contracts and shall bear responsibility for all acts and omissions of each Representative. The Distributor Agency(ies) shall comply with and exercise all responsibilities required by applicable federal and state law and regulations. The Distributor Agency(ies) 4 shall train and supervise its Representatives to ensure that purchase of a Contract is only recommended to an applicant if there are 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 Representative 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 Contract and will keep the Contract in force. vi. The Distributor Agency(ies) agrees to treat money received or collected for the ING Insurer who issued the Contract as property held in trust, and to remit such money promptly in full, together with the application form and any other required documentation, to such ING 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 applicable ING Insurer. vii. The Distributor Agency(ies) agrees to adhere to the "cash with application" requirements as set forth in each ING Insurer's rules and regulations, copies of which the Distributor Agency(ies) acknowledges it has received. The Distributor Agency(ies) further agrees, when applicable, to provide the proper form of interim coverage and inform the applicant of the specific conditions of the coverage. viii. The Distributor Agency(ies) agrees to comply with the underwriting and issue requirements of the ING Insurers, as published by the ING Insurers, and the applicable insurance laws and regulations of the state or states in which the Distributor Agency(ies) operates. Such laws and regulations include, but are not limited to, those pertaining to client funds, privacy and confidentiality, licensing, rebating, replacements, exchanges, solicitation and advertising. ix. The Distributor Agency(ies) agrees to inform the ING Insurers of all material facts of which it is aware relating to insurance of insureds or proposed insureds. (b) Limitation of Authority. i. The Distributor Agency(ies) shall have no authority and agrees not to bind any ING 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 ING Insurer except first premiums on applications or Contracts and except where an ING Insurer otherwise agrees in writing. ii. The Distributor Agency(ies) 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 Distributor Agency(ies) or Representative 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 Distributor Agency(ies) shall have no authority and agrees not to make, modify or discharge any Contract, or bind an Insurer by making any promises respecting any Contract, except when authorized in writing to do so by an authorized officer of an ING Insurer. 5 iv. The Distributor Agency(ies) shall have no authority and agrees not to authorize or allow a Representative to do any act prohibited under this Agreement. c) General Provisions. i. The Distributor Agency(ies) may not assign the rights to procure applications or be relieved of the obligations of the Distributor Agency(ies) under this Agreement without an ING Insurer's prior written consent. ii. There is no intention by either party under this Agreement, to create any third party beneficiary of this Agreement. iii. The Distributor Agency(ies) shall be solely responsible for hiring any staff it may desire and for maintaining office space and meeting necessary expenses without reimbursement from any ING Insurer. iv. The Distributor Agency(ies) and its Representatives 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 Distributor Agency(ies) and its Representatives to the ING Insurers shall be that of an independent contractor. Nothing in this Agreement shall be construed to create the relationship of employer and employee between the Distributor Agency(ies) (or any of its Representatives) and an ING Insurer. v. Each ING Insurer and the Distributor Agency(ies) recognize and respect each other's respective 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. vi. Failure of the Distributor Agency(ies) or any ING 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. vii. No oral promises or representations shall be binding nor shall this Agreement be modified except by agreement in writing, executed on behalf of the ING Insurers and the ING Broker-Dealer by duly authorized officers of each of them. viii. This Agreement supersedes all previous contracts and agreements between or among the Distributor Agency(ies) and the ING Insurers made for the procurement of Contracts, but it shall not affect the economic obligations of either party under such previous contracts and agreements. ix. The provisions under this Section shall survive any termination of this Agreement. x. The Distributor Agency(ies) hereby grants a limited Power of Attorney to the Distributor, to execute any amendments, modifications or waivers with respect to this Agreement. 5. Property of ING Insurers. 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 policyowner or anyone else having an interest in the Contracts is the property of the ING Insurer which issued the Contract and shall be transmitted immediately in accordance with the administrative 6 procedures of such ING Insurer without any deduction or offset for any reason including, but not limited to, any deduction or offset for compensation claimed by the Distributor or the Distributor Agency(ies). 6. Compensation. (a) While this Agreement is in force, the ING Broker-Dealer shall arrange for payment to the Distributor of compensation payable on sales of the registered Contracts solicited in accordance with the Compensation Schedule attached hereto, as in effect at the time the Contract premiums or purchase payments (both referred to as "Premiums") are received by an ING Insurer. Payment of compensation for sales of non-registered Contracts is payable to the Distributor Agency(ies) in accordance with the Compensation Schedule attached hereto. No compensation of any kind may be earned, paid, credited or accrued in any way with respect to sales in the State of New York. (b) After termination of this Agreement, payment of compensation shall be made in the same manner as if the Agreement had remained in force. However, the Distributor shall continue to be liable for any charge-backs pursuant to the provisions of the Compensation Schedules and for any other amount advanced by or otherwise due an ING Insurer or ING Broker-Dealer. (c) The ING Insurers shall not have responsibility for payment of any compensation whatsoever to any Representative of the Distributor. Compensation from the Distributor Agency(ies) to the Representative for Contracts solicited and sold by the Representative shall be governed by a separate agreement between the Distributor and its Representative, and to the extent deemed necessary by the Distributor, by an agreement between the Distributor and the Distributor Agency(ies). (d) The Distributor 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 to any person or entity which is not duly licensed and registered by the required authority and appointed by the ING Insurers 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. The Distributor agrees that no compensation of any kind other than described in this Section 6 of this Agreement is payable by an ING Insurer or ING Broker-Dealer to the Distributor. (e) 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 ING Insurer's underwriting and administrative rules then in effect. 7. Refund of Compensation. No compensation shall be payable, and the Distributor and the Distributor Agency(ies) jointly and severally agree to reimburse the ING Broker-Dealer promptly, and in any event within 30 days, for any compensation paid to the Distributor or its Representatives under each of the following conditions: a) if an ING Insurer, in its sole discretion, determines not to issue the Contract applied for; b) if an ING Insurer refunds the premiums or purchase payments upon the applicant's surrender or withdrawal pursuant to any "free-look" privilege; c) if an ING Insurer refunds the premiums or purchase payments paid by applicant as a result of a complaint by applicant, recognizing that the ING Insurer has sole 7 discretion to refund premiums or purchase payments; d) if an ING Insurer determines that any person signing an application who is required to be licensed and appointed or any other person or entity receiving compensation for soliciting purchase of the Contracts is not duly licensed and appointed to sell the Contracts in the jurisdiction of such sale or attempted sale; and e) as may be otherwise provided in the Compensation Schedule. 8. Indebtedness and Right of Setoff. Nothing contained herein shall be construed as giving the Distributor or its Representatives the right to incur any indebtedness on behalf of the ING Insurers or the ING Broker-Dealer. The Distributor hereby authorizes any ING Insurer and ING Broker-Dealer to set off liabilities, however created, of the Distributor and its Representatives to any ING Insurer and/or ING Broker-Dealer against any and all amounts otherwise payable to the Distributor. 9. Termination. (a) 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 (subject to any longer time period if prescribed by state law), except that in the event that an ING Broker-Dealer or the Distributor ceases to be a registered broker-dealer or a member of the NASD, this Agreement shall immediately terminate. (b) This Agreement shall be immediately terminated upon: i. A breach of this Agreement by the Distributor. ii. The sale, dissolution, termination or other discontinuation of the Distributor, unless the ING Insurers and the ING Broker-Dealer have given written permission to the continuation of this Agreement, which consent will not be unreasonably withheld. iii. Bankruptcy of the Distributor. (c) Upon termination of this Agreement, all authorizations, rights and obligations shall cease, except the agreements in Sections 3, 4, 5, 6, 7, 8,12, 13, and 14 and the payment of any accrued but unpaid compensation to the Distributor or refund of compensation due to the ING Broker-Dealer and the ING Insurers. (d) Also, upon termination of this Agreement, Distributor agrees to return to the ING Insurers all marketing materials, including illustration software, as well as all applicable confidential items listed in Section 13 of this Agreement that may be in the possession of the Distributor or its Representatives. 10. Non-Employee Relationship. For the purpose of compliance with any applicable federal or state securities laws or regulations, the Distributor 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 ING Insurers or the ING Broker-Dealer or any registered investment company. In furtherance of its responsibilities as a broker or dealer, The Distributor acknowledges that it is responsible for statutory and regulatory compliance in securities transactions involving any business produced by its Representatives concerning the Contracts. 8 11. Non-Exclusivity. The Distributor agrees that no territory or Contract is assigned exclusively hereunder and that the ING Insurers and ING Broker-Dealer reserve the right in their discretion to enter into selling agreements with other broker-dealers and distributors, and to contract with or establish one or more insurance agencies in any jurisdiction in which the Distributor transacts business hereunder. 12. Cooperation in Investigation. The Distributor, the Distributor Agency(ies), the ING Broker-Dealer and the ING Insurers 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) The Distributor shall promptly notify the ING Insurers and the ING Broker-Dealer 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, email or facsimile transmission. 13. Confidentiality of Information. Distributor and the Distributor Agency(ies) acknowledge that each may acquire information relating to the products, strategies, systems, marketing plans, customers and personnel of ING Insurers and the ING Broker-Dealer and that such information is considered by the ING Insurers and the ING Broker-Dealer to be confidential and proprietary. The Distributor and the Distributor Agency(ies) shall hold all such information in strictest confidence and shall not (and shall cause its Representatives to not) (a) disclose such information to any third party; or (b) utilize such information for their commercial benefit or to the detriment of the ING Insurers or the ING Broker-Dealer. The Distributor and the Distributor Agency(ies) acknowledge that a breach of this provision would result in significant and irreparable harm to the ING Insurers and the ING Broker-Dealer and hereby agree and consent to an injunction in addition to any other remedies that the ING Insurers and the ING Broker-Dealer may have at law or in equity. 14. Indemnification. (a) The ING Insurers and ING Broker-Dealer (referred to jointly in this Section 13 as "ING") agree to indemnify and hold harmless the Distributor and the Distributor 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 ING 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 Representatives by ING, their employees or agents, in connection with the sale of the Contracts. ING shall reimburse Selling Group and each such associated person for legal or other expenses reasonably incurred by Selling Group or 9 such associated person in connection with investigating or defending any such loss, claim, damage, liability or action. (b) The Selling Group jointly and severally agree to indemnify and hold harmless ING and their affiliates and such associated persons as their officers, directors, agents and employees, against any losses, claims, damages or liabilities to which ING 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 ING in connection with any Contract. The Selling Group shall reimburse ING and any director, officer, employee or agent for any legal or other expenses reasonably incurred by ING 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. 15. Fidelity Bond and Errors and Omissions Insurance. The Distributor shall secure and maintain a fidelity bond (including coverage for larceny and 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 an ING Insurer or ING Broker-Dealer. This bond shall be maintained at the Distributor's expense in at least the amount prescribed under Article III, Section 32 of the NASD Rules of Fair Practice or future amendments thereto. The Distributor shall provide the ING Broker-Dealer with a copy of said bond or verification of an applicable exception upon request. The Distributor shall also secure and maintain errors and omissions insurance acceptable to the Insurer and covering the Distributor and its Representatives. The Distributor hereby assigns any proceeds received from a fidelity bonding company, errors and omissions or other liability coverage, to an ING Insurer or ING Broker-Dealer 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, 10 the Distributor hereby indemnifies and holds harmless an ING Insurer and ING Broker-Dealer from any such deficiency and from the costs of collection thereof, including reasonable attorneys' fees. Alternatively, in the event that the Distributor self-insures this liability, it shall submit such proof to the ING Insurers and the ING Broker-Dealer as such parties deem satisfactory to demonstrate the adequacy of such financial resources. 16. Notices. All notices required hereunder shall be duly given if mailed to: Office of General Counsel ATTN: Variable Attorney c/o Security Life of Denver ING Insured Investor Group 1290 Broadway Denver, CO 80203 All notices to the Distributor shall be duly given if mailed to: [Distributor name and address] 17. Disputes; Arbitration. (a) If a dispute arises between the parties, the parties agree that their respective representatives shall meet and consult in good faith and attempt to settle the dispute, within thirty (30) days of written notice thereof, as a condition precedent to the initiation of arbitration proceedings as set forth herein. Notwithstanding any other provision of this Agreement to the contrary, the parties hereto agree that any and all disputes with respect to any claim pursuant to the provisions of this Agreement, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a panel of three (3) arbitrators appointed pursuant to such Rules, and judgment upon the award rendered by such arbitrators may be entered in any court having jurisdiction. Such arbitrators shall not have the authority or power to reform, alter, amend or modify any of the terms or conditions of this Agreement or to enter an award which reforms, alters, amends or modifies such terms or conditions. Notwithstanding the forgoing, the arbitrators shall have no authority to award any punitive damages except upon proof of fraud with intent to deceive. The decision of such arbitrators shall be in writing, setting forth both findings of fact and conclusions of law, and shall be final and conclusive upon the parties; and no suit at law or in equity based on such dispute, controversy or claim shall be instituted by any party hereto, other than to enforce the award of such arbitrators. Such arbitration shall be conducted in Denver, Colorado or in such other location as the parties thereto may agree. (b) In the event of a dispute, the prevailing party shall be entitled to be reimbursed by the non-prevailing party or parties for such prevailing party's reasonable attorney's fees and other expenses. (c) The parties agree that as precondition to the commencement of arbitration by any party, the dispute must be submitted to non-binding mediation with a mediator agreed to by both parties. If the parties cannot agree on a mediator within fourteen (14) days from the date of a request for mediation, the dispute will be mediated by a person selected in accordance with the rules of the American Arbitration Association. 18. Governing Law and Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 11 19. Entire Agreement; Amendment of Agreement. This Agreement including any Exhibits and Schedules attached hereto contains the entire agreement among the parties concerning the subject matter hereof and supercedes any and all prior agreements, understandings, negotiations, correspondence or other written or oral communications among the parties respecting the subject matter. The ING Insurers or the ING Broker-Dealer may amend this Agreement, including any Exhibits and Schedules hereto, upon at least ten (10) days' prior written notice to the Distributor, unless otherwise stated in such Schedule. The submission of an application for the Contracts by the Distributor after the effective date of any such amendment shall constitute agreement to such amendment. Additional Distributor Agencies may be added as parties to this Agreement at any time by a written amendment signed by the ING Insurers, the ING Broker-Dealer, the Distributor and such additional Distributor Agencies. All Distributor 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 Distributor Agencies. 20. 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 of made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 21. Effective Date. This Agreement shall be effective as of the date it is fully executed by all parties. 22. 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. In reliance on the representations set forth and in consideration of the undertakings described, the parties represented below do hereby contract and agree. [ING Insurers] [ING Broker-Dealer] By: _________________________ By: _________________________ Title: ________________________ Title: ________________________ [Distributor] By: __________________________ Name: ________________________ Title: _________________________ Date: _________________________ [Distributor Agency] [Distributor Agency] By: __________________________ By: __________________________ Name: ________________________ Name: ________________________ Title: _________________________ Title: _________________________ Date: _________________________ Date: _________________________ 12 [Distributor Agency] [Distributor Agency] By: __________________________ By: __________________________ Name: ________________________ Name: ________________________ Title: _________________________ Title: _________________________ Date: _________________________ Date: _________________________ [Distributor Agency] [Distributor Agency] By: __________________________ By: __________________________ Name: ________________________ Name: ________________________ Title: _________________________ Title: _________________________ Date: _________________________ Date: _________________________ [Distributor Agency] [Distributor Agency] By: __________________________ By: __________________________ Name: ________________________ Name: ________________________ Title: _________________________ Title: _________________________ Date: _________________________ Date: _________________________ [Distributor Agency] [Distributor Agency] By: __________________________ By: __________________________ Name: ________________________ Name: ________________________ Title: _________________________ Title: _________________________ Date: _________________________ Date: _________________________ [Distributor Agency] [Distributor Agency] By: __________________________ By: __________________________ Name: ________________________ Name: ________________________ Title: _________________________ Title: _________________________ Date: _________________________ Date: _________________________ 13 EX-4 5 SELLING AGMT Exhibit 1.A(3)(f) SELLING AGREEMENT PURPOSE Makes possible the payment of variable contracts COMMISSIONS for any representative of the contracted Broker/Dealer PARTIES TO THE CONTRACT 1) Retail BROKER/DEALER 2) Broker/dealer's AGENCY(IES)* through which insurance is written 3) Southland Life 4) ING America Equities o AGENCY(IES) MUST EXECUTE THE SELLING AGREEMENT, AS WELL AS BROKER/DEALER. IF BROKER/DEALER HAS STATE-SPECIFIC AGENCIES SEEKING APPOINTMENT, EACH SUCH AGENCY SOUTH SIGN. OTHER PREREQUISITES 1) The representative AND the corporate entity for whom the commission is intended must have the appropriate variable contracts APPOINTMENT by Southland. COMPENSATION 1) Commissions will be paid directly to the BROKER/DEALER. SPECIAL CONSIDERATIONS A "WHOLESALING AGREEMENT" (see separate sheet) must also be in effect between Southland and the representative's broker/dealer if the representative is an RSD, Field Director or General Agent seeking "overrides," including overrides on his/her own sales. WHOLESALER (PRINT NAME): BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT FOR VARIABLE CONTRACTS THIS BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT (the "Agreement") is made this _____ day of _________________, 20___, by and among SOUTHLAND LIFE INSURANCE COMPANY ("SOUTHLAND" or the "INSURER"), 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 2 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 and the AGENCIES shall be jointly and severally responsible and liable entirely therefor. 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 CONDUCT RULES 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 of the Contracts for the purchasers 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. 3 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. 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 Contract applicants in jurisdictions where such delivery may be required, as so indicated by SOUTHLAND. 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 SOUTHLAND, as the issuer of the Contracts. All applications are subject to acceptance or rejection by the INSURER in its sole discretion. 4 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 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. (ii) 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. If the act or omission of a subagent or any other associated person or affiliate of the AGENCY is the proximate cause of any claim, damage or liability (including reasonable attorneys' fees) to the INSURER or ING AMERICA EQUITIES, the AGENCY and SELLING BROKER-DEALER shall be jointly and severally responsible and liable entirely therefor. 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, unfair trade practices, 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 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. 6 (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 and ING AMERICA EQUITIES 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 or ING AMERICA EQUITIES. (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 AGENCY hereby appoints SELLING BROKER-DEALER as its attorney-in-fact, to execute any amendments, modifications or waivers with respect to this Agreement. 7 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 Schedules A and B, 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 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, and so long as SELLING BROKER-DEALER continues to be validly licensed and registered, compensation shall continue to be paid to SELLING BROKER-DEALER in accordance with the Compensation Schedules in effect at the time of termination, for all Contracts issued prior to the termination date through SELLING BROKER-DEALER. SELLING BROKER-DEALER shall also be entitled to receive compensation for all new 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 the Compensation Schedules in effect at the time of termination and for any other amount advanced by or otherwise due the INSURER or ING AMERICA EQUITIES. a) 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 . 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) 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; 8 (ii) 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; (iii) 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 or 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 as defined in the Contracts. 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 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; 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, as provided in the Compensation Schedule; and f) as 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 termination of the Agreement, all authorizations, rights and obligations shall cease, except the provisions and 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. Any AGENCY may terminate its participation under this Agreement by giving 30 days' prior written notice to the other parties, and the Agreement shall continue in force with respect to all of the other parties, so long as one or more AGENCIES continue to be a party. Upon termination of an Agency's participation in the Agreement, all authorizations, rights and obligations of that AGENCY shall cease, except the 9 provisions and agreements in Sections 3, 7, 8, 12 and 13 and the 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. The SELLING BROKER-DEALER and its registered representatives 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 SELLING BROKER-DEALER and its registered representatives to the INSURER and to ING AMERICA EQUITIES shall be that of independent contractors. Nothing in this Agreement shall be construed to create the relationship of employer and employer between the SELLING BROKER-DEALER (or any of its registered representatives) and the INSURER or ING AMERICA EQUITIES. 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 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. 13. INDEMNIFICATION. a. The INSURER and ING AMERICA EQUITIES (referred to jointly in this Section 13 as "SLIC/INGAE") 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 SLIC/INGAE 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 agents or Representatives by SLIC/INGAE, their employees or agents, in connection with the sale of 10 the Contract; B) failure by agents, Representatives or employees of SLD to comply with federal or state law, regulation or ruling or with any other applicable rules or regulation or with the provisions of this Agreement; and C) grossly negligent, intentional or fraudulent act, omission or error of SLD or its agents, employees or Representatives in the issuing, sale or servicing of the Contracts. SLIC/INGAE 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. This indemnity provision shall be in addition to any liability which SLIC/INGAE may otherwise have. b. The SELLING GROUP jointly and severally agrees to indemnify and hold harmless SLIC/INGAE, and their affiliates and such associated persons as their officers, directors, agents and employees, against any losses, claims, damages or liabilities joint or severally to which SLIC/INGAE 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 (unless such misrepresentations are contained in materials or other writings authorized, supplied, or furnished by SLD) 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 to the extent such compensation or remuneration has been paid to the SELLING GROUP ; 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 received by SLIC/INGAE from a representative or Agent of the SELLING GROUP in connection with any Contracts. (v) any grossly negligent, intentional or fraudulent act, omission or error of SELLING GROUP or its agents, employees or Representatives in the solicitation, sale or servicing of the Contracts. The SELLING GROUP shall reimburse SLIC/INGAE and any director, officer, employee or agent for any legal or other expenses reasonably incurred by SLIC/INGAE 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 11 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 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 Rule 3020 of the NASD Conduct Rules 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. AGENCY shall insure that its representatives secure and maintain errors and omissions insurance acceptable to the INSURER and covering 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 and to the extent that INSURER or ING AMERICA EQUITIES is entitled to indemnification pursuant to this Agreement . If there is any deficiency amount, whether due to a deductible or otherwise, SELLING BROKER-DEALER shall promptly pay such amounts on demand to the extent that INSURER or ING AMERICA EQUITIES is entitled to indemnification pursuant to this Agreement. 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 Attn: Chief Legal Officer 1290 Broadway Denver, CO 80203 All notices to SELLING BROKER-DEALER shall be duly given if mailed to: ----------------------------- ----------------------------- ----------------------------- All notices to AGENCIES shall be duly given if mailed to: ----------------------------- ----------------------------- ----------------------------- 12 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 Exhibit hereto, upon at least ten (10) days' prior written notice to SELLING BROKER-DEALER. The submission of an 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, SEVERABILITY. 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. 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. 20. EFFECTIVE DATE; MERGER; ENTIRE AGREEMENT. This Agreement shall be effective as of the date it is fully executed by all parties. This Agreement, including all Exhibits 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. 21. YEAR 2000 COMPLIANCE. Each of SELLING BROKER-DEALER, the AGENCIES, INSURER and ING AMERICA EQUITIES represents, warrants and covenants that any services, computer systems and software used by it to fulfill its obligations to Contract owners, governmental and self-regulatory organizations and each other under the terms of this Agreement are currently "Year 2000 Compliant." For purposes of this Agreement "Year 2000 Compliant" means fault-free performance in the processing of date and date-related data (including, but not limited to, calculating, comparing and sequencing) by such computer systems and/or software. SELLING BROKER-DEALER and Agency shall indemnify and hold INSURER and ING AMERICA EQUITIES harmless from and against any damages, losses, liabilities, judgments, settlements, costs and expenses of any nature whatsoever (including reasonable attorneys' fees and court costs) or causes of action asserted by anyone, resulting from any breach of the above representation, warranty and covenant or any claim resulting therefrom. INSURER and ING AMERICA EQUITIES shall indemnify and hold SELLING BROKER-DEALER, the AGENCIES and the Representatives harmless from and against any damages, losses, liabilities, judgments, settlements, costs and expenses of any nature whatsoever (including reasonable attorneys' fees and court costs) or causes of action asserted by anyone, resulting from any breach of the above representation, warranty and covenant or any claim resulting therefrom. 13 In reliance on the representations set forth and in consideration of the undertakings described, the parties represented below do hereby contract and agree. SOUTHLAND LIFE INSURANCE COMPANY ING AMERICA EQUITIES, INC. By: By: --------------------------------- -------------------------------- Date: Date: ------------------------------- ------------------------------ SELLING BROKER-DEALER: AGENCY: By: By: --------------------------------- -------------------------------- Name: Name: ------------------------------- ------------------------------ Title: Title: ------------------------------ ----------------------------- Date: Date: ------------------------------- ------------------------------ ADDITIONAL AGENCIES (IF ANY) Agency: Agency: -------------------------------- --------------------------- By: By: ------------------------------------ -------------------------------- Title: Title: --------------------------------- ----------------------------- Date: Date: ---------------------------------- ----------------------------- Agency: Agency: -------------------------------- --------------------------- By: By: ------------------------------------ -------------------------------- Title: Title: --------------------------------- ----------------------------- Date: Date: ---------------------------------- ------------------------------ Agency: Agency: -------------------------------- --------------------------- By: By: ------------------------------------ -------------------------------- Title: Title: --------------------------------- ----------------------------- Date: Date: ---------------------------------- ------------------------------ 14 EX-5 6 CONTINUATION OF COVERAGE Exhibit 1.A(5)(l) SOUTHLAND LIFE INSURANCE COMPANY CONTINUATION OF COVERAGE AFTER AGE 100 ENDORSEMENT This endorsement is part of the policy to which it is attached. It must be read with all policy provisions. This endorsement deletes the Optional Continuance Beyond Age 100 provision in your policy and replaces it with the following benefit: DESCRIPTION OF CONTINUATION OF COVERAGE AFTER AGE 100 When your policy continues beyond age 100, the following will occur: (a) BASE DEATH BENEFIT. o If there is no Adjustable Term Insurance Rider on the policy, the Stated Death Benefit for the policy remains unchanged as of the policy anniversary nearest the insured's 100th birthday. o If there is an Adjustable Term Insurance Rider attached to the policy, the Stated Death Benefit for the policy will equal the target death benefit on the policy anniversary nearest the insured's 100th birthday. Any Adjustable Term Insurance Rider will then terminate. (b) RIDERS. All riders attached to the policy also will terminate. (c) SUBACCOUNTS. The portion of your accumulation value invested in the subaccounts of the Variable Account will be transferred into the Guaranteed Interest Account and no further investment in the subaccounts of the Variable Account will be allowed. (d) DEATH BENEFIT TYPE. If the death benefit type in force on the policy is Type B, the policy will be converted to death benefit Type A in accordance with procedures outlined in the Change of Death Benefit Type provision of the policy. No further changes will be allowed to the death benefit type. POLICY PROCESSING AFTER AGE 100 After the policy anniversary nearest the insured's 100th birthday: o No further premiums will be accepted o No monthly deductions will be made o Interest will continue to be credited to the accumulation value in the Guaranteed Interest Account o Policy loans and withdrawals continue to be available o Any existing policy loan will continue and loan interest will continue to accrue o Payments on policy loans and payments on loan interest will be accepted o The policy will enter the 61-day grace period if the cash surrender value is zero or less o The policy may be surrendered for its cash surrender value at any time. DEFINITION OF LIFE INSURANCE FACTORS o If your policy is issued using the Guideline Premium Test, the definition of life insurance factor after age 100 is 1.00. o If your policy is issued using the Cash Value Accumulation Test, the definition of life insurance factor after age 100 is 1.00. SOUTHLAND LIFE INSURANCE COMPANY SECRETARY Gary W. Waggoner EX-6 7 ADMIN SERVICES AGMT Exhibit 1.A(8)(f) ADMINISTRATION SERVICES AGREEMENT between Security Life of Denver Insurance Company and Southland Life Insurance Company This Agreement is made effective as of the __ day of _____________ 1999, by and between Security Life of Denver Insurance Company ("SLD"), of 1290 Broadway, Denver, Colorado, 80203-5699 and Southland Life Insurance Company ("SLIC"), of 5780 Powers Ferry Road, NW, Atlanta, GA 30327-4390. WHEREAS, SLIC is a licensed insurance company and issuer of variable life insurance ("Contracts"), AND WHEREAS, ING America Equities, Inc. ("INGAE"), is a wholly-owned subsidiary of SLD and is a registered broker-dealer and the principal underwriter and distributor of variable life contracts for SLIC, AND, WHEREAS SLD shall provide data processing and other administrative services to SLIC pursuant to the terms and conditions of this Agreement and such other terms and conditions as the parties may agree upon in written amendments to this Agreement, Now, therefore, in consideration of the mutual covenants herein contained, the parties agree as follows: SECTION 1 TERMS OF APPOINTMENT 1.1 Subject to the conditions set forth in this Agreement, SLIC hereby appoints SLD as its Administrative Services Agent. 1.2 SLD agrees to provide at its own expense the necessary facilities, equipment, software and personnel to perform its duties and obligations hereunder in accordance with accepted industry practice, and in full compliance with the rules and regulations of state insurance departments, and all other regulatory bodies with jurisdiction over SLD, INGAE or SLIC. 1.3 SLD agrees that it will perform, at the direction of SLIC, those Administrative Services as set forth in Exhibit B attached hereto and incorporated herein by reference, which may be amended by mutual agreement from time to time. SLD shall have only the authority necessary or incident to the performance of those services expressly set forth in this (April 12, 2000) 1 Agreement or in Exhibit B and shall have no other express or implied authority or right to act on behalf of SLIC or to bind SLIC with regard to any statement, representation or undertaking. SLIC shall, by separate document, designate specified individuals at SLD who shall have signing authority on behalf of SLIC to perform necessary and standard business functions. SLD shall not alter, amend or waive any contractual provision on behalf of SLIC without SLIC's express written authorization. SLD shall be limited to act only in the capacity in which it is licensed. SECTION 2 TERM 2.1 Unless terminated as hereinafter provided, this Agreement shall remain in full force and effect for a period of five (5) years, the initial term of the Agreement. This Agreement shall be renewed automatically for additional successive terms of eighteen (18) months at the end of the initial term and the end of each renewal term, subject to the provisions of Section 9.2, unless terminated. SECTION 3 FEES AND EXPENSES 3.1 SLIC shall pay to SLD such fees and charges as are set forth in Exhibit A attached hereto and incorporated herein by reference. 3.2 SLIC shall reimburse SLD for such reasonable out-of-pocket expenses as are set forth in Exhibit A, as may be incurred by SLD in the performance of this Agreement. 3.3 SLD may impose a late payment charge of 1.5% per month on undisputed balances of fees, charges or expenses outstanding for more than 45 days. SECTION 4 REPRESENTATIONS AND WARRANTIES OF SLD SLD represents and warrants to SLIC as follows: 4.1 It is a corporation duly organized and in good standing under the laws of the State of Colorado. 4.2 It is empowered under all applicable laws to enter into and perform the services contemplated in this Agreement. (April 12, 2000) 2 4.3 All requisite corporate proceedings have been taken to authorize it to enter into and perform the services contemplated in the Agreement. 4.4 It has and will continue to have and maintain the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. 4.5 It has and will maintain a minimum capital and surplus of at least Fifty Thousand Dollars ($50,000.00) during the term of this Agreement. SLD will provide to SLIC no later than 30 days after execution of this Agreement, and thereafter upon request, a copy of its most recent audited financial statement. 4.6 It has in place a plan and will be Year 2000 compliant in systems and operations prior to December 31, 1999. SECTION 5 REPRESENTATIONS AND WARRANTIES OF SLIC SLIC represents and warrants to SLD as follows: 5.1 It is a corporation duly organized and in good standing under the laws of the State of Texas. 5.2 It is empowered under the applicable laws to enter into and perform this Agreement. 5.3 All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement. 5.4 No policy or other form will be provided by SLIC to be administered by SLD unless it has been duly filed as necessary and approved by all applicable state insurance departments and other regulatory bodies with jurisdiction over SLIC, and is in compliance with all federal and state laws and regulations. SECTION 6 COVENANTS OF SLD 6.1 SLD shall maintain secure facilities and procedures for the safekeeping of check forms and facsimile signature imprinting devices, and all other documents, reports, records, books, files, and other materials relative to this Agreement. (April 12, 2000) 3 6.2 It is expressly understood and agreed that all documents, reports, records, books, files and other materials relative to this Agreement shall be the sole property of SLIC and INGAE and that such property shall be held by SLD, only as agent. 6.3 SLD shall maintain back-up computer files, as necessary. The purpose of back-up and recovery is to permit file recovery in the event of destruction of normal processing files. SLIC may review the procedures in effect and inspect the storage facility upon demand. A copy of SLD's current procedures is attached hereto and incorporated by reference as Exhibit D. 6.4 All charges or premiums received by SLD on behalf of SLIC shall be promptly remitted to the person entitled to it or deposited in a fiduciary account. Any payments received by SLD for insurance on behalf of SLIC shall be deemed received by SLIC, shall be held in a separate SLIC trust account and shall be administered as set out in Exhibit B. Premium bills shall direct premium payors to send premiums to a lock box as stated in Exhibit B. 6.5 No advertising or sales literature shall be utilized by SLD in connection with the Contracts unless it has been approved in writing by SLIC and INGAE prior to such use. 6.6 Except as specifically provided to the contrary in this Agreement, SLD shall be responsible for providing all technical and operational support, office space, equipment, and paying all costs and expenses associated with its provision of administration services to SLIC hereunder, including, but not limited to, all rents, salaries and other overhead expenditures. 6.7 If SLD receives any notice from any source (including, but not limited to, the policy owner or any regulatory agency) of a lawsuit or other legal or administrative complaint or proceeding being brought against SLIC or involving the business administered for SLIC by SLD, or the threat of any such lawsuit, hearing or proceeding, SLD shall immediately notify SLIC and send a copy of all documents, correspondence and other relevant material to which SLD reasonably has access to SLIC. Further, SLD agrees to cooperate fully with SLIC in connection with any suit, hearing or proceeding and shall provide SLIC with all books, records, documents and data requested by SLIC in connection therewith; provided, however, SLD shall be entitled to review such requests with its counsel prior to furnishing SLIC with such materials so long as such review is done in a timely manner. (April 12, 2000) 4 6.8 SLD will conduct its business and perform its obligations in accordance with all applicable federal and state laws, rules and regulations and in a manner which will not put SLIC's or INGAE's registrations and licenses in any jeopardy of revocation or suspension or cause SLIC or any of its affiliates to sustain any disciplinary action of any nature. 6.9 SLD acknowledges, covenants and agrees that all books and records maintained by SLD in connection with the Contracts shall be maintained and preserved in conformity with the requirements of Rules 17a-3 and 17a-4 of the Securities Exchange Act of 1934 (the "1934 Act"), to the extent that such requirements are applicable to the Contracts; that all such books and records are maintained and held by SLD on behalf of SLIC and INGAE, whose property they are and shall remain. SLD further acknowledges and agrees that all such books and records are subject to inspection by the Securities and Exchange Commission ("SEC") in accordance with Section 17(a) of the 1934 Act, and undertakes to permit examination of such books and records at any time and from time to time during business hours by representatives or designees of the SEC or National Association of Securities Dealers, Inc., and to provide true, correct, complete and current copies of any or all or any part of such books and records. 6.10 SLD acknowledges, covenants and agrees that it shall issue payments, including commission payments to retail broker-dealers, on behalf of and on the account(s) of SLIC, as a purely ministerial service for and on behalf of INGAE, and that the records in respect of such payments shall be properly reflected by SLD on the books and records maintained by it for SLIC and INGAE. 6.11 SLD acknowledges, covenants and agrees that it will send a confirmation for each transaction which constitutes the sale or redemption of a security to or by the contract owner as required by applicable law, regulation or rule in such form as required by applicable law, regulation or rule as approved and agreed to by SLIC and INGAE. 6.12 SLD shall provide SLIC with full and free access as reasonably requested, during ordinary business hours, to all documents, records, reports, books, files and other materials relative to this Agreement which are maintained by SLD for SLIC. 6.13 SLD shall furnish to SLIC any information or reports in connection with its services to SLIC, which any state Commissioner of Insurance may request in order to ascertain whether the variable life insurance operations (April 12, 2000) 5 of SLIC are being conducted in a manner consistent with applicable state law, regulations and rules. 6.14 SLD shall provide a written notice approved by SLIC, to insured persons who are residents of the State of Tennessee, advising them of the identity of and relationship among SLD, SLIC, and the person. If SLD collects funds directly and in its name on behalf of residents of the State of Tennessee, it will identify and state separately in writing to the persons paying to SLD any charges or premiums for insurance coverage the amount of any such charges or premiums specified by SLIC's insurance coverage. SECTION 7 COVENANTS OF SLIC 7.1 SLIC shall, on a reasonably prompt basis, provide SLD with current forms of contracts, prospectuses, applications, service forms, and names and states of licenses of all insurance and/or broker-dealer agents and representatives authorized to sell the Contracts. 7.2 All contracts subject to the services performed under this Agreement are issued by SLIC. 7.3 SLIC shall immediately provide SLD with written notice of any change of authority of persons authorized and enumerated in Exhibit C attached hereto and incorporated herein by reference to provide SLD with instructions or directions relating to services to be performed by SLD under this Agreement. SECTION 8 INDEMNIFICATION 8.1 SLD shall not be responsible for and SLIC shall indemnify and hold SLD harmless from and against, any and all costs, expenses, losses, and damages, charges, including reasonable attorney's fees, payments and liability, which may be asserted against SLD or for which it may be held to be liable, arising out of or attributable to: a. SLIC's failure to comply with the terms of this Agreement, or to act in a reasonable or customary manner in connection with this Agreement, or which arise out of SLIC's negligence or misconduct or the breach of any representation or warranty of SLIC hereunder; (April 12, 2000) 6 b. Reliance on or use by SLD of such information and materials provided by or at the direction of SLIC and instructions or directions given by the authorized individuals described in Exhibit C for purposes of providing services under this Agreement; c. Any failure by SLIC to comply with federal, state or local laws or regulations with respect to the offering and/or sale of any insurance products or securities; or d. Any matters associated with SLIC or its Contracts or the sale of such Contracts which are unrelated to the services provided by SLD. 8.2 SLD shall be responsible for and shall indemnify and hold SLIC harmless from and against any and all losses, damages, costs, charges, reasonable attorney's fees, payments, expenses and liability which may be asserted against SLIC, or for which it may be held liable arising out of or attributable to SLD's failure to comply with or perform under the terms of this Agreement, SLD's failure to act in a reasonable manner in connection with this Agreement, any failure by SLD to comply with federal, state or local regulations with respect to the books and records maintained by SLD, or which arise out of SLD's negligence or misconduct or which arise out of the breach of any representation or warranty of SLD hereunder. 8.3 As needed, SLD may apply to a person indicated on SLIC's "Schedule of Authorized Personnel" set forth in Exhibit C as a person authorized to give instructions under this Section 8 with respect to any matter arising in connection with this Agreement. SLD shall not be liable for any action taken or omitted by SLD in good faith and in the exercise of due care and diligence in reliance upon such instructions. 8.4 In the event malfunction of any SLD system causes an error or mistake in any record, report, data, information or output under the terms of this Agreement, SLD shall at its expense correct and reprocess such records. 8.5 If either party believes it is entitled to indemnification hereunder, it shall, within five business (5) days of the commencement of any action or threat of any action, give written notice to the other party of any claim for which it believes it is entitled to indemnification; provided, however, that the failure to provide timely notice shall not relieve the indemnifying party of any liability which it may have to the other party as long as such notice is not unreasonably withheld. (April 12, 2000) 7 8.6 Subject to the provisions of this Section 8.6, the parties shall cooperate with each other concerning any defense and give each other all information and assistance which either may reasonably request in defending any matter hereunder. Each party shall exchange information subject to the protection of the attorney-client, work product and other applicable privileges. Any information derived therefrom shall be used solely for purposes of developing joint positions and strategies concerning issues that may ultimately be resolved through arbitration or litigation. No party shall disclose any information obtained from the other party to any third party in any negotiations, discussions or exchange of information, without the written consent of the other party. In addition, no party shall disclose any information in any threatened or pending legislative, administrative or judicial proceeding, whether civil or criminal, unless ordered to do so by a court of competent jurisdiction. Furthermore, any materials shared by either party shall be returned upon request and no copies shall be retained. The parties hereto agree that the exchange of any information and materials will be protected from disclosure by the attorney-client, work product or other applicable privileges and is not intended to waive any applicable privilege or protection. Neither party shall have the authority to waive any applicable privilege or doctrine on behalf of the other party; nor shall any waiver of an applicable privilege or doctrine by the conduct of either party be construed to apply to the other party. 8.7 The provisions of this Section 8 shall not be deemed to be a limitation upon a party's right to injunction, specific performance or any other legal or equitable remedy to which either party may be entitled by virtue of this Agreement or to prevent any breach or threatened breach of this Agreement. 8.8 IN NO EVENT AND UNDER NO CIRCUMSTANCES, SHALL ANY PARTY TO THIS AGREEMENT BE LIABLE TO ANY OTHER PARTIES UNDER ANY PROVISION OF THIS AGREEMENT FOR LOST PROFITS OR FOR EXEMPLARY, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES. 8.9 The provisions of this Section 8 shall survive termination of this Agreement. SECTION 9 TERMINATION OF AGREEMENT 9.1 Either party may terminate this Agreement during the initial term or any renewal term by providing at least 180 days prior written notice to the other. (April 12, 2000) 8 9.2 This Agreement may be terminated at any time upon the mutual written consent of the parties hereto. 9.3 This Agreement may be terminated upon written notice of one party to the other in the event of bankruptcy or insolvency of such party to which notice is given. 9.4 This Agreement shall automatically be terminated in the event of its assignment, unless such assignment is made to an affiliate of the assigning party, subject to the provisions of Section 10.1. 9.5 At least 30 days prior to the end of the initial or any renewal term hereof, SLD shall give SLIC written notice if SLD desires to increase its fees or charges to SLIC or to change the manner of payment specified in Exhibit A. If SLD and SLIC do not agree to fees and charges before the end of the term during which such notice is given by SLD, this Agreement shall terminate at the end of such term. 9.6 Additionally, this Agreement shall terminate at SLIC's option because of: a) fraud, misrepresentation, conversion or unlawful withholding of funds by SLD; or b) the dissolution or disqualification of SLD to do business under any applicable federal, state or local laws or regulations; or c) the suspension or revocation of any material license or permit held by SLD by the appropriate governmental agency or authority; or d) the sale (without the prior written consent of SLIC, which consent shall not be unreasonably withheld) of SLD's business to an unaffiliated person or entity, whether by merger, consolidation, or sale of substantially all of SLD's assets or stock or otherwise, during the term of, and any extension to, this Agreement. 9.7 This Agreement shall terminate at SLD's option because of fraud, misrepresentation, conversion, or withholding of funds belonging to SLD by SLIC. 9.8 If either of the parties hereto shall breach this Agreement or be in default in the performance of any of its duties and obligations hereunder ("the defaulting party"), the other party hereto may give written notice thereof to the defaulting party and if such default or breach shall not have been (April 12, 2000) 9 remedied within ninety (90) days after such written notice is given, then the party giving such written notice may terminate this Agreement by giving ninety (90) days written notice of such termination to the defaulting party. 9.9 Termination of this Agreement by default or breach by SLIC shall not constitute a waiver of any rights of SLD in reference to services performed prior to such termination of rights of SLD to be reimbursed for out-of-pocket expenditures and to collect fees; termination of this Agreement by default or breach by SLD shall not constitute a waiver by SLIC of any other rights it might have under this Agreement. 9.10 During the period between the date of any notice of intention to terminate given pursuant to this Section 9 and the date of actual termination of the Agreement, each party shall continue to perform its obligations under this Agreement. 9.11 During any transition period, SLD agrees to cooperate with SLIC to effectuate an orderly transfer of all policy records and materials to SLIC or its designee. For services performed during the transition period, SLD shall be compensated for its services pursuant to Exhibit A of this Agreement. 9.12 The parties agree that following termination of this Agreement, for a period reasonable to effect an orderly transition, they will continue to perform each and every obligation hereunder. SECTION 10 ASSIGNMENT 10.1 Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the prior written consent of the other. 10.2 This Agreement shall inure to the benefit of and be binding upon the parties hereto, INGAE, and their respective successors and assigns, provided that any assignment is performed in accordance with Section 10.1 above. SECTION 11 CONFIDENTIALITY 11.1 The parties hereto agree that all tapes, books, reference manuals, instructions, records, information and data pertaining to the business of the (April 12, 2000) 10 other party, SLD's systems, and the policyowners serviced by SLD hereunder, which are exchanged or received pursuant to the negotiation of and/or the carrying out of this Agreement, shall remain confidential and shall not be voluntarily disclosed to any other person, except to the extent disclosure thereof may be required by law. All such tapes, books, reference manuals, instructions, records, information and data in the possession of each of the parties hereto shall be returned to the party from whom it was obtained upon the termination or expiration of this Agreement. 11.2 SLD shall maintain the confidentiality of all trade secrets and other confidential information obtained from SLIC and its affiliates, (collectively "SLIC" for purposes of this Section 11). SLD will use all reasonable precautions and take all necessary steps to prevent any information provided to SLD hereunder from being acquired by any unauthorized persons. SLD acknowledges that such information has been disclosed by SLIC only to enable SLD to provide the services hereunder and that disclosure thereof would be damaging to SLIC if such information were obtained by any competitor of SLIC. 11.3 SLIC shall maintain the confidentiality of all trade secrets and other confidential information obtained from SLD. SLIC will use all reasonable precautions and take all necessary steps to prevent any information obtained by SLIC provided to it hereunder from being acquired by any unauthorized persons. SLIC acknowledges that such information has been disclosed by SLD only to enable SLD to provide the services hereunder and that disclosure thereof would be damaging to SLD if such information were obtained by any competitor of SLD. SECTION 12 INSURANCE 12.1 Errors and Omissions Insurance. SLD, as a member of the ING Group, is currently self-insured for errors and omissions coverage. Such coverage is for amounts up to and in excess of One Million Dollars ($1,000,000.00) per claim. 12.2 Survival. If this Agreement terminates for any reason, SLD shall use its best efforts to keep the insurance required by this Section 12 in force for three (3) years following termination. SLD shall give SLIC at least thirty (30) days prior written notice of any change or cancellation of such insurance. (April 12, 2000) 11 SECTION 13 ARBITRATION 13.1 Any dispute which arises between the parties with respect to any of the terms of this Agreement, whether such dispute arises during the term of the Agreement or after termination, shall be resolved through binding arbitration. Arbitration shall be conducted in accordance with the commercial rules of the American Arbitration Association ("AAA"). Each party agrees to waive its right, if any, to a jury trial. Each party shall bear its own cost in the arbitration proceedings. The judgment of the AAA may be entered in and enforced by any court of competent jurisdiction. The judgment of the AAA shall be final and binding and there shall be no appeal therefrom. This arbitration provision shall survive the termination or cancellation of this Agreement. SECTION 14 MISCELLANEOUS 14.1 SLIC and its duly authorized independent auditors have the right under this Agreement to perform on-site audits of records and accounts directly pertaining to the Contracts serviced by SLD at SLD's facilities in accordance with reasonable procedures and at mutually agreeable dates and times, but at least once annually. At the request of SLIC, SLD will make available to SLIC's auditors and representatives of regulatory agencies all reasonably requested records and data. 14.2 This Agreement constitutes the entire agreement between the parties hereto and may not be modified except by written instrument executed by both parties hereto. If any section herein contained shall be found to be unenforceable as contrary to the current law, that section shall be severed and the remaining sections of this Agreement shall continue to be enforceable. 14.3 Neither party shall be liable for damages due to delay or failure to perform any obligation under this Agreement if such delay or failure results directly or indirectly from circumstances beyond the control and without the fault or negligence of such party. 14.4 It is understood and agreed that all services performed hereunder by SLD shall be as an independent contractor and not as an employee of SLIC. 14.5 This Agreement shall be governed by the laws of the State of Texas. (April 12, 2000) 12 14.6 Notices under this Agreement to either party must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the location identified in the preamble to this Agreement, Attn: Office of the General Counsel, or to such other address as supplied in writing by either party. (April 12, 2000) 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate, in their names and on their behalf by and through their duly authorized officers as of the day and year first above written. Security Life of Denver Insurance Company By: /s/ James L. Livingston, Jr. -------------------------------- Name: James L. Livingston, Jr. ----------------------------- Title: Executive Vice President ----------------------------- Southland Life Insurance Company By: /s/ Gary W. Waggoner -------------------------------- Name: Gary W. Waggoner ----------------------------- Title: Chief Legal Officer ----------------------------- (April 12, 2000) 14 EXHIBIT A FEE SCHEDULE Contracts: Variable Life Insurance products of Southland Life Insurance Company ("SLIC"). Fees: A. 2000 Plan Denver Exposure Factor PREMIUM SOLD (IN MILLIONS) General Agency 42.1 20.94% Low Load 21.5 2.81% BOLI (large case) - 3.12% ------------ Total 63.6 FACE AMOUNT SOLD (IN 000'S) Non GI/SI Face Sold 3,876 $ 1.11 Survivor Face Sold 68 $ 1.41 Total POLICIES SOLD Single Life 12,021 $ 141.11 BOLI (large case) - $ 74.27 Survivor Life 452 $ 980.36 ------------ Total 12,472 AVERAGE POLICIES INFORCE UL & trad 104,244 $ - Term 14,588 $ - VUL 7,641 $ 118.83 Paid up 23,602 $ - ------------ Total 150,075 % OF ANNUITY CV 28,800,000 0.07% (April 12, 2000) 15 B. Out-of-Pocket Expenses: In addition to the fees set forth above, SLD will bill out-of-pocket expenses as they are incurred. Out-of-pocket expenses are expenditures for the items such as those listed below and any other items agreed to by the parties: 1. Costs of telephone lines installed for network communications between SLD and SLIC, including CRT's and related computer equipment. Costs of telecommunication lines and equipment installed to provide primary and back-up support for on-line access to the administrative system, including transmission capabilities between SLD and SLIC. 2. Cost of printing blank stock and the cost of set-up and printing (including per impression costs) confirmation statements, contract file folders, checks, tax reporting forms, contract pages, specification pages, envelopes, proxy or voting instruction cards, periodic policyowner statements, separate account statements, individual and list bills, and any other required formats or reports. Cost of labor for folding, inserting and mailing functions. 3. Cost of microfilm and microfiche supplies and the cost of transferring all necessary information to microfilm, microfiche or such other document imaging and record system as may be used. 4. Costs involved with on- or off-site storage for SLIC records, documents, correspondence and other items. 5. Custom programming (including additional upgrades or improvements or customization required by SLIC) and new product implementation at actual costs per hour. Custom programming needs are to be submitted in writing to SLD. 6. Normal and reasonable travel, meal and lodging expenses incurred during SLD's performance of its duties and obligations under this Agreement, if any. (April 12, 2000) 16 EXHIBIT B OPERATIONAL PLAN A. Systems 1. Produce the Contract data page, standard Contract pages, state variation pages. 2. Calculate and process periodic charges as specified in product prospectuses. 3. Calculate and process applicable valuations as specified by product prospectus(es). 4. Calculate and process withdrawals (partial, full) as specified. 5. Calculate and process payout amounts. 6. Calculate and process periodic transactions, including dollar cost averaging, and automatic rebalance transfers, as specified in the appropriate product prospectus. 7. Produce reporting including confirmations, client statements, daily transactions, notification of upcoming maturities, lapse notification, billing notices, and COLI reporting; and reports on activities such as trades, lapses, terminations, loans, and agent licensing. 8. Produce required extract files or reports including accounting, tax reporting, production, electronic funds transfer, check writing, reinsurance, valuation, inforce illustration, client alpha index, proxy solicitation. 9. Produce reports required to transact daily business with the mutual funds underlying the Contracts and for periodic reconciliations. 10. Accept import of unit values (accumulation) from prior administrative system. 11. Accommodate other product features described in prospectus as may be updated from time to time. 12. Maintain current information and procedures on the administrative system for state approvals by product, by company. SLIC will do the actual product filings; and information regarding approvals will be provided to SLD. 13. SLIC will provide access to agent licensing information and actual agent appointments to SLD. (April 12, 2000) 1 14. Accommodate SLIC and regulatory audit requirements. 15. Maintain client account history as required to process transactions and administer contract provisions. 16. Systems will automatically interface with SLIC and SLD systems. A scheduled time for data transmission will be determined and daily user involvement will not be required. 17. Provide information necessary for proxy preparation and mailings. 18. Provide interfaces, reporting requirements and special requests from SLIC for outside broker-dealers, to include: a. Lipper b. Morningstar 19. Provide electronic funds transfer capabilities a. Draw from accounts for premium payments b. Deposit disbursements to accounts. B. Contract Maintenance 1. Reviews change requests, applies criteria developed by SLIC. Verifies license status of broker-dealers and agents based on information supplied by SLIC. 2. Prepares a new Contract data page, issues Contract, and mails to Contract owners or agents. Policy page production to be automated as agreed upon by SLD and SLIC. 3. Establishes and maintains insured and owner records, as applicable, on computer and manual systems. 4. Notifies broker-dealers and agents of any error or missing data needed to process changes to insured or owner records. 5. Produces and mails required confirmation statements. 6. Deposits monies received into depository account. 7. For policies being exchanged from another company, SLD will request the funds from the other insurance company using forms supplied by SLIC. SLIC will establish signing authority for SLD personnel. C. Collection procedures (in-force contracts) (April 12, 2000) 2 1. Receives from lockbox the remittance information in accordance with processing requirements. 2. Processes payments received to customer accounts. 3. Prepares and mails required confirmation of transactions. 4. Deposits cash received directly by SLD under the policies into a designated bank account. 5. Transmits daily accounting and bank transfer authorization summaries prepared for each valuation period. 6. Prepares and mails refunds as appropriate (declines, free look). D. Banking 1. Photocopies checks received directly by SLD and assigns them a control number. Balances, edits, endorses and prepares daily deposit. Reconciles bank lockbox deposits to applications received. 2. Deposits are placed into a depository account. 3. Transfers funds from the depository account to one of the following, as appropriate: a. General Account of Southland Life b. Mutual Fund Custodian Account(s) c. Disbursement Account of Southland Life and INGAE d. Separate Account L1 of Southland Life Bank accounts and mutual fund accounts to be established by SLIC with appropriate signing and trading authorizations established for SLD personnel. 4. Generates from the system daily cash journal summary reports and maintains detail of activity. 5. Processes disbursement transactions for policyowner or beneficiary, surrenders, withdrawals, loans, and death claims. 6. SLIC will maintain balances in the appropriate SLIC bank accounts necessary to meet administrative needs identified in the contract. 7. SLIC will obtain the appropriate authorizations to allow SLD to transfer funds amongst SLIC accounts. (April 12, 2000) 3 8. Reprocess dishonored items. Reverses associated transactions, prepares reports and communicates with policyowner. E. Accounting/Auditing 1. Generates daily accounting extracts for policies maintained on the system. 2. Generates accounting information necessary to post entries to ledgers. 3. Retains systems generated reports in accordance with a set retention schedule mutually agreed upon and as required by regulatory authorities. Provides access to such reports for internal and external auditing. 4. Determines the "Net Amount Available for Investment" in mutual fund and places fund purchase/redemption orders with the designated trading broker/dealer. Receives confirmation of mutual fund investments. 5. Maintains an inventory of all mutual fund shares owned, including the date purchased and sold, cost, book value, gain, loss, and other relevant information. 6. Reconciles inventory of mutual fund shares owned to reports of mutual fund shares owned supplied by mutual funds. 7. Cooperates in annual audit of separate account financials conducted for purposes of financial statement certification and publication and accommodates SLIC or regulatory audits, as required. F. Pricing/Valuation 1. SLD will generate separate account ledger activity associated with unit valuation. SLIC will specify the required accounting entries based on information regarding Unit Value. SLD will be updated with the calculated unit values. 2. Daily reconciliation of the Investment and Administrative systems. G. Contract Owner Service/Record Maintenance 1. Receives and implements contract owner service requests including information requests, beneficiary changes, transfer of funds between eligible mutual funds, loan requests, payout or withdrawal requests, exchange of policies, and changes of any other information maintained on the system. 2. Researches owner inquiries using data stored in the system or paper records. (April 12, 2000) 4 Responds directly to any questions or inquiries. 3. Generate daily journals confirming financial changes made to accounts. 4. Address changes will be coordinated between SLIC and SLD. An interface between systems to coordinate Contract changes (name, address, beneficiary) will be developed if needed. 5. Process reinstatements. 6. Produces owner tax reporting. H. New Business 1. All new business services and follow-up as needed. I. Disbursement (Surrenders, Loans, Withdrawals) 1. Receives requests for systematic, partial and full surrenders and loans from owners. Retains and accounts for any Contract administrative charges. 2. Processes all surrender and loan requests against the Contract Owner files. Generates related separate account ledger accounting. 3. Produce check production extract file for surrenders and loans and forwards checks to owners in accordance with applicable law. Check production will be through a SLD checkwriting system. 4. Prepares and mails confirmation statements of disbursement transactions to owners. 5. Generate a report on surrenders and loans for SLIC. 6. Reviews, causes to have printed, and maintains adequate supply of checks. 7. Contacts policyowner regarding tax withholding procedures, if required. 8. Backup withholding will be coordinated between SLIC and SLD. J. Claims 1. SLIC shall be notified immediately of requests for death claims received from owners or beneficiaries. In addition, any notification received by SLIC regarding a policy administered by SLD will be communicated immediately to SLD to (April 12, 2000) 5 freeze the account. 2. If multiple policies are involved, SLIC and SLD will coordinate sending claim forms. 3. Respond to request from SLIC for disbursement of proceeds. Generate related separate account ledger accounting. 4. Produce check production extract file for disbursements as directed by SLIC. Check production will be through a SLD checkwriting system. 5. Make changes to owner and/or inured information as directed by SLIC where no payout is required. 6. Generate reports on death claims. 7. Claims examination will be done by SLD. K. Underwriting 1. All underwriting reviews and services as needed. L. Commissions 1. Verifies license status of brokers/agents based on information supplied by SLIC. 2. Produce detailed commission transactions for each policy financial transaction processed including premium application or reversal, cancellation, etc. for which a commission debit or credit is required. 3. Prepares commission file for SLIC. SLIC is responsible for broker-dealer firms. Produce check for making all commission payments. 4. Creates tax reporting forms, if required. M. Proxy Processing 1. Receives record date information from the underlying mutual funds. Receives proxy solicitation material from underlying mutual funds. 2. Prepares proxy cards, if applicable. 3. Mails solicitation and resolicitations, if necessary. (April 12, 2000) 6 4. Maintains all proxy registers and other required proxy material. 5. Provide all necessary information for preparation of proxy cards, if applicable. 6. Tabulates returned proxy cards and transmits results to underlying mutual funds. N. Periodic Reports and Prospectus Materials to Contract Owners 1. Prepares and mails statement of account to each Contract Owner. 2. Inserts and mails prospectus materials, semi-annual and annual reports to Contract Owners, as required, both underlying mutual fund and Separate Account reports. Filing of prospectus materials and reports with NASD and SEC, as applicable, will be done by SLIC. Printing of all prospectus materials and reports will be done by SLIC. O. Regulatory/Statement Reports 1. Prepares IRS reports as needed. Mails to owners and transmits to IRS. P. Actuarial, Finance and Management Reports. 1. Provides, on a set schedule, extracts listed below: a. Reserve Extracts b. Production Extracts c. Premium Tax Extracts d. Loan Extracts e. Surrender Extracts f. Claims Report g. Intercompany billing and expense analysis (April 12, 2000) 7 EXHIBIT C SCHEDULE OF AUTHORIZED PERSONNEL The following individuals are authorized by Southland Life Insurance Company to give instructions or direction to Security Life of Denver Insurance Company with respect to matters arising in connection with the servicing to be performed under this Agreement: James Livingston, Jr. Terry Morrison Mark Smith Pam Anson Gary Waggoner Anna Kautzman Jerry Cwiok Exhibit C (April 12, 2000) EXHIBIT D BACKUP PROCEDURES Current backup practices and procedures are described herein and may be changed upon mutual agreement of Southland Life Insurance Company ("SLIC") and Security Life of Denver Insurance Company ("SLD"). o Disaster recovery will be performed in accordance with the Security Life of Denver Insurance Company Business Continuity Plan o Backup procedures used by SLD for SLIC business shall be: o Full backups shall be performed nightly o Daily backups shall be kept for five (5) weeks o Weekly backups shall be kept indefinitely o All backups shall be kept off-site (April 12, 2000) EX-7 8 ADMIN SERVICES AGMT 2 Exhibit 1.A(8)(g) ADMINISTRATIVE SERVICES AGREEMENT This Agreement is made as of the 1st day of January, 2000, by and between INVESCO Funds Group, Inc. ("INVESCO"), and Southland Life Insurance Company ("Southland"), a Texas corporation, collectively, the "Parties." WITNESSETH: WHEREAS INVESCO serves as the administrator for the INVESCO Variable Investment Funds, Inc. ( the "Company"); and WHEREAS Southland has entered into an agreement, dated September 14, 1995 with the Company and INVESCO (the "Fund Participation Agreement") pursuant to which INVESCO makes shares of certain of its Portfolios available to certain variable life insurance and variable annuity contracts offered by Southland through certain separate accounts (the "Separate Accounts") at net asset value and with no sales charges, subject to the terms of the Fund Participation Agreement; and WHEREAS the Fund Participation Agreement provides that the Company will bear the costs of preparing, filing with the Securities and Exchange Commission, printing or duplicating and mailing the Company's (or the Portfolios') prospectus, statement of additional information and any amendments or supplements thereto, periodic reports to shareholders, Fund proxy material and other shareholder communications (collectively, the "Fund Materials") required by law to be sent to owners of Contracts ("Contract Owners") who have allocated any Contract value to a Portfolio; and WHEREAS the Fund Participation Agreement provides that Southland, at its expense, will provide various administrative and shareholder contact services with respect to prospective and actual Variable Contract Owners of Southland; and WHEREAS the Fund Participation Agreement makes no provision for the rate at which each party shall incur expenses in connection with the servicing of Contract Owners who have allocated Contract value to a portfolio, including, but not limited to, responding to various Contract Owner inquiries regarding a Portfolio; and WHEREAS the Parties hereto wish to allocate the expenses in a manner that is fair and equitable, and consistent with the best interests of Contract Owners; and WHEREAS the Parties hereto wish to establish a means for allocating the expenses that does not entail the expense and inconvenience of separately identifying and accounting for each item of Fund expense; NOW THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: I. SERVICES PROVIDED: Southland agrees to provide services to the Company and INVESCO including the following: 1 a) responding to inquiries from Southland Contract Owners using one or more of the Portfolios as an investment vehicle regarding the services performed by Southland as they relate to INVESCO, the Company or its Portfolios; b) providing information to INVESCO or the Company and to Contract Owners with respect to shares attributable to Contract Owner accounts; c) communicating directly with Contract Owners concerning INVESCO or the Company's operations; d) providing such similar services as INVESCO or the Company may reasonably request to the extent permitted or required under applicable statutes, rules and regulations. II. EXPENSE ALLOCATIONS: Subject to Section III hereof, and the provisions of Article III of the Fund Participation Agreement, Southland or its affiliates shall initially bear the costs of the following: a) printing and distributing all Fund Materials to be distributed to prospective Contract owners except as may otherwise be provided in the Fund Participation Agreement; b) printing and distributing all sales literature or promotional material developed by Southland or its affiliates and relating to the Contracts; c) servicing Contract Owners who have allocated Contract value to a Portfolio, which servicing shall include, but is not limited to, the items listed in Paragraph I of this Agreement. III. PAYMENT OF EXPENSES: In recognition of the substantial savings in administrative expenses to INVESCO and the Company by virtue of having a sole shareholder, Southland, and having that shareholder be responsible for the servicing of the Contract Owners, INVESCO will pay an administrative service fee to Southland, as described below: a) INVESCO shall pay to Southland an Administrative Services Fee (hereinafter, the "Quarterly Fee") equal to a percentage of the average daily net assets of the Portfolios attributable to Contracts offered by Southland, at the annual rate of 0.20% on the aggregate net assets of the INVESCO VIF-Equity Income Portfolio and at the annual rate of .15% on the aggregate net assets of the INVESCO VIF-Utilities Portfolio. The Quarterly Fee is in consideration of the expenses incurred by Southland pursuant to Section II hereof. The payment of the Quarterly Fee shall commence on the date first indicated above. b) From time to time, the Parties hereto shall review the Quarterly Fee to determine whether it reasonably approximates the incurred and anticipated costs, over time, of Southland in connection with its duties hereunder. The Parties agree to negotiate in good faith any change to the Quarterly Fee proposed by another Party in good faith. c) This Agreement shall not modify any of the provisions of Article III of the Fund Participation Agreement, but shall supplement those provisions. 2 IV. TERM OF AGREEMENT This Agreement shall continue in effect for so long as Southland or its successor(s) in interest, or any affiliate thereof, continues to hold shares of the Company or its portfolios, and continues to perform in a similar capacity for the Company and INVESCO. V. INDEMNIFICATION: (a) Southland agrees to indemnify and hold harmless the Company and INVESCO, and their officers, employees, and directors, from any and all loss, liability and expense resulting from the gross negligence or willful wrongful act of Southland under this Agreement, except to the extent such loss, liability or expense is the result of the willful misfeasance, bad faith or gross negligence of the Company or INVESCO in the performance of its duties, or by reason of the reckless disregard of their obligations and duties under this Agreement. (b) The Company and INVESCO agree to indemnify and hold harmless Southland and its officers, employees, and directors from any and all loss, liability and expense resulting from the gross negligence or willful wrongful act of the Company or INVESCO under this Agreement, except to the extent such loss, liability or expense is the result of the willful misfeasance, bad faith or gross negligence of Southland in the performance of its duties, or by reason of the reckless disregard of its obligations and duties under this Agreement. VI. NOTICES: Notices and communications required or permitted hereby 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: INVESCO Funds Group, Inc. 7800 East Union Avenue Denver, CO 80237 Attn: Ronald L. Grooms - Senior Vice President FAX: 303 930-6541 Southland Life Insurance Company c/o Security Life of Denver Office of the General Counsel 1290 Broadway Denver, CO 80203 Attn: Variable Counsel FAX: 303 860-2134 VII. APPLICABLE LAW: Except insofar as the Investment Company Act of 1940 or other federal laws and regulations may be controlling, this Agreement will be construed and the provisions hereof interpreted under and in accordance with Colorado law, without regard for that state's principles of conflict of laws. 3 VIII. 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. IX. 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. X. 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. XI. HEADINGS The 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. 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. INVESCO FUNDS GROUP, INC. By: /s/ Ronald L. Grooms ------------------------------ Ronald L. Grooms Senior Vice President & Treasurer INVESCO VARIABLE INVESTMENT FUNDS, INC. By: /s/ Ronald L. Grooms ------------------------------ Ronald L. Grooms Treasurer SOUTHLAND LIFE INSURANCE COMPANY By: /s/ James L. Livingston, Jr. ---------------------------- Name: James L. Livingston, Jr. ------------------------ Title: Executive Vice President ------------------------ 4 EX-8 9 ITR MEMO EXHIBIT 11 FUTURE DIMENSIONS VUL DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(12)(III) This document sets forth the administrative procedures that will be followed by Southland Life Insurance Company ("Southland") in connection with the issuance of its Future Dimensions flexible premium variable universal life insurance policies (the "policies") issued through Southland Separate Account L1 (the "Separate Account"), the transfer of assets held under the policies, and the redemption of interests in policies. I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES A. Offering of the Policy The policy is offered only to qualifying individuals or groups ("owners") who satisfy certain suitability standards. The policy may be purchased to insure the life of a person (an "insured") in whom the owner has an insurable interest. Southland requires satisfactory evidence of insurability, which may include a medical examination of the insured. The issue ages are 10 through 75. Age is determined by the insured's age as of the birthday nearest the policy date. Generally, a minimum initial stated death benefit of at least $100,000 is required. However, depending on underwriting circumstances, the minimum for a group or corporate purchasers may be reduced. Acceptance of an application depends on Southland's underwriting rules. Southland reserves the right to reject an application for any reason. If a policy has more than one owner (joint owners), then transactions under the policy except for telephone transfers of account value require the authorization of all owners. B. Cost of Insurance Charges Structure, Payments and Underwriting Standards Southland places the insured in a premium class when the policy is issued, based on underwriting. This original premium class applies to the initial stated death benefit. The cost of insurance charge for a policy is based on the age at issue, sex, premium class of the insured, and on the policy year. Therefore the charge varies from time to time. Southland places insureds in the following premium classes, based on underwriting: Standard smoker (ages 0-85); and Standard Non-smoker (ages 20-85). Southland's definition of "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco, nicotine chewing gun or patch, snuff or any other tobacco or nicotine-based product or, insureds may be placed in a 1 substandard rate class, with a higher mortality risk than the standard smoker or standard non- smoker classes. Southland guarantees that the cost of insurance rates used to calculate the monthly cost of insurance charge will not exceed the maximum cost of insurance set forth in the policies. The guaranteed cost of insurance rate for standard classes are based on the 1980 Commissioners' Standard ordinary mortality Tables, Male or Female, Smoker or Nonsmoker Mortality Premiums (1980 CSO Tables). The guaranteed cost of insurance rates for substandard classes are based on multiples of or additives to the 1980 CSO Tables. At any time, Southland's current cost of insurance may be less than the guaranteed cost of insurance that is set forth in the policy. Current cost of insurance rates are determined based on expectations as to future mortality, investment earnings, expenses, taxes, and persistency experience. These rates may change from time to time. Cost of insurance rates (whether guaranteed or current) for an insured in a standard non-smoker class are equal to or lower than guaranteed cost of insurance for an insured of the same age and sex in a standard smoker class. Cost of insurance rates (whether guaranteed or current) for an insured in a standard non-smoker or smoker class are generally lower than guaranteed cost of insurance for an insured of the same age and sex and smoker status in a substandard class. The cost of insurance will not be the same for all policies. Insurance is based on the principle of pooling and distribution of mortality risks which assumes that each owner is charged a cost of insurance commensurate with the insured's mortality risk as actuarially determined, reflecting factors such as age, sex, health, and underwriting method. A uniform cost of insurance charge for all insureds would discriminate unfairly in favor of those insureds representing higher risks. However, there will be a uniform cost of insurance charge for all insureds of the same issue age, sex, policy duration and underwriting classification. If the insured's age or sex has been misstated in the application for the policy or in any application for supplemental or rider benefits, and if the misstatement becomes known during the lifetime of the insured, then policy values will be adjusted to reflect the correct monthly deductions (based on the correct age or sex) since the policy date. If the policy's values are insufficient to cover the monthly deduction on the prior monthly date, the grace period will be deemed to have begun, and notification will be sent to the owner at least 61 days prior to the end of the grace period. See "Policy Termination and Grace Period," below. C. Death Benefit The policy provides coverage on a named insured and a Death Benefit payable upon the death of the insured. The policy will remain in force as long as the policy's cash surrender value is sufficient to cover the charges due. On or after two years from the policy date, the owner may request a reduction in the stated death benefit, by written notice to Southland, subject to the following rules. If a change in the 2 stated death benefit would result in total premiums paid exceeding the premium limitations prescribed under current tax law to qualify the policy as a life insurance contract, Southland will refund promptly to the owner the excess above the premium limitations. Any decrease in stated death benefit will become effective on the monthly processing date next following the date that notice requesting the decrease is approved by Southland. Southland reserves the right to decline a requested decrease in the stated death benefit if compliance with the guideline premium limitations under current tax law resulting from this decrease would result in immediate termination of the policy, or if to effect the requested decrease, payments to the owner would have to be made from the accumulated value for compliance with the guideline premium limitations, and the amount of such payments would exceed the cash surrender value under the policy. The minimum amount of a change to the death benefit amount must be at least $10,000. At any time the owner may request an increase in the stated death benefit and an application must be submitted. An increase that is not guaranteed by rider will require satisfactory evidence of insurability and must meet Southland's underwriting rules. The increase in stated death benefit will become effective on the next monthly processing date after the request is approved. The account value will be adjusted to reflect a monthly deduction (as of the effective date) based on the increased stated death benefit. Southland will determine a cost of insurance rate for each increase in coverage based on the age of the insured at the time of the increase. The following rules apply to determine the risk amount for each rate. When an increase in stated death benefit is requested, Southland conducts underwriting before approving the increase to determine whether a different premium class will apply to the increase. If the premium class for the increase has lower cost of insurance rates than the original premium class, then the premium class for the increase will also be applied to the initial stated death benefit. If the premium class for the increase has higher cost of insurance rates than the original premium class, the premium class for the increase will apply only to the increase in stated death benefit, and the original premium class will continue to apply to the initial stated death benefit. To determine the risk amount associated with a stated death benefit, Southland will attribute the total net amount at risk for the total stated death benefit. If there is a decrease in stated death benefit after an increase, the decrease is applied first to decrease prior increases in stated death benefit starting with the most recent increase. The policy will be offered and sold pursuant to an established mortality structure and underwriting standards in accordance with state insurance laws. Where state insurance laws prohibit the use of actuarial tables that distinguish between men and women in determining premiums and policy benefits for their insured resident, Southland will comply. D. Application and Payment Processing 3 To purchase a policy, an application must be completed and submitted through an authorized Southland agent. Temporary life insurance coverage may be provided prior to the policy date under the terms of a temporary insurance agreement. In accordance with Southland's underwriting rules, temporary life insurance coverage may not exceed $1,000,000 and will not remain in effect for more than ninety (90) days. The insurance coverage becomes effective on the policy date, which may be specified on the application. The Policy Date is used to determine the monthly processing date, coverage effective date and policy anniversaries. The policy date is: 1) the date specified on the application, 2) the back-date of the policy to save age; or if neither 1) nor 2) apply, it is the date all underwriting and administrative requirements are met if the initial premium has been received. Otherwise, it is the date the initial premium is received by Southland. The Investment Date is the date that Southland first applies premium to the Policy. It is the valuation date on which Southland receives: 1) the initial premium, 2) approves the policy for issue, and 3) receives all issue requirements. As provided under state insurance law, the owner may be permitted to backdate the policy to preserve insurance age. In no case may the policy date be more than six months prior to the application date. The monthly deductions for the backdated period are deducted on the policy date. The initial premium payment must be at least equal to the sum of the scheduled premiums from the policy date through the investment date. Planned periodic premiums and unscheduled premiums that are not underwritten will be credited to the policy and the net premium invested on the valuation date they are received by Southland. If a premium payment is rejected, Southland will return it promptly, without adjustment. The policy date is the date from which policy months, years, and anniversaries are measured. A policy month is a one-month period beginning with a monthly processing date and ending with the day immediately preceding the next following monthly processing date (i.e. 8/15 - 9/14). The monthly processing date is the same as the policy date for each succeeding month. The monthly deductions are made each monthly processing date. A policy year is twelve months commencing with the policy date and ending with the day immediately preceding the next annual date (i.e. 8/15/1999 - 8/14/2000). The issue date, if the same as the policy date, is the date from which the suicide and contestable periods start. It is shown in the policy. E. Allocation of Net Premiums 4 On the investment date, the account value equals the initial premium payment minus premium- based charges, minus monthly deductions made as the policy date (up to six months for backdated policies). On each investment date thereafter, the account value is the sum of the amounts in the variable subaccounts, the guaranteed interest account, and the loan account. The account value will vary with the performance of the selected subaccounts, interest credited on amounts in the guaranteed interest account, interest credited on amounts in the loan account, charges, transfers, partial withdrawals, loans and loan repayments. The net account value is cash value minus outstanding policy debt. When applying for a policy, the owner selects a plan for paying premium payments at specified intervals, e.g., quarterly, semi-annually or annually, until the maturity date. If the owner elects, Southland will arrange for payment of planned period premiums on a monthly basis under a pre-authorized, electronic funds transfer (bank draft) arrangement. The owner is not required to pay premium in accordance with the plan; but can pay more or less than planned or skip a planned premium entirely. Currently, there is no minimum amount for each premium payment. Southland may establish a minimum amount effective 90 days after sending a written notice to the owner. Subject to certain limits (described below), the owner can change the amount and frequency of planned periodic premiums at any time by sending a notice to Southland. However, Southland reserves the right to limit the amount of a premium payment or the total premium paid. In the application, the owner specifies the percentage of net premium to be allocated to each subaccount including the guaranteed interest account (G.I.A.). Net premiums generally will be invested on the valuation date that Southland receives them and in accordance with the owner's most recent allocation instructions. The net premium allocation percentages specified in the application will apply to subsequent premium payments until the owner instructs otherwise. The minimum percentage that may be specified for a subaccount is 1%, and all percentages must be whole numbers. The sum of allocations must equal 100%. Southland limits the number of subaccounts (18) to which account value may be allocated over the life of the policy. An owner can change the allocation percentages at any time by sending a notice to Southland or, if telephone privileges are in effect, the request can be received by phone. The change applies to all premium payments received with or after receipt of the owner's notice. F. Free Look Some states mandate that if an owner exercises his/her free look right he/she is entitled to a full premium refund. Other states mandate that if the owner exercises his/her free look option he/she is entitled to receive the value of the fund allocations plus a refund of the policy charges previously deducted. Amounts designated for the guaranteed interest account will be invested into that account on the investment date. If the owner's state requires return of premium during the free look period, amounts designated for the variable account are initially invested into the money market 5 subaccount. Later, these amounts are transferred from the money market subaccount to the selected variable subaccounts, at the earlier of: 1) five days after we mailed the policy and the state free look period has ended; or 2) we have received the policy delivery receipt an the state free look period has ended. If the owner's state provides for return of account value during the free look period or no free look period, amounts designated for the variable account are invested directly into the selected variable subaccounts. G. Additional Payment Additional unscheduled premium payments can be made at any time while the policy is in force. Premium payments after the initial premium payment must be made to the home office. Southland has the right to limit the number and amount of such premium payments. Total premium payments in a policy year may not exceed guideline premium payment limitations for life insurance set forth in the Internal Revenue Code. Southland will promptly refund the portion of any premium payment that is determined to be in excess of the premium payment limit established by law to qualify a policy as a contract for life insurance. Southland reserves the right to reject a requested increase in planned periodic premiums, or unscheduled premium. Southland also reserves the right to require satisfactory evidence of insurability prior to accepting a premium which increases the risk amount of the policy. No premium payment will be accepted after the maturity date. The payment of premiums may cause a policy to be a Modified Endowment Contract (M.E.C.) under the Internal Revenue Code. If acceptance of a premium paid would, in Southland's view, cause the policy to become a M.E.C., then to the extent feasible Southland will not accept that portion of the premium that would cause the policy to become a M.E.C. unless the owner confirms in writing that it is his/her intent to convert the policy to a M.E.C. Southland may return the excess portion of the payment pending receipt of instructions from the owner. The owner may specify that a particular unscheduled payment is to be a repayment of policy debt. H. Policy Termination and Grace Period The policy terminates at the earliest of: 1) the end of the grace period, 2) the surrender of the policy or, 3) the fulfillment of Southland's obligations under the policy (i.e., payment of the death benefit proceeds). If the cash surrender value on a monthly processing date is less than the amount of the monthly deduction to be deducted, the policy will be in default. In addition, if on a monthly 6 processing date the outstanding policy debt exceeds the account value, the policy will be in default. The owner, and any assignee of record, will be sent notice of the default. If a policy goes into default, the owner will be allowed a 61-day grace period to pay a premium payment sufficient to cover the monthly deductions due during the grace period and for two additional months, or a sufficient amount to avoid termination caused by a high outstanding loan balance. Southland will send notice of the amount required ("grace period premium payment") to the owner's last known address and the address of the assignee of record. The grace period will begin when the notice is sent. The policy will remain in effect during the grace period. If the insured should die during the grace period, the death benefit proceeds will be payable to the beneficiary, but the amount paid will be reduced for the monthly deductions which were due as of the date of death and for outstanding policy debt. If the grace period premium payment is not paid by the end of the grace period, the policy will lapse. It will have no value and no benefits will be payable. I. Reinstatement of a Policy Terminated for Insufficient Values The policy may be reinstated within five years after lapse and before the maturity date, subject to compliance with certain conditions, including a necessary premium payment and submission of satisfactory evidence of insurability. J. Repayment of a Loan An owner may repay all or part of his/her policy debt at any time while the insured person is living and the policy is in force. Loan repayments must be sent to the home office and will be credited as of the date received. The owner may instruct Southland that a specific unscheduled payment is to be applied as a loan repayment. When a loan repayment is made, account value in the loan account in an amount equal to the repayment, is transferred from the loan account to the subaccounts according to the owner's current premium allocation instructions. K. Policy Riders Rider benefits may be available to be added to the policy. Monthly charges for the rider will be deducted from the account value as part of the monthly deductions. Currently available riders are: Adjustable Term Insurance Rider, Accidental Death Benefit Rider, Additional Insured Rider, Children's Insurance Rider, Guaranteed Insurability Rider, Guaranteed Minimum Death Benefit Rider, Waiver of Cost of Insurance Rider, and Waiver of Specified Premium Rider. Additional rules and limits apply to the rider benefits and are set forth in the rider. II. TRANSFERS AMONG SUBACCOUNTS 7 Several subaccounts of the Separate Account are available for allocation of net premiums paid, subject to certain limitations set forth in the policy. Each invests in shares or units of an underlying portfolio. Currently available subaccounts invest in portfolios of AIM Variable Insurance Funds, Inc., The Alger American Fund, Fidelity Variable Insurance Products Fund and Fidelity Variable Insurance Products Fund II, INVESCO Variable Investment Funds, Inc., and Janus Aspen Series. All Funds are registered under the Investment Company Act of 1940 as open- end management investment companies. Additional funds may be made available in the future. After the free-look period and prior to the maturity date, the owner may transfer all or part of the account value from the subaccounts to other subaccounts or to the guaranteed interest account. An amount may be transferred from the guaranteed interest account to the variable subaccounts, subject to some restrictions. The minimum transfer amount is the lesser of $100 or the entire amount in that subaccount. A transfer request that would reduce the amount in an subaccount below $100 will be treated as a transfer request for the entire amount. Transfers from the guaranteed interest account are permitted only within the first 30 days of a policy year. Transfer requests received within 30 days prior to a policy anniversary will be processed on the policy anniversary. Such transfers are limited in amount to the greatest of: 25% of the balance in the guaranteed interest account on the policy anniversary; the total withdrawn in the prior policy year; or $100.00. With the exception of the Right to Exchange (described below), Southland reserves the right to limit the number or frequency of transfers permitted in the future. Southland will make the transfer as of the end of the valuation period during which such transfer is received by Southland. Currently, there is a limit on the number (12) of free transfers that can be made between subaccounts in a policy year. Currently, Southland assesses an excess transfer charge of $25 for each transfer in excess of the first twelve transfers during a policy year. The excess transfer charge will be deducted from the subaccount from which the requested transfer is being made. Transfer requests will be accepted by telephone, provided the appropriate authorization has been provided to Southland. Southland reserves the right to suspend telephone transfer privileges at any time, for any reason, if Southland deems such suspension to be in the best interests of owners. During the first twenty-four policy months following the policy date, and within sixty days of the later of notification of a change in the investment policy of the separate account or the effective date of such change, the owner may exercise a one-time Right to Exchange the policy by requesting that all of the variable account value be transferred to the guaranteed interest account. Exercise of the Right to Exchange is not subject to any charge. Following the exercise of the Right to Exchange, premium may not be allocated to the variable account, and transfers of account value to the variable account will not be permitted. The other terms and conditions of the policy will continue to apply. Transfers may also be effected pursuant to the dollar cost averaging or auto rebalancing feature if elected by the owner, as described in the current prospectus. III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS 8 A. Surrender for Cash Surrender Value An owner may surrender the policy at any time for its cash surrender value by submitting notice to the home office. Southland may require return of the policy. A surrender request will be processed as of the valuation date the surrender notice and all required documents are received. Payment generally will be made within seven calendar days. An owner's policy will terminate and cease to be in force if it is surrendered. It cannot be reinstated later. A surrender payment may be made as a lump sum or under one of the available settlement options, at the election of the owner. B. Death Claims The death benefit proceeds are equal to the sum of the base death benefit for each coverage segment under the selected death benefit option, calculated on the date of the insured's death, plus rider benefits, minus outstanding policy debt, minus unpaid monthly deductions incurred prior to the date of death. If the insured's age or sex has been misstated in the application for the policy or in an application for supplemental or rider benefits, and if the misstatement becomes known after the death of the insured person, then the death benefit under the policy or such supplemental or rider benefits will be that which the cost of insurance charge which was deducted from the account value on the last monthly processing date prior to the death of the insured would have purchased for the correct sex and age. Southland will usually pay the death benefit proceeds to the beneficiary within seven days after receipt at its home office of due proof of death of the insured and all other requirements necessary to make payment. If the payment of the death benefit of a policy is contested, payment of proceeds may be delayed. Southland will pay interest at the rate declared by us or at a higher rate required by law. The death benefit payable depends on the death benefit option in effect on the date of death. Subject to certain conditions, owners may change the death benefit option. Under Option A, the base death benefit is the greater of the specified target death benefit amount or the applicable percentage of account value on the date of the insured's death. Under Option B, the base death benefit is the greater of the specified target death benefit amount plus the account value on the date of death, or the applicable percentage of the account value on the date of the insured's death. The "applicable percentage" is the appropriate factor from the Definition of Life Insurance factors shown in the policy prospectus appendix A. On or after the first monthly processing date, the owner may change the death benefit option on the policy, by notice to Southland, subject to the following rules. A change in the death benefit option may be requested at least one day prior to a policy anniversary. After the change, the specified death benefit amount must still comply with the minimum to issue a policy. The effective date of the change will be the monthly processing date next following the 9 day that Southland approves the request. Southland may require satisfactory evidence of insurability for some changes. An owner may change from death benefit option A to option B, or from option B to option A. When a change from Option A to Option B is made, the stated death benefit amount after the change will be the stated death benefit amount before the change minus the account value on the effective date of the change. When a change from Option B to Option A is made, the stated death benefit amount after the change will be the stated death benefit amount before the change plus the account value on the effective date of the change. C. Policy Loan After the first monthly processing date and while the policy is in force and not in the grace period, the owner may borrow against the policy by submitting a request to the home office. The minimum amount of a loan is $100. The maximum loan amount is 90% of the net cash surrender value. Maximum loan amounts may be different if required by law. A loan is processed as of the date the loan request is approved. Loan proceeds generally will be sent to the owner within seven calendar days. When a policy loan is made, an amount sufficient to secure the loan is transferred out of the subaccounts and into the policy's loan account. Thus, a loan will have no immediate effect on the account value, but other policy values, such as the net cash surrender value and the death benefit proceeds, will be reduced immediately by the amount borrowed. This transfer is made from the account value in each subaccount in proportion to the account value in each on the date of the loan, unless the owner specifies that transfers be made from a specific subaccount. An amount equal to due and unpaid loan interest which exceeds interest credited to the loan account will be transferred to the loan account on each policy anniversary. Such interest will be transferred from each subaccount in the same proportion that account value in each bears to the total unloaned account value. The loan account will be credited with interest at an effective annual rate of not less than the annual loan interest rate of 4%. Loan interest accrues daily at an annual interest rate of 6%. Interest is due in arrears on each policy anniversary. Outstanding loan amounts (including unpaid interest added to the loan) plus accrued interest not yet due equals the total policy debt. After the tenth policy anniversary (fifth if the insured person is 60 or older), the owner may take a "preferred" loan. A preferred loan is the first loan amount in a policy year up to 10% of the net account value. Amounts borrowed in excess of the 10% or later in the year will not be considered "preferred". In the 21st policy year and thereafter, all loan balances are "preferred." Preferred loan amounts receive interest credited at an effective annual rate of 4%. Loan interest on preferred loan amounts accrues at an annual interest ate of 4%. 10 D. Partial Withdrawals An owner may make partial cash surrenders (known as partial withdrawals) under the policy at any time after the first policy anniversary. An owner must submit a request to the home office. Each partial withdrawal must be at least $100. The maximum partial withdrawal is the amount which will leave $500 as the net cash surrender value. When a partial withdrawal is taken, the amount of the withdrawal plus a service fee is deducted from the account value. This service fee is 2% of the amount of the withdrawal, up to a maximum of $25. As of the date Southland processes the partial withdrawal, the cash value will be reduced by the partial withdrawal amount. Unless the owner requests that a partial cash surrender be deducted from specified subaccounts, it will be deducted from the subaccounts on a pro-rata basis in proportion to the account value in each. If death benefit Option A is in effect, Southland may reduce the stated death benefit amount. Southland may reject a partial withdrawal request if it would reduce the stated death benefit amount below the minimum amount required to issue the policy, or if the partial withdrawal would cause the policy to fail to qualify as a life insurance contract under applicable tax laws, as interpreted by Southland. Partial withdrawals will be processed as of the valuation date the request is received by Southland, and generally will be paid within seven calendar days. E. Monthly Charges On each monthly processing date, Southland will deduct from the account value the monthly deductions due, commencing as of the policy date. An owner's policy date is the date used to determine the applicable monthly processing date. The monthly deduction consists of (1) cost of insurance charges, (2) the monthly administrative charge, (3) mortality and expense charge, and (4) charges for rider benefits. The monthly deduction is deducted from the subaccounts, including the guaranteed interest account pro rata based on the account value in each investment option, unless the owner has selected a designated deduction subaccount for the policy. F. Continuation of Coverage The maturity date is generally the insured's 100th birthday, and is shown in the policy. At the policy's maturity date, the owner may surrender the policy for its net cash surrender value. Or, he/she may allow insurance coverage to continue under the continuation of coverage feature. The policy date determines the type of the continuation of coverage and the fee, if any. Policies will have "Type 1" coverage if issued before August 1, 2000, or after that date but 11 before the issue state permits "Type 2" coverage. Policies will have "Type 2" coverage issued on or after August 1, 2000, and the issue state permits "Type 2". The differences between the two types is shown below. Death Benefit Option Stated Death Benefit Continuation Administrative Fee During Continuation During Continuation of Coverage Current/Guaranteed of of Coverage Period Coverage Period Type 1 None/None Option B Zero Type 2 None/$200 Option A Target Death Benefit as of the policy maturity date With either type of coverage, the insurance coverage continues until the death of the insured person, unless the policy lapses or is surrendered. No further premim payments may be made and there are no further monthly deductions. All riders terminate and the account value is transferred into the guaranteed interest account. The variable account is no longer available. The owner may take policy loans or partial withdrawals. If a persistency refund is paid on the guaranteed interest account, it will be credited to policies in the continuation of coverage period. G. Change of Insured The owner of the policy may choose, at any time after issue, to change the insured person under the policy. There is no fee for this change. However, the new insured must be insurable under Security Life's normal rules of underwriting. The account value will be moved to a new policy number and the new insured. Charges and fees under the new policy may change based on the new insured. At the time of the change, target premium and surrender charges are calculated under both policies. If the surrender charge on the new policy is higher, no surrender charge is deducted at the time of the change. If the surrender charge on the new policy is lower, a surrender charge in the amount of the difference (between old and new policy) is deducted. The resulting account value, loss tax charges as described in the prospectus, is transferred into the new policy. No initial sales charge is deducted on the change; but the new policy is subject to all applicable charges running from its policy date and for all new premium payments received. If there is a policy loan outstanding, it is transferred to the new policy. H. Settlement Options During the insured's lifetime, the owner may elect that the beneficiary receive the death proceeds other than in one sum. If this election has not been made, the beneficiary may do so 12 within 60 days after the insured person's death. The owner may also elect to take the net cash surrender value under one of these options. Option I: Payouts for a Designated Period: Payouts will be made in 1, 2, 4 or 12 installments per year as elected for a designated period, which may be 5 to 30 years. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of account value applied is shown in Settlement Option Table I in the policy. Option II: Life Income with Payouts Guaranteed for a Designated Period: payouts will be made in 1, 2, 4 or 12 installments per year throughout the payee's lifetime, or if longer, for a period of 5, 10, 15, or 20 years as elected. The installment dollar amounts will be equal except for any excess interest. The amount of the first monthly payout for each $1,000 of account value applied is shown in Settlement Option Table II in the policy. This option is not available for ages not shown in this Table. Option III: Hold at Interest: Amounts may be left on deposit with us to be paid upon the death of the payee or at any earlier date elected. Interest on any unpaid balance will be at the rate declared by us or at any higher rate required by law. Interest may be accumulated or paid in 1, 2, 4 or 12 installments per year, as elected. Money may not be left on deposit for more than 30 years. Option IV: Payouts of a Designated Amount: Payouts will be made until proceeds, together with interest, which will be at the rate declared by us or at any higher rate required by law, are exhausted. Payouts will be made in 1, 2, 4 or 12 equal installments per year, as elected. Option V: Other: The owner may ask us to apply the money under any other option that we make available at the time the benefit is paid. Payments under these options are not affected by the investment experience of any account of our variable account. Instead, interest accrues pursuant to the options chosen. Payment options will also be subject to our rules at the time of selection. These alternate payment options are only available if the proceeds applied are $2,000 or more and a periodic payment will be at least $20. The beneficiary or any other person who is entitled to receive payment may name a successor to receive any amount that we would otherwise pay to that person's estate if that person died. The person who is entitled to receive payment may change the successor at any time. We must approve an arrangement that involves 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, 13 withdrawal or commutation rights (i.e., the rights to receive payments over time, for which we may offer a lump sum payment), the naming of people who are entitled to receive payment and their successors, and the ways of proving age and survival. 14 EX-9 10 LIVINGSTON CONSENT EXHIBIT 6.A [letterhead of Southland here] April 26, 2000 Southland Life Insurance Company 5780 Powers Ferry Road, N.W. Atlanta, GA 30327 Re: Southland Separate Account L1 Post-Effective Amendment No. 6; SEC File No. 33-97852 Gentlemen: In my capacity as Executive Vice President, CFO and Chief Actuary of Southland Life Insurance Company ("Southland"), I have provided actuarial advice concerning: The preparation of Post-Effective Amendment No. 6 to the Registration Statement on Form S-6 (File No. 33-97852) to be filed by Southland and its Southland Separate Account L1 (the "Separate Account") with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 with respect to the Future Dimensions variable universal life insurance policies; and The preparation of the policy forms for the Future Dimensions 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 Southland. 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/ James L. Livingston, Jr. James L. Livingston, Jr., F.S.A., M.A.A.A. JLL:tls EX-10 11 ERNST & YOUNG CONSENT Exhibit 7.(a) CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 28, 2000 and April 7, 2000, in Post-Effective Amendment No. 6 to the Registration Statement (Form S-6 No. 33-97852) and related Prospectus of Southland Separate Account L1 (dated May 1, 2000). /s/ ERNST & YOUNG LLP Atlanta, Georgia April 26, 2000 EX-11 12 SAB CONSENT [SUTHERLAND ASBILL & BRENNAN LLP] CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP We consent to the reference to our firm in the prospectus included in Post-Effective Amendment No. 6 to the Registration Statement on Form S-6 for Southland Separate Account L1 (File No. 33-97852). In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. SUTHERLAND ASBILL & BRENNAN LLP By: /s/ Kimberly J. Smith Kimberly J. Smith Washington, D.C. 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