<PAGE>
As filed with the Securities and Exchange Commission on
April 25, 1997
Registration No. 33-87248
Securities and Exchange Commission
Washington, DC 20549
FORM N-4
Registration Statement Under the Securities Act of 1933 [x ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 2 [x ]
Registration Statement Under the Investment Company Act of 1940
Amendment No. 3 [x ]
Security Equity Separate Account 26
(Exact Name of Registrant)
Security Equity Life Insurance Company
(Name of Depositor)
84 Business Park Drive
Suite 303
Armonk, New York 10504
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (914) 273-1290
Matthew P. McCauley, Esquire
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
(Name and address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill, and Brennan
1275 Pennsylvania Ave., N.W.
Washington, DC 20004-2404
-i-
<PAGE>
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph
(b), of Rule 485
x on 1 May, 1997 pursuant to paragraph (b) of
Rule 485
60 days after filing pursuant to paragraph
(a)(1) of Rule 485
on ( ) pursuant to paragraph (a)(1) of Rule
485
this post-effective amendment designates a new
effective date for a previously filed post-
effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
an indefinite number or amount of securities has been registered
under the Securities Act of 1933. The Registrant filed the 24f-2
Notice for the fiscal year ended 31 December 1996 on 28 February
1997.
-ii-
<PAGE>
<TABLE>
Cross Reference Sheet
Pursuant to Rule 481
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration Statement
of Information Required by Form N-4
PART A
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
<S> <C>
1. Cover Page .......................... Cover Page
2. Definitions.......................... Definitions
3. Synopsis............................. Questions and Answers
About the Contract
4. Condensed Financial
Information.......................... Financial Statements
5. General Description of
(a) Depositor....................... Security Equity
(b) Registrant ..................... The Separate Accounts
(c) Portfolio Company .............. GT Global Variable
Investment Funds
(d) Fund Prospectus................. GT Global Variable
Investment Funds
(e) Voting Rights................... Voting Rights
(f) Administrators.................. N/A
6. Deductions and Expenses
(a) General......................... Charges and Deductions
(b) Sales Load % ................... Surrender Charge
(c) Special Purchase Plan .......... N/A
(d) Commissions .................... Principal Underwriter
(e) Expenses - Registrant .......... Administrative
Charges; Mortality and
and Expense Risk
Charge
(f) Fund Expenses .................. Fees and Expenses
of the Funds
(g) Organizational Expenses ........ N/A
7. Contracts
(a) Persons with Rights ............ The Contracts;
Distributions Under
the Contract; Voting
Rights
(b) (i) Allocation of
Purchase Payments........ Allocation of Net
Purchase Payments
(ii) Transfers................ Transfer Privilege
(iii) Exchanges ............... N/A
(c) Changes ........................ Additions, Deletions or
Substitutions of
Investments
-iii-
<PAGE>
8. Annuity Period....................... Annuity Provisions;
Annuity Date;
Annuity Options
9. Death Benefit ....................... Death Benefits
10. Purchases and Contract Value
(a) Purchases ...................... Contract Application and
Purchase Payments
(b) Valuation ...................... Value of Accumulation
Units
(c) Daily Calculation .............. Value of Accumulation
Units
(d) Underwriter .................... Principal Underwriter
11. Redemptions
(a) -By Owners ..................... Surrender Charge; Cash
Withdrawals;
Systematic
Withdrawal Plan
- By Annuitant ................. Annuity Options
(b) Texas Optional Retirement
Program......................... N/A
(c) Check Delay..................... Deferment of Payment
(d) Lapse .......................... Account Continuation
(e) Free Look ...................... Can the Contract be
Canceled After It is
Delivered?; Right
to Examine
12. Taxes ............................... Federal Tax Matters
13. Legal Proceedings ................... Part B: Legal
Proceedings
14. Table of Contents for the
Statement of Additional
Information.......................... Statement of
Additional Information
iv
<PAGE>
PART B
<CAPTION>
ITEM OF FORM N-4 PART B CAPTION
<S> <C>
15. Cover Page ......................... Cover Page
16. Table of Contents .................. Table of Contents
17. General Information and History .... Part A: Security Equity
Life Insurance Company
and The Separate Accounts
18. Services ...........................
(a) Fees and Expenses of Registrant. N/A
(b) Management Contracts ........... N/A
(c) Custodian ...................... N/A
Independent Public Accountant... Financial Statements
(d) Assets of Registrant ........... Safekeeping of Account
Assets
(e) Affiliated Persons ............. N/A
(f) Principal Underwriter .......... Distribution of the
Contracts
19. Purchase of Securities Being
Offered............................. Distribution of the
Contracts
20. Underwriters ....................... Distribution of the
Contracts
21. Money Market Yield ................. Money Market Yield
22. Annuity Payments ................... Computation of
Variable Annuity
Income Payments
23. Financial Statements ............... Financial Statements
PART C - OTHER INFORMATION
<CAPTION>
Item of Form N-4
<S>
24. Financial Statements and <C>
Exhibits............................ Financial Statements
and Exhibits
(a) Financial Statements.......... (a) Financial
Statements
(b) Exhibits...................... (b) Exhibits
25. Directors and Officers of the
Depositor........................... Directors and Officers
of the Depositor
26. Persons Controlled by or Under
Common Control with the
Depositor or Registrant............. Persons Controlled By
or Under Common Control
with the Depositor or
Registrant
v
<PAGE>
27. Number of Contract owners........... Number of Contract
Owners
28. Indemnification..................... Indemnification
29. Principal Underwriters.............. Principal Underwriters
30. Location of Accounts and Records.... Location of Accounts
and Records
31. Management Services................. Management Services
32. Undertakings........................ Undertakings
Signature Pages.................... Signatures
</TABLE>
vi
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNTS 26 AND 27
PROSPECTUS
FOR THE
INDIVIDUAL VARIABLE ANNUITY CONTRACT
OFFERED BY
SECURITY EQUITY LIFE INSURANCE COMPANY
(A NEW YORK COMPANY)
84 BUSINESS PARK DRIVE, SUITE 303
ARMONK, NEW YORK 10504
1-800-533-8282
- --------------------------------------------------------------------------------
This Prospectus describes individual variable annuity contracts offered by
Security Equity Life Insurance Company ("Security Equity"). These contracts,
collectively referred to as the "Contract" or the "Contracts" in this
Prospectus, are designed to aid individuals in long-term financial planning and
provide for the accumulation of capital on a tax-deferred basis for retirement
or other long-term purposes. The Contracts may be purchased with a single
minimum Initial Purchase Payment of $2,000.
Prior to the Annuity Date, Purchase Payments will accumulate on a variable
basis. The Contract Owner has significant flexibility in determining the
frequency and amount of each Purchase Payment. The Contract Owner may elect to
receive Annuity Payments on a variable basis, fixed basis, or a combination of
both. The Contract Owner also has significant flexibility in determining the
Annuity Date on which Annuity Payments are scheduled to commence. Full
surrenders or partial withdrawals may be made at any time prior to the Annuity
Date, although in many circumstances they may be subject to a surrender charge
and a Federal penalty tax. Any amount surrendered or withdrawn will be paid in a
lump sum, or upon annuitization, the Contract will be paid out under one of the
available Annuity Options. The Contracts provide the flexibility necessary to
permit a Contract Owner to devise an annuity that best fits his or her needs.
Purchase Payments may be allocated to Security Equity Separate Accounts 26 and
27. Assets of the Separate Accounts are invested in Divisions, which invest in
Funds of GT Global Variable Investment Funds. A list of the Funds can be found
in the accompanying prospectus for the GT Global Variable Investment Funds.
This Prospectus sets forth the information that a prospective investor should
know before investing. Please read this Prospectus carefully and retain it for
future reference. A Statement of Additional Information about the Contracts and
the Divisions is available free by writing to Security Equity at the address
listed above or by calling the phone number listed above. The Statement of
Additional Information, which has the same date as this Prospectus, has been
filed with the Securities and Exchange Commission and, as amended or
supplemented from time to time, is incorporated herein by reference. The table
of contents of the Statement of Additional Information can be found at the end
of this Prospectus. This Prospectus must be accompanied by a current Prospectus
for the GT Global Variable Investment Funds.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Contract is available only in the State of New York.
The Date of This Prospectus is May 1, 1997.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON.
Prospectus Page 1
<PAGE>
TABLE OF CONTENTS
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Page
---------
<S> <C>
DEFINITIONS............................................................................... 4
SUMMARY OF CONTRACT FEES AND EXPENSES..................................................... 5
HISTORICAL CHARTS OF UNITS AND UNIT VALUES................................................ 7
QUESTIONS AND ANSWERS ABOUT THE CONTRACT.................................................. 8
SECURITY EQUITY LIFE INSURANCE COMPANY AND THE SEPARATE ACCOUNTS.......................... 10
Security Equity......................................................................... 10
The Separate Accounts................................................................... 10
GT GLOBAL VARIABLE INVESTMENT FUNDS....................................................... 11
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS...................................... 11
THE CONTRACTS............................................................................. 12
Right to Examine........................................................................ 12
Contract Application and Purchase Payments.............................................. 12
Place, Amount and Frequency........................................................... 12
Account Continuation.................................................................. 13
Allocation of Net Purchase Payments................................................... 13
VARIABLE ACCOUNT.......................................................................... 13
Accumulation Units...................................................................... 13
Value of Accumulation Units............................................................. 14
Net Investment Factor................................................................... 14
TRANSFER PRIVILEGE........................................................................ 14
DOLLAR COST AVERAGING..................................................................... 14
CONTRACT OWNER INQUIRIES.................................................................. 15
CHARGES AND DEDUCTIONS.................................................................... 15
Administrative Charges.................................................................. 15
Annual Contract Fee................................................................... 15
Transfer Fee.......................................................................... 16
Special Handling Fees................................................................. 16
Surrender Charge........................................................................ 16
Mortality and Expense Risk Charge....................................................... 17
Premium Taxes........................................................................... 17
Fees and Expenses of the Funds.......................................................... 17
YIELDS AND TOTAL RETURNS.................................................................. 18
DISTRIBUTIONS UNDER THE CONTRACT.......................................................... 19
Cash Withdrawals........................................................................ 19
Systematic Withdrawal Plan.............................................................. 20
Annuity Provisions...................................................................... 20
Annuity Date............................................................................ 20
Annuity Options......................................................................... 20
Election of Annuity Options........................................................... 20
The Options Available................................................................. 20
Calculation of Payments............................................................... 21
Value of Variable Annuity Payments.................................................... 21
</TABLE>
Prospectus Page 2
<PAGE>
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Deferment of Payment.................................................................... 22
The Beneficiary......................................................................... 22
Death Benefits.......................................................................... 22
Death of a Contract Owner who is the Annuitant........................................ 22
Death of a Contract Owner who is not the Annuitant.................................... 22
Death of the Annuitant who is not a Contract Owner.................................... 22
Death of a Joint Owner................................................................ 22
Payment of Death Benefit.............................................................. 23
Amount of Death Benefit................................................................. 23
Assignments and Changes of Ownership.................................................... 23
FEDERAL TAX MATTERS....................................................................... 24
Introduction............................................................................ 24
Taxation of Security Equity............................................................. 24
Tax Status of the Contracts............................................................. 24
Diversification....................................................................... 24
Investor Control...................................................................... 24
Required Distributions................................................................ 25
Taxation of the Annuities............................................................... 25
In General............................................................................ 25
Withdrawals and Surrenders............................................................ 25
Annuity Payments...................................................................... 26
Penalty Tax........................................................................... 26
Taxation of Death Benefit Proceeds.................................................... 26
Transfer, Assignments, or Exchanges of the Contract................................... 26
Multiple Contracts.................................................................... 27
Withholding........................................................................... 27
Possible Changes in Taxation.......................................................... 27
Other Tax Consequences................................................................ 27
Qualified Contracts................................................................... 27
Individual Retirement Annuities and Accounts............................................ 27
Code Section 403(b) Plans............................................................... 28
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans............................ 28
Deferred Compensation Plans............................................................. 28
Restrictions under Qualified Contracts.................................................. 28
VOTING RIGHTS............................................................................. 29
PRINCIPAL UNDERWRITER..................................................................... 29
FINANCIAL STATEMENTS...................................................................... 30
STATEMENT OF ADDITIONAL INFORMATION....................................................... 30
APPENDIX -- Surrender Charge Calculations................................................. 30
</TABLE>
Prospectus Page 3
<PAGE>
DEFINITIONS
- --------------------------------------------------------------------------------
ACCUMULATED VALUE -- The value under the Contract prior to the Annuity Date of
all Net Purchase Payments, plus all gains and losses, less any past charges
deducted or amounts previously withdrawn.
ACCUMULATION UNIT -- An accounting unit of measure used to determine the value
of a Division prior to the Annuity Date.
ANNUITANT -- The individual upon whose life Annuity Payments are based and who
may receive payments from the Contract under an Annuity Option.
ANNUITY DATE -- The date on which Annuity Payments begin.
ANNUITY OPTION -- One of several ways in which Annuity Payments may be made.
ANNUITY PAYMENT -- One of a series of payments made under an Annuity Option.
ANNUITY SERVICE OFFICE -- The service office of the Company is Security Equity,
GT Global Department, P.O. Box 208, Armonk, New York 10504.
ANNUITY UNIT -- An accounting unit of measure used to calculate variable Annuity
Payments.
BENEFICIARY -- The person or legal entity that may receive any benefits due
under the Contract in the event of the Annuitant's or Contract Owner's death.
BUSINESS DAY -- A day on which both Security Equity and the New York Stock
Exchange (the "NYSE") are open for business. The following days are not Business
Days for Security Equity: New Year's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Friday after Thanksgiving,
Christmas Day, and the day after Christmas Day if it is otherwise a regular work
day.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTRACT -- The document for each Contract Owner which evidences the coverage of
the Contract Owner. The Contract, its riders, endorsements, and amendments, if
any, and the Contract Application, a copy of which is attached to and made a
part hereof, are the entire Contract.
CONTRACT APPLICATION -- The document signed by the Contract Owner that evidences
the Contract Owner's application for the
CONTRACT. CONTRACT OWNER ("YOU", "YOUR") -- The person, persons, or entity
entitled to exercise all rights and privileges of ownership as stated in the
Contract and in whose name the Contract is issued. Contract Owner's Account --
An account established for each Contract Owner.
CONTRACT YEAR -- A continuous twelve month period commencing on the Date of
Issue and each anniversary thereof.
DATE OF ISSUE -- The date the Initial Purchase Payment is invested in the
Contract.
DIVISION -- A Division of Separate Account 26 or 27. Each Division invests
solely in its corresponding GT Global Variable Investment Fund and takes the
name of the Fund in which it invests.
FUND (OR FUNDS) -- The separate investment portfolios of GT Global Variable
Investment Funds.
GT GLOBAL VARIABLE INVESTMENT FUNDS -- Refers to a portfolio of either G.T.
Global Variable Investment Series or G.T. Global Variable Investment Trust or
the two together.
INITIAL PURCHASE PAYMENT -- The first payment which the Contract Owner makes.
Net Purchase Payment -- A Purchase Payment, less any applicable deduction for
premium tax.
NON-TAX QUALIFIED CONTRACTS -- Contracts that do not receive favorable tax
treatment under Sections 401, 403, 408, or 457 of the Code. Earnings on these
Contracts currently receive special Federal income tax treatment.
PAYEE -- The Contract Owner, Annuitant, Beneficiary, or any other person,
estate, or legal entity to whom benefits are to be paid.
PURCHASE PAYMENT -- Any payment or sum received by the Company from the Contract
Owner.
QUALIFIED CONTRACTS -- Contracts purchased in connection with a retirement plan
that receives favorable tax treatment under Sections 401, 403, 408, or 457 of
the Code.
Prospectus Page 4
<PAGE>
RIGHT TO EXAMINE PERIOD -- The period during which the Contract can be cancelled
and treated as void from the Date of Issue.
SECURITY EQUITY ("COMPANY", "WE", "US", "OUR") -- Security Equity Life Insurance
Company, a New York insurance company.
SEPARATE ACCOUNT -- A segregated investment account created by Security Equity.
The Separate Accounts for this Contract are numbers 26 and 27. Each is
registered with the Securities and Exchange Commission as a unit investment
trust and meets the definition of a "separate account" under the Federal
securities laws.
VALUATION PERIOD -- A period commencing at the close of business each Business
Day and ending at the close of business of the following Business Day.
WRITTEN NOTICE (OR WRITTEN REQUEST) -- A notice or request in writing signed by
the Contract Owner and received by our Annuity Service Office. Such a request
must be in a format and have content acceptable to Security Equity.
- --------------------------------------------------------------------------------
SUMMARY OF CONTRACT FEES AND
EXPENSES
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES:
<TABLE>
<S> <C>
SALES LOAD imposed on Purchase:........ None
</TABLE>
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE):
Ten percent (10%) of the Accumulated Value may be withdrawn without penalty each
year. After a Net Purchase Payment has been held by the Company for seven years,
it may be withdrawn free of any surrender charge. For Net Purchase Payments held
by the Company for less than seven years, surrender charges are as follows
(expressed as a percentage of Net Purchase Payments withdrawn):
<TABLE>
<CAPTION>
YEARS SINCE RECEIPT OF SURRENDER CHARGE
NET PURCHASE PAYMENT PERCENTAGE
- ------------------------- ---------------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>
TRANSFER FEE: Currently, there is no charge for transfers. However, the Company
reserves the right to impose a charge equal to the lesser of $25 or 2% of the
amount transferred, for each transfer in excess of twelve during the Contract
Year, excluding transfers made under the dollar cost averaging program.
ANNUAL CONTRACT FEE: The lesser of $30 or 2% of Accumulated Value if the
Accumulated Value is less than $20,000. If the Accumulated Value is $20,000 or
greater, the contract fee is waived.
SEPARATE ACCOUNT ANNUAL EXPENSES:
<TABLE>
<S> <C>
Mortality and expense risk charge 1.25%
Administrative expense charge .15%
Other fees and expenses .00%
Total Separate Account annual expenses 1.40%
---------
---------
</TABLE>
COMBINED ANNUAL EXPENSES OF FUNDS
UNDERLYING EACH DIVISION:
(expressed as a percentage of combined net assets)
<TABLE>
<CAPTION>
INVESTMENT OTHER TOTAL
MANAGEMENT EXPENSES EXPENSES
AND ADMINIS- AFTER REIM- AFTER REIM-
GT GLOBAL TRATION FEES BURSEMENT* BURSEMENT*
- -------------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Variable New Pacific Fund 1.00% 0.25% 1.25%
Variable Europe Fund 1.00% 0.25% 1.25%
Variable Latin America
Fund 1.00% 0.25% 1.25%
Variable America Fund 0.75% 0.25% 1.00%
Variable International
Fund 1.00% 0.25% 1.25%
Variable Infrastructure
Fund 1.00% 0.25% 1.25%
Variable Natural Resources
Fund 1.00% 0.25% 1.25%
Variable Telecommuni-
cations Fund** 1.00% 0.17% 1.17%
Variable Emerging Markets
Fund 1.00% 0.25% 1.25%
Variable Growth & Income
Fund 1.00% 0.25% 1.25%
Variable Global Government
Income Fund 0.75% 0.25% 1.00%
Variable Strategic Income
Fund 0.75% 0.25% 1.00%
Variable U.S. Government
Income Fund 0.75% 0.25% 1.00%
Money Market Fund 0.50% 0.25% 0.75%
</TABLE>
(SEE FOOTNOTES ON NEXT PAGE)
Prospectus Page 5
<PAGE>
- ------------------
* Figures in the "Other Expenses After Reimbursement" and "Total Expenses
After Reimbursement" columns are restated from the amounts you would have
incurred in 1996 to reflect the fees and reimbursement or waiver
arrangements for 1997. If there had been no reimbursement of expenses and no
expense reductions during 1996, the actual expenses of each Fund, expressed
as a percentage of net assets, with Investment Management and Administration
Fees stated first, then Other Expenses, followed by Total Expenses, would
have been as follows: Variable New Pacific Fund, 1.00%, 0.40%, 1.40%;
Variable Europe Fund, 1.00%, 0.47%, 1.47%; Variable Latin America Fund,
1.00%, 0.42%, 1.42%; Variable America Fund, 0.75%, 0.26%, 1.01%; Variable
International Fund, 1.00%, 1.49%, 2.49%; Variable Infrastructure Fund,
1.00%, 1.53%, 2.53%; Variable Natural Resources Fund, 1.00%, 0.89%, 1.89%;
Variable Telecommunications Fund, 1.00%, 0.17%, 1.17%**; Variable Emerging
Markets Fund, 1.00%, 0.68%, 1.68%; Variable Growth & Income Fund, 1.00%,
0.30%, 1.30%; Variable Global Government Income Fund, 0.75%, 0.72%, 1.47%;
Variable Strategic Income Fund, 0.75%, 0.39%, 1.14%; Variable U.S.
Government Income Fund, 0.75%, 1.00%, 1.75%; Money Market Fund, 0.50%,
0.35%, 0.85%.
** No reimbursements were paid to the Variable Telecommunications Fund as the
total operating expenses were below the voluntary limit.
EXAMPLES
If you surrender your Contract at the end of the specified time period, you
would pay the following aggregate expenses per Division on a $1,000 investment,
assuming 5% annual return and reimbursement for expenses, as described below:
<TABLE>
<CAPTION>
GT GLOBAL 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific Division $ 97 $ 134 $ 172 $ 302
Variable Europe Division 97 134 172 302
Variable Latin America Division 97 134 172 302
Variable America Division 95 126 160 278
Variable International Division 97 134 172 302
Variable Infrastructure Division 97 134 172 302
Variable Natural Resources
Division 97 134 172 302
Variable Telecommunications
Division 96 131 169 294
Variable Emerging Markets
Division 97 134 172 302
Variable Growth & Income Division 97 134 172 302
Variable Global Government Income
Division 95 126 160 278
Variable Strategic Income
Division 95 126 160 278
Variable U.S. Government Income
Division 95 126 160 278
Money Market Division 92 119 147 252
</TABLE>
If you do not surrender your Contract at the end of the specified time period,
you would pay the following aggregate expenses per Division on the same
investment:
<TABLE>
<CAPTION>
GT GLOBAL 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific Division $ 27 $ 84 $ 142 $ 302
Variable Europe Division 27 84 142 302
Variable Latin America Division 27 84 142 302
Variable America Division 25 76 130 302
Variable International Division 27 84 142 278
Variable Infrastructure Division 27 84 142 302
Variable Natural Resources
Division 27 84 142 302
Variable Telecommunications
Division 26 81 139 294
Variable Emerging Markets
Division 27 84 142 302
Variable Growth & Income Division 27 84 142 302
Variable Global Government Income
Division 25 76 130 302
Variable Strategic Income
Division 25 76 130 302
Variable U.S. Government Income
Division 25 76 130 278
Money Market Division 22 69 117 252
</TABLE>
If you annuitize at the end of the specified time period, you would pay the
following aggregate expenses per Division on the same investment:
<TABLE>
<CAPTION>
GT GLOBAL 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific Division $ 97 $ 134 $ 142 $ 302
Variable Europe Division 97 134 142 302
Variable Latin America Division 97 134 142 302
Variable America Division 95 126 130 278
Variable International Division 97 134 142 302
Variable Infrastructure Division 97 134 142 302
Variable Natural Resources
Division 97 134 142 302
Variable Telecommunications
Division 96 131 139 294
Variable Emerging Markets
Division 97 134 142 302
Variable Growth & Income Division 97 134 142 302
Variable Global Government Income
Division 95 126 130 278
Variable Strategic Income
Division 95 126 130 278
Variable U.S. Government Income
Division 95 126 130 278
Money Market Division 92 119 117 252
</TABLE>
For the purposes of calculating the values in the above examples, the effect of
the $30 annual contract fee is reflected, assuming that one-half of the
Contracts issued have account values of at least $20,000 and that the average
account value for all Contracts is $34,250.
The purpose of the table above is to help you understand the costs and expenses
that a variable annuity Contract Owner will bear directly or indirectly. Note
that the expense amounts in the examples are aggregate amounts for the Divisions
and the Funds for the number of years indicated. For a more complete description
of the GT Global Variable Investment Funds' fees and expenses, see the Funds'
Prospectus. For all GT Global Variable Investment Funds, the expenses shown
under "Other Expenses After Reimbursement" and "Total Expenses After
Reimbursement" reflect reimbursement by Chancellor LGT Asset Management,
Prospectus Page 6
<PAGE>
Inc. ("the Manager") of certain expenses incurred by each Fund. From time to
time, the Manager in its sole discretion may waive receipt of its fees and
voluntarily assume certain Fund expenses. The Manager currently has undertaken
to assume the expenses (other than taxes, brokerage fees, interest, and
extraordinary expenses) incurred by the Fund, to the extent such expenses exceed
the Investment Management and Administration Fees, as set forth above, by more
than 0.25%. The examples above are not a representation of past or future
expenses, and actual expenses may be higher or lower than those shown. Neither
the table nor the examples reflect any premium taxes that may be applicable to a
Contract; such taxes currently range from 0% to 3.5%. For a complete description
of Contract costs and expenses, see the section titled "Charges and Deductions"
in the Prospectus.
- --------------------------------------------------------------------------------
HISTORICAL CHARTS OF UNITS AND
UNIT VALUES
- --------------------------------------------------------------------------------
The initial value of an accumulation unit in Separate Account 26 and Separate
Account 27 was $12.00. The charts below show accumulation unit values and the
numbers of units outstanding from inception of each Division through December
31, 1996. There can be no assurance that the future investment performance of
these Separate Account Divisions will be comparable to past performance.
CHART 1 -- SEPARATE ACCOUNT 26
<TABLE>
<CAPTION>
ACCUMULATION TOTAL UNITS
UNIT VALUE: ACCUMULATION OUTSTANDING:
BEGINNING OF UNIT VALUE: END END OF PERIOD
YEAR PERIOD* OF PERIOD (IN THOUSANDS)
--------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Money Market
Division 1996 12.00 12.07 0
Variable
Strategic Income
Division 1996 12.00 13.82 7,310
</TABLE>
<TABLE>
<CAPTION>
CHART 2 -- SEPARATE ACCOUNT 27
ACCUMULATION ACCUMULATION TOTAL UNITS
UNIT VALUE: UNIT VALUE: OUTSTANDING:
BEGINNING OF END OF END OF PERIOD
YEAR PERIOD* PERIOD (IN THOUSANDS)
---- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Variable New Pacific Division 1995 12.00 11.95 677
Variable Europe Division 1996 12.00 15.34 4,437
Variable America Division 1996 11.03 11.03 2,236
1995 12.00 12.90 500
Variable Latin America Division 1996 12.00 13.23 8,332
<CAPTION>
CHART 2 -- SEPARATE ACCOUNT 27 (CONT.)
ACCUMULATION ACCUMULATION TOTAL UNITS
UNIT VALUE: UNIT VALUE: OUTSTANDING:
BEGINNING OF END OF END OF PERIOD
YEAR PERIOD* PERIOD (IN THOUSANDS)
---- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Variable Telecom-
munications Division 1996 11.27 13.27 31,391
1995 12.00 11.27 500
Variable International Division 1996 12.00 12.48 3,217
Variable Emerging Markets Division 1996 12.00 13.30 1,092
Variable Natural Resources Division 1996 12.00 13.60 106
Variable Infrastructure Division 1996 12.00 12.79 108
</TABLE>
- ------------------
* At inception of separate accounts on September 7, 1995, except for the
Variable Strategic Income Division, the Variable Europe Division, and the
Variable Latin America Division, which commenced operations on January 30,
1996; the Variable Emerging Markets Division, which commenced operations on
March 25, 1996; the Variable International Division, which commenced
operations on April 9, 1996; the Money Market Division, which commenced
operations on July 26, 1996; the Variable Natural Resources Division and the
Variable Infrastructure Division which commenced operations on August 26,
1996.
Prospectus Page 7
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE CONTRACT
- --------------------------------------------------------------------------------
The following section contains brief questions and answers about the Contract.
Reference should be made to the body of this Prospectus for more detailed
information. With respect to the Contract, it should be noted that the
requirements of a Qualified Contract, an endorsement to the Contract, or
limitations or penalties imposed by the Code may impose limits or restrictions
on payments, surrenders, distributions, or benefits, or on other provisions of
the Contracts, and these short questions do not describe any such limitations or
restrictions. (See "Federal Tax Matters")
1. WHAT IS THE PURPOSE OF THE CONTRACT?
The Contract allows you to accumulate funds on a tax-deferred basis and to
receive Annuity Payments when desired, based on the investment experience of the
assets underlying the Contracts. The Contracts are designed for use in
connection with non-tax qualified and qualified retirement plans.
A Contract may be purchased with proceeds from sources that do not qualify for
special tax treatment. The source of the proceeds affects the way Annuity
Payments are taxed, but not the operation of the Contracts. (See "Federal Tax
Matters")
You will allocate Purchase Payments to Divisions of the Separate Accounts. The
Divisions of the Separate Accounts will invest in the Funds of GT Global
Variable Investment Funds in accordance with your instructions. Because Annuity
Payments and Accumulated Values depend on the investment experience of the
selected Divisions, you bear the entire investment risk under these Contracts.
2. WHAT IS AN ANNUITY AND WHY MAY BENEFITS VARY?
An annuity provides for a series of Annuity Payments beginning on the Annuity
Date. You may select from a number of Annuity Options, including Annuity
Payments for the life of the Annuitant (or the Annuitant and another person, the
"Joint Annuitant") with or without a guaranteed number of Annuity Payments, or
for a designated period. Annuity Payments which are guaranteed throughout the
payment period are referred to in this Prospectus as "Guaranteed Annuity
Payments." Annuity Payments which vary in accordance with the investment
experience of the Divisions selected by you are referred to in this Prospectus
as "variable Annuity Payments."
3. WHAT TYPES OF INVESTMENTS UNDERLIE THE SEPARATE ACCOUNTS?
Currently, the Separate Accounts invest in shares of G.T. Global Variable
Investment Series and G.T. Global Variable Investment Trust (together, "GT
Global Variable Investment Funds"). Both are management investment companies
offering access to investments advised by the Manager. A list of the Funds
currently offered is given in the prospectus for the GT Global Variable
Investment Funds, which must accompany this Prospectus.
4. HOW DO I PURCHASE A CONTRACT?
You may purchase a Contract with a single minimum Initial Purchase Payment of
$2,000. Subsequent Purchase Payments generally may be made at any time prior to
the Annuity Date as long as the Annuitant is living. (See "Contract Application
and Purchase Payments")
5. HOW DO I ALLOCATE NET PURCHASE PAYMENTS?
Net Purchase Payments will be allocated among one or more of the Divisions, in
accordance with the allocation percentages selected by you in your Contract
Application. The initial allocations must be in whole percents totaling 100% and
involve amounts of at least $500 per Division. Allocations for additional Net
Purchase Payments may be changed by sending Written Notice to us. (See
"Allocation of Net Purchase Payments")
6. CAN I TRANSFER AMOUNTS AMONG THE DIVISIONS?
Transfers among the Divisions can be made subject to certain limitations. (See
"Transfer Privilege")
7. CAN I GET TO MY MONEY IF I NEED IT?
All or part of the Accumulated Value of the Contract may be withdrawn before the
earlier of the Annuitant's death or the Annuity Date. However, amounts withdrawn
may be subject to a surrender charge depending on how long the withdrawn Net
Purchase Payments have been invested in the Contract. In addition, certain
surrenders may be subject to a Federal penalty tax. (See "Distributions under
the Contract" and "Federal Tax Matters")
Prospectus Page 8
<PAGE>
8. WHAT ARE THE CHARGES AND DEDUCTIONS UNDER THE CONTRACT?
We deduct a daily charge equal to a percentage of the value of the net assets in
the Divisions for the mortality and expense risks assumed by us and for the cost
of administering these Contracts. The annual rate of this charge is 1.40% (1.25%
for mortality and expense risk and .15% for administrative expenses). In
addition, Contracts with Accumulated Values of less than $20,000 on the Contract
Anniversary may be assessed an annual contract fee equal to the lesser of $30 or
2% of Accumulated Value in Contract Years ending prior to December 31, 1999.
Thereafter, the contract fee may be adjusted annually, subject to limitations.
(See "Administrative Charges")
In order to permit investment of the entire Net Purchase Payment, we currently
do not deduct a sales load at the time of investment. However, a surrender
charge is imposed on certain full or partial withdrawals from the Contracts to
cover expenses relating to the sale of the Contracts, including commissions to
registered representatives and other promotional expenses. The surrender charge,
calculated as a percentage of each Net Purchase Payment, will apply to Net
Purchase Payments for seven years from the date each such Net Purchase Payment
is received. The surrender charge ranges from 7% during the first Contract Year
after a Net Purchase Payment is received, to 1% during the seventh year after
such a Net Purchase Payment is received. (See "Surrender Charge") Also, premium
taxes may be deducted, if applicable. Certain states impose a premium tax,
currently ranging up to 3.5%. (See "Premium Taxes")
9. WHAT ANNUITY OPTIONS ARE AVAILABLE UNDER THE CONTRACT?
You may receive Annuity Payments on a variable basis, a fixed basis, or both.
You also have flexibility in choosing the Annuity Date, subject to current laws.
Four Annuity Options are included in the Contract: (1) Life Annuity; (2) Life
Annuity with 60, 120, 180, or 240 Monthly Payments Guaranteed; (3) Joint and
Survivor Income for Life; and (4) Income for a Fixed Period which may range from
five to thirty years. (See "Annuity Options")
10. CAN THE CONTRACT BE CANCELLED AFTER IT IS DELIVERED?
The Contract contains a provision for a Right to Examine Period which permits
you to cancel the Contract by returning it to us at our Annuity Service Office,
or to the registered representative through whom it was purchased, within ten
days of receipt of the Contract. You will then receive from us the refund made
on the Contract. The refund will be an amount equal to the greater of: (1) the
Accumulated Value in any Separate Account Division plus any premium tax that had
been deducted or, (2) any purchase payments made including any premium taxes
deducted without any deduction for surrender charge or administrative charges.
11. WHOM DO I CALL IF I HAVE QUESTIONS ABOUT MY CONTRACT?
Any questions about privileges or your Contract will be answered by our Annuity
Service Office, P.O. Box 208, Armonk, New York 10504, (800) 533-8282. All
inquiries should include the Contract number and the Contract Owner's name.
12. WHAT CAN I EXPECT TO RECEIVE FROM SECURITY EQUITY?
Confirmations will be mailed to you for any financial transactions that take
place, and quarterly statements will be sent showing the Accumulated Value in
each Division and any Purchase Payments, charges, transfers, or partial
withdrawals during the time period covered. In addition, we will send you
financial reports of the Separate Accounts and for the GT Global Variable
Investment Funds.
Prospectus Page 9
<PAGE>
SECURITY EQUITY LIFE INSURANCE
COMPANY AND THE SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
SECURITY EQUITY
Security Equity Life Insurance Company ("Security Equity") is a company
domiciled in New York. It is a wholly-owned subsidiary of General American Life
Insurance Company ("General American"), a stock insurance company domiciled in
Missouri.
Security Equity was incorporated in 1983 under the laws of the State of New York
as a wholly-owned subsidiary of Security Mutual Life Insurance Company of New
York. It was purchased by General American on December 31, 1993. Security Equity
is licensed to do business in 40 states of the United States and the District of
Columbia. The principal office of Security Equity is located at 84 Business Park
Drive, Suite 303, Armonk, NY 10504. The telephone number is (914) 273-1290.
Security Equity is principally engaged in writing individual and corporate owned
life insurance policies and annuity contracts. Assets derived from such business
should be considered by purchasers of variable annuity contracts only as bearing
upon the ability of Security Equity to meet its obligations under the variable
annuity contracts and should not be considered as bearing on the investment
performance of the Separate Accounts.
THE SEPARATE ACCOUNTS
Separate Account 26 was established on February 10, 1994, and Separate Account
27 was established on August 11, 1994, pursuant to authorization by the Board of
Directors of Security Equity. Although they are an integral part of Security
Equity and not separate corporations, the Separate Accounts are registered as
unit investment trusts with the Securities and Exchange Commission (the "SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act"). Such
registration does not involve supervision of the management, investment
practices, policies of the Separate Accounts, or of Security Equity by the SEC.
Purchase Payments may be received by the Separate Accounts from individual
variable annuity contracts that are Qualified Contracts entitled to favorable
tax treatments under the Code, and also from individual variable annuity
contracts not entitled to any special tax benefits. Any such Purchase Payments
are pooled together and invested separately from the General Account of Security
Equity (the general assets of the insurance company other than separate account
assets). The persons participating in these Contracts look to the investment
experience of the assets in the Separate Accounts.
Under New York law, the net assets of the Separate Accounts are held for the
exclusive benefit of the owners of the Contracts and for the persons entitled to
Annuity Payments which reflect the investment results of the Separate Accounts.
That portion of the assets of each Separate Account equal to the reserves and
other liabilities under the Contracts participating in it is not chargeable with
liabilities arising out of any other business that Security Equity may conduct.
The income, gains, and losses, whether or not realized, from the assets of each
Division of a Separate Account are credited to or charged against that Division,
without regard to any other income, gains, or losses.
Separate Account 26 currently has four Divisions, each of which invests solely
in a corresponding GT Global Variable Investment Fund. These are:
<TABLE>
<S> <C>
GT Global Variable Global Government Income
Division
GT Global Variable Strategic Income Division
GT Global Variable U.S. Government Income
Division
GT Global Money Market Division
</TABLE>
Separate Account 27 currently has ten Divisions each of which invests solely in
a corresponding GT Global Variable Investment Fund. These are:
<TABLE>
<S> <C>
GT Global Variable New Pacific Division
GT Global Variable Europe Division
GT Global Variable Latin America Division
GT Global Variable America Division
GT Global Variable International Division
GT Global Variable Infrastructure Division
GT Global Variable Natural Resources
Division
GT Global Variable Telecommunications
Division
GT Global Variable Emerging Markets Division
GT Global Variable Growth & Income Division
</TABLE>
Prospectus Page 10
<PAGE>
GT GLOBAL
VARIABLE INVESTMENT FUNDS
- --------------------------------------------------------------------------------
Each of the GT Global Variable Investment Funds (the "Funds") described above is
a separate investment portfolio of either G.T. Global Variable Investment Series
(the "Series") or G.T. Global Variable Investment Trust (the "Trust"). Each Fund
has its own investment objectives, policies, and limitations and invests
directly in a portfolio of securities or other investments. The Series and the
Trust are each organized as a Massachusetts business trust and each is
registered under the 1940 Act as an open-end management investment company of
the series type. Variable New Pacific Fund, Variable Europe Fund, Variable
America Fund, Variable International Fund, and Money Market Fund are part of the
Series. Variable Latin America Fund, Variable Infrastructure Fund, Variable
Natural Resources Fund, Variable Telecommunications Fund, Variable Emerging
Markets Fund, Variable Growth & Income Fund, Variable Global Government Income
Fund, Variable Strategic Income Fund, and Variable U.S. Government Income Fund
are part of the Trust.
Chancellor LGT Asset Management, Inc. ("the Manager") is the investment manager
and administrator of each Fund. On October 31, 1996, Chancellor Capital
Management, Inc. merged with LGT Asset Management, Inc., and the resulting
entity was named Chancellor LGT Asset Management, Inc. Each Fund pays Investment
Management and Administration Fees to the Manager. (See "Fees and Expenses of
the Funds")
Detailed information concerning the Funds, their investment objectives and
policies, and the charges levied upon them can be found in the current
Prospectus for the GT Global Variable Investment Funds, which accompanies this
Prospectus. Security Equity assumes no responsibility for the Prospectus of the
GT Global Variable Investment Funds. Each Prospectus should be read carefully
before any decision is made concerning the allocation of Purchase Payments to a
Division that corresponds to a particular Fund.
THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL ATTAIN THEIR RESPECTIVE STATED
OBJECTIVES, OR THAT ATTAINMENT CAN BE SUSTAINED.
- --------------------------------------------------------------------------------
ADDITIONS, DELETIONS, OR
SUBSTITUTIONS OF INVESTMENTS
- --------------------------------------------------------------------------------
Security Equity reserves the right, subject to applicable law and to the Plans
of Operations for the Separate Accounts, to make additions to, deletions from,
or substitutions for the shares of a Fund that are held or purchased by the
Separate Accounts for the Divisions. Security Equity reserves the right to
eliminate the shares of any of the Funds and to substitute shares of another
Fund of GT Global Variable Investment Funds or of another registered open-end
investment company, if the shares of a Fund are no longer available for
investment, or if in its judgment further investment in any Fund becomes
inappropriate in view of the purposes of the Separate Accounts. Security Equity
will not replace any shares attributable to a Contract Owner's interest in a
Division of the Separate Accounts without at least thirty days notice to the
Contract Owner and prior approval of the SEC, to the extent required by the 1940
Act or other applicable law. Nothing contained in this Prospectus shall prevent
the Separate Accounts from purchasing other securities for other series or
classes of policies, or from permitting a conversion between series or classes
of policies on the basis of requests made by Contract Owners.
Security Equity also reserves the right to establish additional Divisions of the
Separate Accounts, each of which would invest in a new Fund of G.T. Global
Variable Investment Series or G.T. Global
Prospectus Page 11
<PAGE>
Variable Investment Trust, or in shares of another investment company, with a
specified investment objective. New Divisions may be established when, in the
sole discretion of Security Equity, marketing needs or investment conditions
warrant, and any new Division will be made available to existing Contract Owners
on a basis to be determined by Security Equity. To the extent approved by the
SEC (and not disapproved by the Superintendent of the New York State Insurance
Department), Security Equity may also eliminate or combine one or more
Divisions, substitute one Division for another Division, or transfer assets
between Divisions if, in its sole discretion, marketing, tax, or investment
conditions warrant.
In the event of a substitution or change, Security Equity may make such changes
it considers necessary in the Contracts by appropriate endorsement. Security
Equity will notify all Contract Owners of any such changes.
If it is deemed by Security Equity to be in the best interests of persons having
voting rights under the Contracts, and to the extent any necessary SEC approvals
or Contract Owner votes are obtained, the Separate Accounts may be: (a) operated
as management companies under the 1940 Act; (b) deregistered under the 1940 Act
in the event such registration is no longer required; or (c) combined with other
separate accounts of Security Equity. To the extent permitted by applicable law,
Security Equity may also transfer the assets of the Separate Accounts associated
with the Contracts to another separate account.
- --------------------------------------------------------------------------------
THE CONTRACTS
- --------------------------------------------------------------------------------
The Contract is available to individuals seeking annuity contracts entitled to
favorable tax treatment under the Code as Qualified Contracts, and also to
individuals seeking annuity contracts not entitled to any special tax benefits.
The rights and benefits of the Contracts are described below and in the
Contract; however, Security Equity reserves the right to make any modification
to conform the Contract to, or to give the Contract Owner the benefit of, any
Federal or state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO EXAMINE
The Contract Owner may cancel the Contract during the Right to Examine Period of
ten days after the Contract Owner receives the Contract. Upon receipt of a
request for cancellation by Security Equity's Annuity Service Office or by the
registered representative through whom it was purchased, the Contract will be
cancelled and a refund will be made. The refund will be an amount equal to the
greater of: (1) the Accumulated Value in any Separate Account Division, plus any
premium tax that had been deducted or, (2) any Purchase Payment made, including
any premium taxes deducted, without any deduction for surrender charges or
administrative charges. As to the Accumulated Value in a Division, the daily
charge for mortality and expense risks and certain operating expenses of the
corresponding Funds will not be returned.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
(A) PLACE, AMOUNT, AND FREQUENCY
Purchase Payments are to be paid to the Company at its Annuity Service Office or
to a broker-dealer where such broker-dealer has made special arrangements with
the Company for collection of Purchase Payments. All Purchase Payments received
at the Annuity Service Office before the close of the NYSE (4:00 p.m. Eastern
Time) on any Business Day will be considered received on that Business Day.
Payment by electronic funds transfer from broker-dealers with whom an
arrangement has been entered into will be considered received on the Business
Day notice of such payment is received by the Annuity Service Office, provided
that such notice is received before the close of the NYSE on that Business Day,
and the funds transferred are actually received at the Annuity Service Office by
9:00 a.m. Eastern Time on the next Business Day.
The amount of Purchase Payments may vary; however, the Company will not accept
an Initial Purchase Payment which is less than $2,000, and each additional
Purchase Payment must be at least $100.
Prospectus Page 12
<PAGE>
In any Contract Year after the first, Security Equity reserves the right not to
accept Purchase Payments in excess of double the amount paid in the initial
Contract Year. In the first Contract Year, Purchase Payments may be limited to
the greater of double the total initial premium or $25,000. The Company will
notify the Contract Owner in writing, at his or her address last known to us, at
least sixty days prior to exercising these rights. In addition, the prior
approval of the Company is required before it will accept a Purchase Payment
which would cause the value of a Contract Owner's Account to exceed $1,000,000.
If the value of a Contract Owner's Account exceeds $1,000,000, no additional
Purchase Payments will be accepted without the prior approval of the Company. In
addition, the Date of Issue for the Contract must be before the Annuitant's 80th
birthday.
A completed Contract Application and the Initial Purchase Payment are forwarded
to the Company for acceptance. Upon acceptance, the Contract is issued to the
Contract Owner, and the Initial Purchase Payment is credited to the Contract
Owner's Account. The Date of Issue will be the date the Initial Purchase Payment
is invested. The Initial Purchase Payment must be invested within two Business
Days of receipt by the Company of a Contract Application in good order. The
Company may retain the Initial Purchase Payment for up to five Business Days
while attempting to complete an incomplete Contract Application. If the Contract
Application cannot be made complete within five Business Days, the prospective
Contract Owner will be informed of the reasons for the delay. The Initial
Purchase Payment will be returned immediately unless the prospective Contract
Owner consents in writing to the Company's retaining the Initial Purchase
Payment until the Contract Application is made in good order. Thereafter, the
Initial Purchase Payment must be invested within two Business Days. Subsequent
Net Purchase Payments are invested at the end of the Business Day during which
they are received by the Company at the Annuity Service Office.
Purchase Payments may be made at any time prior to the Annuity Date, full
surrender of the Contract, or death of the Annuitant or Contract Owner.
(B) ACCOUNT CONTINUATION
The Contract does not require continuing Purchase Payments and will continue in
force until the earlier of the Annuity Date, surrender of the Contract, or death
of the Annuitant or Contract Owner.
(C) ALLOCATION OF NET PURCHASE PAYMENTS
The Net Purchase Payment is that portion of a Purchase Payment which remains
after deduction of any applicable premium tax. The initial Net Purchase Payment
will be allocated among the Divisions of the Separate Accounts in accordance
with the allocation percentages specified in the particular Contract
Application. The initial percentages specified in the Contract Application must
be in whole percents totaling 100% and allocate amounts of at least $500 per
Division.
The allocations for additional Net Purchase Payments among the Divisions may be
changed by the Contract Owner at any time by Written Request. Any allocation
change will take effect with the first Purchase Payment received with or after
receipt of a Written Request for change by the Company and will continue in
effect until subsequently changed. If any portions of the Net Purchase Payments
are received for allocation to a Division no longer offered by the Company, the
Company will contact the Contract Owner to secure new allocations. Subsequent
Net Purchase Payments should be at least $100. If the subsequent payment
specifies allocation percentages different from the initial percentages
specified in the Contract Application, they must be in whole percents, and total
100%.
VARIABLE ACCOUNT
ACCUMULATION UNITS
The Company will establish an account in the Contract Owner's name for each
Division to which the Contract Owner allocates Net Purchase Payments or transfer
amounts. Net Purchase Payments and transfer amounts are allocated to Divisions
and credited to such accounts in the form of Accumulation Units.
The number of Accumulation Units to be credited to each account is determined by
dividing the Net Purchase Payment or transfer amount for the account by the
value of an Accumulation Unit for that Division for the Valuation Period during
which the Net Purchase Payment or transfer request is credited. The number of
Accumulation Units in any account will be increased at the end of a Valuation
Period by any Net Purchase Payments allocated to the corresponding Division
during that Valuation Period and by any Accumulated Value transferred to that
Division from another Division during that Valuation Period. The number of
Accumulation Units in any account will be decreased at the end of a Valuation
Period by any transfers of Accumulated Value out of the corresponding
Prospectus Page 13
<PAGE>
Division, by any partial withdrawals or surrenders from that Division, and by
any administrative charges or surrender charges deducted from that Division
during that Valuation Period.
VALUE OF ACCUMULATION UNITS
The value of Accumulation Units in each Division will vary from one Valuation
Period to the next depending upon the investment results of that particular
Division. The value of an Accumulation Unit for each Division was arbitrarily
set at $12 for the first Valuation Period. The value of an Accumulation Unit for
any subsequent Valuation Period is determined by multiplying the value of an
Accumulation Unit for the immediately preceding Valuation Period by the net
investment factor for such Division (described below) for the Valuation Period
for which the value is being determined.
NET INVESTMENT FACTOR
Each Business Day we will calculate each Division's net investment factor. A
Division's net investment factor measures its investment performance during a
Valuation Period. The net investment factor for each Division for any Valuation
Period is determined by dividing (a) by (b) and subtracting (c) from the result:
Where (a) is: (1) the net asset value per share of a Fund share held in the
Division determined at the end of the current Valuation Period, plus (2) the per
share amount of any dividend or capital gain distribution made by a Fund on
shares held in the Division if the "ex-dividend" date occurs during the current
Valuation Period.
Where (b) is: the net asset value per share of a Fund share held in the Division
determined as of the end of the immediately preceding Valuation Period.
Where (c) is: a factor representing the charges deducted from the Division on a
daily basis for mortality and expense risks and administrative expenses. Such
factor is equal, on an annual basis, to 1.40% (1.25% for mortality and expense
risk and 0.15% for administrative expenses).
The net investment factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase, decrease, or remain
the same. The value of an Annuity Unit, described in the Statement of Additional
Information, is also affected by the net investment factor.
TRANSFER PRIVILEGE
At any time during the accumulation period the Contract Owner may transfer all
or part of the Contract Owner's Accumulated Value to one or more Divisions of
the Separate Accounts, subject to the following conditions: (1) transfers must
be made by Written Request in good order completed by the Contract Owner; (2)
transfers from a Division must be at least $500, or the entire amount remaining
in the Division, if less than $500; (3) any Contract Owner's Accumulated Value
remaining in a Division may not be less than $500, or the request may be treated
as a request to transfer the entire amount in that Division; and (4) there is no
limit to the number of transfers that the Contract Owner may request.
Currently, there is no charge for transfers; however, the Company reserves the
right to impose a charge equal to the lesser of $25 or 2% of the amount
transferred, for each transfer in excess of twelve during the Contract Year,
excluding transfers made under the dollar cost averaging program described
hereafter.
Permitted transfers will be subject to the additional terms and conditions as
may be imposed by each Division's corresponding Fund. The Contract Owner must
instruct the Company as to what amounts should be transferred from each
Division. Any transfer request received at the Annuity Service Office before the
close of the NYSE (4:00 p.m. Eastern Time) on any Business Day will be
considered received on that Business Day. Under current law, there will not be
any tax liability to the Contract Owner if a Contract Owner makes a transfer. We
may revoke or modify the transfer privilege at any time, including the minimum
amount for a transfer and the transfer charge, if any.
DOLLAR COST AVERAGING
The Company offers a dollar cost averaging program ("DCA") which enables a
Contract Owner to pre-authorize a periodic exercise of the contractual transfer
privileges described above. Contract Owners entering into a DCA agreement
instruct the Company to transfer on the Business Day coincident with or
subsequent to the 15th of each month a predetermined dollar amount of at least
$100 per month. Transfers from the GT Global Money Market Division, GT Global
Variable Growth & Income Division, GT Global Variable Strategic Income Division,
GT Global Variable Global Government Income Division or the GT Global Variable
U.S. Government Income Division will continue until the dollar amount requested
has been transferred or the Accumulated Value in the Division is exhausted,
whichever is sooner. Any DCA transfer allocations for a Division which is no
Prospectus Page 14
<PAGE>
longer offered will remain in that Division until the allocation instructions
are changed by the Contract Owner.
Contract Owners entering the DCA program must designate at least $2,000 for
investment through DCA. Contract Owners interested in the DCA program may elect
to participate in the program through a Written Request to the Company.
The DCA program is intended to permit Contract Owners to utilize "dollar cost
averaging," a long-term investment method which provides for investments to be
made in regular equal installments over time to control the risk of investing at
the top of a market cycle. The Company makes no guarantees that dollar cost
averaging will result in a profit, protect against loss, or otherwise. Because
the DCA program involves continuous investments in the Divisions regardless of
fluctuating unit values of such Divisions, Contract Owners should consider their
financial ability to continue to purchase through periods of high unit values.
The Company reserves the right to discontinue offering the DCA program at any
time.
CONTRACT OWNER INQUIRIES
Security Equity, either directly or through its service providers, performs all
administrative functions in connection with the Contracts, such as underwriting,
record keeping, Contract Owner servicing, and reporting. Contract Owner
inquiries should be addressed to Security Equity Life Insurance Company, Annuity
Service Office, P.O. Box 208, Armonk, New York 10504, or made by calling (800)
533-8282. All inquiries should include the Contract number, Contract Owner's
name, and Social Security Number.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
No deductions are made from the Initial Purchase Payment, unless a state premium
tax is due. (See "Premium Taxes") Therefore, the full amount of the Initial
Purchase Payment, less any applicable tax, is invested in one or more Divisions
of the Separate Accounts.
ADMINISTRATIVE CHARGES
A) ANNUAL CONTRACT FEE
On the last day of each Contract Year, the Company may deduct a contract fee
(referred to in the Contract as "Account Fee") as partial compensation for
expenses relating to the issue and maintenance of the Contract and the Contract
Owner's account. For Contracts with Accumulated Values of less than $20,000, the
contract fee is equal to the lesser of $30 or 2% of the Accumulated Value for
Contract Years ending prior to December 31, 1999. Thereafter, the contract fee
may be adjusted annually, but in no event may it be adjusted by more than the
amount that reflects the change in the Consumer Price Index since December 31,
1992, and in no event will it exceed $50. The annual contract fee will be waived
for Contracts with Accumulated Values of $20,000 or more.
The annual contract fee will be deducted from the GT Global Money Market
Division or from the Division with the largest portion of Accumulated Value if
no GT Global Money Market Division investment exists on the Contract
Anniversary. To the extent that the contract fee is deducted from a Division,
Accumulation Units will be cancelled to effect the deduction. Upon full
surrender of the Contract or upon the death of the Contract Owner or Annuitant,
the entire annual contract fee, if applicable, will be assessed.
On occasion, the last day of a Contract Year will not fall on a Business Day. In
this case, if the last day of a Contract Year and the next Business Day fall in
the same calendar month, administrative charges will be taken on the next
Business Day. If the last day of a Contract Year and the next Business Day do
not fall in the same calendar month, administrative charges will be taken on the
Business Day immediately preceding the last day of the Contract Year.
After the Annuity Date, the annual contract fee will be deducted in equal
amounts from each variable Annuity Payment made during the year. No such
deduction will be made from fixed Annuity Payments.
The net investment factor incorporates a charge at the end of each Valuation
Period (during both the accumulation period and after Annuity Payments begin) at
an annual rate of 0.15% to reimburse the
Prospectus Page 15
<PAGE>
Company for those administrative expenses attributable to the Contracts, the
Contract Owner's Accounts, and the Separate Accounts which exceed the revenues
received from the contract fee. The Company believes the administrative expense
charge and the contract fee have been set at a level that will recover no more
than the actual costs associated with administering the Contract. (See "Net
Investment Factor")
B) TRANSFER FEE
The Company reserves the right to charge the lesser of $25 or 2% of the amount
transferred, for each transfer in excess of twelve during the Contract Year,
excluding transfers made under the dollar cost averaging program.
C) SPECIAL HANDLING FEES
The Contract provides that the Company reserves the right to charge a fee to
cover the Company's expenses for special handling. Items currently considered as
special handling (and the current charges assessed) include: wire transfer
charges ($11.50), checks returned to us for insufficient funds ($15), minimum
distribution calculations ($10), annuitization calculations in excess of four
annually ($10), duplicate contracts ($25), and additional copies of confirmation
notices or quarterly statements (currently no charge). The fee for special
handling will not exceed $50 per request. The Company does not expect to make a
profit from these charges.
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
No deduction for a sales load is made from Purchase Payments. A surrender charge
is imposed on certain surrenders and withdrawals to cover certain expenses
relating to the sale of the Contracts, including commissions to registered
representatives and other promotional expenses.
Upon full surrender of the Contract or partial withdrawal of Accumulated Value,
Security Equity will apply a surrender charge to the gross withdrawal amount,
excluding any applicable administrative charges. This surrender charge,
expressed as a percentage of each Net Purchase Payment, will apply to Net
Purchase Payments for seven complete years measured from the date the Net
Purchase Payment is received. The surrender charge schedule is as follows:
<TABLE>
<CAPTION>
YEARS SINCE RECEIPT SURRENDER
OF NET PURCHASE PAYMENT CHARGE PERCENTAGE
- ------------------------------- -----------------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>
You may make a partial withdrawal of an amount equal to 10% of Accumulated Value
each year without incurring a surrender charge ("10% free"). The annual 10% free
amount will be equal to 10% of the Accumulated Value on the date that the first
partial withdrawal is made each year. The 10% free amounts withdrawn will not
reduce the Net Purchase Payments still subject to a surrender charge. The 10%
free amount does not apply upon full surrender and is not cumulative.
After the 10% free amount has been withdrawn, additional amounts will be
withdrawn from Net Purchase Payments on a "first in first out" (FIFO) basis and
will be subject to the surrender charge noted in the above table. Net Purchase
Payments which were received more than seven years prior to the date of
withdrawal may be withdrawn without incurring a surrender charge. After all Net
Purchase Payments have been withdrawn, further withdrawals will be made from
earnings without incurring a surrender charge. If the Accumulated Value is less
than the Net Purchase Payments subject to a surrender charge, the surrender
charge will only be applied to the Accumulated Value.
The surrender charge is not applied in the event of annuitization with us after
three Contract Years or upon the death of the Annuitant. Currently, however, we
assess surrender charges upon annuitization within three Contract Years only if
Annuity Option 4 (Income for a Fixed Period) is chosen with Annuity Payments for
a period of less than ten years.
In the event that revenues from surrender charges are not sufficient to cover
certain sales-related expenses, the Company will bear the shortfall; conversely,
if the revenues from surrender charges exceed such expenses, the Company will
retain the excess. Security Equity does not currently believe that the surrender
charge revenues will cover the expected sales-related expenses. Any shortfall
Prospectus Page 16
<PAGE>
will be made up from the Company's General Account which may include amounts
derived from the mortality and expense risk charge described below.
See the Appendix for examples of the surrender charge calculation.
MORTALITY AND EXPENSE RISK CHARGE
During the accumulation period and after Annuity Payments begin, the net
investment factor incorporates charges to cover mortality and expense risk at
the end of each Valuation Period as a percentage of the Accumulated Value in the
Divisions. The charge for mortality and expense risk is 1.25% annually (1.00%
for mortality risk and .25% for expense risk).
The mortality risk that Security Equity assumes is that Annuitants may live for
a longer period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the Annuity Payments received. The mortality
risk that Security Equity assumes also includes a guarantee to pay a death
benefit if the Annuitant dies before the Annuity Date. The expense risk that
Security Equity assumes is the risk that the surrender charge and administrative
charges will be insufficient to cover actual future expenses.
PREMIUM TAXES
Under the laws of certain jurisdictions, taxes are payable in respect of
so-called "annuity considerations," which term in the case of applicable
Contracts could include the Purchase Payments or the Accumulated Value of such
Contracts. The tax rates range from 0% to 3.50%. The list of jurisdictions
imposing annuity taxes follows:
STATE ANNUITY PREMIUM TAX RATES
<TABLE>
<CAPTION>
TAX-QUALIFIED NON-TAX QUALIFIED
STATE CONTRACTS CONTRACTS
- ------------------------ ----------------- ---------------------
<S> <C> <C>
California .50% 2.35%
District of Columbia 2.25% 2.25%
Kansas 0% 2.00%
Kentucky 2.00% 2.00%
Maine 0% 2.00%
Nevada 0% 3.50%
South Dakota 0% 1.25%
West Virginia 1.00% 1.00%
Wyoming 0% 1.00%
</TABLE>
Note: The above annuity premium tax rates are in effect as of January 1, 1997.
States not listed above currently have no premium tax on the purchase of
individual variable annuity contracts for use with non-tax qualified or
qualified plans. However, premium tax statutes are subject to amendment by
legislative act and to judicial and administrative interpretations, both of
which may affect the above list of states levying such taxes and the applicable
tax rates. Particularly because a portion of the premium tax charge may be made
at the time Annuity Payments commence, the above list of tax rates may not be
that in effect at the time the premium tax charge is made.
Security Equity reserves the right to defer or waive the charge assessed for
premium taxes in certain jurisdictions until the Contract is surrendered or
until the Contract Owner's death. The Company will notify the Contract Owner in
writing before exercising its right to collect deferred premium taxes from the
Accumulated Value.
Laws relating to premium taxes and the interpretations of such laws are subject
to change which may affect the deductions, if any, made under Contracts for
premium taxes. Some jurisdictions permit payment of premium taxes on the
Accumulated Value which is applied to provide an annuity. In those places,
Security Equity does not make any separate deductions for premium taxes from
Purchase Payments, as it is permitted to do under the Contracts, but defers any
separate deductions for premium taxes until the Accumulated Value is applied to
provide Annuity Payments. (Although Security Equity may be required in some of
these jurisdictions to pay premium taxes currently on surrender charges, it
presently intends to pay the taxes out of the deductions and charges made
against all Contracts.) Security Equity plans, where permissible, to defer any
separate deductions for premium taxes until the Accumulated Value is applied to
provide Annuity Payments, at which time the amount of any applicable premium
taxes will be measured by the Accumulated Value. However, in many jurisdictions
the premium taxes are applied to Purchase Payments, and in those cases the
deductions for such taxes will be made when the Purchase Payments are received.
Thus, Security Equity reserves the right to make a separate deduction from each
Purchase Payment or from the Accumulated Value, depending on which method or
combination of methods results in the appropriate deduction for applicable
premium taxes.
FEES AND EXPENSES OF THE FUNDS
Because the Separate Accounts purchase shares of the GT Global Variable
Investment Funds, the net asset value of each Division will normally reflect the
operating expenses incurred by its corresponding GT Global Variable Investment
Fund. The
Prospectus Page 17
<PAGE>
operating expenses reflect the operating expenses of the Fund, including the
Investment Management and Administration Fees paid to the Manager. The
annualized rates at which the various Funds pay such fees and expenses to the
Manager range from 0.75% to 1.25% of a Fund's average daily net assets. The
Manager has undertaken to assume those expenses (other than taxes, brokerage
fees, interest, and extraordinary expenses) incurred by the Fund, to the extent
such expenses exceed the Investment Management and Administration Fees by more
than .25%. (See the accompanying prospectus of the GT Global Variable Investment
Funds.)
- --------------------------------------------------------------------------------
YIELDS AND TOTAL RETURNS
- --------------------------------------------------------------------------------
Security Equity may advertise the yields, effective yields, and total return for
the Divisions of the Separate Accounts. Of course, such figures will be based
upon past performance and do not indicate what investment returns or unit values
will be in the future. Detailed information on the calculation of performance
information appears in the Statement of Additional Information, but a summary is
given here.
The effective yield and total return of a Division are based upon the investment
performance of the GT Global Variable Investment Fund corresponding to the
Division. (See "GT Global Variable Investment Funds") The investment performance
of a Division will reflect the expenses of the Fund and the Division.
The yield of the GT Global Money Market Division refers to the annual rate of
interest generated by an investment in the Division over a specified seven-day
period. The yield is calculated by assuming that the income earned for that
seven-day period is the same for every other seven-day period in a year and can
be expressed as a percentage of the investment. The effective yield is
calculated in the same way, but income earned is assumed to be reinvested
continuously. This compounding causes the effective yield to be slightly higher
than the yield.
The yield of the other Divisions refers to the annualized rate of return for an
investment in the Division over a specified thirty-day or one-month period. The
thirty-day income is shown as a percentage of the investment and annualized by
assuming that income is earned at the same rate for each month during the year.
The average annual total return of a Division is a quotation assuming that an
investment in the Division has been held in the Division for various time
periods, including a period measured from the date operations of the Division
began up to a maximum period of ten years. In the future, average annual total
returns will be reported for each Division for one, five, and ten years when the
Division has been in operation for those periods of time.
Average annual total return quotations represent the average compounded rates of
return on an initial investment of $1,000 as of the last day of the period for
which the quotations are provided. The report on average annual total return
will show the average percentage change in the value of an investment in the
Division, including any surrender charge that would apply if the Contract is
surrendered at the end of the period, but excluding any deductions for premium
tax.
Advertising and sales literature for the Contract may compute yield or total
return on different bases. Total return may be reported without a deduction for
the surrender charge on the assumption that an investment will persist beyond
the seven year period during which a surrender charge is applicable. Such
persistency would be consistent with the idea that the Contract is a long-term
investment suitable for retirement income. Total return for the Funds may be
advertised, but such information will always be accompanied by the total return
for the corresponding Divisions. Security Equity may present illustrations
showing total return performance for a hypothetical Contract based on an
assumption such as allocation of an amount to one or more Divisions, or monthly
transfers to selected Division under the dollar cost averaging program. Such
illustrations will reflect the performance of the selected Divisions, including
all charges except the surrender charge, over various time periods in the past.
Advertising and sales literature for the Contracts may also compare the
performance of one or more
Prospectus Page 18
<PAGE>
Divisions to various relevant indices or to the performance of other variable
annuity investment choices, either generally or with reference to choices with
investment objectives similar to those of the Fund and the Division. Performance
information based on rankings by independent services may also be included in
sales literature and advertising.
- --------------------------------------------------------------------------------
DISTRIBUTIONS UNDER THE CONTRACT
- --------------------------------------------------------------------------------
CASH WITHDRAWALS
At any time before the Annuity Date and during the lifetime of the Annuitant,
the Contract Owner may elect to receive a cash withdrawal payment from the
Company. Any such election must be in the form of a Written Request and specify
the amount of the withdrawal. It will be effective on the date that it is
received by the Company. Any request received at the Annuity Service Office
before the close of the NYSE (4:00 p.m. Eastern Time) on any Business Day will
be considered received on that Business Day.
The Contract Owner may request a full surrender of the Contract or a partial
withdrawal. A full surrender will result in a cash withdrawal payment equal to
the value of the Contract Owner's Account at the end of the Valuation Period
during which the election becomes effective, less any applicable administrative
charges and surrender charge. A request for a partial withdrawal will result in
a reduction in the Contract Owner's accumulated Value equal to the amount you
receive plus any applicable administrative charges and surrender charge. The
amount you receive can be less than the amount requested if the Accumulated
Value is insufficient to cover applicable charges and produce the requested
amount. Any withdrawal request cannot exceed the Accumulated Value of the
Contract. Any applicable surrender charge will be calculated based upon the
gross amount of withdrawal.
There is no limit on the frequency of partial withdrawals. In the case of a
partial withdrawal, the Contract Owner must instruct the Company as to the
amounts to be withdrawn from each Division. However, the amount withdrawn must
be at least $500 or, if less, the entire balance in the Division. If after the
withdrawal (and deduction of any applicable administrative charges and surrender
charge) the amount remaining in the Division would be less than $500, the
Company may treat the partial withdrawal as a withdrawal of the entire amount
held in the Division. If a partial withdrawal plus any applicable administrative
charges and surrender charges would reduce the Accumulated Value to less than
$500, the Company may treat the partial withdrawal as a full surrender of the
Contract.
Cash withdrawals from a Division will result in the cancellation of Accumulation
Units attributable to the Contract Owner's Account with an aggregate value on
the effective date of the withdrawal equal to the total amount by which the
Accumulated Value in the Division is reduced. The cancellation of such units
will be based on the Accumulation Unit values of the Division at the end of the
Valuation Period during which the cash withdrawal is effective.
If at the time the Contract Owner makes a request for a full surrender of the
Contract or a partial withdrawal, he or she does not provide us with a written
election not to have Federal income taxes withheld, the Company must by law
withhold such taxes and any applicable state taxes from the taxable portion of
any surrender or withdrawal.
The Company, upon request, will provide the Contract Owner with an estimate of
the amounts that would be payable in the event of a full surrender or partial
withdrawal. The Company reserves the right to charge a reasonable fee to recover
the administrative expenses associated with these requests. (See "Special
Handling Fees")
Requests for cash withdrawal payments to a party, other than the Contract Owner
and/or to an address other than the Contract Owner's address of record, require
a signature guarantee. In addition, if the Contract Owner's address of record
has been changed within the preceding thirty days, a signature guarantee is
required. Any cash withdrawal payment will be paid within seven days from our
receipt of the Written Request, subject to postponement under Deferment of
Payment provisions described herein. (See "Deferment of Payments")
Prospectus Page 19
<PAGE>
Since the Qualified Contracts offered by this Prospectus will be issued in
connection with retirement plans which meet the requirements of the Code,
reference should be made to the terms of the particular retirement plan for any
limitations or restriction on cash withdrawals. A cash withdrawal under either a
Qualified Contract or a Non-Tax Qualified Contract offered by this Prospectus
also may result in a Federal penalty tax. The tax consequences of a cash
withdrawal payment under both Qualified Contracts and Non-Tax Qualified
Contracts should be carefully considered. (See "Tax Status of the Contracts")
SYSTEMATIC WITHDRAWAL PLAN
Security Equity administers a systematic withdrawal plan ("SWP") which allows
certain Contract Owners to authorize periodic withdrawals during the
accumulation period. Contract Owners entering into an SWP agreement instruct
Security Equity to withdraw selected amounts from the Contract on a Business Day
coincident with or subsequent to the 25th of a month on a monthly, quarterly,
semiannual, or annual basis. Currently, the SWP is available to Contract Owners
who request a minimum $200 periodic withdrawal. Amounts withdrawn may be subject
to a surrender charge. (See "Federal Tax Matters"). Withdrawals taken under the
SWP may be subject to the 10% Federal penalty tax on early withdrawals and to
income taxes. (See "Federal Tax Matters") Contract Owners interested in SWP may
obtain an Annuity Service Request Form from their registered representative or
the Annuity Service Office. Security Equity reserves the right to amend the SWP
on thirty days' notice. The SWP may be terminated at any time by the Contract
Owner or Security Equity.
ANNUITY PROVISIONS
The Accumulated Value on the Annuity Date, less any applicable administration
charges, surrender charge, and premium tax will be applied to an Annuity Option.
If the Annuity Date of the Contract occurs within the first three Contract
Years, surrender charges may be deducted upon annuitization. Currently, we
assess surrender charges only if Annuity Option 4 (Income for a Fixed Period) is
chosen with Annuity Payments lasting for a period of less than ten years.
ANNUITY DATE
Annuity Payments will begin under the Contract on the Annuity Date, unless the
Contract has been fully surrendered or the proceeds have been paid to the
designated Beneficiary prior to that date. The Annuity Date will be no later
than the Annuitant's 85th birthday. Under certain qualified arrangements,
distributions may be required before the Annuity Date.
The Contract Owner may change the Annuity Date. An Annuity Date may be changed
only by Written Request during the Annuitant's lifetime, and such a request must
reach the Annuity Service Office at least thirty days before (1) the then
current Annuity Date and (2) the new Annuity Date. The new Annuity Date must be
no later than the Annuity Date as defined in the paragraph above.
ANNUITY OPTIONS
(A) ELECTION OF ANNUITY OPTIONS
The Annuity Option may be elected or changed (if the Annuity Option was not
irrevocable) by Written Request, provided the Annuitant is still alive. This
election must be made no later than thirty days prior to the Annuity Date.
The Annuity Options selected may be either variable, fixed, or a combination of
the two. In the absence of an election to the contrary, variable Annuity
Payments will be made as a Life Annuity with 120 Monthly Payments Guaranteed
(Option 2 below).
The minimum amount which may be applied under an option will be based upon our
rules at the time the option becomes effective (or as required by law). Our
current rules state that the minimum amount which may be applied under an option
is $5,000 and the minimum Annuity Payment is $50. If the Accumulated Value is
less than $5,000 when the Annuity Date arrives, Security Equity will make a lump
sum payment of such amount to the Contract Owner. If at any time payments are or
become less than $50, Security Equity has the right to change the frequency of
payments to intervals that will result in payments of at least $50.
(B) THE OPTIONS AVAILABLE
OPTION 1 -- LIFE ANNUITY -- An annuity payable in monthly, quarterly,
semi-annual, or annual payments during the lifetime of the Annuitant, ceasing
with the last installment due prior to the death of the Annuitant. SINCE THERE
IS NO PROVISION FOR A MINIMUM NUMBER OF PAYMENTS UNDER THIS ANNUITY OPTION, THE
PAYEE WOULD RECEIVE ONLY ONE PAYMENT IF THE ANNUITANT DIED PRIOR TO THE DUE DATE
OF THE SECOND PAYMENT, TWO PAYMENTS IF THE ANNUITANT DIED PRIOR TO THE DUE DATE
OF THE THIRD PAYMENT, ETC.
OPTION 2 -- LIFE ANNUITY WITH 60, 120, 180, OR 240 MONTHLY PAYMENTS GUARANTEED
- -- An Annuity
Prospectus Page 20
<PAGE>
payable in monthly, quarterly, semi-annual, or annual payments during the
lifetime of the Annuitant, with the guarantee that if, at the death of the
Annuitant, payments have been made for less than 60 months, 120 months, 180
months, or 240 months, as elected, payments will be continued to the Beneficiary
during the remainder of the elected period.
OPTION 3 -- JOINT AND SURVIVOR INCOME FOR LIFE -- An annuity payable in monthly,
quarterly, semi-annual, or annual payments while both the Annuitant and a second
person remain alive, and thereafter during the remaining lifetime of the
survivor, ceasing with the last installment due prior to the death of the
survivor. If the primary payee dies after payments begin, full payments or
payments of 1/2 or 2/3, (whichever you elected when applying for this option)
will continue to the other payee during his or her lifetime. SINCE THERE IS NO
PROVISION FOR A MINIMUM NUMBER OF PAYMENTS UNDER ANNUITY OPTION 3, THE PAYEES
WOULD RECEIVE ONLY ONE PAYMENT IF BOTH THE ANNUITANT AND THE SECOND PERSON DIED
PRIOR TO THE DUE DATE OF THE SECOND PAYMENT, TWO PAYMENTS IF THEY DIED PRIOR TO
THE DUE DATE OF THE THIRD PAYMENT, ETC.
OPTION 4 -- INCOME FOR A FIXED PERIOD -- An annuity payable in annual,
semiannual, quarterly, or monthly payments over a specified number of years, not
less than five nor more than thirty. When a variable annuity basis is selected,
a mortality and expense risk charge continues to be assessed, even though
Security Equity incurs no mortality risk under this option.
(C) CALCULATION OF PAYMENTS
Payments under an Annuity Option will be calculated using the effective annual
rate of 4% compounded annually. The mortality table used in determining payments
paid under life income options is the 1983 Individual Annuitant Mortality Table
A. In using this mortality table, ages of Annuitants will be reduced by one year
for Annuity Dates occurring during the 1990s, reduced two years for Annuity
Dates occurring during the decade 2000-2009, and so on.
Life income options are based on the Annuitant's sex and age nearest birthday on
the Annuity Date. We have the right to require satisfactory proof of age and
sex. If age or sex has been incorrectly stated, the proper adjustments in
payments will be made. We may also require proof that the Annuitant is living on
any payment due date.
(D) VALUE OF VARIABLE ANNUITY PAYMENTS
The amounts applied to the annuity are used to purchase Annuity Units in the
selected Divisions. The number of Annuity Units purchased in each Division is
calculated as the dollar amount of the first Annuity Payment provided by
proceeds from that Division divided by the Annuity Unit value for the Division
as of the Annuity Date. On any payment date, the amount of payment from each
Division is calculated as the number of Annuity Units for the Division times the
Annuity Unit value for the Division as of the payment date, less any applicable
administration charges.
Although the value of variable Annuity Payments will reflect the performance of
the Divisions, we guarantee that the dollar amount of variable Annuity Payments
will not be adversely affected by our actual expense and mortality results. The
annuity tables that are contained in the Contract and are used to calculate the
value of variable Annuity Payments are based on an assumed annual interest rate
of 4% per year. If the actual net investment experience exactly equals the
assumed interest rate, then the variable Annuity Payments will remain the same
(equal to the first Annuity Payment). However, if actual investment experience
exceeds the assumed interest rate, the variable Annuity Payments will increase;
conversely, they will decrease if the actual experience is lower.
The value of all payments (both fixed and variable) will be greater for shorter
monthly payment guarantee periods than for longer monthly payment guarantee
periods, and greater for life annuities than for joint and survivor annuities,
because they are expected to be made for a shorter period.
The method of computation of variable Annuity Payments is described in more
detail in the Statement of Additional Information.
Prospectus Page 21
<PAGE>
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum death benefit due from a Division
will be made within seven days from the date the election becomes effective,
except that Security Equity may be permitted to defer such payment: (1) for any
period (a) during which the NYSE is closed other than customary weekend and
holiday closing or (b) during which trading on the NYSE is restricted (as
determined or required by the SEC); (2) for any period during which an emergency
exists (as determined by the SEC) as a result of which (a) disposal of
securities held by the Funds is not reasonably practicable or (b) it is not
reasonably practicable to determine the value of the net assets of the Funds; or
(3) for such other periods as the SEC may by order permit for the protection of
investors.
THE BENEFICIARY
The Beneficiary is the person or legal entity that may receive benefits under
the Contract in the event of the Annuitant's or Contract Owner's death. (See
"Death Benefits") The original Beneficiary is named in the Contract Application.
Subject to any assignment of a Contract, the Beneficiary designation may be
changed by the Contract Owner during the lifetime of the Annuitant by the filing
of a Written Request acceptable to Security Equity at its Annuity Service
Office. If Annuity Option 3 (Joint and Survivor Income for Life) is selected,
the designation of the second Annuitant may not be changed after Annuity
Payments begin. If the Beneficiary designation is changed, Security Equity
reserves the right to require that the Contract be returned for endorsement. A
Beneficiary who becomes entitled to receive benefits under the Contract may also
designate, in the same manner, a secondary Beneficiary to receive any benefits
which may become payable under the Contract to him or her by reason of the
primary Beneficiary's death. If a Beneficiary has not been designated by the
Contract Owner or if a Beneficiary so designated is not living on the date a
lump sum death benefit is payable or on the date any Annuity Payments are to be
made, the Beneficiary shall be the Contract Owner's estate.
DEATH BENEFITS
In every case of death, Security Equity must receive due proof of death of the
Contract Owner or Annuitant before we are obliged to act. For purposes of the
death benefit, if the Contract Owner not an individual, the Annuitant shall be
treated as the Contract Owner.
(A) DEATH OF A CONTRACT OWNER WHO IS THE ANNUITANT
If a Contract Owner dies prior to the Annuity Date, the death benefit will
become payable to the Contract Owner's Beneficiary. If the surviving spouse is
the Contract Owner's Beneficiary, the spouse may elect to continue the Contract
as the new Owner and Annuitant. The death benefit, if more than the Accumulated
Value, will be paid to the surviving spouse by crediting the Contract with an
amount equal to the difference between the death benefit and the Accumulated
Value. The amount equal to the difference between the death benefit and the
Accumulated Value will be allocated to the Divisions as indicated on the
Contract Application or as subsequently changed by a Written Request from the
Contract Owner.
If a Contract Owner dies on or after the Annuity Date, no death benefit will be
payable under the Contract, except as may be provided under the Annuity Option
elected.
(B) DEATH OF A CONTRACT OWNER WHO IS NOT THE ANNUITANT
If a Contract Owner dies prior to the Annuity Date, the Accumulated Value, less
any applicable administrative charges or surrender charge, will be distributed
to the Contract Owner's Beneficiary. However, if the surviving spouse is the
Annuitant or the Contract Owner's Beneficiary, the spouse may continue the
Contract as the new Owner.
If a Contract Owner dies on or after the Annuity Date, no death benefit will be
payable under the Contract, and the Contract must continue to be distributed at
least as rapidly as the method of distributions being used as of the date of the
Contract Owner's death.
(C) DEATH OF THE ANNUITANT WHO IS NOT A CONTRACT OWNER
If the Annuitant dies prior to the Annuity Date and before a Contract Owner, the
death benefit will become payable to the Annuitant's Beneficiary.
If the Annuitant dies on or after the Annuity Date, no death benefit will be
payable under the Contract, except as may be provided under the Annuity Option
elected.
(D) DEATH OF A JOINT OWNER
If any joint Owner dies prior to the Annuity Date, the Contract must be
distributed. Joint ownership must be limited to spousal joint ownership. For the
Contract to continue under the spousal Beneficiary exception, the Contract
Owner's Beneficiary designation must read "surviving spouse". If the surviving
spouse is not the Contract Owner's Beneficiary, the Contract will be
distributed.
Prospectus Page 22
<PAGE>
If the joint Owner who is not the Annuitant dies, the Beneficiary will receive
the Accumulated Value less any applicable administrative charges and surrender
charges. If the joint Owner who is the Annuitant dies, the Beneficiary will
receive the death benefit.
If any joint Owner dies on or after the Annuity Date, the Contract must continue
to be distributed at least as rapidly as the method of distributions prior to
the joint Owner's death. If the deceased joint Owner was also the Annuitant, no
death benefit will be payable under the Contract, except as may be provided
under the Annuity Option elected.
(E) PAYMENT OF DEATH BENEFIT
Payments made under the death benefit provisions will be made in one lump sum
and must be made within five years after the date of death of a Contract Owner
or Annuitant. If the Beneficiary makes a Written Request within one year of the
Contract Owner's or Annuitant's death, the proceeds may be applied to create an
immediate annuity for the Beneficiary, who will be the Contract Owner and
Annuitant. Payments under the annuity, or under any other method of payment
Security Equity makes available, must be for the life of the Beneficiary, or for
a number of years that is not more than the life expectancy of the Beneficiary
(as determined for Federal tax purposes) at the time of a Contract Owner's or
Annuitant's death, and must begin within one year after a Contract Owner's or
Annuitant's death.
The death benefit will be paid or credited within seven days of receipt of due
proof of death and a Written Request for payment at the Annuity Service Office,
except as we may be permitted to defer such payment in accordance with the 1940
Act and applicable state insurance law.
AMOUNT OF DEATH BENEFIT
The death benefit will be the gross death benefit described below, less any
applicable administrative charges. The surrender charge is not applicable in the
event of the Annuitant's death.
The gross death benefit during the first six Contract Years will be equal to the
greater of: (a) the Accumulated Value on the date due proof of death and a
Written Request for payment are received at our Annuity Service Office or (b)
the sum of all Net Purchase Payments made, less any amount deducted in
connection with partial withdrawals. During any subsequent six Contract Year
period, the gross death benefit will be the greater of: (a) the Accumulated
Value on the date due proof of death is received at our Annuity Service Office
or (b) the death benefit on the last day of the previous six Contract Year
period, plus any Net Purchase Payments made, and less any amount deducted in
connection with partial withdrawals since then.
Notwithstanding the above, if the Date of Issue is on or after the Annuitant's
75th birthday, the gross death benefit will be the Accumulated Value on the date
due proof of death and a Written Request for payment are received at our Annuity
Service Office.
ASSIGNMENTS AND CHANGES OF OWNERSHIP
With respect to non-tax qualified individual Contracts, an assignment or change
in ownership of the Contract or of any interest in it will not bind Security
Equity unless (1) it is made as a written instrument, (2) the original
instrument or a certified copy is filed at our Annuity Service Office, and (3)
we send the Contract Owner a receipt. Security Equity is not responsible for the
validity of any assignment. If a claim is based on an assignment or change of
ownership, proof of interest of the claimant may be required. A valid assignment
will take precedence over any claim of a Beneficiary. Any amounts due under a
valid assignment will be paid in one lump sum.
With respect to all other Contracts, the Contract Owner may not transfer, sell,
assign, discount, or pledge a Contract for a loan or as security for the
performance of an obligation or any other purpose, to any person other than to
us at our Annuity Service Office.
Prospectus Page 23
<PAGE>
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
The following discussion is a general description of the Federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all of
the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax advisor before initiating any
transaction. The discussion is based upon Security Equity's understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of the
continuation of the present Federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The Contract may be purchased on a nonqualified basis ("Nonqualified Contract")
or purchased and used in connection with plans qualifying for favorable tax
treatment ("Qualified Contract"). Qualified Contracts are intended to be
purchased in connection with plans entitled to special income tax treatment
under Sections 401, 408, and 457 of the Code or as tax sheltered annuities under
Section 403(b) of the Code. The ultimate effect of Federal income taxes on the
amounts held under a Contract or Annuity payments, and on the economic benefit
to the Contract Owner, the Annuitant, or the Beneficiary depends on the type of
retirement plan, and on the tax and employment status of the individual
concerned. In addition, certain requirements must be satisfied in purchasing a
Qualified Contract and receiving distributions from a Qualified Contract in
order to continue receiving favorable tax treatment. Therefore, purchasers of
Qualified Contracts should seek competent legal and tax advice regarding the
suitability of the Contract for their situation, the applicable requirements,
and the tax treatment of the rights and benefits of the Contract. The following
discussion assumes that a Qualified Contract is purchased with proceeds from
and/or contributions under retirement plans that qualify for the intended
special Federal income tax treatment.
TAXATION OF SECURITY EQUITY
Security Equity is taxed as a life insurance company under Part I of Subchapter
L of the Code. Since the operations of the Separate Accounts form a part of
Security Equity, they will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. Investment income and realized capital
gains are automatically applied to increase reserves under the Contract. Under
existing Federal income tax law, Security Equity believes that the investment
income and realized net capital gains of the Separate Accounts will not be taxed
to the extent that such income and gains are applied to increase the reserves
under the Contract.
Accordingly, Security Equity does not anticipate that it will incur any Federal
income tax liability attributable to the Separate Accounts and, therefore,
Security Equity does not intend to make provisions for any such taxes. However,
if changes in the Federal tax laws or interpretations thereof result in Security
Equity being taxed on income or gains attributable to the Separate Accounts,
then Security Equity may impose a charge against the Separate Accounts (with
respect to some or all Contracts) in order to set aside amounts to pay such
taxes.
TAX STATUS OF THE CONTRACTS
(A) DIVERSIFICATION
Section 817(h) of the Code requires that with respect to Non-Tax Qualified
Contracts, the investments of the Divisions be "adequately diversified" in
accordance with Treasury Department regulations in order for the Contracts to
qualify as annuity contracts under Federal tax law. The Separate Accounts,
through the Funds, intend to comply with the diversification requirements
prescribed by the Treasury Department in Treas. Reg. Sec. 1.817-5.
(B) INVESTOR CONTROL
The Treasury Department has from time to time suggested that under some
circumstances the owner of a variable contract will be deemed to be in
Prospectus Page 24
<PAGE>
control over the investments of a separate account supporting the contract,
which may cause the owner, rather than the insurance company, to be treated as
the owner of the assets in the separate account. If a Contract Owner is
considered the owner of the assets of a separate account, income and gains from
that account would be included in the owner's gross income. The Treasury
Department also has stated on past occasions that it will issue regulations or
rulings addressing this issue.
The ownership rights under the Contract are different in certain respects from
those described by the IRS in rulings in which it was determined that Contract
Owners were not owners of separate account assets. For example, a Contract owner
has the choice of more Divisions and narrower investment strategies in which to
allocate net purchase Payments and Accumulation Value, and may be able to
transfer among Divisions more frequently than in such rulings. These differences
could result in a Contract Owner being treated as the owner of the assets of the
Separate Account. In addition, Security Equity does not know what standards will
be set forth, if any, in the additional regulations or rulings which the
Treasury Department has stated it expects to issue. Security Equity therefore
reserves the right to modify the Contract as necessary to attempt to prevent a
Contract Owner from being considered the owner of a pro rata share of the assets
of the Separate Accounts.
(C) REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for Federal income tax purposes,
Section 72(s) of the Code requires any Non-Tax Qualified Contract to provide
that (a) if any Contract Owner dies on or after the Annuity Date, but prior to
the time the entire interest in the Contract has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Contract Owner's death;
and (b) if any Contract Owner dies prior to the Annuity Date, the entire
interest in the Contract will be distributed within five years after the date of
that Contract Owner's death. These requirements will be considered satisfied as
to any portion of the Contract Owner's interest which is payable to or for the
benefit of a "designated beneficiary" and which is distributed over the life of
such "designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of that Contract Owner's death. The Contract Owner's "designated
beneficiary" is the person or entity designated by such Owner as a Beneficiary
and to whom ownership of the Contract passes by reason of death. If the Contract
Owner's "designated beneficiary" is the surviving spouse of the Contract Owner,
the Contract may be continued with the surviving spouse as the new owner.
The Non-Tax Qualified Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Security Equity intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise. There are other rules that apply to Qualified Contracts. The
following discussion is based on the assumption that the Contract qualifies as
an annuity contract for Federal income tax purposes.
TAXATION OF ANNUITIES
(A) IN GENERAL
Section 72 of the Code governs taxation of annuities in general. Security Equity
believes that a Contract Owner who is a natural person generally is not taxed on
increases in the value of a Contract until distribution occurs by withdrawing
all or part of the account value (e.g., partial withdrawals, surrenders, or
Annuity Payments under the Annuity Option elected). For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the account
value (and in the case of a Qualified Contract, any portion of an interest in
the qualified plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single lump sum payment or an
annuity) is taxable as ordinary income.
Any Contract Owner who is not a natural person generally must include in income
any increase in the excess of the Contract's account value over the "investment
in the Contract" (discussed below) during the taxable year. There are some
exceptions to this rule, and a prospective Contract Owner that is not a natural
person may wish to discuss these with a competent tax adviser.
The following discussion generally applies to a Contract owned by a natural
person.
(B) WITHDRAWALS AND SURRENDERS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the "investment in
the Contract" to the individual's total accrued benefit or the balance under the
retirement
Prospectus Page 25
<PAGE>
plan. The "investment in the Contract" generally equals the amount of any
premium payments paid by or on behalf of any individual with after-tax dollars.
For a Contract issued in connection with qualified plans, the "investment in the
Contract" can be zero. Special tax rules may be available for certain
distributions from a Qualified Contract.
With respect to Non-Tax Qualified Contracts, partial withdrawals, including any
withdrawals under the systematic withdrawal plan, are generally treated as
taxable income to the extent that the account value immediately before the
withdrawal exceeds the "investment in the Contract" at that time. Full
surrenders are treated as taxable income to the extent that the amount received
exceeds the "investment in the Contract".
(C) ANNUITY PAYMENTS
Although the tax consequences may vary depending on the Annuity Payment elected
under the Contract, in general, only the portion of the Annuity Payment that
represents the amount by which the Accumulated Value exceeds the "investment in
the Contract" will be taxed; after the "investment in the Contract" is
recovered, the full amount of any additional Annuity Payments is taxable.
Special rules may apply to Qualified Contracts.
For variable Annuity Payments, the taxable portion is generally determined by an
equation that establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the "investment in the
Contract" by the total number of expected periodic payments. However, the entire
distribution will be taxable once the recipient has recovered the dollar amount
of his or her "investment in the Contract."
For fixed Annuity Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the Contract"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable. In all
cases, after the "investment in the Contract" is recovered, the full amount of
any additional Annuity Payment is taxable.
(D) PENALTY TAX
In the case of a distribution pursuant to a Non- Tax Qualified Contract, there
may be imposed a Federal penalty tax equal to 10% of the amount treated as
taxable income. In general, however, there is no penalty tax on distributions:
(1) made on or after the date on which the Contract Owner attains age 59 1/2;
(2) made as a result of death or disability of the Contract Owner; (3) received
in substantially equal periodic payments as a life annuity or a joint and
survivor annuity for the lives or life expectancies of the Contract Owner and a
"designated beneficiary"; (4) from a qualified plan*; (5) allocable to
investment in the Contract before August 14, 1982; (6) under a qualified funding
asset (as defined in Code Section 130(d)); or (7) under an immediate annuity (as
defined in Code Section (u)(4)).
*Other tax penalties may apply to certain distributions under a Qualified
Contract, including a penalty similar to the penalty for distributions from
Non-Tax Qualified Contracts described above.
(E) TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of the death of a Contract
Owner or an Annuitant. Generally, such amounts are includable in the income of
the recipient as follows: (1) if distributed in a lump sum, they are taxed in
the same manner as a full surrender of the Contract, as described above, or (2)
if distributed under an annuity option, they are taxed in the same manner as
annuity payments as described above. For these purposes, the investment in the
contract is not affected by the owner's or annuitant's death. That is, the
investment in the contract remains the amount of any purchase payments paid
which were not excluded from gross income.
(F) TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF THE CONTRACT
In general, a transfer of ownership of a Contract, the collateral assignment of
a Contract, the designation of an Annuitant or Beneficiary who is not also the
Contract Owner, or the exchange of a Contract may result in certain tax
consequences to the Contract Owner. For example, when a Contract is assigned as
collateral for a loan, the entire excess of the Contract's account value over
the investment in the contract becomes taxable as ordinary income, and, if the
Contract Owner is under the age of 59 1/2, a penalty tax equal to 10% of the
taxable amount may also be imposed. Increases in the value of a Contract that
has been assigned will continue to be taxable annually to the Contract Owner
until the assignment is released.
Any Contract Owner contemplating any such transfer, assignment, designation, or
exchange should contact a competent tax adviser for advice with respect to the
potential tax effects of such a transaction.
Prospectus Page 26
<PAGE>
(G) MULTIPLE CONTRACTS
All Non-Tax Qualified Contracts that are issued by Security Equity (or its
affiliates) to the same Contract Owner during any calendar year are treated as
one annuity Contract for purposes of determining the amount includable in gross
income under Section 72(e) of the Code. In addition, the Treasury Department has
specific authority to issue regulations that prevent the avoidance of Section
72(e) through the serial purchase of annuity contracts or otherwise.
(H) WITHHOLDING
Pension and annuity distributions generally are subject to withholding from the
recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Different rules may apply to United States citizens or
expatriates living abroad and, effective January 1, 1993, to certain
distributions under Qualified Contracts. In addition, some states have enacted
legislation requiring withholding.
(I) POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely modified
the Federal taxation of certain annuities. For example, one such proposal would
have changed the tax treatment of non-qualified annuities that did not have
"substantial life contingencies" by taxing income as it is credited to the
annuity. Although as of the date of this Prospectus Congress is not considering
any legislation regarding the taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as the IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any change could be effective prior to
the date of any such change.
(J) OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the Federal income tax consequences
under the Contract is not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
Federal income tax consequences discussed herein reflect Security Equity's
understanding of current law, and the law may change. Federal estate and state
and local estate, inheritance, and other tax consequences of ownership or
receipt of distributions under the Contract depend on the individual
circumstances of each Contract Owner or recipient of the distribution. A
competent tax adviser should be consulted for further information.
(K) QUALIFIED CONTRACTS
The Qualified Contract is designed for use with several types of retirement
plans. The tax rules applicable to participants and beneficiaries in retirement
plans vary according to the type of plan and the terms and conditions of the
plan. Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; aggregate distributions in excess
of a specified annual amount; and in other specified circumstances.
We make no attempt to provide more than general information about use of the
Contracts with the various types of retirement plans. Owners and participants
under retirement plans, as well as Annuitants and Beneficiaries, are cautioned
that the rights of any person to any benefits under Qualified Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contract issued in connection with such a plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated in the administration of the Contracts. Contract Owners are
responsible for determining that contributions, distributions and other
transactions with respect to the Contracts satisfy applicable law. Purchasers of
Contracts for use with any retirement plan should consult their legal counsel
and tax adviser regarding the suitability of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES AND ACCOUNTS
The Contract is designed for use with individual retirement annuities and
individual retirement accounts. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
individual retirement annuity or individual retirement account (each hereinafter
referred to as an "IRA"). Also, distributions from certain other types of
qualified plans may be "rolled over" on a tax-deferred basis into an IRA. The
sale of a Contract for use with an IRA may be subject to special disclosure
requirements of the Internal Revenue Service. Purchasers of the Contract for use
with IRAs will be provided with supplemental information required by the
Internal Revenue Service or other applicable agency. Such
Prospectus Page 27
<PAGE>
purchasers will have the right to revoke their purchase within seven days of the
earlier of the establishment of the IRA or their purchase. If a Qualified
Contract is issued in connection with an employer's Simplified Employee Pension
("SEP") or Simple Retirement Account ("SIMPLE") plan, Contract Owners,
Annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under employer plans may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the Contract. A
Qualified Contract will be amended as necessary to conform to the requirements
of the Code.
CODE SECTION 403(b) PLANS
Under Code Section 403(b), payments made by public school systems and certain
tax exempt organizations to purchase annuity contracts for their employees are
excludable from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes.
Code Section 403(b) (11) restricts the distribution under Code Section 403(b)
annuity contracts of: (1) elective contributions made in years beginning after
December 31, 1988; (2) earnings on those contributions; and (3) earnings in such
years on amounts held as of the last year beginning before January 1, 1989.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. Income attributable to elective contributions may not be distributed
in the case of hardship. Distributions prior to age 59 1/2 due to separation
from service or financial hardship are subject to the nondeductible 10% penalty
tax for premature distributions, in addition to income tax.
The 1940 Act has distribution requirements which differ from the requirements of
Code Section 403(b) set forth above. However, these Contracts are being offered
in reliance upon, and in compliance with, the provisions of no-action letter
number IP-6-88 issued by the Securities and Exchange Commission to the American
Council of Life Insurance. The no-action letter allows the Separate Accounts to
apply the restrictions created by Code Section 403(b)(11) as long as specified
steps, such as this disclosure, are taken to ensure that Contract Owners are
aware of the Code restrictions. Security Equity believes it is in compliance
with the provisions of the no-action letter.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of retirement
plans for employees and permits self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans may
permit the purchase of the Contracts to provide benefits under the plans.
Adverse tax consequences to the plan, to the participant or to both may result
if this Contract is assigned or transferred to any individual as a means to
provide benefit payments.
DEFERRED COMPENSATION PLANS
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax exempt organizations. With respect to non-governmental
Section 457 plans, all investments are owned by the sponsoring employer and are
subject to the claims of the general creditors of the employer. Distributions
are taxable in full. Depending on the terms of the particular plan, the employer
may be entitled to draw on deferred amounts for purposes unrelated to its
Section 457 plan obligations. These plans are subject to various restrictions on
contributions and distributions.
RESTRICTIONS UNDER QUALIFIED CONTRACTS
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under Qualified Contracts or under the terms of the plans
in respect of which Qualified Contracts are issued.
Prospectus Page 28
<PAGE>
VOTING RIGHTS
- --------------------------------------------------------------------------------
To the extent required by law, the GT Global Variable Investment Fund shares
held in the Divisions of the Separate Accounts will be voted by Security Equity
at shareholder meetings of such Funds in accordance with instructions received
from persons having voting interests in the corresponding Divisions of the
Separate Accounts. The Contract Owner holds a voting interest in each Division
to which the Accumulated Value is allocated or from which Annuity Payments are
generated. If, however, the 1940 Act or any regulation thereunder should be
amended or if the present interpretation thereof should change, and, as a
result, Security Equity determines that it is allowed to vote the Fund shares in
its own right, Security Equity may elect to do so.
The number of votes which are available to a Contract Owner will be calculated
separately for each Division of the Separate Accounts. That number will be
determined by applying the Contract Owner's percentage interest, if any, in a
particular Division to the total number of votes attributable to the Division.
The number of votes is equal to the number of dollars: (a) during the
accumulation period, in the Accumulated Value attributable to a Division divided
by the net asset value of a share of the corresponding Fund; and (b) during the
annuity period, in the reserve credited to the Annuity Units held in the
Division(s) under the variable Annuity Option in effect divided by the net asset
value of a share of the corresponding Fund. Generally, during the annuity period
the number of votes applicable to the Annuitant will decrease.
At most Fund shareholder meetings, votes may be cast in person or by proxy, and
fractional votes will be counted.
The number of votes of a Division which are available will be determined as of
the date established by the corresponding Fund for determining shareholders
eligible to vote at the meeting. This determination will include any other
separate accounts investing in the Fund. Voting instructions will be solicited
by written communication from us prior to such meeting in accordance with
procedures established.
Fund shares as to which no timely instructions are received or shares held by
Security Equity as to which Contract Owners have no beneficial interest will be
voted in proportion to the voting instructions which are received with respect
to all Contracts participating in that Fund. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
Each person having a voting interest in a Division will receive proxy material,
reports, and other materials relating to the appropriate Fund.
To the extent that Security Equity, as shareholder of the Funds, is entitled to
vote any interest in the Funds held by the Separate Accounts, it will do so on
the same basis as described above.
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PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
GT Global, Inc. ("GT Global") is the principal underwriter of the Contracts. On
January 1, 1996, G.T. Global Financial Services, Inc. changed its name to GT
Global, Inc. GT Global's address is 50 California Street, 27th Floor, San
Francisco, California 94111. GT Global will pay distribution compensation to
selling broker/dealers in varying amounts which under normal circumstances are
not expected to exceed 6.00% of Purchase Payments for such Contracts. From time
to time, GT Global may enter into a special arrangement with a selling
broker/dealer which provides for the payment of higher commissions to such
selling broker/dealer in connection with sale of the Contracts. In 1996,
Security Equity paid $96,289 to GT Global.
Prospectus Page 29
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for Security Equity and Separate Accounts 26 and 27 (as
well as the auditors' report thereon) are in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
A Statement of Additional Information is available which contains more details
concerning the subjects discussed in this Prospectus. The following is the Table
of Contents for that Statement:
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
---------
<S> <C>
THE CONTRACTS............................................................................. S-3
Computation of Variable Annuity Income Payments......................................... S-3
(a) Value of an Annuity Unit.......................................................... S-3
(b) Amount of First Installment....................................................... S-3
(c) Values of Annuity Installments.................................................... S-4
Yield and Performance Calculations...................................................... S-5
(a) Money Market Yield................................................................ S-5
(b) Yields of Other Divisions......................................................... S-6
(c) Total Return...................................................................... S-7
(d) Effect of the Annual Contract Fee................................................. S-8
GENERAL MATTERS........................................................................... S-9
Incorrect Age or Sex.................................................................... S-9
Annuity Data............................................................................ S-10
Annual Reports.......................................................................... S-10
Incontestability........................................................................ S-10
Ownership............................................................................... S-10
DISTRIBUTION OF THE CONTRACTS............................................................. S-10
SAFEKEEPING OF ACCOUNT ASSETS............................................................. S-11
STATE REGULATION.......................................................................... S-11
RECORDS AND REPORTS....................................................................... S-11
LEGAL PROCEEDINGS......................................................................... S-11
OTHER INFORMATION......................................................................... S-12
FINANCIAL STATEMENTS...................................................................... S-12
</TABLE>
Prospectus Page 30
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
EXAMPLE OF SURRENDER CHARGE CALCULATIONS
This example assumes that the date of the full surrender or partial withdrawal
is during the 10th Contract Year.
<TABLE>
<CAPTION>
1 2 3 4
- ---- --------- ---- ---------
<S> <C> <C> <C>
1 $ 2,000 0% $ 0
2 $ 2,000 0% $ 0
3 $ 2,000 0% $ 0
4 $ 2,000 1% $ 20
5 $ 2,000 2% $ 40
6 $ 2,000 3% $ 60
7 $ 2,000 4% $ 80
8 $ 2,000 5% $ 100
9 $ 2,000 6% $ 120
10 $ 2,000 7% $ 140
--------- ---------
$ 20,000 $ 560
--------- ---------
--------- ---------
</TABLE>
EXPLANATION OF COLUMNS IN TABLE
COLUMN 1:
Represents Contract Years
COLUMN 2:
Represents amounts of Net Purchase Payments. Each Net Purchase Payment was made
on the first day of each Contract Year.
COLUMN 3:
Represents the surrender charge percentages imposed on the amounts in Column 2.
COLUMN 4:
Represents the surrender charge imposed on each Net Purchase Payment. It is
determined by multiplying the amount in Column 2 by the percentage in Column 3.
For example, the surrender charge imposed on Net Purchase Payment 7
<TABLE>
<S> <C>
= Net Purchase Payment 7 Column 2 x Net
Purchase Payment 7 Column 3
= $2,000 x 4%
= $80
</TABLE>
FULL SURRENDER
The total of Column 4, $560, represents the total amount of surrender charge
imposed on Net Purchase Payments in this example. No free amount is allowed upon
full surrender. If the Accumulated Value is $25,000, the amount received upon
surrender would be $24,440 less any applicable administrative fees.
PARTIAL WITHDRAWAL
The sum of amounts in Column 4 corresponding to the Net Purchase Payment
liquidated reflects the surrender charge imposed in the case of a partial
withdrawal.
If the Accumulated Value is $25,000, $2,500 can be withdrawn without incurring a
surrender charge (10% free). The free amount does not reduce premiums still
subject to charge.
For example, if $16,500 were withdrawn, the first $2,500 represents the 10%
free. The next $14,000 would be a withdrawal of the first seven Net Purchase
Payments. The amount of surrender charges imposed would be the sum of amounts in
Column 4 for Net Purchase Payments 1, 2, 3, 4, 5, 6, and 7, which is $200.
The amount received would be $16,300.
FULL SURRENDER FOLLOWING PARTIAL WITHDRAWAL
The Accumulated Value remaining after the partial withdrawal is $8,500. The
first seven Net Purchase Payments were withdrawn as part of the partial
withdrawal. If the Contract is fully surrendered in the tenth Contract Year
after the partial withdrawal, the remaining three Net Purchase Payments will
incur a surrender charge equal to the sum of the amounts in Column 4 for Net
Purchase Payments 8, 9, and 10, which is $360.
The amount received would be $8,140, less any applicable administrative fees.
Prospectus Page 31
<PAGE>
Part B Registration No. 33-87248
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 26
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
SECURITY EQUITY/GT GLOBAL
INDIVIDUAL VARIABLE ANNUITY CONTRACT
Offered by
Security Equity Life Insurance Company
(A Stock Insurance Company domiciled in New York)
84 Business Park Drive
Suite 303
Armonk, New York 10504
This Statement of Additional Information expands upon subjects discussed
in the current Prospectus dated May 1, 1997 for the individual
variable annuity contracts ("Contracts" or "Contract" as syntax
requires) offered in conjunction with GT Global Variable Investment
Funds by Security Equity Life Insurance Company. You may obtain a copy
of the Prospectus by calling l-800-533-8282 or writing to Security
Equity Life Insurance Company, GT Global Department, P. O. Box 208,
Armonk, New York 10504. Terms defined in the current Prospectus for the
Contract have the same meanings in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD
BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
Dated May 1, 1997
S-1
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
THE CONTRACTS............................................. S-3
Computation of Variable Annuity Income Payments......... S-3
(a) Value of an Annuity Unit.......................... S-3
(b) Amount of First Installment....................... S-3
(c) Values of Annuity Installments.................... S-4
Yield and Performance Calculations...................... S-5
(a) Money Market Yield................................ S-5
(b) Yields of other Divisions......................... S-6
(c) Total Return...................................... S-7
(d) Effect of the Annual Contract Fee................. S-8
GENERAL MATTERS........................................... S-9
Incorrect Age or Sex.................................... S-9
Annuity Data............................................ S-10
Annual Reports.......................................... S-10
Incontestability........................................ S-10
Ownership............................................... S-10
DISTRIBUTION OF THE CONTRACTS............................. S-10
SAFEKEEPING OF ACCOUNT ASSETS............................. S-11
STATE REGULATION.......................................... S-11
RECORDS AND REPORTS....................................... S-11
LEGAL PROCEEDINGS......................................... S-11
OTHER INFORMATION......................................... S-12
FINANCIAL STATEMENTS...................................... S-12
</TABLE>
S-2
<PAGE>
THE CONTRACTS
The following provides additional information about the Contracts which
supplements the description in the Prospectus and may be of interest to
the Contract Owners.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
(a) COMPUTATION OF THE VALUE OF AN ANNUITY UNIT
The table of contractual guaranteed annuity rates is based on an assumed
interest rate. The assumed interest rate is 4% for all Contracts.
As a starting point, the value of an annuity unit in each Division of
Separate Accounts 26 and 27 was established at $12.00. The value of the
annuity unit at the end of any subsequent business day is determined by
multiplying such value for the preceding business day by the product of
(a) the daily reduction factor (.99989256) once for each calendar day
expiring between the end of the sixth preceding business day and the end
of the fifth preceding business day and (b) the net investment factor
for a Division for the fifth business day preceding such business day.
These daily reduction factors are necessary to neutralize the assumed
net investment rate built into the annuity tables. Calculations are
performed as of the fifth preceding business day to permit calculation
of amounts and the mailing of checks in advance of their due date.
This may be illustrated by the following hypothetical example. Assuming
that the net investment factor for the fifth preceding business day was
1.00176027, and assuming that the annuity unit value for the preceding
business day was $12.20, then the annuity unit for the current business
day is $12.2201622, determined as follows:
1.00176027 $12.200000
x .99989256 x 1.00165264
1.00165264 $ 12.2201622
(b) DETERMINATION OF THE AMOUNT OF THE FIRST ANNUITY INSTALLMENT
When annuity installments begin, the accumulated value of the Contract
is established. This is the sum of the products of the values of an
accumulation unit in each Division on the fifth business day preceding
the annuity commencement date and the number of accumulation units
credited to the Contract as of the annuity commencement date.
S-3
<PAGE>
The Contract contains tables indicating the dollar amount of the first
annuity installment under each form of variable annuity for each $1,000
of value of the Contract. The amount of the first annuity installment
depends on the option chosen and the sex (if applicable) and age of the
annuitant.
The first annuity installment from a Division is determined by
multiplying the benefit per $1,000 of value shown in the tables in the
Contract by the number of thousands of dollars of Accumulated Value of
the Contract allocated to the division.
If a greater first installment would result, Security Equity will
compute the first installment on the same mortality basis as is used in
determining such installments under individual variable annuity
contracts then being issued for a similar class of annuitants.
(c) DETERMINATION OF THE FLUCTUATING VALUES OF THE ANNUITY INSTALLMENTS
The dollar amount of the first annuity installment from any Division,
determined as described above, is translated into annuity units by
dividing that dollar amount by the value of an annuity unit on the due
date of the first annuity installment. The number of annuity units
remains fixed and the amount of each subsequent annuity installment is
determined by multiplying this fixed number of annuity units by the
value of an annuity unit on the date the installment is due.
If, in any month after the first, the application of the above net
investment factors produces a net investment increment exactly
equivalent to the assumed annualized rate of 4%, then the payment in
that month will not change. Since it is unlikely that the increment
will be exactly equivalent, installments will vary up or down depending
upon whether such investment increment is greater or less than the
assumed annualized rate of 4%. A higher assumption would mean a higher
initial annuity payment but a more slowly rising series of subsequent
annuity payments (or a more rapidly falling series of subsequent annuity
payments if the value of an annuity unit is decreasing). A lower
assumption would have the opposite effect.
S-4
<PAGE>
YIELD AND PERFORMANCE CALCULATIONS
(a) MONEY MARKET YIELD
Advertisements and sales literature concerning the Contracts may report
the "current annualized yield" for the Division of the Separate Account
that invests in the GT Global: Money Market Fund, without taking into
account any realized or unrealized gains or losses on shares in the
Fund. The annualized yield is computed by: a) determining the net
change after 7 days (exclusive of realized gains and losses on shares of
the underlying Fund or on its respective portfolio securities and
unrealized appreciation and depreciation) in the value of a hypothetical
account having a balance of 1 unit at the beginning of the period; (b)
dividing such net change in account value by the value of the account at
the beginning of the 7-day period to determine the base period return;
and (c) annualizing the result of this division on a 365-day basis.
The net change in account value reflects (1) net income from the Fund
attributable to the hypothetical account; and (2) charges and deductions
imposed under the Contract upon the hypothetical account. The charges
and deductions include the per unit charges for mortality and expense
risk, the administrative charge for the Division, and the annual
contract fee. For the purpose of calculating current yields for a
Contract, an average per unit contract fee is used, as described below.
Current yield will be calculated according to the following formula:
Current Yields = (NCF - ES/UV) x (365/7)
Where:
NCF = the net change in the value of one unit in the Division
(exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation) for the 7-day period
specified.
ES = per unit expenses for a hypothetical account having one unit
over the 7-day period.
UV = the unit value for the first day of the 7-day period.
Security Equity advertisement and sales literature may also quote
the "effective yield" of the Division investing in the GT Global: Money
Market Fund for the same 7-day period, determined on a compounded basis.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
365/7
Effective Yield = (1+((NCF-ES)/UV)) - 1,
S-5
<PAGE>
Where:
NCF = the net change in the value of one unit in the Division
(exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation) for the 7-day period
specified.
ES = per unit expenses for a hypothetical account having one unit
over the 7-day period.
UV = the unit value for the first day of the 7-day period.
Because of the charges and deductions imposed on units according to the
terms of the Contract, the yield for the Money Market Division will be
lower than the yield for the Fund or the corresponding Trust which
underlie the Division.
Yields on amounts in the Money Market Division will normally fluctuate
on a daily basis. For that reason the yield for any past period is not
an indication nor a representation of future yields. The actual yield
for the Division is affected by changes in interest rates on money
market securities the average portfolio maturity of the underlying Fund,
the types and qualities of portfolio securities held by the Fund, and
the operating expenses of the Fund. Yields on amounts held in the Money
Market Division may also be presented for periods other than seven days.
(b) YIELDS OF OTHER DIVISIONS
Advertisements and sales literature for the Contracts may report the
current annualized yield of one or more of the Divisions (other than the
Money Market Division) for a 30-day or one-month period. The annualized
yield of a Division refers to income generated by the Division during a
specified 30-day or one-month period. Because the yield is annualized,
the yield generated by the Division during the specified period is
assumed to be generated every 30-day or one-month period over a year.
The yield is computed by: (1) dividing the net investment income of the
Fund corresponding to the Division less expenses for the Division for
the period; by (2) the maximum offering price per unit of the Division
on the last day of the period times the daily average number of units
outstanding for the period; then (3) compounding that yield for a
6-month period; and then (4) multiplying that result by 2. Expenses
attributable to the Division include the mortality and expense risk
charge, the administrative charge for the Division, and the annual
contract fee. A contract fee of $2.50 is used to calculate the 30-day
or one-month yield as in the following equation:
6
Yield = 2x((((N1-ES)/(UxUV))+1) - 1)
S-6
<PAGE>
Where:
NI = net investment income of the Fund for the 30-day or one-month
period in question.
ES = expenses of the Division for the 30-day or one-month period
U = the average number of units outstanding
UV = the unit value at the close of the last day in the 30-day or
one-month period
Because of the charges and deductions imposed under the Contracts (ES in
the equation) the yield for a Division will be lower than the yield for
the corresponding Fund.
The yield on amounts in any Division will normally fluctuate. For that
reason yields for any past periods are not indications nor
representations of future yields. The actual yield for a Division is
affected by the type and the quality of the portfolio securities held in
the underlying Fund, and the operating expenses of the Fund.
Yield calculations do not take surrender charges into account, but such
charges are deducted from amounts greater than ten percent of the
Accumulated Value under a Contract if such amounts are withdrawn within
the first six contract years after they were deposited.
(c) TOTAL RETURN
Advertisement and sales literature for the Contracts may, in addition to
or as an alternative to quoting yield, report "total return," including
the average annual total return for one or more of the Divisions for
various periods of time. Security Equity will include in references to
total return a quote for the Division's total return since inception
until the Division has been in operation for more than 10 years, after
which time a ten year return will be used instead. Reports on total
return will also include the average annual total return for a Division
for l and 5 years when the Division has been in operation for those
periods. Average annual total return for other lengths of time may also
be disclosed.
Average annual total return represents the average annual compounded
rate of return on an initial investment of $1,000 in a Division as of
the last day of the period used for measurement. Total return
quotations will be for periods ending on the last day of the most recent
month possible, given the length of time it takes to produce
advertisements and sales literature. The period for which total return
has been calculated will always be identified.
S-7
<PAGE>
Average annual total return will be calculated using Division unit
values calculated on each Business Day based on the performance of the
corresponding underlying Fund, with deductions for the mortality and
expense risk charge, the administrative charge, and the annual contract
fee at the rate of $2.50 per month. The calculation will assume the
Contract is surrendered at the end of the period in question, producing
a surrender charge for periods of seven years or less. All of this
means total return can be calculated according to the following formula:
1/N
TR = ((ERV/P) -1
Where:
TR = the average annual total return net of recurring Contract
charges at the Division level (such as the mortality and expense
risk charge, the administrative charge, and the annual contract
fee).
ERV = the ending redeemable value (net of any applicable surrender
charge) at the end of the period in question for an account with an
initial value of $l,000.
P = a hypothetical initial payment into the Division of $1,000.
N = the number of years in the period.
Security Equity may also quote total returns in its sales literature or
advertisements that do not reflect the surrender charge. These are
calculated in exactly the same way as the average annual total returns
described above, except that the ending redeemable value of the
hypothetical account is not net of a surrender charge.
(d) EFFECT OF THE ANNUAL CONTRACT FEE
The Contract provides for the deduction each year of the lesser of $30
or 2% of an account's value provided the account value is less than
$20,000. If the account value equals or exceeds $20,000, then no
contract fee is charged. So that this charge can be reflected in yield
and total return calculations it is assumed that the annual charge will
be $30 and this charge is converted into a per-dollar, per-day charge
based on the average Accumulated Value in the Separate Accounts of all
the Contracts as of the last day of the period for which quotations are
provided. The average value of Contracts in the Separate Accounts is
assumed to be $20,000. The per-dollar, per-day average charge will be
adjusted to reflect the assumptions underlying a particular performance
quotation.
S-8
<PAGE>
Sales literature or advertisements for the Contracts may include total
return or other performance information for a hypothetical Contract
based on the assumption that the Initial Purchase Payment is allocated
to more than one Division, or that there are monthly transfers under the
Dollar Cost Averaging program. Such return information will reflect the
performance of the Divisions involved for the amount and the duration of
the hypothetical allocation. They will also reflect the deduction of
the charges described above, except the surrender charge. For example,
total return information for a Contract taking part in Dollar Cost
Averaging for a 12-month period will assume that the DCA program began
at the start of the most recent 12-month period for which average annual
total return information is available. Such return information assumes
an initial investment in the Money Market Division at the beginning of
that period and monthly transfers of a portion of the sum in that
Division to the other Divisions designated each month over the 12-month
period. The total return for such a Contract over 12 months will
therefore reflect the return on the part of the Contract invested in the
Money Market Division, and the return on the parts invested in the
Divisions receiving funds, only for the period doing during which the
transferred amounts are assumed to be invested in these Divisions. The
return for a sum invested in a Division will be based on the performance
of that Division for the length of the investment, and will reflect the
charges described above other than the surrender charge. Performance
information for a Dollar Cost Averaging program may also show the return
for a designated Division over various periods assuming monthly
transfers into the Division, and may compare those returns to returns
assuming an initial lump-sum investment in the Division. Performance
information may also be compared to various indices, such as the U.S.
Treasury Bills index, and may be illustrated by graphs, charts, or other
means.
GENERAL MATTERS
INCORRECT AGE OR SEX
If the age at issue or sex of the Annuitant as shown in the Contract is
incorrect, any benefit payable will be such as the Accumulated Value
would have purchased using the correct age and sex. If the error is
discovered after Security Equity begins paying Annuity Payments,
appropriate adjustments will be made in any remaining installments.
S-9
<PAGE>
ANNUITY DATA
Security Equity will not be liable for obligations which depend on
receiving information from a Payee until such information is received in
a form satisfactory to Security Equity.
ANNUAL REPORTS
Once a year Security Equity will give the Contract Owner a report of the
current Accumulated Value allocated to each Division and of any Purchase
Payments, charges, transfers, or surrenders during that period. This
report will also give the Contract Owner any other information required
by law or regulation. The Contract Owner may ask for a report like this
at any time. The annual report will be distributed without charge.
Security Equity reserves the right to charge a fee for additional
reports.
INCONTESTABILITY
Security Equity cannot contest this Contract.
Ownership
The Owner of the Contract on the Contract Date is the Annuitant, unless
otherwise specified in the application. The Owner may specify a new
Owner by Written Notice at any time thereafter. During the Annuitant's
lifetime all rights and privileges under this Contract may be exercised
solely by the Owner.
DISTRIBUTION OF THE CONTRACTS
GT Global, Inc. ("GT Global"), the principal underwriter of the
Contracts, is registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 as a broker-dealer and is a
member of the National Association of Securities Dealers, Inc.
The Contracts are offered to the public through individuals licensed
under the federal securities laws and state insurance laws. These
individuals are sales agents of Security Equity and registered
representatives of broker/dealers which have entered into selling
agreements with GT Global. Included in this group of broker/dealers is
Walnut Street Securities, Inc., a wholly-owned, second-tier subsidiary
of General American Life Insurance Company. The offering of the
Contracts is continuous and Security Equity does not anticipate
discontinuing the offering of the Contracts. However, Security Equity
does reserve the right to discontinue the offering of the Contracts.
S-l0
<PAGE>
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to assets of the Separate Accounts is held by Security Equity.
The assets are kept in book entry form or physically segregated and held
separate and apart from Security Equity's general account assets.
Records are maintained of all purchases and redemptions of eligible Fund
shares held by each of the Divisions of the Separate Accounts. (See
"Reports and Records," below.)
STATE REGULATION
Security Equity is a stock life insurance company organized under the
laws of the State of New York, and is subject to regulation by the New
York State Insurance Department. An annual statement is filed with the
New York State Insurance Department on or before March 1 of each year
covering the operations and reporting on the financial condition of
Security Equity as of December 31 of the preceding calendar year.
Periodically, the New York State Insurance Department examines the
financial condition of Security Equity, including the liabilities and
reserves of the Separate Accounts.
In addition, Security Equity is subject to the insurance laws and
regulations of all the states where it is licensed to operate. The
availability of certain contract rights and provisions depends on state
approval or state filing and review processes. Where required by state
law or regulation, the Contracts will be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Accounts will be
maintained by Security Equity or by its service provider, General
American Life Insurance Company (or its wholly-owned, second tier
subsidiary, Genelco Incorporated). As presently required by the
Investment Company Act of 1940 and regulations promulgated thereunder,
Security Equity will mail to all Contract Owners at their last known
address of record, at least annually, reports containing such
information as may be required under that Act or by any other applicable
law or regulation.
LEGAL PROCEEDINGS
There are no legal proceedings to which either Separate Account is a
party or to which the assets of the Separate Accounts are subject.
Security Equity is not involved in any litigation that is of material
importance in relation to its total assets or that relates to the
Separate Accounts.
S-ll
<PAGE>
OTHER INFORMATION
Registration Statements have been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect
to the Contracts discussed in this Statement of Additional Information.
Not all of the information set forth in the Registration Statements,
amendments, and exhibits thereto has been included in this Statement of
Additional Information. Statements contained in this Statement of
Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to
the instruments filed with the Securities and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of Security Equity and the Registrant, which are
included in this Statement of Additional Information, should be considered
only as bearing on the ability of Security Equity to meet its obligations
under the Contracts. They should not be considered as bearing on the
investment performance of the assets held in the Separate Accounts.
The financial statements of Security Equity and the Separate Account included
in this Statement of Additional Information have been included in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and on the authority of said firm as experts in accounting and
auditing.
S-l2
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors
Security Equity Life Insurance Company and Contractholders of
Security Equity Separate Account Twenty-six and Separate Account Twenty-seven:
We have audited the statements of assets and liabilities, including the schedule
of investments, of the Money Market and Variable Strategic Income Divisions of
Security Equity Separate Account Twenty-six and of the Variable New Pacific,
Variable Europe, Variable America, Variable Latin America, Variable
Telecommunications, Variable International, Variable Emerging Markets, Variable
Natural Resources, and Variable Infrastructure Divisions of Security Equity
Separate Account Twenty-seven as of December 31, 1996, and the related
statements of operations, changes in net assets, and condensed financial
information for the periods presented. These financial statements and condensed
financial information are the responsibility of the management of Security
Equity Separate Accounts Twenty-six and Twenty-seven. Our responsibility is to
express an opinion on these financial statements, schedule, and condensed
financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and condensed
financial information 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 investments
owned as of December 31, 1996, by correspondence with GT Global Variable
Investment Funds. 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 and condensed financial information
referred to above present fairly, in all material respects, the financial
position of the Money Market and Variable Strategic Income Divisions of Security
Equity Separate Account Twenty-six and of the Variable New Pacific, Variable
Europe, Variable America, Variable Latin America, Variable Telecommunications,
Variable International, Variable Emerging Markets, Variable Natural Resources,
and Variable Infrastructure Divisions of Security Equity Separate Account
Twenty-seven as of December 31, 1996, and the results of their operations,
changes in their net assets, and condensed financial information for the periods
presented, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
ST. LOUIS, MISSOURI
FEBRUARY 7, 1997
D1
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
D2
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX
STATEMENTS OF ASSETS
AND LIABILITIES
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
VARIABLE
MONEY STRATEGIC
MARKET INCOME
DIVISION DIVISION
--------- ---------
Assets:
Investments in GT Global Variable Investment Funds, at market value (see Schedule of
Investments):...................................................................... $ 465 $ 101,368
--------- ---------
Total assets...................................................................... 465 101,368
--------- ---------
Liability:
Payable to Security Equity Life Insurance Company................................... 465 331
--------- ---------
Total net assets.................................................................. $ 0 $ 101,037
--------- ---------
--------- ---------
Total net assets represented by:
Individual variable annuity contracts cash value invested in Separate Account....... $ 0 $ 101,037
--------- ---------
--------- ---------
Total individual units held........................................................... 0 7,310
Individual unit value................................................................. $ N/A $ 13.82
Cost of investments................................................................... $ 465 $ 92,322
</TABLE>
See accompanying notes to the financial statements.
D3
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX
STATEMENTS OF OPERATIONS
For the period ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
VARIABLE
MONEY STRATEGIC
MARKET INCOME
DIVISION* DIVISION**
--------- -----------
Investment income:
Dividend income....................................................................... $ 1,998 $ 4,070
Expenses:
Mortality, expense and administrative charges......................................... (600) (799)
--------- -----------
Net investment income................................................................. 1,398 3,271
--------- -----------
Net realized gain on investments:
Realized gain from distributions...................................................... 0 0
Realized gain on sales................................................................ 0 14
--------- -----------
Net realized gain on investments...................................................... 0 14
--------- -----------
Net unrealized gain on investments:
Unrealized gain on investments, beginning of period................................... 0 0
Unrealized gain on investments, end of period......................................... 0 9,046
--------- -----------
Net unrealized gain on investments.................................................... 0 9,046
--------- -----------
Net gain on investments............................................................... 0 9,060
--------- -----------
Net increase in net assets resulting from operations.................................... $ 1,398 $ 12,331
--------- -----------
--------- -----------
<FN>
- --------------
* The Money Market Division commenced operations July 26, 1996.
** The Variable Strategic Income Division commenced operations January 30,
1996.
</TABLE>
See accompanying notes to the financial statements.
D4
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX
STATEMENTS OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
VARIABLE
MONEY STRATEGIC
MARKET INCOME
DIVISION* DIVISION**
--------- ---------
Operations:
Net investment income............................................................... $ 1,398 $ 3,271
Net realized gain on investments.................................................... 0 14
Net unrealized gain on investments.................................................. 0 9,046
--------- ---------
Net increase in net assets resulting from operations.............................. 1,398 12,331
--------- ---------
Deposits into Separate Account...................................................... 8,500 108,470
Transfers into (from) Separate Account.............................................. (9,898) 2,126
Withdrawals from Separate Account................................................... 0 (21,890)
--------- ---------
Net deposits into Separate Account................................................ (1,398) 88,706
--------- ---------
Increase in net assets.............................................................. 0 101,037
Net assets, beginning of period..................................................... 0 0
--------- ---------
Net assets, end of period........................................................... $ 0 $ 101,037
--------- ---------
--------- ---------
<FN>
- --------------
* The Money Market Division commenced operations July 26, 1996.
** The Variable Strategic Income Division commenced operations January 30,
1996.
</TABLE>
See accompanying notes to the financial statements.
D5
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF ASSETS
AND LIABILITIES
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE
NEW VARIABLE VARIABLE
PACIFIC EUROPE AMERICA
DIVISION DIVISION DIVISION
---------- ---------- ----------
<S> <C> <C> <C>
Assets:
Investments in GT Global Variable
Investment Funds, at market value
(see Schedule of Investments):....... $ 919,239 $ 68,284 $ 28,938
---------- ---------- ----------
Total assets........................ 919,239 68,284 28,938
---------- ---------- ----------
Liability:
Payable to Security Equity Life
Insurance Company.................... 4,107 224 89
---------- ---------- ----------
Total net assets.................... $ 915,132 $ 68,060 $ 28,849
---------- ---------- ----------
---------- ---------- ----------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in Separate
Account.............................. $ 915,132 $ 68,060 $ 28,849
---------- ---------- ----------
---------- ---------- ----------
Total individual units held............. 59,302 4,437 2,236
Accumulation unit value................. $ 15.43 $ 15.34 $ 12.90
Cost of investments..................... $ 870,694 $ 60,083 $ 29,004
</TABLE>
See accompanying notes to the financial statements.
D6
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF ASSETS
AND LIABILITIES (cont'd)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE VARIABLE
LATIN TELECOM- VARIABLE EMERGING NATURAL VARIABLE
AMERICA MUNICATIONS INTERNATIONAL MARKETS RESOURCES INFRASTRUCTURE
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
----------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Investments in GT Global Variable
Investment Funds, at market value
(see Schedule of Investments):....... $ 110,615 $ 417,916 $ 40,300 $ 14,557 $ 1,448 $ 1,381
----------- ---------- ----------- --------- ---------- -----------
Total assets........................ 110,615 417,916 40,300 14,557 1,448 1,381
----------- ---------- ----------- --------- ---------- -----------
Liability:
Payable to Security Equity Life
Insurance Company.................... 366 1,453 142 30 5 5
----------- ---------- ----------- --------- ---------- -----------
Total net assets.................... $ 110,249 $ 416,463 $ 40,158 $ 14,527 $ 1,443 $ 1,376
----------- ---------- ----------- --------- ---------- -----------
----------- ---------- ----------- --------- ---------- -----------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in Separate
Account.............................. $ 110,249 $ 416,463 $ 40,158 $ 14,527 $ 1,443 $ 1,376
----------- ---------- ----------- --------- ---------- -----------
----------- ---------- ----------- --------- ---------- -----------
Total individual units held............. 8,332 31,391 3,217 1,092 106 108
Accumulation unit value................. $ 13.23 $ 13.27 $ 12.48 $ 13.30 $ 13.60 $ 12.79
Cost of investments..................... $ 100,869 $ 431,712 $ 38,501 $ 13,876 $ 1,299 $ 1,305
</TABLE>
See accompanying notes to the financial statements.
D7
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF OPERATIONS
For the period ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
NEW PACIFIC EUROPE AMERICA
DIVISION DIVISION* DIVISION
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Dividend income....................... $ 5,958 $ 93 $ 269
Expenses:
Mortality, expense and administrative
charges.............................. (5,983) (455) (259)
----------- ----------- -----------
Net investment income (loss).......... (25) (362) 10
----------- ----------- -----------
Net realized gain on investments:
Realized gain from distributions...... 0 0 2,450
Realized gain (loss) on sales......... 38,523 39 (20)
----------- ----------- -----------
Net realized gain on investments.... 38,523 39 2,430
----------- ----------- -----------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. (6) 0 457
Unrealized gain (loss) on investments,
end of period........................ 48,545 8,201 (66)
----------- ----------- -----------
Net unrealized gain (loss) on
investments........................ 48,539 8,201 391
----------- ----------- -----------
Net gain on investments............... 87,062 8,240 2,821
----------- ----------- -----------
Net increase in net assets resulting
from operations...................... $ 87,037 $ 7,878 $ 2,831
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ----------------
* The Variable Europe Division and the Variable Latin America Division
commenced operations January 30, 1996.
** The Variable Emerging Markets Division commenced operations March 25,
1996.
*** The Variable International Division commenced operations April 9,
1996.
**** The Variable Natural Resources Division and the Variable
Infrastructure Division commenced operations August 26, 1996.
See accompanying notes to the financial statements.
D8
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF OPERATIONS (cont'd)
For the period ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
VARIABLE TELECOM- VARIABLE EMERGING NATURAL VARIABLE
LATIN AMERICA MUNICATIONS INTERNATIONAL MARKETS RESOURCES INFRASTRUCTURE
DIVISION* DIVISION DIVISION*** DIVISION** DIVISION**** DIVISION****
------------- ----------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income....................... $ 1,230 $ 317 $ 0 $ 0 $ 0 $ 5
Expenses:
Mortality, expense and administrative
charges.............................. (822) (3,322) (390) (56) (6) (6)
------------- ----------- ------------- ----------- ------ ---
Net investment income (loss).......... 408 (3,005) (390) (56) (6) (1)
------------- ----------- ------------- ----------- ------ ---
Net realized gain on investments:
Realized gain from distributions...... 0 27,088 120 0 0 0
Realized gain (loss) on sales......... 47 (24) 0 0 0 0
------------- ----------- ------------- ----------- ------ ---
Net realized gain on investments.... 47 27,064 120 0 0 0
------------- ----------- ------------- ----------- ------ ---
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. 0 338 0 0 0 0
Unrealized gain (loss) on investments,
end of period........................ 9,746 (13,796) 1,799 681 149 76
------------- ----------- ------------- ----------- ------ ---
Net unrealized gain (loss) on
investments........................ 9,746 (13,458) 1,799 681 149 76
------------- ----------- ------------- ----------- ------ ---
Net gain on investments............... 9,793 13,606 1,919 681 149 76
------------- ----------- ------------- ----------- ------ ---
Net increase in net assets resulting
from operations...................... $ 10,201 $ 10,601 $ 1,529 $ 625 $ 143 $ 75
------------- ----------- ------------- ----------- ------ ---
------------- ----------- ------------- ----------- ------ ---
</TABLE>
- ----------------
* The Variable Europe Division and the Variable Latin America Division
commenced operations January 30, 1996.
** The Variable Emerging Markets Division commenced operations March 25,
1996.
*** The Variable International Division commenced operations April 9,
1996.
**** The Variable Natural Resources Division and the Variable
Infrastructure Division commenced operations August 26, 1996.
See accompanying notes to the financial statements.
D9
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF CHANGES IN NET ASSETS
For the periods ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE
VARIABLE VARIABLE VARIABLE LATIN
NEW PACIFIC EUROPE AMERICA AMERICA
DIVISION DIVISION* DIVISION DIVISION *
-------------------- ----------- -------------------- ---------
1996 1995 1996 1996 1995 1996
--------- --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ (25) $ (35) $ (362) $ 10 $ (25) $ 408
Net realized gain (loss) on
investments.......................... 38,523 (1) 39 2,430 (1) 47
Net unrealized gain (loss) on
investments.......................... 48,539 6 8,201 391 (457) 9,746
--------- --------- ----------- --------- --------- ---------
Net increase (decrease) in net
assets resulting from
operations......................... 87,037 (30) 7,878 2,831 (483) 10,201
--------- --------- ----------- --------- --------- ---------
Deposits into Separate Account........ 856,376 8,000 58,056 22,561 6,000 110,075
Transfers into (from) Separate
Account.............................. 3,519 0 2,126 0 0 0
Withdrawals from Separate Account..... (39,770) 0 0 (2,060) 0 (10,027)
--------- --------- ----------- --------- --------- ---------
Net deposits into Separate
Account............................ 820,125 8,000 60,182 20,501 6,000 100,048
--------- --------- ----------- --------- --------- ---------
Increase in net assets................ 907,162 7,970 68,060 23,332 5,517 110,249
Net assets, beginning of period....... 7,970 0 0 5,517 0 0
--------- --------- ----------- --------- --------- ---------
Net assets, end of period............. $ 915,132 $ 7,970 $ 68,060 $ 28,849 $ 5,517 $ 110,249
--------- --------- ----------- --------- --------- ---------
--------- --------- ----------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE
VARIABLE VARIABLE EMERGING NATURAL VARIABLE
TELECOMMUNICATIONS INTERNATIONAL MARKETS RESOURCES INFRASTRUCTURE
DIVISION DIVISION*** DIVISION**** DIVISION** DIVISION****
------------------------ ----------- ----------- ----------- -------------
1996 1995 1996 1996 1996 1996
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ (3,005) $ (25) $ (390) $ (56) $ (6) $ (1)
Net realized gain (loss) on
investments.......................... 27,064 (1) 120 0 0 0
Net unrealized gain (loss) on
investments.......................... (13,458) (338) 1,799 681 149 76
----------- ----------- ----------- ----------- ----------- -------------
Net increase (decrease) in net
assets resulting from
operations......................... 10,601 (364) 1,529 625 143 75
----------- ----------- ----------- ----------- ----------- -------------
Deposits into Separate Account........ 450,796 6,000 39,574 34,636 1,300 1,301
Transfers into (from) Separate
Account.............................. 0 0 0 2,126 0 0
Withdrawals from Separate Account..... (50,570) 0 (945) (22,860) 0 0
----------- ----------- ----------- ----------- ----------- -------------
Net deposits into Separate
Account............................ 400,226 6,000 38,629 13,902 1,300 1,301
----------- ----------- ----------- ----------- ----------- -------------
Increase in net assets................ 410,827 5,636 40,158 14,527 1,443 1,376
Net assets, beginning of period....... 5,636 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -------------
Net assets, end of period............. $ 416,463 $ 5,636 $ 40,158 $ 14,527 $ 1,443 $ 1,376
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
</TABLE>
- ----------------
* The Variable Europe Division and the Variable Latin America Division
commenced operations January 30, 1996.
* * The Variable Emerging Markets Division commenced operations March 25,
1996.
* * * The Variable International Division commenced operations April 9,
1996.
* * * * The Variable Natural Resources Division and the Variable
Infrastructure Division commenced operations August 26, 1996.
See accompanying notes to the financial statements.
D10
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
Security Equity Separate Account Twenty-six commenced operations on January 30,
1996, and Security Equity Separate Account Twenty-seven commenced operations on
September 7, 1995. The Separate Accounts are registered under the Investment
Company Act of 1940 (1940 Act) as unit investment trusts. The Separate Accounts
receive purchase payments from individual variable annuity contracts issued by
Security Equity Life Insurance Company (Security Equity) which may be qualified
or non-tax qualified.
Separate Account Twenty-six is divided into four divisions and Separate Account
Twenty-seven is divided into ten divisions. Each Division invests exclusively in
shares of a single fund of GT Global Variable Investment Funds (the Funds), an
open-end diversified management investment company. Separate Account Twenty-six
has the ability to invest in the Money Market, Variable Strategic Income,
Variable Global Government Income, and Variable U.S. Government Income Funds.
Separate Account Twenty-seven has the ability to invest in the Variable New
Pacific, Variable Europe, Variable America, Variable Growth & Income, Variable
Latin America, Variable Telecommuncations, Variable International, Variable
Emerging Markets, Variable Natural Resources and Variable Infrastructure Funds.
Contractholders have the option of directing their deposits into one or more of
the Divisions. The unit values for Separate Account Twenty-six began at $12.00
on January 30, 1996 for the Variable Strategic Income Division; and on July 26,
1996 for the Money Market Division. The unit values for Separate Account
Twenty-seven began at $12.00 on September 7, 1995 for the Variable New Pacific
Division, Variable America Division and the Variable Telecommunications
Division; on January 30, 1996 for the Variable Europe Division and Variable
Latin America Division; on March 25, 1996 for the Variable Emerging Markets
Division; on April 9, 1996 for the Variable International Division, and on
August 26, 1996 for the Variable Natural Resources Division and the Variable
Infrastructure Division. As of December 31, 1996, no deposits have been directed
into the Variable Global Government Income Division or the Variable U.S.
Government Income Division of Separate Account Twenty-six, or the Variable
Growth & Income Division of Separate Account Twenty-seven. As such, no financial
statements for these Divisions are included.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Accounts in the preparation of financial statements. The policies
followed are in conformity with generally accepted accounting principles.
A. INVESTMENTS
The Separate Accounts' investments in the GT Global Variable Funds are valued
daily on the respective shares held and based on the net asset values as
reported to Security Equity by the Funds at the close of each business day. The
specific identification method is used in determining the cost of shares sold on
withdrawals by the Separate Account. Share transactions are recorded on the
trade date which is generally consistent with the settlement date.
B. FEDERAL INCOME TAXES
Under current Federal income tax law, the investment income and capital gains
from sales of investments of the Separate Accounts are not taxable. Therefore,
no Federal income tax expense has been provided.
C. DIVIDEND REINVESTMENT
Dividends are recorded on the ex-dividend date and immediately reinvested on the
pay date.
D. USE OF ESTIMATES
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 increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
NOTE 3 -- CONTRACT CHARGES
MORTALITY AND EXPENSE ASSURANCE CHARGE: Security Equity assumes the mortality
and expense risks and provides certain administrative services related to
operating the Separate Accounts for which the Separate Accounts are charged an
annual fee of 1.25% based on the values at the end of each valuation period.
Mortality and expense charges for Separate Accounts Twenty-six and Twenty seven
totaled $11,337 for the period ended December 31, 1996.
SURRENDER CHARGE: Under Separate Account contractual arrangements, Security
Equity is entitled to collect payment for sales charges. Contracts are subject
to a deferred sales charge contingent upon surrender of the contract or a
greater than 10% partial withdrawal of funds on deposit. The sales charge is 7%
the first contract year, decreasing by 1% each subsequent year. The contingent
deferred sales charge will be waived in the event of annuitization after the
third year or on death. Sales charges as a result of surrenders are disclosed in
Note 6.
ACCOUNT FEE AND ADMINISTRATIVE CHARGES: Security Equity has the responsibility
for the administration of the contract. As reimbursement for account
administrative expenses, on the last day of the contract year, Security Equity
deducts an account fee. For contracts with accumulated values less than $20,000,
the fee is the lesser of $30 or 2% of the accumulated value for contract years
ending prior to December 31, 1999. Thereafter, the account fee may be adjusted
annually. The account fee is waived for contracts with accumulated values of
$20,000 or more. Security Equity charges $25 for each transfer in excess of
twelve (12) during the Contract Year,
D11
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTE 3 -- CONTRACT CHARGES (CONTINUED)
excluding transfers made under the Dollar Cost Averaging program and reserves
the right to charge a fee to cover the expenses for special handling. Account
fees are disclosed in Note 6. Security Equity also provides certain
administrative services for which it charges an administrative charge to the
Separate Accounts at an annual rate of 0.15% at the end of each valuation
period. Administrative charges for Separate Account Twenty-six and Twenty-seven
totaled $1,361 for the period ended December 31, 1996.
PREMIUM TAXES: In states which charge premium taxes, the taxes are withdrawn
from the purchase payment or the accumulated value of the contract. Premium
taxes are disclosed in Note 6.
NOTE 4 -- PURCHASES AND SALES OF GT GLOBAL VARIABLE INVESTMENT FUND SHARES
During the period ended December 31, 1996, cost of purchases and proceeds from
sales of GT Global Variable Investment Fund shares were as follows:
<TABLE>
<CAPTION>
SEPARATE ACCOUNT TWENTY-SIX PURCHASES SALES
- ---------------------------- ---------- --------
<S> <C> <C>
Money Market Fund............................................................... $ 676,608 $676,143
Variable Strategic Income Fund.................................................. 92,775 467
<CAPTION>
SEPARATE ACCOUNT TWENTY-SEVEN
- ------------------------------
<S> <C> <C>
Variable New Pacific Fund....................................................... $1,494,975 $670,778
Variable Europe Fund............................................................ 60,279 235
Variable America Fund........................................................... 23,220 176
Variable Latin America Fund..................................................... 101,660 838
Variable Telecommunications Fund................................................ 427,925 2,170
Variable International Fund..................................................... 38,749 248
Variable Emerging Markets Fund.................................................. 13,889 13
Variable Natural Resources Fund................................................. 1,300 1
Variable Infrastructure Fund.................................................... 1,306 1
</TABLE>
There were no purchases or sales of GT Global Variable Investment Fund shares
for the Variable Global Government Income Fund or Variable U.S. Government
Income Fund Divisions of Separate Account Twenty-six, or the Variable Growth &
Income Fund Division of Separate Account Twenty-seven.
NOTE 5 -- ACCUMULATION UNIT ACTIVITY
The following is a summary of the accumulation unit activity for the Variable
Strategic Income Division for the period from January 30, 1996 (inception) to
December 31, 1996, and the Money Market Division for the period from July 26,
1996 (inception) to December 31, 1996 for Separate Account Twenty-six:
<TABLE>
<CAPTION>
MONEY MARKET VARIABLE STRATEGIC
DIVISION INCOME DIVISION
----------------- -------------------
<S> <C> <C>
Individual units held:
Deposits........................................ 705 8,823
Transfers....................................... (705) 156
Withdrawals..................................... 0 (1,669)
Outstanding units, beginning of period.......... 0 0
-------- -------
Outstanding units, end of period................ 0 7,310
-------- -------
-------- -------
</TABLE>
D12
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
The following is a summary of the accumulation unit activity for the year ended
December 31, 1996 and the period from September 7, 1995 (inception) to December
31, 1995 for all divisions except the Variable Europe Division and the Variable
Latin America Division which show the unit activity for the period from January
30, 1996 (inception) to December 31, 1996; the Variable Emerging Markets
Division which shows the unit activity from March 25, 1996 (inception) to
December 31, 1996; the Variable International Division which shows the unit
activity from April 9, 1996 (inception) to December 31, 1996; and the Variable
Natural Resources Division and the Variable Infrastructure Division which show
the unit activity from August 26, 1996 (inception) to December 31, 1996, for
Separate Account Twenty-seven:
<TABLE>
<CAPTION>
VARIABLE
LATIN
VARIABLE NEW PACIFIC VARIABLE EUROPE VARIABLE AMERICA AMERICAN
DIVISION DIVISION DIVISION DIVISION
-------------------- --------------- ------------------------ -----------
1996 1995 1996 1996 1995 1996
--------- --------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Individual units held:
Deposits........................................ 62,117 667 4,293 1,910 500 9,128
Transfers....................................... (643) 0 144 0 0 0
Withdrawals..................................... (2,839) 0 0 (174) 0 (796)
Outstanding units, beginning of period.......... 667 0 0 500 0 0
--------- --------- --------------- ----------- ----------- -----------
Outstanding units, end of period................ 59,302 667 4,437 2,236 500 8,332
--------- --------- --------------- ----------- ----------- -----------
--------- --------- --------------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
VARIABLE VARIABLE EMERGING NATURAL INFRA-
TELECOMMUNICATIONS INTERNATIONAL MARKETS RESOURCES STRUCTURE
DIVISION DIVISION DIVISION DIVISION DIVISION
-------------------- --------------- ----------- ----------- -----------
1996 1995 1996 1996 1996 1996
--------- --------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Individual units held:
Deposits........................................ 34,680 500 3,294 2,727 106 108
Transfers....................................... 0 0 0 162 0 0
Withdrawals..................................... (3,789) 0 (77) (1,797) 0 0
Outstanding units, beginning of period.......... 500 0 0 0 0 0
--------- --------- --------------- ----------- ----------- -----------
Outstanding units, end of period................ 31,391 500 3,217 1,092 106 108
--------- --------- --------------- ----------- ----------- -----------
--------- --------- --------------- ----------- ----------- -----------
</TABLE>
NOTE 6 -- SUMMARY OF GROSS AND NET DEPOSITS INTO SEPARATE ACCOUNT
Deposits into the Separate Account are used to purchase shares in GT Global
Variable Investment Funds. Net deposits represent the amounts available for
investment in such shares after deduction of premium taxes, administrative
costs, and surrender charges. Activity for Separate Account Twenty-six follows:
<TABLE>
<CAPTION>
MONEY MARKET VARIABLE STRATEGIC
DIVISION* INCOME DIVISION**
----------------- --------------------
<S> <C> <C>
Total gross deposits.............................. $ 8,500 $ 108,470
Transfers between fund divisions and Security
Equity........................................... (9,898) 2,126
Surrenders and withdrawals........................ 0 (21,890)
----------------- -----------
Total gross deposits, transfers, and
surrenders between fund divisions............ (1,398) 88,706
Deductions:
Premium taxes................................... 0 0
Account fees.................................... 0 0
Surrender charges............................... 0 0
----------------- -----------
Total deductions.............................. 0 0
----------------- -----------
Net deposits into (deductions from) Separate
Account.......................................... $ (1,398) $ 88,706
----------------- -----------
----------------- -----------
</TABLE>
- ----------------
* The Money Market Division commenced operations July 26, 1996.
** The Variable Strategic Income Division commenced operations January 30, 1996.
D13
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
Deposits into the Separate Account are used to purchase shares in GT Global
Variable Investment Funds. Net deposits represent the amounts available for
investment in such shares after deduction of premium taxes, administrative
costs, and surrender charges. Activity for Separate Accont Twenty-seven follows:
<TABLE>
<CAPTION>
VARIABLE NEW PACIFIC VARIABLE EUROPE VARIABLE AMERICA
DIVISION DIVISION* DIVISION
-------------------------- --------------- ---------------------------
1996 1995 1996 1996 1995
------------ ------------ --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Total gross deposits.............................. $ 856,376 $ 8,000 $ 58,056 $ 22,561 $ 6,000
Transfers between fund divisions and Security
Equity........................................... 3,519 0 2,126 0 0
Surrenders and withdrawals........................ (39,770) 0 0 (2,060) 0
------------ ------------ --------------- ----------- --------------
Total gross deposits, transfers, and
surrenders between fund divisions............ 820,125 8,000 60,182 20,501 6,000
------------ ------------ --------------- ----------- --------------
Deductions:
Premium taxes................................... 0 0 0 0 0
Account fees.................................... 0 0 0 0 0
Surrender charges............................... 0 0 0 0 0
------------ ------------ --------------- ----------- --------------
Total deductions.............................. 0 0 0 0 0
------------ ------------ --------------- ----------- --------------
Net deposits into (deductions from) Separate
Account.......................................... $ 820,125 $ 8,000 $ 60,182 $ 20,501 $ 6,000
------------ ------------ --------------- ----------- --------------
------------ ------------ --------------- ----------- --------------
<CAPTION>
VARIABLE LATIN
AMERICA
DIVISION*
----------------
1996
----------------
<S> <C>
Total gross deposits.............................. $ 110,075
Transfers between fund divisions and Security
Equity........................................... 0
Surrenders and withdrawals........................ (10,027)
----------------
Total gross deposits, transfers, and
surrenders between fund divisions............ 100,048
----------------
Deductions:
Premium taxes................................... 0
Account fees.................................... 0
Surrender charges............................... 0
----------------
Total deductions.............................. 0
----------------
Net deposits into (deductions from) Separate
Account.......................................... $ 100,048
----------------
----------------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE
VARIABLE VARIABLE EMERGING NATURAL
TELECOMMUNICATIONS INTERNATIONAL MARKETS RESOURCES
DIVISION DIVISION*** DIVISION** DIVISION****
-------------------------- --------------- ----------- --------------
1996 1995 1996 1996 1996
------------ ------------ --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Total gross deposits.............................. $ 450,796 $ 6,000 $ 39,574 $ 34,636 $ 1,300
Transfers between fund divisions and Security
Equity........................................... 0 0 0 2,126 0
Surrenders and withdrawals........................ (50,570) 0 (945) (22,860) 0
------------ ------------ --------------- ----------- --------------
Total gross deposits, transfers, and
surrenders between fund divisions............ 400,226 6,000 38,629 13,902 1,300
------------ ------------ --------------- ----------- --------------
Deductions:
Premium taxes................................... 0 0 0 0 0
Account fees.................................... 0 0 0 0 0
Surrender charges............................... 0 0 0 0 0
------------ ------------ --------------- ----------- --------------
Total deductions.............................. 0 0 0 0 0
------------ ------------ --------------- ----------- --------------
Net deposits into (deductions from) Separate
Account.......................................... $ 400,226 $ 6,000 $ 38,629 $ 13,902 $ 1,300
------------ ------------ --------------- ----------- --------------
------------ ------------ --------------- ----------- --------------
<CAPTION>
VARIABLE
INFRASTRUCTURE
DIVISION****
----------------
1996
----------------
<S> <C>
Total gross deposits.............................. $ 1,301
Transfers between fund divisions and Security
Equity........................................... 0
Surrenders and withdrawals........................ 0
----------------
Total gross deposits, transfers, and
surrenders between fund divisions............ 1,301
----------------
Deductions:
Premium taxes................................... 0
Account fees.................................... 0
Surrender charges............................... 0
----------------
Total deductions.............................. 0
----------------
Net deposits into (deductions from) Separate
Account.......................................... $ 1,301
----------------
----------------
</TABLE>
- ----------------
* The Variable Europe Division and the Variable Latin America Division
commenced operations January 30, 1996.
** The Variable Emerging Markets Division commenced operations March 25, 1996.
*** The Variable International Division commenced operations April 9, 1996.
**** The Variable Natural Resources Division and the Variable Infrastructure
Division commenced operations August 26, 1996.
D14
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
SCHEDULE OF INVESTMENTS*
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPARATE ACCOUNT TWENTY-SIX: NO. OF SHARES MARKET VALUE
- ----------------------------- ------------- ------------
<S> <C> <C>
GT Global Money Market Fund................................................... 465 $ 465
GT Global Variable Strategic Income Fund...................................... 7,576 101,368
<CAPTION>
SEPARATE ACCOUNT TWENTY-SEVEN:
- -------------------------------
<S> <C> <C>
GT Global Variable New Pacific Fund........................................... 51,012 919,239
GT Global Variable Europe Fund................................................ 3,198 68,284
GT Global Variable America Fund............................................... 1,468 28,938
GT Global Variable Latin America Fund......................................... 7,474 110,615
GT Global Variable Telecommunications Fund.................................... 23,038 417,916
GT Global Variable International Fund......................................... 3,384 40,300
GT Global Variable Emerging Markets Fund...................................... 1,021 14,557
GT Global Variable Natural Resources Fund..................................... 69 1,448
GT Global Variable Infrastructure Fund........................................ 84 1,381
</TABLE>
- ----------------
* There were no investments of GT Global Investment Fund shares for the Variable
Growth & Income Fund, the Variable Global Government Income Fund, or the
Variable U.S. Government Income Fund.
See accompanying independent auditors' report.
D15
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
CONDENSED FINANCIAL INFORMATION
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION
ACCUMULATION UNIT VALUE: TOTAL UNITS
UNIT VALUE: END OF OUTSTANDING,
SEPARATE ACCOUNT TWENTY-SIX: BEGINNING OF PERIOD PERIOD END OF PERIOD
- ---------------------------- ------------------- ------------ -------------
<S> <C> <C> <C> <C>
Money Market Division....................................... 1996 12.00* N/A 0
Variable Strategic Income Division.......................... 1996 12.00* 13.82 7,310
<CAPTION>
SEPARATE ACCOUNT TWENTY-SEVEN:
- ------------------------------
<S> <C> <C> <C> <C>
Variable New Pacific Division............................... 1996 11.95 15.43 59,302
1995 12.00* 11.95 677
Variable Europe Division.................................... 1996 12.00* 15.34 4,437
Variable America Division................................... 1996 11.03 12.90 2,236
1995 12.00* 11.03 500
Variable Latin America Division............................. 1996 12.00* 13.23 8,332
Variable Telecommunications Division........................ 1996 11.27 13.27 31,391
1995 12.00* 11.27 500
Variable International Division............................. 1996 12.00* 12.48 3,217
Variable Emerging Markets Division.......................... 1996 12.00* 13.30 1,092
Variable Natural Resources Division......................... 1996 12.00* 13.60 106
Variable Infrastructure Division............................ 1996 12.00* 12.79 108
</TABLE>
- --------------
* At inception of Separate Account on September 7, 1995, except for the Variable
Strategic Income Division, the Variable Europe Division, and the Variable
Latin America Division, which commenced operations on January 30, 1996; the
Variable Emerging Markets Division, which commenced operations on March 25,
1996; the Variable International Division, which commenced operations on April
9, 1996; the Money Market Division, which commenced operations on July 26,
1996; the Variable Natural Resources Division and the Variable Infrastructure
Division which commenced operations on August 26, 1996.
See accompanying independent auditors' report.
D16
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Security Equity Life Insurance Company:
We have audited the accompanying balance sheets of Security Equity Life
Insurance Company as of December 31, 1996 and 1995, and the related statements
of operations, stockholder's equity, and cash flows for each of the years in
the three-year period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Equity Life
Insurance Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 4, 1997
<PAGE>
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1996 and 1995
<CAPTION>
================================================================================================
ASSETS 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, at fair value $ 58,058,439 63,256,127
Policy loans 5,081,949 4,524,903
Cash and cash equivalents 5,534,380 1,977,082
- ------------------------------------------------------------------------------------------------
Total cash and invested assets 68,674,768 69,758,112
Reinsurance benefits recoverable:
Future policy benefits 6,436,700 7,221,329
Policy and contract claims 2,048,247 1,704,918
Accrued investment income 1,230,483 1,279,216
Goodwill 1,349,013 1,428,369
Deferred policy acquisition costs 3,658,233 1,471,754
Value of business acquired 2,461,000 2,441,000
Deferred tax asset 3,403,349 2,251,570
Other assets 877,289 1,250,035
Separate account assets 116,625,434 61,273,212
- ------------------------------------------------------------------------------------------------
Total assets $206,764,516 150,079,515
================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------------------------------------------------------------------
Reserve for future policy benefits 54,516,590 55,520,856
Policy and contract claims 1,494,338 2,176,837
Other policyholders' funds 21,723 25,064
Advance premiums 1,861,279 1,057,064
Other liabilities and accrued expenses 6,622,653 2,290,147
Payable to affiliates 75,510 51,785
Separate account liabilities 116,625,434 61,273,212
- ------------------------------------------------------------------------------------------------
Total liabilities 181,217,527 122,394,965
- ------------------------------------------------------------------------------------------------
Commitments and contingencies (note 10)
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized,
issued, and outstanding 2,500,000 2,500,000
Additional paid-in capital 27,447,892 27,447,892
Net unrealized gain on investments, net of taxes 59,112 1,990,132
Retained deficit (4,460,015) (4,253,474)
- ------------------------------------------------------------------------------------------------
Total stockholder's equity 25,546,989 27,684,550
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $206,764,516 150,079,515
================================================================================================
See accompanying notes to financial statements.
</TABLE>
1
<PAGE>
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Operations
Years ended December 31, 1996, 1995, and 1994
<CAPTION>
===============================================================================================
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Premiums and contract charges $ 7,434,043 6,379,803 9,025,429
Net investment income 4,546,544 4,699,713 4,095,545
Other income 19,053 272 843,891
Realized investment gains (losses) 313,185 (179,830) (515,975)
- -----------------------------------------------------------------------------------------------
Total revenues 12,312,825 10,899,958 13,448,890
- -----------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits 3,309,410 3,234,062 2,539,611
Policy surrenders, net 1,635,498 1,016,535 1,786,502
Change in reserve for future policy benefits (1,893,195) (2,791,166) 1,296,603
Interest credited 2,437,432 2,391,220 2,349,814
Commissions, net of capitalized costs 1,403,608 1,283,902 3,930,807
General and administrative expenses 4,795,193 4,966,525 5,531,872
Amortization of goodwill 79,356 79,356 79,354
Accretion of value of business acquired, net (20,000) (28,000) (50,000)
Other expenses 849,064 619,517 1,131,898
- -----------------------------------------------------------------------------------------------
Total benefits and expenses 12,596,366 10,771,951 18,596,461
- -----------------------------------------------------------------------------------------------
Income (loss) from operations before
federal income tax expense (benefit) (283,541) 128,007 (5,147,571)
- -----------------------------------------------------------------------------------------------
Federal income tax expense (benefit):
Current 15,000 -- --
Deferred (92,000) 64,286 (830,376)
- -----------------------------------------------------------------------------------------------
Total Federal income tax expense
(benefit) (77,000) 64,286 (830,376)
- -----------------------------------------------------------------------------------------------
Net income (loss) $ (206,541) 63,721 (4,317,195)
===============================================================================================
See accompanying notes to financial statements.
</TABLE>
2
<PAGE>
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1996, 1995, and 1994
<CAPTION>
=========================================================================================================================
Net
unrealized
Additional gain (loss) on Total
Common paid-in investments, Retained stockholder's
stock capital net of taxes deficit equity
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $2,500,000 17,447,892 -- -- 19,947,892
Net loss -- -- -- (4,317,195) (4,317,195)
Contribution of capital from Parent -- 10,000,000 -- -- 10,000,000
Change in net unrealized gain
(loss) on investments -- -- (4,061,215) -- (4,061,215)
- -------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 2,500,000 27,447,892 (4,061,215) (4,317,195) 21,569,482
Net income -- -- -- 63,721 63,721
Change in net unrealized gain
(loss) on investments -- -- 6,051,347 -- 6,051,347
- -------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 2,500,000 27,447,892 1,990,132 (4,253,474) 27,684,550
Net loss -- -- -- (206,541) (206,541)
Change in net unrealized gain
(loss) on investments -- -- (1,931,020) -- (1,931,020)
- -------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $2,500,000 27,447,892 59,112 (4,460,015) 25,546,989
=========================================================================================================================
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
<CAPTION>
=========================================================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (206,541) 63,721 (4,317,195)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Change in:
Reinsurance benefits ceded 441,300 3,844,903 (1,354,981)
Accrued investment income 48,733 (36,253) (279,331)
Other assets 372,746 (824,660) (164,367)
Deferred policy acquisition costs, net (2,186,479) (1,471,754) --
Policy liabilities (1,004,266) (1,345,723) 2,392,502
Policy and contract claims (682,499) (2,880,980) 2,268,697
Other policyholders' funds (3,341) 2,425 534
Federal income tax payable 15,000 -- --
Advance premiums 804,215 393,064 664,000
Other liabilities and accrued expenses 4,317,506 190,733 1,295,393
Payable to affiliates 23,725 (17,141) (224,158)
Accretion of bond premiums, net 189,350 221,543 536,812
Deferred tax expense (benefit) (92,000) 64,286 (830,376)
Net (gain) loss on sale of investments (313,185) 179,830 515,975
Amortization of goodwill 79,356 79,356 79,354
Accretion of value of business acquired (20,000) (28,000) (50,000)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,783,660 (1,564,650) 532,859
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (12,790,361) (17,056,300) (26,813,376)
Sale or maturity of investments 15,141,063 19,355,372 16,780,012
Increase in policy loans, net (557,046) (893,507) (747,167)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 1,793,656 1,405,565 (10,780,531)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Contribution of capital from Parent -- -- 10,000,000
Policyholder account balances:
Deposits on interest-sensitive life contracts 48,448,968 18,382,186 35,046,849
Transfers to separate account for
interest-sensitive life contracts, net (48,468,986) (27,178,119) (26,250,945)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (20,018) (8,795,933) 18,795,904
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 3,557,298 (8,955,018) 8,548,232
Cash and cash equivalents at beginning of year 1,977,082 10,932,100 2,383,868
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5,534,380 1,977,082 10,932,100
=========================================================================================================================
Supplemental disclosure of cash flow information _
taxes paid $ -- 20,000 --
=========================================================================================================================
See accompanying notes to financial statements.
</TABLE>
4
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1996 and 1995
=============================================================================
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Equity Life Insurance Company (SELIC or the Company) is a
wholly owned subsidiary of General American Life Insurance Company
(General American or the Parent). On December 31, 1993, Security
Mutual Life Insurance Company of New York (Security Mutual) sold
100% of the Company's stock to General American, as approved by
the State of New York Department of Insurance.
In 1986, the Company commenced direct writing of universal life
and term business, and in 1987 began marketing a single premium
whole life policy. In 1984, the Company began assuming single
premium deferred annuity (SPDA) and other insurance business
through reinsurance agreements with Security Mutual. The SPDA and
ordinary life insurance blocks of business were recaptured by
Security Mutual in 1992.
SELIC is licensed in 40 states and the District of Columbia.
Insurance operations have generally been limited to the sale of
individual life insurance products (term and universal life) made
through the general agency system, including career agents and
brokers.
With the sale of SELIC by Security Mutual to General American,
SELIC's activities have been redirected to serving the insurance
needs of publicly held corporations and New York state residents.
Additionally, SELIC focuses on accessing numerous and alternative
distribution channels in addition to a general agency system.
SELIC markets Corporate Owned Life Insurance (COLI) primarily
through specially designed variable products.
The acquisition of Security Equity by General American was
accounted for as a purchase transaction and, accordingly, the
purchase price was allocated to the assets and liabilities
acquired based upon the fair market value of such assets and
liabilities at the date of acquisition. These allocations have
been reflected, or "pushed down," in the financial statements of
the Company. The total purchase price of $19,947,892 was
allocated among the fair value of tangible net assets of
$15,997,813, value of business acquired of $2,363,000, and
goodwill of $1,587,079 at the date of acquisition.
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles. The preparation of
financial statements requires the use of estimates by management
which affect the amounts reflected in the financial statements.
Actual results could differ from those estimates.
The significant accounting policies of the Company are as follows:
(a) RECOGNITION OF POLICY REVENUE AND RELATED EXPENSES
Policy revenue recognition varies depending upon the type of
insurance product. For traditional life products with fixed and
guaranteed premiums and benefits, such as whole life and term
insurance policies, premiums are recognized when due. Benefits
and other expenses
5 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
of these products are associated with earned premiums and other
sources of earnings so as to result in recognition of profits
over the life of the contracts. This association is
accomplished by means of the provision for liabilities for
future benefits and the deferral and amortization of policy
acquisition costs. Premiums collected on universal life-type
policies are reported as deposits to the policyholder account
balance and not as income to SELIC. Income to SELIC on these
policies consists of the assessments for mortality costs,
surrenders, and expenses.
(b) Investment Securities
At December 31, 1996 and 1995, all long-term securities are
carried at market value with the unrealized gain (loss), net of
tax impact, being reflected as a separate component of
stockholder's equity as the Company considers all long-term
securities as available-for-sale. Short-term investments are
carried at cost which approximates market value. Policy loans
are valued at aggregate unpaid balances. The fair value of
policy loans is assumed to equal the carrying value because the
loans have no fixed maturity date and, therefore, it is not
practicable to determine a fair value.
Realized gains or losses on the sale of securities are
determined on the basis of specific identification and include
the impact of any related amortization of premium or accretion
of discount which is generally computed consistent with the
interest method.
(c) Value of Business Acquired
Value of business acquired (VOBA) represents the present value
of future profits resulting from the acquisition of insurance
policies in a purchase transaction. VOBA is amortized in
proportion to the estimated premiums or gross profits,
depending on the type of contract, with accretion of interest
on the unamortized discounted balance. In 1996, 1995 and 1994,
amortization of VOBA was $121,000, $112,000 and $89,000, and
the accretion of interest on the unamortized balance was
$140,000 and $139,000, respectively. The carrying value of
VOBA is periodically evaluated to ascertain recoverability from
future operations. Impairment would be recognized in current
operations when determined.
(d) Goodwill
Goodwill, representing the excess of purchase price over the
fair value of assets acquired, is amortized on a straight-line
basis over 20 years. The carrying value of goodwill is
periodically evaluated to ascertain recoverability from future
operations. Impairment would be recognized in current
operations when determined.
(e) Reserve for Future Policy Benefits
Liabilities for future benefits on life policies are
established in amounts adequate to meet the estimated future
obligations on policies in force. Liabilities for future
policy benefits on certain life insurance policies are computed
using the net level premium method and are based upon
assumptions as to future investment yield, mortality, and
withdrawals. Mortality and
6 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
withdrawal assumptions for all policies have been based on
various actuarial tables which are consistent with the
Company's own experience. Liabilities for future benefits on
certain long-duration life insurance contracts are carried at
accumulated policyholder values.
(f) Federal Income Taxes
The Company is taxed as a life insurance company under the
Deficit Reduction Act of 1984. The Company establishes
deferred taxes under the asset and liability method of SFAS
No.109, Accounting for Income Taxes, and deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
those temporary differences are expected to be recovered or
settled. Under SFAS No.109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company filed its federal income tax return on a
consolidated basis with Security Mutual prior to 1994. The
Company will file its federal income tax return as a separate
entity for 1996, consistent with 1995 and 1994.
(g) Reinsurance
Reinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on a
basis consistent with terms of the risk transfer reinsurance
contracts. Premiums ceded to other companies have been
reported as a reduction of premium income. Amounts applicable
reinsurance ceded for future policy benefits and claim
liabilities have been reported as assets for these items, and
commissions and expense allowances received in connection with
reinsurance ceded have been accounted for in income as earned
over the anticipated reinsurance contract life. Reinsurance
does not relieve the Company from its primary responsibility to
meet claim obligations.
(h) Deferred Policy Acquisition Costs
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, have been
deferred to the extent that such costs are deemed recoverable
from future premiums. Such costs may include commissions, as
well as certain costs of policy issuance and underwriting. In
1996 and 1995, the Company deferred $2.4 million and $1.5
million, respectively, in acquisition costs related to interest
sensitive products and recognized amortization of $168,000 and
$12,000, respectively, based on the estimated gross profits of
the underlying business. The Company did not defer any policy
acquisition costs in 1994 as a result of the nature of the
business written.
(i) Separate Account Business
The assets and liabilities of the separate account represent
segregated funds administered and invested by the Company for
purposes of funding variable life insurance contracts for the
7 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
exclusive benefit of variable life insurance contract holders.
The Company receives administrative fees from the separate
account and retains varying amounts of withdrawal charges to
cover expenses in the event of early withdrawals by contract
holders. The assets and liabilities of the separate account are
carried at market value.
(j) FAIR MARKET DISCLOSURES
Fair value disclosures are required under SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. Such
fair value estimates are made at a specific point in time,
based on relevant market information and information about
the financial instrument. These estimates do not reflect any
result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Although fair
value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions
could significantly affect the estimates and such estimates
should be used with care. The following assumptions were used
to estimate the fair market value of each class of financial
instrument for which it was practicable to estimate fair value:
Invested assets - Fixed maturities are valued using quoted
---------------
market prices, if available. If quoted market prices are not
available, fair value is estimated using quoted market prices
of similar securities. The carrying value of policy loans
approximates fair value.
Policyholder account balances - The fair value of policyholder
-----------------------------
account balances is equal to the discounted estimated future
cash flows using discounted cash flow calculations, based on
interest rates currently being offered for similar contracts
with maturities consistent with those remaining for the
contracts being valued. The carrying value approximates fair
value at December 31, 1996 and 1995.
Cash and short-term investments - The carrying amount is a
-------------------------------
reasonable estimate of fair value.
(k) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
represent demand deposits and highly liquid short-term
investments, which include U.S. Treasury bills, commercial
paper, and repurchase agreements with original or remaining
maturities of 90 days or less when purchased.
(l) Reclassification
Certain amounts in the 1996 financial statements have been
reclassified to conform to the 1995 presentation.
8 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
(2) INVESTMENTS
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
================================================================================================
1996 1995 1994
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $4,291,428 4,458,159 3,840,763
Short-term investments 75,110 43,781 133,755
Policy loans and other 260,276 294,298 216,942
------------------------------------------------------------------------------------------------
4,626,814 4,796,238 4,191,460
Investment expenses 80,270 96,525 95,915
------------------------------------------------------------------------------------------------
Net investment income $4,546,544 4,699,713 4,095,545
================================================================================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1996 and 1995 are shown below. Market value is based upon market
prices obtained from independent pricing services which approximate
fair value.
<TABLE>
<CAPTION>
=========================================================================================================
1996
---------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 3,962,315 127,349 6,292 4,083,372
Corporate securities 40,917,820 1,299,830 902,482 41,315,168
Mortgage-backed securities 13,087,363 29,539 457,003 12,659,899
---------------------------------------------------------------------------------------------------------
$57,967,498 1,456,970 1,366,029 58,058,439
=========================================================================================================
</TABLE>
9 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
<TABLE>
<CAPTION>
1995
---------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,299,846 287,844 273,583 9,314,107
Corporate securities 40,799,139 3,013,425 388,584 43,423,980
Mortgage-backed securities 10,095,402 432,140 9,502 10,518,040
---------------------------------------------------------------------------------------------------------
$60,194,387 3,733,409 671,669 63,256,127
=========================================================================================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1996 by contractual maturity are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
=========================================================================================================
Estimated
Amortized market
cost value
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,257,740 1,255,992
Due after one year through five years 2,404,896 2,384,096
Due after five years through ten years 6,160,517 5,951,583
Due after ten years 35,056,982 35,806,869
Mortgage-backed securities 13,087,363 12,659,899
---------------------------------------------------------------------------------------------------------
$57,967,498 58,058,439
=========================================================================================================
</TABLE>
Proceeds from the sale, call, and maturity of investments in bonds
1996, 1995, and 1994 were $15,141,063, $19,355,372, and $16,780,012,
respectively. Gross gains of $381,856, $428,522, and $119,699 and gross
losses of $68,671, $608,352, and $635,674 were realized on those sales
in 1996, 1995, and 1994, respectively.
The Company has bonds on deposit with various state insurance
departments with an amortized cost of approximately $2,411,000 and
$2,421,000 at December 31, 1996 and 1995, respectively.
(3) REINSURANCE
The Company reinsures certain risks with other insurance companies as
the Company sets a maximum retention amount (currently $125,000)
to help reduce the loss on any single policy.
10 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
Premiums and related reinsurance amounts for the years ended
December 31, 1996, 1995, and 1994 as they relate to transactions
with affiliates are summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded $1,632,262 1,956,568 2,391,067
Policy benefits ceded 1,397,188 305,947 2,340,522
Commissions and expenses ceded -- -- 169,453
- ----------------------------------------------------------------------------------------------------
</TABLE>
Premiums and related reinsurance amounts for the years ended
December 31, 1996, 1995, and 1994 as they relate to transactions
with nonaffiliates are summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with nonaffiliates:
Reinsurance premiums ceded $5,744,060 5,489,407 6,299,344
Policy benefits ceded 3,824,327 2,682,132 3,050,824
Commissions and expenses ceded -- -- 674,438
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Company remains contingently liable with respect to any
reinsurance ceded and would become actually liable if the assuming
company was unable to meet its obligations under the reinsurance
treaty.
(4) FEDERAL INCOME TAXES
A reconciliation of the Company's "expected" federal income tax
expense (benefit), computed by applying the federal U.S. corporate
tax rate of 35% to income (loss) from operations before federal
income tax expense (benefit), is as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
====================================================================================================
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(99) 45 (1,802)
Amortization of intangibles, net 21 18 10
Other, net 1 1 962
- ----------------------------------------------------------------------------------------------------
Federal income tax expense (benefit) $(77) 64 (830)
====================================================================================================
</TABLE>
11 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and liabilities at
December 31, 1996 and 1995 are presented below (in thousands of
dollars):
<TABLE>
<CAPTION>
===========================================================================================
1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy acquisition costs $1,746 1,157
Reserves 1,694 2,072
Capital loss carryforward 148 243
Net operating loss carryforward -- 323
Other, net 685 410
-------------------------------------------------------------------------------------------
Total gross deferred tax assets 4,273 4,205
Less valuation allowance -- --
-------------------------------------------------------------------------------------------
Net deferred tax assets 4,273 4,205
-------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 80 1,097
Other, net 790 856
-------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 870 1,953
-------------------------------------------------------------------------------------------
Net deferred tax asset $3,403 2,252
===========================================================================================
</TABLE>
On December 31, 1993, General American purchased 100% of the Company.
Pursuant to the acquisition, the election was made under Internal
Revenue Code Section 338(h)(10) to treat the purchase of stock as a
purchase of assets for tax purposes. As a result, a revaluation of
the tax bases of the Company's assets and liabilities was made in
connection with the acquisition.
The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary. In
assessing the realization of deferred tax assets, the Company considers
whether it is more likely than not that the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Although the
Company has a limited history of earnings, its Parent does have a long
history of earnings. Pursuant to Internal Revenue Service regulations,
the Company cannot file a consolidated tax return with its Parent until
five years following the acquisition. However, after five years, the
Company will be able to file a consolidated tax return with its Parent,
and realization of the gross tax asset will not be dependent solely on
the Company's ability to generate its own taxable income. General
American has a proven history of earnings and it appears more likely
than not that the Company's gross deferred tax asset will
ultimately be fully realized.
The Company filed its federal income tax return on a consolidated basis
with Security Mutual prior to 1994. In connection with the Company's
transfer of stock ownership, Security Mutual agreed to assume all
unpaid tax liability incurred prior to the date of sale.
12 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
(5) RELATED-PARTY TRANSACTIONS
The Company purchases certain administrative services from
General American. Charges for services performed are based upon
personnel and other costs involved in providing such services.
The expenses incurred for these services were $529,000, $463,200,
and $407,000 for 1996, 1995, and 1994, respectively.
Effective January 1, 1994, the Company entered into an
administrative service agreement with Security Mutual. Under the
agreement, Security Mutual provides for the administration of
policies issued through December 31, 1993. The expenses incurred
for these services were $1,621,268, $1,842,320, and $1,980,812 for
1996, 1995, and 1994, respectively.
(6) PENSION, INCENTIVE, AND HEALTH AND LIFE INSURANCE BENEFIT PLANS
Associates of SELIC participate in a noncontributory multi-employer
defined benefit pension plan jointly sponsored by SELIC and
General American. The benefit is accrued are based on the number
of years of service and compensation level of each participant.
No pension expense was recognized in 1996, 1995, or 1994 due to
overfunding of the plan.
In addition, in 1995 SELIC adopted an associate bonus plan applicable
to full-time exempt associates. Bonuses are based on an economic
value-added model prepared annually by the Company. Total bonuses
accrued to Company employees were $144,000 and $59,500 in 1996 and
1995, respectively. In 1994, the Company accrued bonuses of
$150,000 under a nonrelated associate bonus plan.
SELIC provides for certain health care and life insurance benefits
for retired employees in accordance with SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions. SFAS
No. 106 requires the Company to accrue the estimated cost of
retiree benefit payments during the years the employee provides
services.
SFAS No. 106 allows recognition of the cumulative effect of the
liability in the year of the adoption or the amortization of the
transition obligation over a period of up to 20 years. The
Company has elected to recognize the initial postretirement
benfit obligation of approximately $16,427 over a period of 20
years. The unrecognized initial postretirement benefit obligation
was approximately $13,962 and $14,784 at December 31, 1996 and
1995, respectively. The net periodic post-retirement benefit cost
for the years ended December 31, 1996, 1995, and 1994 was $8,490,
$6,711, and $6,232, respectively. This includes expected costs of
benefits for newly eligible or vested employees, interest costs,
gains and losses from differences between actuarial and actual
experience, and amortization of the initial postretirement benefit
obligation. The accumulated post-retirement benefit obligation
was approximately $28,981 and $17,089 at December 31, 1996 and
1995, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation was 7.25% for all
years. The health care cost trend rates were 9% for the Indemnity
Plan, 8% for the HMO Plan, and 9% for the Dental Plan. These
rates were graded to 5.25% over the next 14 years. A one
percentage point increase in the assumed health care cost trend
rates would increase the December 31, 1996 accumulated
postretirement obligation by 12.9%, and the estimated service cost
and interest cost components of the net periodic postretirement
benefit cost for 1996 by 16.0%.
13 (Continued)
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
(7) STATUTORY FINANCIAL INFORMATION
The Company is subject to financial statement filing requirements of
the State of New York Department of Insurance, its state of
domicile, as well as the states in which it transacts business.
Such financial statements, generally referred to as statutory
financial statements, are prepared on a basis of accounting which
varies in some respects from generally accepted accounting
principles (GAAP). Statutory accounting principles include:
(1)charging of policy acquisition costs to income as incurred; (2)
establishment of a liability for future policy benefits computed
using required valuation standards which may vary in methodology
utilized; (3) nonprovision of deferred federal income taxes
resulting from temporary differences between financial reporting
and tax bases of assets and liabilities; (4) recognition of
statutory liabilities for asset impairments and yield
stabilization on fixed maturity dispositions prior to maturity
with asset valuation reserves based on statutorily determined
formulae and interest stabilization reserves designed to level
yields over their original purchase maturities; (5) deferred
premiums provided for statutory mean reserves; (6) annuity
contract deposits represent funds deposited by policyholders and
are included in premiums or contract charges; (7) non-recognition
of certain assets as nonadmitted through a direct charge to
surplus; and (8) valuation of investments in bonds at amortized
cost..
The stockholder's equity (surplus) and net loss of the Company at
December 31, 1996, 1995, and 1994, as determined using statutory
accounting practices, is summarized as follows:
<TABLE>
<CAPTION>
=========================================================================================================
1996 1995 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Surplus as reported to regulatory authorities $12,441,081 15,125,968 17,264,148
Net loss as reported to regulatory authorities (2,778,942) (1,465,539) (3,779,205)
=========================================================================================================
</TABLE>
(8) DIVIDEND RESTRICTIONS
Dividend payments by the Company are restricted by state insurance
laws as to the amount that may be paid as well as the prior notice
and approval of the State of New York Department of Insurance.
The Company did not pay a dividend in 1996, 1995, or 1994.
(9) RISK-BASED CAPITAL
The insurance departments of various states, including the Company's
domiciliary state of New York, impose risk-based capital (RBC)
requirements on insurance enterprises. The RBC calculation serves
as a benchmark for the regulation of life insurance companies by
state insurance regulators. The requirements apply various
weighted factors to financial balances or activity levels based on
their perceived degree of risk.
The RBC guidelines define specific capital levels where action by the
Company or regulatory authorities is required based on the ratio
of a company's actual total adjusted capital (sum of capital and
surplus and asset valuation reserve) to control levels determined
by the RBC formula. At December 31, 1996, the Company's actual
total adjusted capital was in excess of minimum levels which would
require action by the Company or regulatory authorities under the
RBC formula.
14 (Continued)
<PAGE>
SECURITY EQUITY INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
(10) COMMITMENTS AND CONTINGENCIES
The Company leases certain of its facilities under noncancellable
leases which expire in August 1998. The future minimum lease
obligations under the terms of the leases are summarized as
follows:
<TABLE>
<CAPTION>
========================================================================================
<S> <C>
Year ended December 31:
1997 $ 84,600
1998 58,600
----------------------------------------------------------------------------------------
$143,200
========================================================================================
</TABLE>
Rent expense totaled approximately $82,700, $83,900, and $50,700
in 1996, 1995, and 1994, respectively.
(11) SUBSEQUENT EVENT
Subsequent to December 31, 1996, a policyholder of the Company
utilized the "free-look" option of their variable life contract
which resulted in the return of approximately $13 million in
contract deposits to the policyholder and the nonrealization of
approximately $1.6 million in commissions and related expenses by
the Company. The impact to the Company's net income and financial
position is not significant. Management is maintaining continuing
discussions with this policyholder to provide an opportunity to
retain this business in 1997.
15
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B
of this Registration Statement
(b) Exhibits
(1) -- Resolutions of the Board of Directors of Security
Equity Life Insurance Company ("Security Equity")
establishing the Separate Account.(1)
(2) -- Not Applicable
(3) (a) -- Distribution Agreement.(2)
(b) -- Agency (Selling) Agreement.(2)
(4) (a) -- Form of variable annuity contract. 600531(4)
(b) -- Form of individual retirement account
endorsement. 6090031(4)
(5) -- Form of Contract Application.(2)
(6) (a) -- Certificate of Incorporation of Security
Equity.(1)
(b) -- By-laws of Security Equity.(1)
(7) -- Not applicable
(8) -- Participation Agreement.(2)
(9) -- Opinion and Consent of Counsel.(1)
(10) -- Consent of Independent Accountants.
(11) -- No financial statements are omitted from item 23.
(12) -- Not applicable
(13) -- Not applicable
(14) -- Powers of attorney for Security Equity Life
Insurance Company Directors Richard A. Liddy,
Edwin Trusheim, Virginia V. Weldon, Ted C.
Wetterau, Carson E. Beadle, David D. Holbrook,
Stanley Goldstein, James R. Elsesser, Bernard H
Wolzenski, Leonard M. Rubenstein, A. Greig
Woodring, William C. Thater.(1) Willard N. Archie(3)
(1) Incorporated herein by reference to the initial
Registration Statement (file no. 33-87248) filed
on December 9, 1994.
(2) Incorporated herein by reference to Pre-Effective
Amendment No. 1 (file no. 33-87248) filed on April 14, 1995.
(3) Incorporated herein by reference to Post-Effective
Amendment No. 1 (file 33-87144) filed on 29 April 1996.
(4) Filed herewith.
C-1
<PAGE>
Item 25. Directors and Officers of the Depositor
OFFICER'S NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH DEPOSITOR
Richard J. Gatesman Second Vice President
Ralph H. Gorter Second Vice President
Judith A. Maron Second Vice President
Fabio Pieroni Vice President,
Treasurer, and Controller
William C. Thater President and Director
Matthew P. McCauley Secretary and
General American Life and General Counsel
Insurance Company
700 Market Street
St. Louis, MO 63101
* The principal business address of each person listed is Security
Equity Life Insurance Company, 84 Business Park Drive, Suite 303,
Armonk, New York 10504, unless otherwise indicated.
C-2
<PAGE>
DIRECTORS POSITIONS AND OFFICES
WITH DEPOSITOR
Willard N. Archie Director
Mitchell, Titus & Company
One Battery Park Plaza
New York, New York 10004-1461
Carson E. Beadle Director
William M. Mercer, Incorporated
1166 Avenue of the Americas
New York, New York 10036
James R. Elsesser Director
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Stanley Goldstein Director
1185 Sixth Avenue
New York, New York 10036
David D. Holbrook Director
Marsh & McLennan, Inc.
1166 Avenue of the Americas
New York, New York 10036
Richard A. Liddy Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
Leonard M. Rubenstein Director
Conning Corporation
700 Market Street
St. Louis, Missouri 63101
William C. Thater Director and President
Security Equity Life Insurance Company
84 Business Park Drive, Suite 303
Armonk, New York 10504
Edwin Trusheim Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
C-3
<PAGE>
Directors Positions and Offices
with Depositor
Virginia V. Weldon, M.D. Director
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Ted C. Wetterau Director
Wetterau Associates, L.L.C.
7700 Bonhomme, Suite 750
St. Louis, Missouri 63105
Bernard H. Wolzenski Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
A. Greig Woodring Director
Reinsurance Group of America, Inc.
660 Mason Ridge Center Drive, Suite 300
St. Louis, Missouri 63141
C-4
<PAGE>
Item 26. Persons Controlled by or Under Common Control With the
Depositor or Registrant
The Depositor, Security Equity Life Insurance Company ("Security
Equity"), is under common control with the following companies, all of
which are controlled by General American Life Insurance Company
("General American"):
General American Life Insurance Company: a life insurance company
selling life and health insurance and pensions. Principal place of
business: St. Louis, Missouri.
Cova Corporation: wholly-owned subsidiary formed to own the Xerox
Life companies. Principal place of business: St. Louis, Missouri.
Cova Financial Services Life Insurance Company: wholly-owned
by Cova Corporation, engaged in the business of selling
annuities and life insurance. Principal place of business:
Oakbrook, Illinois.
First Cova Life Insurance Company: wholly-owned by Cova
Financial Services Life Insurance Company, engaged in the
sale of life insurance in New York. Principal place of
business: New York, New York.
Cova Financial Life Insurance Company: wholly-owned by
Cova Financial Services Life Insurance Company, engaged
in the sale of life insurance and annuities. Principal
place of business: Oakbrook, Illinois.
Cova Life Management Company: wholly-owned by Cova
Corporation. Employer of the individuals operating the Cova
companies. Principal place of business: Oakbrook, Illinois.
Cova Investment Advisory Corporation: wholly-owned by
Cova Life Management Company. Intended to provide
investment advice to Cova Life insureds and annuity
owners. Principal place of business: Oakbrook,
Illinois.
Cova Investment Allocation Corporation: wholly-owned by
Cova Life Management Company. Intended to provide advice
on allocation of premiums to Cova Life insureds and
annuity owners. Principal place of business: Oakbrook,
Illinois.
C-5
<PAGE>
Cova Life Sales Company: wholly-owned by Cova Life
Management Company. Broker-dealer established to
supervise sales of Cova Life contracts. Principal place
of business: Oakbrook, Illinois
General Life Insurance Company of America: wholly-owned
subsidiary, domiciled in Illinois, engaged in the business of
selling life insurance and annuities. Principal place of business:
Edwardsville, Illinois.
General Life Insurance Company (fka National American Life
Insurance Company of Texas): wholly-owned subsidiary, domiciled in
Texas, engaged in the business of selling life insurance and
annuities. Principal place of business: Edwardsville, Illinois.
Paragon Life Insurance Company: wholly-owned subsidiary engaged in
employer sponsored sales of life insurance. Principal place of
business: St. Louis, Missouri.
Equity Intermediary Company: wholly-owned subsidiary holding
company formed to own stock in subsidiaries. Principal place of
business: St. Louis, Missouri.
Reinsurance Group of America, Incorporated: subsidiary, of
which approximately 64% is owned by Equity Intermediary and
the balance by the public. Principal place of business: St.
Louis, Missouri.
RGA Sudamerica S.A.: Chilean subsidiary, of which all
but one share is owned by RGA and one share is owned by
RGA Reinsurance Company (fka Saint Louis Reinsurance
Company), existing to hold Chilean reinsurance
operations. Principal place of business: Santiago,
Chile.
BHIF America Sequros de Vida S.A.: Chilean
subsidiary, of which 50% is owned by RGA Sudamerica
S.A. and 50% is owned by Chilean interests, engaged
in business as a life/annuity insurer. Principal
place of business: Santiago, Chile
RGA Reinsurance Company Chile S.A.: 100% owned by
RGA, engaged in business of reinsuring life and
annuity business of BHIF America. Principal place
of business: Santiago, Chile.
C-6
<PAGE>
Manantial Sequros de Vida S.A.: Argentinean subsidiary
100% owned by RGA, engaged in business as a life,
annuity, disability and survivorship insurer. Principal
place of business: Buenos Aires, Argentina.
RGA Reinsurance Company (formerly Saint Louis Reinsurance
Company): subsidiary of Reinsurance Group of America
engaged in the reinsurance business. Principal place of
business: St. Louis, Missouri.
Fairfield Management Group, Inc. (fka Great Rivers
Holding Company): 51% owned subsidiary of RGA
Reinsurance Company (fka Saint Louis Reinsurance
Company) and 49% is owned by management. Principal
place of business: St. Louis, Missouri.
Reinsurance Partners, Inc. (fka Adrian Baker
Reinsurance Intermediaries, Inc.): wholly-
owned subsidiary of Fairfield Management
Group, Inc., engaged in business as a
reinsurance brokerage company. Principal place
of business: St. Louis, Missouri.
Great Rivers Reinsurance Management, Inc.:
wholly-owned subsidiary of Fairfield
Management Group, Inc., acting as a
reinsurance manager. Principal place of
business: St. Louis, Missouri.
RGA (U.K.) Underwriting Agency Limited: 80%
owned by Fairfield Management Group, Inc.
Principal place of business: London, England.
RGA Reinsurance Company (Barbados) Ltd.: subsidiary of
Reinsurance Group of America, Incorporated formed to
engage in the exempt insurance business. Principal place
of business: Barbados, West Indies.
RGA/Swiss Financial Group, L.L.C.: 40% owned
subsidiary formed to market and manage financial
reinsurance business to be assumed by RGA
Reinsurance Company. Principal place of business:
St. Louis, Missouri.
C-7
<PAGE>
G.A. Canadian Holdings, Ltd.: a New Brunswick
corporation wholly-owned by Reinsurance Group of America,
existing to hold Canadian reinsurance operations.
Principal place of business: Montreal, Canada.
RGA Canada Management Company, Ltd.: a New
Brunswick corporation wholly-owned by G.A. Canadian
Holdings, existing to accommodate Canadian
investors. Principal place of business: Montreal,
Canada.
RGA Life Reinsurance Company of Canada:
wholly-owned by RGA Canada Management Company,
Ltd. Principal place of business: Montreal,
Canada.
RGA Holdings Limited: holding company formed in the United
Kingdom to own two operating companies: RGA Managing Agency
Limited and RGA Capital Limited. Principal place of business:
London, England.
RGA Managing Agency Limited: company has applied to
Lloyd's of London for registration as a managing agent or
underwriter. Principal place of business: London,
England.
RGA Capital Limited: company has applied to Lloyd's of
London for admission as the sole corporate member of a
new Lloyd's syndicate which will underwrite accident and
health business. Principal place of business: London,
England.
RGA Reinsurance Company (Bermuda) Ltd.: subsidiary formed to
reinsure the foreign (international) and domestic (U.S.)
business of affiliated and non-affiliated companies.
Principal place of business: Bermuda (Hamilton).
RGA Australian Holdings Pty Limited: holding company formed
to own RGA Reinsurance Company of Australia Limited.
Principal place of business: Sydney, Australia.
RGA Reinsurance Company of Australia Limited: formed to
reinsure the life, health and accident business of non-
affiliated Australian insurance companies. Principal
place of business: Sydney, Australia.
C-8
<PAGE>
Security Equity Life Insurance Company: wholly-owned subsidiary,
domiciled in New York, engaged in the business of selling life
insurance and annuities. Principal place of business: Principal
place of business: Armonk, New York.
General American Holding Company: wholly-owned subsidiary owning
non-insurance subsidiaries. Principal place of business: St.
Louis, Missouri.
Conning Corporation: wholly-owned, second-tier subsidiary
formed to own Conning, Inc. Principal place of business: St.
Louis, Missouri.
Conning, Inc.: a holding company organized under
Delaware law. Principal place of business: Hartford,
Connecticut.
Conning & Company: a Connecticut corporation
engaged in providing asset management and
investment advisory services as well as insurance
research services. Principal place of business:
Hartford, Connecticut
Conning Asset Management Company: a Missouri
corporation engaged in providing investment
advice. Principal place of business: St.
Louis, Missouri.
Consultec, Inc.: wholly-owned, second-tier subsidiary engaged
in providing data processing services for government entities.
Principal place of business: Atlanta, Georgia.
Genelco Incorporated: wholly-owned, second-tier subsidiary
engaged in the sale of computer software and in providing
third party administrative services. Principal place of
business: St. Louis, Missouri.
International Underwriting Services, Incorporated: 88.3%
owned by Genelco. Provides third party underwriting
services to insurance companies. Principal place of
business: Barrington, Illinois.
Genelco de Mexico: 99% owned by Genelco Incorporated,
engaged in licensing of Genelco software products in
Latin America. Principal place of business: Mexico
City, Mexico.
C-9
<PAGE>
Genelco Software, S.A.: 99% owned by Genelco
Incorporated, engaged in licensing of Genelco software
products in Spain. Principal place of business: Madrid,
Spain.
Red Oak Realty Company: wholly-owned, second-tier subsidiary
formed for the purpose of investing in and operating real
estate. Principal place of business: St. Louis, Missouri.
GenMark Incorporated: wholly-owned, second-tier subsidiary
company acting as distribution company. Principal place of
business: St. Louis, Missouri.
Walnut Street Securities, Inc.: wholly-owned, third-tier
subsidiary engaged in the process of selling variable
life insurance and variable annuities and other
securities. Principal place of business: St. Louis,
Missouri.
Walnut Street Advisers, Inc.: wholly-owned
subsidiary of Walnut Street Securities engaged in
the business of giving investment advice. Principal
place of business: St. Louis, Missouri.
WSS Insurance Agencies (Massachusetts, Ohio,
Texas), Inc.: formed to act as insurance agencies.
Stan Mintz Associates, Inc.: wholly-owned subsidiary
purchased to maintain a significant marketing presence in
the Madison, Wisconsin area upon the retirement of
General Agent Stan Mintz. Principal place of business:
Madison, Wisconsin.
White Oak Royalty Company: wholly-owned, second-tier
subsidiary formed to own mineral interests. Principal place of
business: St. Louis, Missouri.
Mutual funds associated with General American Life Insurance Company:
General American Capital Company
The Walnut Street Funds, Inc.
Item 27. Number of Contract Owners as of March 23, 1997:
Qualified 0
Non-Qualified 14
Item 28. Indemnification
Sections 721 and 722 of the New York Business Corporation Law, in brief,
allow a corporation to indemnify any person made or threatened to be
made a party to an action or proceeding other than one by or in the
right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the corporation served in
any capacity at the request of the corporation, by reason of the fact
that he, his testator or intestate, was a director or officer of the
corporation, or served such other corporation, partnership, joint
C-10
<PAGE>
venture, trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorney's 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, or, in the case of service for
any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interests of
the corporation and, in criminal actions or proceedings, in addition,
had no reasonable cause to believe that his conduct was unlawful. Where
any person is made, or threatened to be made, a party to an action by or
in the right of the corporation to procure a judgment in its favor,
indemnification shall not be made in respect of (1) a threatened action,
or a pending action which is settled or otherwise disposed of, or (2)
any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent
that the court on which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines upon
application that, in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for such portion
of the settlement amount and expenses as the court deems proper. A
corporation has the power to give any further indemnification and
advancement of expenses to any person who is or was a director, officer,
or other corporate personnel, whether such right is contained in the
certificate of incorporation or the by-laws or, when authorized by such
certificate of incorporation or by-laws, (i) a resolution of
shareholders, (ii) a resolution of directors, or (iii) an agreement
providing for such indemnification, provided that no indemnification may
be made to or on behalf of any director or officer if a judgment or
other final adjudication adverse to the director or officer establishes
that his acts were committed in bad faith or were the result of active
and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled.
In accordance with New York law, Security Equity's Board of Directors
adopted the following by-law:
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section VII.1. Indemnification of Directors and Officers. The
Corporation may indemnify any person made, or threatened to be made, a
party to an action by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she, his or her
testator, testatrix or intestate,
C-11
<PAGE>
is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation as a director or officer of any other
corporation of any type or kind, domestic or foreign, of any
partnership, joint venture, trust, employee benefit plan or other
enterprise, against amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him or
her in connection with the defense or settlement of such action, or in
connection with an appeal therein, if such director or officer acted, in
good faith, for a purpose which he or she reasonably believed to be in,
or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not
opposed to, the best interests of the Corporation, except that no
indemnification under this Section shall be made in respect of (1) a
threatened action, or a pending action which is settled or is otherwise
disposed of, or (2) any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation, unless and
only to the extent that the court in which the action was brought, or,
if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of
the case, the person is fairly and reasonably entitled to indemnity for
such portion of the settlement amount and expenses as the court deems
proper.
The Corporation may indemnify any person made, or threatened to be
made, a party to an action or proceeding (other than one by or in the
right of the Corporation to procure a judgment in its favor), whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, which any director or officer of the Corporation served in
any capacity at the request of the Corporation, by reason of the fact
that he or she, his or her testator, testatrix or intestate, was a
director or officer of the Corporation, or served such other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise in any capacity, 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 or she reasonably believed to be in,
or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not
opposed to, the best interests of the Corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe
that his or her conduct was unlawful.
C-12
<PAGE>
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 or she reasonably believed to be in, or, in the case of service for
any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interest of
the Corporation or that he or she had reasonable cause to believe that
his or her conduct was unlawful.
A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character
described in the first two paragraphs of this Article VII, shall be
entitled to indemnification as authorized in such paragraphs. Except as
provided in the preceding sentence and unless ordered by a court, any
indemnification under such paragraphs shall be made by the Corporation,
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, officer or
employee has met the standard of conduct set forth in the
first two paragraphs of this Article VII, as the case may
be or
(2) If such a quorum is not obtainable with due diligence or,
even if obtainable, a quorum of disinterested directors
so directs,
(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 the first two paragraphs
of this Article VII has been met by such director,
officer of employee, or
(b) By the shareholders upon a finding that the director,
officer or employee has met the applicable standard of
conduct set forth in such paragraphs.
Expenses, including attorneys' fees, incurred in defending a civil
or criminal action or a proceeding may be paid by the Corporation in
advance of the final disposition of such action or proceeding, if
authorized in accordance with the preceding paragraph, subject to
repayment to the Corporation in case the person receiving such
advancement is ultimately found, under the procedure set forth in this
Article VII, not to be entitled to
C-13
<PAGE>
indemnification or, where indemnification is granted, to the extent the
expenses so advanced by the Corporation exceed the indemnification to
which he or she is entitled.
Nothing herein shall affect the right of any person to be awarded
indemnification or, during the pendency of litigation, an allowance of
expenses, including attorneys' fees, by a court in accordance with law.
If any expenses or other amounts are paid by way of indemnification,
otherwise than by court order or action by the shareholders, the
Corporation shall, not later than the next annual meeting of
shareholders unless such meeting is held within three months from the
date of such payment, and in any event, within fifteen months from the
date of such payment, mail to its shareholders of record at the time
entitled to vote for the election of directors a statement specifying
the persons paid, the amounts paid, and the nature and status at the
time of such payment of the litigation or threatened litigation.
The Corporation shall have the power, in furtherance of the
provisions of this Article VII, to apply for, purchase and maintain
insurance of the type and in such amounts as is or may hereafter be
permitted by Section 726 of the Business Corporation Law.
No payment of indemnification, advancement or allowance under
Sections 721 to 726, inclusive, of the Business Corporation Law shall be
made unless a notice has been filed with the Superintendent of Insurance
of the State of New York, not less than thirty days prior to such
payment, specifying the persons to be paid, the amounts to be paid, the
manner in which such payment is authorized and the nature and status, at
the time of such notice, of the litigation or threatened litigation.
Item 29. Principal Underwriters
(a) GT Global, Inc. serves as the principal
underwriter and distributor for the variable
annuity contracts using Separate Account 26
and Separate Account 27 of Security Equity and
funded by GT Variable Investment Funds.
(b) Directors and Officers
C-14
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
William J. Guilfoyle President and Director
James R. Tufts Senior Vice President -
Finance and Administration and
Director
Helge K. Lee Senior Vice President and
General Counsel
Raymond R. Cunningham Senior Vice President -
National Sales
Manager and Director
Richard Healey Senior Vice President - Retail
Marketing
David J. Thelander Vice President and Assistant
General Counsel
David P. Anderson, Jr. Vice President
1012 William
Plymouth, MI 48170
Jon Burke Vice President
31 Darlene Drive
Southboro, MA 01772
Philip B. Christoper Vice President
3621 59th Avenue, SW
Seattle, WA 98116
C-15
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
Anthony DiBacco Vice President
30585 Via Lindon
Laguna Niguel, CA 92677
Stephen Duffy Vice President
1120 Gables Drive
Atlanta, GA 30319
Philip D. Edelstein Senior Vice President
9 Huntly Circle
Palm Beach Gardens, FL 334l8
Ned E. Hammond Vice President
5901 McFarland Ct.
Plano, TX 75093
Campbell Judge Vice President
4312 Linden Hills Blvd.
#202
Minneapolis, MN 55410
Richard Kashnowski Vice President
1454 High School Drive
Brentwood, MO 63144
Allen M. Kuhn Vice President
7220 Garfield Street
New Orleans, LA 70118
Jeffrey S. Kulik Vice President
6540 Autumn Wind Circle
Clarksville, MD 21029
C-16
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
Stephen A. Maginn Senior Vice President
519 S. Juanita and Regional Sales
Redondo Beach, CA 90277 Manager
Steven C. Manns Vice President
3025 Caswell Drive
Troy, MI 48084
C. David Matthews Vice President
2445 Pebblebrook
Westlake, OH 44l45
Wayne Meyer Vice President
2617 Sun Meadow Drive
Chesterfield, MO 63005
Dean Phillips Vice President
3406 Bishop Park Drive, #428
Winter Park, FL 32792
Anthony R. Rogers Vice President
100 Southbank Drive
Cary, NC 27511
James B. Sandidge Vice President
16437 W. First Ave.
Golden, CO 80401
Philip Schertz Vice President
25 Ivy Place
Wayne, NJ 07470
Peter Sykes Vice President
1655 E. Sherman Ave.
Salt Lake City, UT 84105
Lance Vetter Vice President
10915 La Salinas Circle
Boca Raton, FL 33428
Tommy D. Wells Vice President
25 Crane Drive
San Anselmo, CA 94960
C-17
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
Todd H. Westby Vice President
3405 Goshen Road
Newtown Square, PA l9073
Brian A. Williams Vice President
874 Lincoln Ave.
Winnetka, IL 60093
Eric T. Zeigler Vice President
300 The Strand
Manhattan Beach, CA 90266
* Unless otherwise indicated, the business address of each person listed
is 50 California Street, San Francisco, California 94lll.
(c) Principal Underwriter
1996 Brokerage Commission 1996 Compensation
GT Global $96,289.00 $96,289.00
C-18
<PAGE>
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by Security Equity at
its administrative offices, 84 Business Park Drive, Suite 303, Armonk,
New York 10504, or by its service provider, General American Life
Insurance Company (or its wholly-owned, second tier subsidiary, Genelco
Incorporated), at its National Service Center, located at 13045 Tesson
Ferry Road, St. Louis, Missouri 63128.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) The Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as necessary to
ensure that the audited financial statements in the registration
statement are never more than 16 months old for so long as Purchase
Payments under the Contracts may be accepted.
(b) The Registrant undertakes to include, as part of the application to
purchase a Contract offered by the prospectus, a space that an applicant
can check to request a Statement of Additional Information.
(c) The Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request to Security Equity
at the address or phone number listed in the prospectus.
(d) The Registrant represents that it is relying upon a "no-action"
letter (No. IP-6-88) issued to the American Council of Life Insurance
concerning the conflict between the redeemability requirements of
sections 22(e), 27(c)(l), and 27(d) of the Investment Company Act of
l940 and the limits on the redeemability of variable annuities imposed
by section 403(b)(ll) of the Internal Revenue Code. Registrant has
included disclosure concerning the 403(b)(ll) restrictions in its
prospectus and sales literature, and established a procedure whereby
each plan participant will sign a statement acknowledging these
restrictions before the contract is issued. Sales representatives have
been instructed to bring the restrictions to the attention of potential
plan participants.
(e) Security Equity hereby represents that the fees and charges deducted
under the Contracts are, in the aggregate, reasonable in relationship to
the services rendered, the expenses expected, and the risks incurred by
Security Equity.
C-19
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this amended
Registration Statement and has duly caused this amended Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the
City of Armonk, State of New York, on the 14th day of April, 1997.
SECURITY EQUITY SEPARATE
ACCOUNT 26 (REGISTRANT)
(Seal) By: SECURITY EQUITY LIFE
INSURANCE COMPANY (for
Registrant and as Depositor)
Attest: By:-------------------------
Matthew P. McCauley William C. Thater
Secretary President
Security Equity Life Security Equity Life
Insurance Company Insurance Company
<PAGE>
As required by the Securities Act of 1933, this amended Registration
Statement has been signed below by the following persons in their
capacities with Security Equity Life Insurance Company and on the dates
indicated.
SIGNATURE TITLE DATE
- -------------------------- 4/14/97
William C. Thater President
(Principal Executive
Officer)
- -------------------------- 4/14/97
Fabio Pieroni Vice President, Treasurer,
and Controller
(Principal Accounting
Officer and Principal
Financial Officer)
**
- --------------------------
Willard N. Archie Director
*
- --------------------------
Carson E. Beadle Director
*
- --------------------------
James R. Elsesser Director
*
- --------------------------
Stanley Goldstein Director
*
- --------------------------
David D. Holbrook Director
*
- --------------------------
Richard A. Liddy Director
*
- --------------------------
Timothy C. Nicholson Director
*
- --------------------------
Leonard M. Rubenstein Director
- -------------------------- 4/14/97
William C. Thater Director
<PAGE>
SIGNATURE TITLE DATE
*
- --------------------------
H Edwin Trusheim Director
*
- --------------------------
Virginia V. Weldon Director
*
- --------------------------
Ted C. Wetterau Director
*
- --------------------------
Bernard H Wolzenski Director
*
- --------------------------
A. Greig Woodring Director
By------------------------ 4/14/97
William C. Thater
* Original powers of attorney authorizing William C. Thater to sign the
Registration Statement and amendments thereto on behalf of the Directors
of Security Equity Life Insurance Company are on file with the SEC.
<PAGE>
Exhibit Index
99.10 Consent of Independent Accountants
<PAGE>
CONTRACT NUMBER
ANNUITANT
INDIVIDUAL VARIABLE ANNUITY
NON-TAX QUALIFIED
NON-PARTICIPATING
This is a legal ANNUITY CONTRACT between the Contract Owner and Security Equity.
PLEASE READ THIS CONTRACT CAREFULLY.
RIGHT TO EXAMINE
You may return this Contract within 10 days after receiving it. It may be
delivered or mailed to us or the agent through whom it was purchased. The
Contract will then be deemed void from the start. We will return the greater of:
(1) the Accumulated Value in the Separate Accounts plus any premium taxes that
had been deducted or, (2) the purchase payment made.
In consideration of the Contract Owner's application and the purchase payments
to be made as provided herein, we agree to pay benefits, to the extent required
by this Contract, to those individuals entitled to such benefits.
ALL INSTALLMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF ONE OR MORE DIVISIONS OF THE SEPARATE ACCOUNTS, ARE
VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS.
Signed for the company at its Home Office, Armonk, NY 1O504.
V. P., GENERAL COUNSEL
AND SECRETARY PRESIDENT
600053
<PAGE>
ALPHABETIC GUIDE TO THE CONTRACT
Page Page
4.03 Addition, Deletion, or Substitution 3.01 Definitions
of Investments 6.01 Persons with an Interest
4.01 Accumulation Provisions in the Contract
7.01 Annuity Option Table 3.02 Purchase Payments
5.01 Annuity Provisions 6.02 The Contract
4.05 Cash Withdrawals 4.03 Transfers
4.04 Charges and Deductions 4.02 Valuation Provisions
4.01 Contract Continuation Separate Account
5.03 Death Benefit
Supplemental Agreements, Modifications and Amendments, if any, and a copy of the
application is found following the final section.
<PAGE>
CONTRACT SPECIFICATIONS
CONTRACT NUMBER:
CONTRACT OWNER:
ANNUITANT:
ISSUE AGE:
SEX:
DATE OF ISSUE:
AMOUNT OF INITIAL PURCHASE PAYMENT:
Please see the attached application for the allocation of your initial purchase
payment.
BENEFICIARY DESIGNATION:
FORM
NUMBERS
1.01
<PAGE>
1. DEFINITIONS IN THIS CONTRACT
WE, US AND OUR -- Security Equity Life Insurance Company.
YOU AND YOUR -- The owner of this Contract. The owner is as shown in the
application unless later changed as provided in this Contract. The owner may be
someone other than the Annuitant.
ACCUMULATED VALUE -- The value under your Contract prior to the Annuity Date of
all net purchase payments;
Value all gains and losses, less any charges or amounts withdrawn.
ACCUMULATION UNIT -- An accounting unit of measure that we use to determine the
value in a Division prior to the Annuity Date.
AGE -- The Annuitant's Age at his or her last birthday.
ANNUITANT -- The individual upon whose life Annuity Payments are based and who
may receive payments from the Contract under an annuity option.
ANNUITY DATE -- The date on which Annuity Payments begin.
ANNUITY PAYMENT -- One of a series of payments made under an annuity option.
ANNUITY SERVICE OFFICE -- The service office of Security Equity Life Insurance
Company, P.O. Box 203, Armonk, New York 10504.
ANNUITY UNIT -- An accounting unit of measure that we use to calculate variable
Annuity Payments.
BENEFICIARY -- The person named in the application or by later designation who
may receive the Proceeds in the event of the Annuitant's or contract owner's
death.
BUSINESS DAY -- A day on which both we and the New York Stock Exchange are open
for business.
CONTRACT -- This Contract, its riders, endorsements and amendments if any, and
the application, a copy of which is attached to and made a part of the Contract,
are the entire Contract.
CONTRACT ANNIVERSARY -- The same day and month as the Date of Issue for each
succeeding year that this Contract remains in force.
CONTRACT YEAR -- A continuous 12 month period beginning on the Date of Issue and
each Contract Anniversary thereafter.
DATE OF ISSUE -- The effective date of the coverage under this Contract. It is
also the date from which Contract Anniversaries are measured.
DIVISION -- A Division of Separate Accounts Twenty-Six or Twenty-Seven. Each
Division invests solely in its corresponding G.T. Global Variable Investment
Fund and takes the name of such G.T. Global Variable Investment Fund.
G.T. GLOBAL VARIABLE INVESTMENT FUNDS -- Mutual fund portfolios that are the
underlying investment vehicles for the Divisions of the Separate Accounts.
3.01
<PAGE>
PROCEEDS -- The amount we are obligated to pay under the terms of this Contract.
RIGHT TO EXAMINE PERIOD -- The period during which the Contract can be cancelled
and treated as void from theDate of Issue.
SEPARATE ACCOUNTS -- Separate Accounts Twenty-Six and Twenty-Seven are each
segregated investmentaccounts created by us. The Separate Accounts are
registered with the Securities and Exchange Commission under the Investment
Company Act of 1040 as unit investment trusts and meet the definition of
"separate account" under the Federal securities laws.
VALUATION PERIOD -- A period beginning at the close of business each Business
Day and ending at the close of business of the following Business Day.
WRITTEN REQUEST -- A notice or request in writing, signed by you and received by
our Annuity Service Office. The request must be in a format and have content
acceptable to us.
2. PURCHASE PAYMENTS
PURCHASE PAYMENTS
Each purchase payment you make is payable at our Annuity Service Office. The
amount and frequency of purchase payments may vary. Each purchase payment after
the first must be at least $100.
In any Contract Year after the first, we reserve the right not to accept
purchase payments in excess of double the amount paid in the initial Contract
Year. In the first Contract Year, purchase payments may be limited to the
greater of double the total initial purchase payment or $25,000. In the event we
exercise these rights, we will notify you in writing, at your last known address
to us, 60 days in advance.
Prior approval is required before we will accept a purchase payment from you
that would cause the Accumulated Value of your Contract to exceed $1,000,000. If
the Accumulated Value of your Contract exceeds $1,000,000, no additional
purchase payments will be accepted without prior approval from us.
3.02
<PAGE>
3. ACCUMULATION PROVISIONS
NET PURCHASE PAYMENT
We may deduct from any purchase payment applicable premium taxes or we may defer
deduction of the taxes until the Annuity Date, if permitted by state law. The
remaining balance is the net purchase payment.
ALLOCATION OF NET PURCHASE PAYMENTS
The net purchase payments will be allocated among the Divisions of the Separate
Accounts in the proportion shown in the application or as you may choose at a
later date. You may date. You may elect an allocation to a Division in whole
percents between zero percent and 100 percent totalling 100%. The minimum
initial allocation to any Division must be at least $500.
Such allocations may be changed at any time by Written Request submitted to us
at our Annuity Service Office. Any allocation change will take effect with the
first purchase payment received with or after our receipt of a Written Request
for change and will continue in effect until subsequently changed. If any
portion of purchase payments is received for allocation to a Division no longer
offered by us, we will contact you to secure new allocations. If we are unable
to contact you within 5 days of our receipt of your purchase payment we will
return that portion to you.
ACCUMULATION UNITS IN THE DIVISIONS
We will establish an account in your name for each Division to which you
allocate net purchase payments or transfer amounts. Net purchase payments and
transfer amounts are allocated to Divisions and credited to your accounts in the
form of Accumulation Units. The number of Accumulation Units that we will credit
to each account is determined by dividing the portion of the net purchase
payment or transfer amount for that account by the Accumulation Unit value for
that Division at the end of the Valuation Period during which the net purchase
payment or transfer request is received by us at our Annuity Service Office. The
number of Accumulation Units credited in connection with the first net purchase
payment is determined as of the end of the Valuation Period during which the
Date of Issue falls. The number of Accumulation Units determined will not be
affected by any subsequent changes in the values of the Accumulation Units. The
Accumulation Unit value of the Divisions may increase or decrease from day to
day based on investment results.
The number of Accumulation Units in any account will be increased at the end of
a Valuation Period by any net purchase payments allocated to the corresponding
Division during that Valuation Period and by any Accumulated Value transferred
to that Division from another Division during that Valuation Period. The number
of Accumulation Units in any account will be decreased at the end of a Valuation
Period by any transfers of Accumulated Value out of the corresponding Division,
by any partial withdrawals or surrenders from that Division, and by any
administrative or surrender charges deducted from that Division during that
Valuation Period.
4. CONTRACT CONTINUATION
AUTOMATIC NONFORFEITURE OPTION
This Contract does not require continuing purchase payments and will continue as
a paid-up Contract until the earlier of the Annuity Date, surrender of the
Contract, your death, or death of the Annuitant as long as your Accumulated
Value is sufficient to pay fees and charges. Purchase payments may be resumed at
any time prior to the Annuity Date, surrender, your death, or death of the
Annuitant.
4.01
<PAGE>
5. VALUATION PROVISIONS - SEPARATE ACCOUNTS
SEPARATE ACCOUNTS
Separate Accounts Twenty-Six and Twenty-Seven are segregated investment accounts
created by us under New York Law to receive and hold purchase payments for this
Contract. We own the assets of the Separate Accounts and such assets are held,
for the Separate Accounts, separately from the assets held in the General
Account, other segregated asset accounts of Security Equity Life Insurance
Company ("Security Equity"), and from each other.
The income, if any, gains and losses, realized or unrealized, on each Separate
Account and each Division therein will be credited to or charged against the
amounts allocated to such Separate Account and Division without regard to other
income, gains or losses to Security Equity. That portion of the assets of each
Separate Account equal to the reserves and other contract liabilities with
respect to such Separate Account will not be chargeable with liabilities arising
out of any other business that Security Equity may conduct. We have the right to
transfer to our General Account assets in excess of the amount equal to reserves
and other liabilities of a Separate Account.
NET INVESTMENT FACTOR
Each Business Day we will calculate each Division's net investment
factor. A Division's net investment factor measures its investment performance
during a Valuation period. The net investment factor for each Division for any
Valuation Period is determined by dividing (a) by (b) and subtracting (c) from
the result:
Where (a) is:
(1) the net asset value per share of a G.T. Global Variable Investment
Fund share held in the Division determined at the end of the current
Valuation Period, plus
(2) the per share amount of any dividend or capital gain distribution made
by a G.T. Global Variable Investment Fund on shares held in the
Division if the "ex-dividend" date occurs during the current Valuation
Period.
Where (b) is:
the net asset value per share of a G.T. Global Variable Investment Fund
share held in the Division determined as of the end of the immediately
preceding Valuation Period.
Where (c) is:
a factor representing the charges deducted from the Division on a dally
basis for administrative expenses and mortality and expense risks. Such
factor is equal on an annual basis to 1.40% (0.15% for administrative
expenses and 1.25% for mortality and expense risks).
The net investment factor may be greater or less than or equal to one.
Therefore, the value of an Accumulation or Annuity Unit may increase, decrease,
or remain the same.
ACCUMULATION UNIT VALUE
The initial value of an Accumulation Unit in each Division in the Separate
Accounts was arbitrarily set at $12 for the first Valuation Period. This value
may increase or decrease from day to day based on investment results.
For each Division, the value of an Accumulation Unit is determined at the end of
every Valuation Period. The value is determined by multiplying the Division's
Accumulation Unit value for the end of the immediately preceding Valuation
Period by the Division's net investment factor for the most current Valuation
Period.
ANNUITY UNIT VALUE
The initial value of an Annuity Unit in each Division in the Separate Accounts
was arbitrarily arbitrarily set at $12 for the first Valuation Period. This
value may increase or decrease from day to day based on investment results.
For each Division, the value of an Annuity Unit is determined at the end of
every Valuation Period. The value is determined by multiplying such
Division's Annuity Unit value for the end of the preceding Valuation Period
by the product of (a) .99989256 once for each calendar day between the end of
the sixth preceding Valuation Period and the end of the fifth preceding
Valuation Period and (b) the Division's net investment factor for the fifth
Valuation Period preceding such Valuation Period.
4.02
<PAGE>
6. TRANSFERS
TRANSFERS
Prior to the Annuity Date, you may transfer amounts among the Divisions of the
Separate Accounts. These transfers will be subject to the following conditions:
1. We must receive a request for transfer by Written Request;
2. Transfers from a Division may be made at any time and must be at least $500
(or the entire amount in a Division, if less than $500);
3. Any Accumulated Value remaining in a Division must be at least $500 (or the
request may be treated as a request to transfer the entire amount in that
Division);
4. There is no limit to the number of transfers that you may request. However,
we reserve the right to assess a charge of up to $25 for each transfer in
excess of twelve (12) transfers made in any Contract Year, excluding
transfers made under the dollar cost averaging program.
Transfers involving the Divisions will be subject to additional terms and
conditions that may be imposed by each Division's corresponding G .T. Global
Variable Investment Fund. (See Postponement of Payments provision, Section 13.)
You must instruct us as to what amounts should be transferred from each
Division.
A transfer will be effective on the date the Written Request for transfer is
received at our Annuity Service Office.
DOLLAR COST AVERAGING
We offer a dollar cost averaging program which enables you to pre-authorize
periodic transfers. These periodic transfers will be subject to the following
conditions:
1. We must receive a request for dollar cost averaging by Written Request;
2. At least $2,000 must be designated for transfer from a particular Division,
with a minimum of $100 per month being transferred from that Division;
3. Transfers will occur on the Business Day coincident with or subsequent to
the 15th of each month following our receipt of your Written Request.
Transfers will continue until the dollar amount requested has been transferred
or the Accumulated Value in the Division is exhausted, whichever is sooner. Any
dollar cost averaging transfer allocations for a Division which is no longer
offered will remain in that Division until the allocation instructions are
changed by you.
You may modify your dollar cost averaging program or discontinue it by sending a
Written Request to the Annuity Service Office. We reserve the right to revoke or
modify the dollar cost averaging program at any time.
7. ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS
SEPARATE ACCOUNTS
We reserve the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions of the shares of a G.T. Global
Variable Investment Fund that are held or purchased by the Separate Accounts for
the Divisions. We reserve the right to eliminate the shares of any of the G.T.
Global Variable Investment Funds and to substitute shares of another G.T. Global
Variable Investment Fund or of another registered open-end investment company,
if the shares or G.T. Global Variable Investment Funds are no longer available
for investment or if in our judgement, further investment in any G .T. Global
Variable Investment Fund should become inappropriate in view of the purpose of
the Contract. We will not substitute any shares attributable to your interest in
a Division of the Separate Accounts without at least 30 days notice to the owner
and prior approval of the Securities and Exchange Commission, to the extent
required by the Investment Company Act of 1940 or other applicable law. This
will not prevent the Separate Accounts from purchasing other securities for
other series or classes of contracts, or from permitting conversion between
series or classes of contracts on the basis of requests made by owners.
4.03
<PAGE>
We also reserve the right to establish additional Divisions of the Separate
Accounts, each of which would invest in a new G.T. Global Variable Investment
Fund, or in shares of another investment company, and to make such Divisions
available to whatever class or series of contracts we choose. We also reserve
the right to eliminate or combine Divisions of the Separate Accounts or to
transfer assets between Divisions. If we consider it to be in the best interest
of persons having voting privileges under the contracts, the Separate Accounts
may be operated as management companies under the Investment Company Act of
1940. They may be deregistered under that Act in the event registration is no
longer required. They may be combined with other separate accounts; or the
assets may be transferred to other separate accounts.
8. CHARGES AND DEDUCTIONS
ADMINISTRATIVE CHARGES
Each year on the last day of the Contract Year, we may deduct an annual account
administration fee ("account fee") as partial compensation for expenses relating
to the issue and maintenance of this Contract and your account. On Accumulated
Values of $20,000 or more, there will be no account fee. On Accumulated Values
less than $20,000, the account fee assessed will be the lesser of $30 or 2% of
your Accumulated Value for Contract Years ending prior to December 31,1999.
Thereafter, the account fee may be adjusted annually, but in no event may it be
adjusted by more than the amount that reflects the change in the Consumer Price
Index since December 31, 1992, nor will it exceed $50. The account fee will be
deducted from the G.T. Global Money Market Division; or from the Division with
the largest portion of Accumulated Value if no G .T. Global Money Market
Division investment exists on the Contract Anniversary. To the extent that the
account fee is deducted from a Division, Accumulation Units will be cancelled to
effect the deduction. On full surrender, the entire account fee, if applicable,
will be assessed.
On occasion, the last day of a Contract Year will not fall on a Business Day. If
the last day of a Contract Year and the next Business Day fall in the same
calendar month, administrative charges will be taken on the next Business Day.
If the last day of a Contract Year and the next Business Day do not fall in the
same calendar month, administrative charges will be taken on the Business Day
immediately preceding the last day of the Contract Year.
After the Annuity Date, the annual account fee will be deducted in equal amounts
from each variable Annuity Payment made during the year. No such deduction will
be made on fixed Annuity Payments.
SURRENDER CHARGE
Upon full surrender of the Contract or partial withdrawal of Accumulated Value,
we will apply a surrender charge to the gross withdrawal amount, excluding any
applicable administrative charges. This surrender charge, expressed as a
percentage of each net purchase payment, will apply to net purchase payments for
seven years measured from the date the net purchase payment is received. The
surrender charge schedule is as follows:
Years Since Receipt
of Purchase Payment Surrender Charge
------------------- ----------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
4.04
<PAGE>
You may withdraw an amount equal to ten percent (10%) of your Accumulated Value
each year without incurring a surrender charge ("10% Free"). The annual 10% Free
amount will be equal to 10% of the Accumulated Value on the date that the first
partial withdrawal is made each Contract Year. The 10% Free amounts withdrawn
will not reduce the net purchase payment still subject to a surrender charge.
The 10% Free amount does not apply upon full surrender.
After an amount equal to the 10% Free has been withdrawn, additional amounts
will be withdrawn from net purchase payments on a FlFO basis and will be subject
to the surrender charges noted in the above table. Net purchase payments which
were received more than seven (7) years prior to the date of withdrawal may be
withdrawn without incurring a surrender charge. After all net purchase payments
have been withdrawn, further withdrawals will be made from earnings without
incurring a surrender charge. If the Accumulated Value is less than the net
purchase payments subject to a surrender charge, the surrender charge will only
be applied to the Accumulated Value. The surrender charge is not applied in the
event of annuitization with us after three Contract Years, or on death of the
Annuitant.
9. CASH WITHDRAWALS
CASH WITHDRAWALS
At any time before the Annuity Date and during the lifetime of the Annuitant,
you may elect to receive a cash withdrawal payment. The election must be in the
form of a Written Request and specify the amount of the withdrawal. It will be
effective on the date that a Written Request for withdrawal is received at our
Annuity Service Office.
You may request a full surrender or a partial withdrawal. A full surrender will
result in a cash withdrawal payment equal to the Accumulated Value of your
Contract at the end of the Valuation Period during which the election becomes
effective, less any applicable administrative charges and surrender charge. A
request for a partial withdrawal will result in a reduction in your Accumulated
Value equal to the amount you receive plus any applicable surrender charge and
administrative charges. The amount you receive can be less than the amount
requested if your Accumulated Value is insufficient to cover applicable charges
and produce the requested amount. Any withdrawal request cannot exceed the
Accumulated Value of your Contract. Any applicable surrender charge will be
calculated based upon the gross amount of withdrawal.
There is no limit on the frequency of partial withdrawals. However, the amount
withdrawn must be at least $500 or, if less, the entire balance in a Division.
If after the withdrawal (and deduction of any surrender charge) the amount
remaining in the Division would be less than $500, we will treat the partial
withdrawal as a withdrawal of the entire amount held in the Division. If a
partial withdrawal plus any applicable surrender charge would reduce the
Accumulated Value to less than $500, we will treat the partial withdrawal as a
full surrender of the Contract. In the case of a partial withdrawal, you must
instruct us as to the amounts to be withdrawn from each Division.
Cash withdrawals from a Division will result in the cancellation of Accumulation
Units attributable to your account with an aggregate value on the effective date
of the withdrawal equal to the total amount by which the Accumulated Value in
the Division is reduced. The cancellation of such units will be based on the
Accumulation Unit values of the Division at the end of the Valuation Period
during which the cash withdrawal is effective.
If at the time you make a request for a full surrender or a partial withdrawal,
you do not provide us with a Written Request not to -have Federal income taxes
withheld, we must by law withhold such taxes from the taxable portion of any
surrender or withdrawal.
4.05
<PAGE>
Requests for cash withdrawal payments to a party other than you and/or to an
address other than your address of record require a signature guarantee. In
addition, if your address of record has been changed within the preceding 30
days, a signature guarantee is required.
Any cash withdrawal payment will be paid within seven days from our receipt of
your Written Request, except as we may be permitted to defer such payment in
accordance with the Investment Company Act of 1040 and applicable state
insurance law. (See Postponement of Payments provision, Section 13.)
SYSTEMATIC WITHDRAWAL PLAN
We offer a systematic withdrawal plan which allows you to authorize periodic
withdrawals during the accumulation period. These periodic withdrawals will be
subject to the following conditions:
1. We must receive a request for systematic withdrawals by Written Request;
2. The minimum periodic withdrawal request must be at least $200;
3. Withdrawals will occur on the Business Day coincident with or subsequent to
the 25th of the month in which you choose to begin withdrawals;
4. Withdrawals may be made on a monthly, quarterly, semiannually, or annually.
Amounts withdrawn may be subject to a surrender charge. Withdrawals taken under
the systematic withdrawal plan may be subject to the 10% Federal penalty tax on
early withdrawals and to income taxes.
You may modify your systematic withdrawal plan or discontinue it by sending a
Written Request to the Annuity Service Office. We reserve the right to revoke or
modify the systematic withdrawal plan at any time.
4.06
<PAGE>
10. ANNUITY PROVISIONS
ANNUITY PROCEEDS
The annuity proceeds will equal the Accumulated Value, less any applicable
premium taxes, administrative charges, and surrender charge on the Annuity Date.
OnIy if the Annuity Date of the Contract occurs within the first three Contract
Years, will the surrender charge be deducted from the annuity proceeds on the
Annuity Date.
ANNUITY DATE
Annuity Payments will begin under the Contract on the Annuity Date unless the
Contract has been surrendered or the Proceeds have been paid to the designated
Beneficiary prior to that date. The Annuity Date can be no later than the
Annuitant's 85th birthday.
You may change the Annuity Date. An Annuity Date may be changed only by Written
Request during the Annuitant's lifetime, and such a request must reach our
Annuity Service Office at least 30 days before (1) the then current Annuity
Date, and (2) the new Annuity Date. The new Annuity Date must be no later than
the Annuity Date as defined in the paragraph above.
ELECTION OF ANNUITY OPTION
While the Annuitant is alive, you may choose any annuity option or change any
choice, if your choice was not irrevocable, but only before Annuity Payments
begin. The election must be made not later than thirty days prior to the time
Annuity Payments begin. If an annuity option is not chosen prior to the Annuity
Date, payments will begin to the Annuitant on the Annuity Date under the annuity
option providing a Life Annuity with 120 Monthly Payments Guaranteed. (Option 2
below)
At the time annuity proceeds are payable to a Beneficiary, a Beneficiary may
choose or change any annuity option if Proceeds are available to the Beneficiary
in one sum.
A choice or change must be made by Written Request.
ANNUITY OPTIONS
(See Annuity Option Tables at the end of this Contract.) On the Annuity Date,
the annuity proceeds may be placed under any of the following options:
OPTION 1. LIFE ANNUITY. We will pay a monthly income during a person's
lifetime, which will cease with the last payment preceding the death
of that person.
OPTION 2. LIFE ANNUITY WITH 60, 120, 180, OR 240 MONTHLY PAYMENTS GUARANTEED. We
will pay a monthly income during a person's lifetime with the
guarantee that if, at death of the person, payments have been made for
less than 60 months, 120 months, 180 months, or 240 months, as
elected, payments will be continued to the beneficiary during the
remainder of the elected period.
OPTION 3. JOINT AND SURVIVOR INCOME FOR LIFE. We will make monthly payments
jointly to two payees if both are living when the payments become
payable. The Annuitant will be designated as primary payee. Full
payments will continue so long as the primary payee is living. If the
primary payee dies after payments begin, full payments or payments of
1/2 or 2/3, (whichever you elected when applying for this option) will
continue to the other payee during his or her lifetime.
OPTION 4. INCOME FOR A FIXED PERIOD. We will pay the annuity proceeds in
payments over a period of from 5 to 30 years. The amount of each
payment will be based upon the period and the frequency of the
payments selected from Option 4 TabIe.
5.01
<PAGE>
ALLOCATION OF ANNUITY
When you elect one of the annuity options, you may further elect to have the
annuity purchased in the form of the variable annuity, fixed annuity, or a
combination of both.
If no election is made to the contrary on these options, the Accumulated Value
in the Divisions of the Separate Accounts will be applied to provide a variable
annuity.
VARIABLE ANNUITY PAYMENTS
For the variable portion of an annuity option, the amounts applied to the
annuity are used to purchase Annuity Units in the selected Division(s). The
number of Annuity Units purchased in each Division is calculated as the dollar
amount of the first Annuity Payment provided by Proceeds from that Division
divided by the Annuity Unit value for the Division as of the Annuity Date. On
any payment date, the amount of payment from each Division is calculated as the
number of Annuity Units for the Division times the Annuity Unit value for the
Division as of the payment date, less any applicable administrative charges.
Although variable Annuity Payments will vary to reflect performance of the
Divisions, we guarantee that the dollar amounts of variable Annuity Payments
will not be adversely affected by our actual expense and mortality results.
MINIMUM AMOUNTS
The minimum amount for each payee that can be placed under an option and the
minimum amount of any payments under an option will be based on our rules at the
time the option is to become effective (or as required by state law).
PAYEE
A person who receives Annuity Payments under an annuity option is a payee.
Except for a legal guardian, a payee must generally be a natural person
receiving benefits in his or her own right. With our consent, the payee may be a
trustee, assignee, corporation, or partnership.
CONTINGENT PAYEE
The payee may name contingent payees, subject to any restrictions under an
annuity option chosen during the Annuitant's lifetime, under the following
conditions:
1. If you are the payee; or
2. If at any time after the Annuitant's death and during the option period no
previously named contingent payee is living.
The named contingent payee will be disregarded if making that person or entity
the contingent payee would prevent treatment of this Contract as an annuity for
federal income tax purposes.
Designations made by the payee under these provisions may be changed by the
payee. Such changes must be made by Written Request satisfactory to us. Changes
will only take effect when we accept them in writing at our Annuity Service
Office. At that time, the contingent interest of any other person is terminated
as of the date the payee signed the request, whether or not the payee is living
when we receive the request.
LIFE INCOME OPTIONS
Life Income Options are based on the Annuitant's sex and age nearest birthday on
the Annuity Date. We have the right to require satisfactory proof of age and
sex. If age or sex has been incorrectly stated, the proper adjustments in
payments will be made. We may also require proof that the payee is living on any
payment due date.
DEATH OF PAYEE
If a payee dies, any installments still payable under an annuity option
specifying a certain certain period will be paid as they become due to the
surviving or next succeeding payee. lf no designated payee survives, the
commuted value of any unpaid installments will be paid in one sum to the estate
of the last payee to die.
5.02
<PAGE>
RIGHTS UNDER ANNUITY OPTIONS
No payee has the right to make any change in the provisions of the agreement or
to receive the benefits in any manner other than that stated in the agreement,
unless suchright was reserved in the agreement. We will not make any payments in
advance, nor commute payments under any life income option.
CALCULATION OF PAYMENTS
Payments paid under an annuity option will be calculated using the effective
annual rate of 4% compounded annually. The mortality table used in determining
payments made under life income options is the 1983 Individual Annuitant
Mortality Table a. In using this mortality table, ages of annuitants will be
reduced by one year for annuity dates occurring during the 1990s, reduced two
years for annuity dates occurring during the decade 2000-2009, and so on.
BASIS OF COMMUTATION
Commutation of payments under an annuity option will be calculated using the
effective annual rate of 4% compounded annually.
EXTENDED PROVISIONS
Provisions for settlement of benefits different from those stated in this
Contract may only be made upon written agreement with us.
COMPANY LIABILITY
We will be fully discharged by any payment we make before a Written Request for
an election change, or revocation was made and is received in our Annuity
Service Office.
11. DEATH BENEFIT
DEATH BENEFIT
In every case of death, we must receive due proof of death of the owner or
Annuitant before we are obliged to act. For purposes of the death benefit, if
the owner of the Contract is not an individual, the Annuitant shall be treated
as the owner of the Contract.
(A) DEATH OF A CONTRACT OWNER WHO IS THE ANNUITANT.
If a contract owner dies prior to the Annuity Date, the death benefit will
become payable to the contract owner's Beneficiary. If the surviving spouse
is the contract owner's beneficiary, the spouse may elect to continue the
contract as the new owner and Annuitant. The death benefit, if more than
the accumulated value, will be paid to the surviving spouse by crediting
the Contract with an amount equal to the difference between the death
benefit and the accumulated value.
If a contract owner dies on or after the Annuity Date, no death benefit
will be payable under the Contract except as may be provided under the
annuity option elected.
(B) DEATH OF A CONTRACT OWNER WHO IS NOT THE ANNUITANT
If a contract owner dies prior to the Annuity Date, the Accumulated Value,
less any applicable administrative charges, or surrender charge, will be
distributed to the contract owner's Beneficiary. However, if the surviving
spouse is the annuitant or the contract owner's Beneficiary, the spouse may
continue the contract as the new owner.
If a contract owner dies on or after the Annuity Date, no death benefit
will be payable under the Contract, and the contract must continue to be
distributed at least as rapidly as the method of distributions being used
as of the date of the owner's death.
5.03
<PAGE>
(C) DEATH OF THE ANNUITANT WHO IS NOT A CONTRACT OWNER
If the Annuitant dies prior to the Annuity Date and before a contract
owner, the death benefit will become payable to the Annuitant's
Beneficiary.
If the Annuitant dies on or after the Annuity Date, no death benefit will
be payable under the Contract except as may be provided under the annuity
option elected.
(D) DEATH OF A JOINT OWNER
If any joint owner dies prior to the annuity date, the contract must be
distributed. Joint ownership should be limited to spousal joint ownership.
In order for the contract to continue under the spousal Beneficiary
exception, the contract owner's beneficiary designation must read
"surviving spouse". If the surviving spouse is not the contract owner's
Beneficiary, the contract will be distributed.
If any joint owner dies on or after the annuity date, the contract must
continue to be distributed at least as rapidly as the method of
distributions prior to the joint owner's death. If the deceased joint owner
was also the annuitant, no death benefit will be payable under the contract
except as may be provided under the annuity option elected.
(E) PAYMENT OF DEATH BENEFIT
Payments made under the death benefit provisions will be made in one lump
sum and must be made within five (5) years after the date of death of a
contract owner or Annuitant. If the Beneficiary makes a written request
within one year of the death of the Annuitant or owner, the proceeds may be
applied to create an immediate annuity for the Beneficiary, who will be the
owner and Annuitant. Payments under the annuity, or under any other method
of payment Security Equity makes available, must be for the life of the
Beneficiary, or for a number of years that is not more than the life
expectancy of the Beneficiary (as determined for federal tax purposes) at
the time of a contract owner's or Annuitant's death, and must begin within
one year after a contract owner's or Annuitant's death.
The death benefit will be paid or credited within seven days of receipt at
the Annuity Service Office of due proof of death and a Written Request for
payment, except as we may be permitted to defer such payment in accordance
with the Investment Company Act of 1940 and applicable state insurance law.
(See Postponement of Payments provision, Section 13.)
AMOUNT OF DEATH BENEFIT
The death benefit will be the gross death benefit described below, less any
applicable administrative charges. The surrender charge is not applicable in the
event of the Annuitant's death.
The gross death benefit during the first six Contract Years will be equal to the
greater of: (a) the Accumulated Value on the date due proof of death and a
Written Request for payment is received at our Annuity Service Office or, (b)
the sum of all net purchase payments made, less any amount deducted in
connection with partial withdrawals. During any subsequent six Contract Year
period, the gross death benefit will be the greater of: (a) the Accumulated
Value on the date due proof of death and a Written Request for payment is
received at our Annuity Service Office, or (b) the death benefit on the last day
of the previous six Contract Year period plus any net purchase payments made and
less any amount deducted in connection with partial withdrawals since then.
Notwithstanding the above, if the Date of Issue is on or after the Annuitant's
75th birthday, the gross death benefit will be the Accumulated Value on the date
due proof of death and a Written Request for payment is received at our Annuity
Service Office.
5.04
<PAGE>
12. PERSONS WITH AN INTEREST IN THE CONTRACT
OWNERSHIP
The owner is as shown in the application or in any supplemental agreement
attached to this Contract, unless later changed as provided in this Contract.
You, as owner, are entitled to all rights provided by this Contract, prior to
the Annuity Date. Ownership may be changed in accordance with the Change of
Owner or Beneficiary provision. After the Annuity Date, you cannot change the
payee nor the mode of payment, unless otherwise provided in this Contract. Any
person whose rights of ownership depend upon some future event will not possess
any present rights of ownership. If there is more than one owner at a given
time, all must exercise the rights of ownership by joint action.
BENEFICIARY
The original Beneficiary is as shown in the application. You may change the
Beneficiary in accordance with the Change of Owner or Beneficiary provision.
Unless otherwise stated, the Beneficiary has no rights in this Contract before
the death of a contract owner or Annuitant. If there is more than one
Beneficiary, each will receive equal payments unless otherwise provided. If
there are no Beneficiaries living when the Annuitant dies, or at the end of any
common disaster period, the Proceeds (commuted if required) will be payable to
you, if you are living, or to your estate. If there are no Beneficiaries living
when a contract owner dies, or at the end of any common disaster period, the
Proceeds (commuted if required) will be payable to your estate.
CHANGE OF OWNER OR BENEFICIARY
During the Annuitant's lifetime you may change the Ownership and Beneficiary
designations. You must make the change in written form satisfactory to us. If
acceptable to us it will take effect as of the time you signed the Written
Request, whether or not the Annuitant is living when we receive your request at
our Annuity Service Office. The change will be subject to any assignment of this
Contract or other legal restrictions. It will also be subject to any payment we
made or action we took before we received your Written Request of the change. We
have the right to require the Contract for endorsement before we accept the
change. We will not be bound by any Change of Owner of the Contract or of any
interest in it unless we send you an acknowledged copy.
If you are also the Beneficiary of the Contract at the time of the Annuitant's
death, you may designate some other person to receive the Proceeds of the
Contract at the time due proof of death is submitted to our Annuity Service
Office.
ASSIGNMENTS
We will not be bound by an assignment of the Contract or of any interest in it
unless:
1. It is made as a written instrument;
2. You file the original instrument or a certified copy with us at our Annuity
Service Office; and
3. We send you an acknowledged copy.
We are not responsible for the validity of any assignment.
If a claim is based on an assignment, we may require proof of the interest of
the claimant. A valid assignment will take precedence over any claim of a
Beneficiary. Any amounts due under a valid assignment will be paid in one lump
sum.
6.01
<PAGE>
13. THE CONTRACT
THE CONTRACT
This Contract, its endorsements and amendments if any, and the application, a
copy of which is attached to and made a part of the Contract, are the entire
Contract. This Contract will be subject to all of the provisions of the
Investment Company Act of 1 MO at all times during which the Separate Accounts
are registered under such act as unit investment trusts.
CONTROL
Consistent with the terms of any Beneficiary designation, you may, during the
life of the Annuitant, do any of the things described below:
1. Prior to the time when Annuity Payments have begun you may surrender this
Contract or withdraw a portion of the Accumulated Value.
2. You may exercise any right, receive any benefit, or enjoy any privilege
contained in this Contract.
MODIFICATION
No condition or provision of this Contract can be waived or modified except by a
written instrument signed by our president, a vice president, the secretary, or
an assistant secretary. Our agents have no authority to alter or modify any
terms, conditions, or agreements of this Contract, or to waive any of its
provisions.
Upon notice to you, or the Payee(s) after the Annuity Date, this Contract may be
modified by us, but only if such modification (a) is necessary to make the
Contract or the Separate Accounts comply with any law or regulation issued by a
governmental agency to which we or the Separate Accounts are subject; or (b) is
necessary to reflect a change in the operation of the Separate Accounts or the
Divisions; or (c) provides additional Separate Accounts. ln the event of any
such modification, we may make appropriate endorsement to the Contract to
reflect such modification.
STATEMENTS IN APPLICATION
All statements made by the Annuitant or on his or her behalf, or by the
applicant, will be deemed representations and not warranties, except in the case
of fraud. Material misstatements will not be used to void the Contract or deny a
claim unless made in the application.
INCONTESTABILITY
We will not contest this Contract.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated in the application, the
benefits available under this Contract will be those which the purchase payments
would have purchased for the correct age or sex. Any underpayments already made
by us will be made up immediately and any overpayments already made by us will
be charged against the Annuity Payments falling due after adjustment. Interest
will be credited to or charged against these adjusted Annuity Payments at a rate
of 4% per annum.
CLAIMS OF CREDITORS
To the extent permitted by law, neither the Contract nor any payment under it
will be subject to the claim of creditors or to any legal process.
CONFORMITY WITH STATUTES
If any provision in this Contract is in conflict with the laws of the state
which govern this Contract, the provision will be deemed to be amended to
conform with such laws.
6.02
<PAGE>
CONTRACT OWNER REPORTS
At least once each Contract Year we will mail a report to you. The report will
be mailed to your last address known to us. The report will include a statement
of the number of units credited to the Separate Accounts under this Contract and
the dollar value of such units. The information in the report will be as of a
date not more than two months prior to the date of mailing the report. We will
also mail to you at least once in each Contract Year a report of the investments
held in the Divisions under this Contract.
PREMIUM TAX
State and local government premium tax, if applicable, will be deducted from
purchase payments or Accumulated Value when the tax is incurred by us.
POSTPONEMENT OF PAYMENTS
We will usually pay any amounts payable on surrender or partial withdrawal
allocated to the Divisions of the Separate Accounts within seven days after
Written Request is received at our Annuity Service Office. We will usually pay
any death benefit within seven days after we receive due proof of death and a
Written Request for payment. Payment of any amount payable, from the Divisions
of the Separate Accounts, on surrender, partial withdrawal, or death may be
postponed whenever:
1. The New York Stock Exchange or our Annuity Service Office is closed (other
than customary weekend and holiday closing) or trading on the New You Stock
Exchange is restricted as determined by the Securities and Exchange
Commission;
2. The Securities and Exchange Commission, by order, permits postponement for
the protection of contract owners; or
3. An emergency exists as determined by the Securities and Exchange
Commission, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to determine the value of
the net assets of the Separate Accounts.
Transfers described in Section 6 may also be postponed under the circumstances
listed in items 1, 2, and 3 above.
6.03
<PAGE>
<TABLE>
<CAPTION>
ANNUITY OPTION TABLES
FOR EACH $1,000
- ---------------------------------------------------------------------------------------------------------------------------
OPTION 1 OPTION 2 OPTION 4
- ---------------------------------------------------------------------------------------------------------------------------
AGE OF PAYEE
LIFE 60 MONTHS 120 MONTHS 180 MONTHS 240 MONTHS INCOME FOR A
ANNUITY GUARANTY GUARANTY GUARANTY GUARANTY FIXED PERIOD
MALE FEMALE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
45 50 $4.53 $4.52 $4.50 $4.46 $4.40 YEARS MONTHLY
46 51 4.59 4.58 4.55 4.51 4.45 CERTAIN INSTALLMENTS
47 52 4.65 4.64 4.61 4.56 4.50 ------- ------------
49 53 4.72 4.71 4.67 4.62 4.55 5 18.32
49 54 4.79 4.77 4.74 4.68 4.60 6 15.56
- ---------------------------------------------------------------------------------------------------------------------------
50 55 4.86 4.85 4.81 4.74 4.65 7 13.59
51 56 4.94 4.92 4.88 4.80 4.71 8 12.11
52 57 5.02 5.00 4.95 4.87 4.76 9 10.97
53 58 5.10 5.08 5.03 4.94 4.82 10 10.06
54 59 5.19 5.17 5.11 5.01 4.88 11 9.31
- ---------------------------------------------------------------------------------------------------------------------------
55 60 5.29 5.26 5.20 5.09 4.94 12 8.69
56 61 5.39 5.36 5.29 5.17 5.00 13 8.17
57 62 5.49 5.47 5.38 5.25 5.06 14 7.72
58 63 5.61 5.58 5.48 5.33 5.12 15 7.34
59 64 5.73 5.70 5.59 5.42 5.18 16 7.00
- ---------------------------------------------------------------------------------------------------------------------------
60 65 5.86 5.82 5.70 5.51 5.24 17 6.70
61 66 6.00 5.96 5.82 5.60 5.31 18 6.44
62 67 6.15 6.10 5.95 5.69 5.37 19 6.21
63 68 6.32 6.26 6.08 5.79 5.43 20 6.00
64 69 6.49 6.42 6.21 5.89 5.48 21 5.81
- ---------------------------------------------------------------------------------------------------------------------------
65 70 6.68 6.60 6.35 5.98 5.54 22 5.64
66 71 6.88 6.78 6.50 6.08 5.59 23 5.49
67 72 7.09 6.98 6.65 6.18 5.64 24 5.35
68 73 7.31 7.18 6.81 6.28 5.69 25 5.22
69 74 7.56 7.40 6.97 6.37 5.73 26 5.10
- ---------------------------------------------------------------------------------------------------------------------------
70 75 7.82 7.64 7.14 6.47 5.77 27 4.99
71 76 8.09 7.88 7.31 6.55 5.81 28 4.89
72 77 8.39 8.14 7.48 6.64 5.84 29 4.80
73 78 8.71 8.41 7.65 6.72 5.87 30 4.72
74 79 9.05 8.70 7.83 6.80 5.89
- ---------------------------------------------------------------------------------------------------------------------------
75 80 9.41 9.00 8.00 6.87 5.91
76 81 9.81 9.32 8.17 6.93 5.93
77 82 10.23 9.65 8.34 6.99 5.95
78 83 10.68 9.99 8.50 7.05 5.96
79 84 11.16 10.35 8.66 7.10 5.97
- ---------------------------------------------------------------------------------------------------------------------------
80 85 & 11.68 10.72 8.81 7.14 5.98
81 OVER 12.23 11.09 8.95 7.18 5.99
82 12.81 11.47 9.09 7.21 5.99
83 13.44 11.86 9.21 7.23 5.99
84 14.09 12.25 9.32 7.26 6.00
- ---------------------------------------------------------------------------------------------------------------------------
85 & 14.79 12.64 9.43 7.28 6.00
OVER
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The mortality table used in computing annuity options under this contract is the
1983 Individual Annuity Mortality Table a.
7.01
<PAGE>
<TABLE>
<CAPTION>
ANNUITY OPTION TABLES (CONTD)
FOR EACH $1,000
OPTION 3-MONTHLY INSTALLMENTS-JOINT AND EQUAL TO SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------------------------------------
AGE OF PRIMARY
PAYEE AGE OF SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------------------------------------
MALE 45 46 47 48 49 50 51 52 53 54 55 56
- ----------------------------------------------------------------------------------------------------------------------------------
FEMALE 50 51 52 53 54 55 56 57 58 59 60 61
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $4.19 $4.22 $4.24 $4.27 $4.30 $4.32 $4.35 $4.37 $4.40 $4.43 $4.45 $4.47
51 56 4.21 4.23 4.26 4.29 4.32 4.35 4.38 4.40 4.43 4.46 4.48 4.51
52 57 4.22 4.25 4.28 4.31 4.34 4.37 4.40 4.43 4.46 4.49 4.52 4.55
53 58 4.24 4.27 4.30 4.33 4.37 4.40 4.43 4.46 4.49 4.52 4.55 4.58
54 59 4.25 4.29 4.32 4.35 4.39 4.42 4.46 4.49 4.52 4.56 4.59 4.62
- ----------------------------------------------------------------------------------------------------------------------------------
55 60 4.27 4.30 4.34 4.37 4.41 4.45 4.48 4.52 4.55 4.59 4.62 4.66
56 61 4.28 4.32 4.36 4.39 4.43 4.47 4.51 4.54 4.58 4.62 4.66 4.70
57 62 4.30 4.33 4.37 4.41 4.45 4.49 4.53 4.57 4.61 4.65 4.69 4.73
58 63 4.31 4.35 4.39 4.43 4.47 4.51 4.55 4.60 4.64 4.68 4.73 4.77
59 64 4.32 4.36 4.40 4.45 4.49 4.53 4.58 4.62 4.67 4.71 4.76 4.80
- ----------------------------------------------------------------------------------------------------------------------------------
60 65 4.34 4.38 4.42 4.46 4.51 4.55 4.60 4.65 4.69 4.74 4.79 4.84
61 66 4.35 4.39 4.43 4.48 4.53 4.57 4.62 4.67 4.72 4.77 4.82 4.87
62 67 4.36 4.40 4.45 4.49 4.54 4.59 4.64 4.69 4.75 4.80 4.85 4.91
63 68 4.37 4.41 4.46 4.51 4.56 4.61 4.66 4.71 4.77 4.83 4.88 4.94
64 69 4.38 4.42 4.47 4.52 4.57 4.63 4.68 4.74 4.79 4.85 4.91 4.97
- ----------------------------------------------------------------------------------------------------------------------------------
65 70 4.39 4.43 4.48 4.53 4.59 4.64 4.70 4.76 4.81 4.88 4.94 5.00
66 71 4.40 4.44 4.49 4.55 4.60 4.66 4.71 4.77 4.84 4.90 4.96 5.03
67 72 4.40 4.45 4.50 4.56 4.61 4.67 4.73 4.79 4.86 4.92 4.99 5.06
68 73 4.41 4.46 4.51 4.57 4.63 4.68 4.75 4.81 4.87 4.94 5.01 5.09
69 74 4.42 4.47 4.52 4.58 4.64 4.70 4.76 4.82 4.89 4.96 5.03 5.11
- ----------------------------------------------------------------------------------------------------------------------------------
70 75 4.43 4.48 4.53 4.59 4.65 4.71 4.77 4.84 4.91 4.98 5.06 5.13
71 76 4.43 4.48 4.54 4.60 4.66 4.72 4.78 4.85 4.92 5.00 5.08 5.16
72 77 4.44 4.49 4.55 4.60 4.67 4.73 4.80 4.87 4.94 5.01 5.09 5.18
73 78 4.44 4.50 4.55 4.61 4.67 4.74 4.81 4.88 4.95 5.03 5.11 5.20
74 79 4.45 4.50 4.56 4.62 4.68 4.75 4.82 4.89 4.96 5.04 5.13 5.21
- ----------------------------------------------------------------------------------------------------------------------------------
75 80 4.45 4.51 4.56 4.63 4.69 4.76 4.83 4.90 4.98 5.06 5.14 5.23
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPTION 3-MONTHLY INSTALLMENTS-JOINT AND EQUAL TO SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------
AGE OF PRIMARY
PAYEE AGE OF SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------
MALE 57 58 59 60 61 62 63 64 65
- ----------------------------------------------------------------------------------------------------
FEMALE 62 63 64 65 66 67 68 69 70
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $4.50 $4.52 $4.54 $4.56 $4.58 $4.60 $4.62 $4.64 $4.65
51 56 4.54 4.56 4.58 4.61 4.63 4.65 4.67 4.69 4.71
52 57 4.57 4.60 4.63 4.65 4.68 4.70 4.72 4.74 4.76
53 58 4.61 4.64 4.67 4.70 4.73 4.75 4.78 4.80 4.82
54 59 4.65 4.69 4.72 4.75 4.78 4.80 4.83 4.86 4.88
- ----------------------------------------------------------------------------------------------------
55 60 4.69 4.73 4.76 4.79 4.83 4.86 4.89 4.91 4.94
56 61 4.73 4.77 4.81 4.84 4.88 4.91 4.94 4.97 5.00
57 62 4.77 4.81 4.85 4.89 4.93 4.96 5.00 5.03 5.07
58 63 4.81 4.85 4.90 4.94 4.98 5.02 5.06 5.10 5.13
59 64 4.85 4.90 4.94 4.99 5.03 5.07 5.12 5.16 5.20
- ----------------------------------------------------------------------------------------------------
60 65 4.89 4.94 4.99 5.03 5.08 5.13 5.18 5.22 5.27
61 66 4.93 4.98 5.03 5.08 5.13 5.19 5.24 5.28 5.33
62 67 4.96 5.02 5.07 5.13 5.19 5.24 5.30 5.35 .5.40
63 68 5.00 5.06 5.12 5.18 5.24 5.30 5.35 5.41 5.47
64 69 5.03 5.10 5.16 5.22 5.29 5.35 5.41 5.48 5.54
- ----------------------------------------------------------------------------------------------------
65 70 5.07 5.13 5.20 5.27 5.34 5.40 5.47 5.54 5.61
66 71 5.10 5.17 5.24 5.31 5.38 5.46 5.53 5.60 5.68
67 72 5.13 5.20 5.28 5.35 5.43 5.51 5.59 5.66 5.74
68 73 5.16 5.24 5.31 5.39 5.48 5.56 5.64 5.73 5.81
69 74 5.19 5.27 5.35 5.43 5.52 5.61 5.69 5.78 5.87
- ----------------------------------------------------------------------------------------------------
70 75 5.21 5.30 5.38 5.47 5.56 5.65 5.75 5.84 5.94
71 76 5.24 5.33 5.41 5.51 5.60 5.70 5.79 5.90 6.00
72 77 5.26 5.35 5.44 5.54 5.64 5.74 5.84 5.95 6.06
73 78 5.28 5.38 5.47 5.57 5.67 5.78 5.89 6.00 6.11
74 79 5.31 5.40 5.50 5.60 5.71 5.82 5.93 6.05 6.17
- ----------------------------------------------------------------------------------------------------
75 80 5.32 5.42 5.52 5.63 5.74 5.85 5.97 6.09 6.22
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 3-MONTHLY INSTALLMENTS-JOINT AND ONE-HALF TO SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------------------------------------
AGE OF PRIMARY
PAYEE AGE OF SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------------------------------------
MALE 45 46 47 48 49 50 51 52 53 54 55 56
- ----------------------------------------------------------------------------------------------------------------------------------
FEMALE 50 51 52 53 54 55 56 57 58 59 60 61
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $4.50 $4.51 $4.53 $4.55 $4.56 $4.58 $4.59 $4.60 $4.62 $4.63 $4.65 $4.66
51 56 4.54 4.56 4.57 4.59 4.61 4.62 4.64 4.65 4.67 4.68 4.70 4.71
52 57 4.59 4.60 4.62 4.64 4.66 4.67 4.69 4.71 4.72 4.74 4.75 4.77
53 58 4.63 4.65 4.67 4.69 4.70 4.72 4.74 4.76 4.78 4.80 4.81 4.83
54 59 4.68 4.70 4.72 4.74 4.76 4.78 4.80 4.81 4.83 4.85 4.87 4.89
- ----------------------------------------------------------------------------------------------------------------------------------
55 60 4.72 4.74 4.77 4.79 4.81 4.83 4.85 4.87 4.89 4.91 4.93 4.95
56 61 4.77 4.79 4.82 4.84 4.86 4.88 4.91 4.93 4.95 4.97 5.00 5.02
57 62 4.82 4.85 4.87 4.89 4.92 4.94 4.97 4.99 5.01 5.04 5.06 5.09
58 63 4.87 4.90 4.92 4.95 4.98 5.00 5.03 5.05 5.08 5.10 5.13 5.16
59 64 4.93 4.95 4.98 5.01 5.03 5.06 5.09 5.12 5.14 5.17 5.20 5.23
- ----------------------------------------------------------------------------------------------------------------------------------
60 65 4.98 5.01 5.04 5.07 5.10 5.13 5.15 5.18 5.21 5.24 5.27 5.30
61 66 5.04 5.07 5.10 5.13 5.16 5.19 5.22 5.25 5.29 5.32 5.35 5.38
62 67 5.10 5.13 5.16 5.19 5.23 5.26 5.29 5.33 5.36 5.39 5.43 5.46
63 68 5.17 5.20 5.23 5.26 5.30 5.33 5.36 5.40 5.44 5.47 5.51 5.54
64 69 5.23 5.26 5.30 5.33 5.37 5.40 5.44 5.48 5.51 5.55 5.59 5.63
- ----------------------------------------------------------------------------------------------------------------------------------
65 70 5.30 5.33 5.36 5.40 5.44 5.48 5.51 5.55 5.59 5.64 5.68 5.72
66 71 5.36 5.40 5.44 5.47 5.51 5.55 5.59 5.64 5.68 5.72 5.77 5.81
67 72 5.43 5.47 5.51 5.55 5.59 5.63 5.67 5.72 5.76 5.81 5.86 5.90
68 73 5.50 5.54 5.58 5.62 5.67 5.71 5.76 5.80 5.85 5.90 5.95 6.00
69 74 5.58 5.62 5.66 5.70 5.75 5.79 5.84 5.89 5.94 5.99 6.04 6.10
- ----------------------------------------------------------------------------------------------------------------------------------
70 75 5.65 5.69 5.74 5.78 5.83 5.88 5.93 5.98 6.03 6.08 6.14 6.20
71 76 5.73 5.77 5.82 5.86 5.91 5.96 6.01 6.07 6.12 6.18 6.24 6.30
72 77 5.80 5.85 5.90 5.95 6.00 6.05 6.10 6.16 6.22 6.28 6.34 6.40
73 78 5.88 5.93 5.98 6.03 6.08 6.14 6.19 6.25 6.31 6.38 6.44 6.51
74 79 5.96 6.01 6.06 6.12 6.17 6.23 6.29 6.35 6.41 6.48 6.55 6.62
- ----------------------------------------------------------------------------------------------------------------------------------
75 80 6.05 6.10 6.15 6.20 6.26 6.32 6.38 6.44 6.51 6.58 6.65 6.73
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
OPTION 3-MONTHLY INSTALLMENTS-JOINT AND ONE-HALF TO SECONDARY PAYEE
AGE OF PRIMARY
PAYEE AGE OF SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------
MALE 57 58 59 60 61 62 63 64 65
- ----------------------------------------------------------------------------------------------------
FEMALE 62 63 64 65 66 67 68 69 70
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $4.67 $4.68 $4.69 $4.71 $4.72 $4.73 $4.74 $4.75 $4.75
51 56 4.73 4.74 4.75 4.77 4.78 4.79 4.80 4.81 4.82
52 57 4.79 4.80 4.81 4.83 4.84 4.85 4.86 4.88 4.89
53 58 4.85 4.86 4.88 4.89 4.91 4.92 4.93 4.95 4.96
54 59 4.91 4.93 4.94 4.96 4.97 4.99 5.00 5.02 5.03
- ----------------------------------------------------------------------------------------------------
55 60 4.97 4.99 5.01 5.03 5.04 5.06 5.08 5.09 5.11
56 61 5.04 5.06 5.08 5.10 5.12 5.14 5.15 5.17 5.19
57 62 5.11 5.13 5.15 5.17 5.20 5.22 5.24 5.25 5.27
58 63 5.18 5.20 5.23 5.25 5.28 5.30 5.32 5.34 5.36
59 64 5.25 5.28 5.31 5.33 5.36 5.38 5.41 5.43 5.45
- ----------------------------------------------------------------------------------------------------
60 65 5.33 5.36 5.39 5.42 5.44 5.47 5.50 5.52 5.55
61 66 5.41 5.44 5.47 5.51 5.54 5.56 5.59 5.62 5.65
62 67 5.50 5.53 5.56 5.60 5.63 5.66 5.69 5.72 5.75
63 68 5.58 5.62 5.65 5.69 5.73 5.76 5.80 5.83 5.86
64 69 5.67 5.71 5.75 5.79 5.83 5.87 5.90 5.94 5.98
- ----------------------------------------------------------------------------------------------------
65 70 5.76 5.80 5.85 5.89 5.93 5.97 6.01 6.06 6.10
66 71 5.86 5.90 5.95 5.99 6.04 6.08 6.13 6.17 6.22
67 72 5.95 6.00 6.05 6.10 6.15 6.20 6.25 6.30 6.35
68 73 6.05 6.10 6.16 6.21 6.26 6.32 6.37 6.42 6.48
69 74 6.15 6.21 6.26 6.32 6.38 6.44 6.48 6.55 6.61
- ----------------------------------------------------------------------------------------------------
70 75 6.26 6.31 6.38 6.44 6.50 6.56 6.62 6.69 6.75
71 76 6.36 6.42 6.49 6.55 6.62 6.69 6.75 6.89 6.89
72 77 6.47 6.54 6.60 6.67 6.74 6.82 6.89 6.96 7.04
73 78 6.58 6.65 6.72 6.79 6.87 6.95 7.03 7.10 7.18
74 79 6.69 6.76 6.84 6.92 7.00 7.08 7.17 7.25 7.34
- ----------------------------------------------------------------------------------------------------
75 80 6.80 6.88 6.96 7.04 7.13 7.22 7.31 7.40 7.49
- ----------------------------------------------------------------------------------------------------
</TABLE>
7.02
<PAGE>
<TABLE>
<CAPTION>
ANNUITY OPTION TABLES (CONTD)
FOR EACH $1,000
OPTION 3-MONTHLY INSTALLMENTS-JOINT AND TWO-THIRDS TO SECONDARY PAYEE
AGE OF PRIMARY
PAYEE AGE OF SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------------------------------------
MALE 45 46 47 48 49 50 51 52 53 54 55 56
- ----------------------------------------------------------------------------------------------------------------------------------
FEMALE 50 51 52 53 54 55 56 57 58 59 60 61
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $4.39 $4.41 $4.43 $4.45 $4.47 $4.49 $4.51 $4.53 $4.54 $4.56 $4.58 $4.60
51 56 4.42 4.44 4.47 4.49 4.51 4.53 4.55 4.57 4.59 4.61 4.63 4.64
52 57 4.46 4.48 4.50 4.52 4.55 4.57 4.59 4.61 4.63 4.65 4.67 4.69
53 58 4.49 4.52 4.54 4.56 4.59 4.61 4.63 4.66 4.68 4.70 4.72 4.74
54 59 4.53 4.55 4.58 4.60 4.63 4.65 4.68 4.70 4.73 4.75 4.77 4.80
- ----------------------------------------------------------------------------------------------------------------------------------
55 60 4.56 4.59 4.61 4.64 4.67 4.69 4.72 4.75 4.77 4.80 4.83 4.85
56 61 4.60 4.62 4.65 4.68 4.71 4.74 4.77 4.79 4.82 4.85 4.88 4.91
57 62 4.63 4.66 4.69 4.72 4.75 4.78 4.81 4.84 4.87 4.90 4.93 4.96
58 63 4.67 4.70 4.73 4.76 4.79 4.83 4.86 4.89 4.92 4.96 4.99 5.02
59 64 4.71 4.74 4.77 4.81 4.84 4.87 4.91 4.94 4.98 5.01 5.04 5.08
- ----------------------------------------------------------------------------------------------------------------------------------
60 65 4.75 4.78 4.81 4.85 4.86 4.92 4.96 4.99 5.03 5.07 5.10 5.14
61 66 4.79 4.82 4.86 4.89 4.93 4.97 5.01 5.04 5.08 5.12 5.16 5.20
62 67 4.83 4.86 4.90 4.94 4.98 5.02 5.06 5.10 5.14 5.18 5.22 5.26
63 68 4.87 4.91 4.94 4.98 5.02 5.07 5.11 5.15 5.19 5.24 5.28 5.33
64 69 4.91 4.95 4.99 5.03 5.07 5.12 5.16 5.20 5.25 5.30 5.34 5.39
- ----------------------------------------------------------------------------------------------------------------------------------
65 70 4.95 4.99 5.03 5.08 5.12 5.17 5.21 5.26 5.31 5.36 5.41 5.46
66 71 5.00 5.04 5.08 5.13 5.17 5.22 5.27 5.32 5.37 5.42 5.47 5.52
67 72 5.04 5.08 5.13 5.17 5.22 5.27 5.32 5.37 5.43 5.48 5.54 5.59
68 73 5.08 5.13 5.17 5.22 5.27 5.32 5.37 5.43 5.48 5.54 5.60 5.66
69 74 5.13 5.17 5.22 5.27 5.32 5.37 5.43 5.49 5.54 5.60 5.67 5.73
- ----------------------------------------------------------------------------------------------------------------------------------
70 75 5.17 5.22 5.27 5.32 5.37 5.43 5.48 5.54 5.60 5.67 5.73 5.80
71 76 5.22 5.27 5.32 5.37 5.42 5.48 5.54 5.60 5.66 5.73 5.80 5.87
72 77 5.26 5.31 5.37 5.42 5.48 5.53 5.60 5.66 5.72 5.79 5.86 5.93
73 78 5.31 5.36 5.41 5.47 5.53 5.59 5.65 5.72 5.78 5.85 5.93 6.00
74 79 5.36 5.41 5.46 5.52 5.58 5.64 5.71 5.77 5.84 5.92 5.99 6.07
- ----------------------------------------------------------------------------------------------------------------------------------
75 80 5.40 5.45 5.51 5.57 5.63 5.58 5.76 5.83 5.90 5.98 6.06 6.14
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 3-MONTHLY INSTALLMENTS-JOINT AND TWO-THIRDS TO SECONDARY PAYEE
AGE OF PRIMARY
PAYEE AGE OF SECONDARY PAYEE
- ----------------------------------------------------------------------------------------------------
MALE 57 58 59 60 61 62 63 64 65
- ----------------------------------------------------------------------------------------------------
FEMALE 62 63 64 65 66 67 68 69 70
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 55 $4.61 $4.63 $4.64 $4.66 $4.67 $4.68 $4.70 $4.71 $4.72
51 56 4.66 4.68 4.70 4.71 4.73 4.74 4.76 4.77 4.78
52 57 4.71 4.73 4.75 4.77 4.78 4.80 4.82 4.83 4.85
53 58 4.77 4.79 4.81 4.83 4.84 4.86 4.88 4.90 4.91
54 59 4.82 4.84 4.86 4.89 4.91 4.93 4.94 4.96 4.98
- ----------------------------------------------------------------------------------------------------
55 60 4.88 4.90 4.92 4.95 4.97 4.99 5.01 5.03 5.05
56 61 4.93 4.96 4.99 5.01 5.04 5.06 5.08 5.10 5.13
57 62 4.99 5.02 5.05 5.08 5.10 5.13 5.15 5.18 5.20
58 63 5.05 5.08 5.11 5.14 5.17 5.20 5.23 5.26 5.28
59 64 5.11 5.15 5.18 5.21 5.24 5.28 5.31 5.34 5.36
- ----------------------------------------------------------------------------------------------------
60 65 5.18 5.21 5.25 5.28 5.32 5.35 5.39 5.42 5.45
61 66 5.24 5.28 5.32 5.36 5.39 5.43 5.47 5.50 5.54
62 67 5.31 5.35 5.39 5.43 5.47 5.51 5.55 5.59 5.63
63 68 5.37 5.42 5.46 5.51 5.55 5.60 5.64 5.68 5.73
64 69 5.44 5.49 5.54 5.59 5.64 5.68 5.73 5.78 5.82
- ----------------------------------------------------------------------------------------------------
65 70 5.51 5.56 5.61 5.67 5.72 5.77 5.82 5.87 5.92
66 71 5.58 5.64 5.69 5.75 5.80 5.86 5.92 5.97 6.03
67 72 5.65 5.71 5.77 5.83 5.89 5.95 6.01 6.07 6.13
68 73 5.72 5.78 5.85 5.91 5.98 6.04 6.11 6.17 6.24
69 74 5.79 5.86 5.93 5.99 6.06 6.13 6.20 6.27 6.35
- ----------------------------------------------------------------------------------------------------
70 75 5.86 5.93 6.01 6.08 6.15 6.23 6.30 6.38 6.45
71 76 5.94 6.01 6.09 6.16 6.24 6.32 6.40 6.48 6.57
72 77 6.01 6.09 6.17 6.25 6.33 6.41 6.50 6.59 6.68
73 78 6.08 6.16 6.25 6.33 6.42 6.51 6.60 6.69 6.79
74 79 6.15 6.24 6.33 6.42 6.51 6.60 6.70 8.80 6.90
- ----------------------------------------------------------------------------------------------------
75 80 6.23 6.31 6.41 6.50 6.60 6.70 6.80 6.91 7.01
- ----------------------------------------------------------------------------------------------------
</TABLE>
7.03
<PAGE>
ENDORSEMENT
In order to comply with the requirements of Section 403(b) of the Internal
Revenue Code, the following endorsements are made on this contract. Any
provisions of this contract other that are not consistent with these
endorsements are hereby modified or nullified so as to be consistent.
(1) This contract is not transferable by the owner (who will be the
annuitant) and is established for the exclusive benefit of the owner or
his/her beneficiaries. The owner may not transfer, sell, assign,
discount, or pledge this Contract for a loan or a security for the
performance of an obligation or any other purpose to any person other
than to us at our Annuity Service Office.
(2) Except as provided under (3) below, the annual sum of purchase payments
under this contract will not exceed $2,000.
(3) The annual purchase payment limitations for this contract when issued in
connection with a simplified employee pension plan will be governed by a
written formula and will not exceed $30,000.
(4) The entire interest of the owner will be distributed to him/her not later
than the April 1 after the year in which he/she attains age 70 1/2, or
will be distributed, commencing not later than such date, in accordance
with regulations prescribed by the Secretary of his/her delegate,
(A) over the life of such owner or the lives of such owner and
his/her designated beneficiary, in equivalent installments under
the terms of this contract,
(B) over a period not extending beyond the life expectancy of such
owner or the life expectancy of such owner and his/her designated
beneficiary, in equivalent installments under the terms of this
contract.
All such required distributions will be made in accordance with the
provisions of Section 401 (a)(9) of the Internal Revenue Code, including
the incidental death benefit requirements, and the regulations issued
thereunder, including the minimum distribution incidental benefit
requirement of the regulations. Life expectancy is computed by use of the
expected return multiples in Tables V and VI of Section 1.72-9 of the
Internal Revenue Code regulations and the method of life expectancy
calculation elected. The methods are (1) reduced by one for each calendar
year which has elapsed since the date life expectancy was determined, or
(2) annual recalculation. If a method of calculation is not elected, then
the annual recalculation method will be used to determine life expectancy
for minimum distribution.
(5) Distribution After Death
(A) If an owner dies after distribution has begun but before his/her
entire interest is distributed, the remaining portion will be
distributed at least as rapidly as under the method being used at
his/her death.
(B) If an owner dies before distribution has begun, the entire
interest must be distributed within five years after the owner's
death except to the extent that any portion of his/her interest
(i) is payable to (or for the benefit of) a designated
beneficiary,
(ii) payment is made over the life (or the life expectancy) of
such designated beneficiary,
(iii) and payment begins within one year after the date of the
owner's death.
(C) If the owner's surviving spouse is a designated beneficiary,
distribution of such surviving spouse's interest must begin not
later than the later of
(i) the date which is one year after the owner's death or
(ii) the date that the owner would have attained age 70 1/2.
If such surviving spouse dies before his/her distribution was
to begin, the rules will apply as if the surviving spouse were
the owner.
(D) Distributions are considered to have begun if distributions were
made on account of the owner's having attained age 70 1/2, or if
prior to April 1 of the year after the year in which the owner
would have attained age 70 1/2, distributions irrevocably commenced
over a period permitted and in an annuity form acceptable under the
Internal Revenue Code regulations.
<PAGE>
(E) Life expectancy is computed by use of the expected return
multiples in Tables V and VI of Section 1.72-9 of the Internal
Revenue Code regulations and the method of life expectancy
calculation elected. The methods are (1) reduced by one for each
calendar year which has elapsed since the date life expectancy
was determined, or (2) annual recalculation. If a method of
calculation is not elected, then the annual recalculation method
will be used to determine life expectancy for minimum
distribution.
(6) The entire interest of the owner is nonforfeitable.
(7) Any dividends will be held by the insurer and applied toward the purchase
of additional annuity benefits under the contract following the year the
dividend became payable.
(8) The Company will furnish annual calendar year reports concerning the
status of this contract.
(9) This contract may be amended by the Company at any time for the purpose
of complying with changes in the Internal Revenue Code, regulations
issued thereunder or published revenue rulings; provided that no such
amendment will become effective until thirty days after the Company has
given the policyholder written notice of such amendment by ordinary mail
forwarded to the policyholder's last known address as shown on the
Company's records, unless an earlier effective date is prescribed by such
Code, regulations or rulings, in which case such earlier effective date
will control.
SECURITY EQUITY LIFE INSURANCE COMPANY
ARMONK, NEW YORK 10504
<PAGE>
Exhibit 99.10
Independent Auditors' Consent
The Board of Directors
Security Equity Life Insurance Company
We consent to the use of our report included herein and to the reference of
our firm under the heading "Financial Statements" in the Registration
Statement and Prospectus for Security Equity Separate Account 26.
St. Louis, Missouri
April 25, 1996
