<PAGE>
As filed with the Securities and Exchange Commission on 29 April 1998
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. 3 [x ]
Registration Statement Under the Investment Company Act of 1940
Amendment No. 4 [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 1998 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 1997 on 13 March 1998.
-ii-
<PAGE>
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
ITEM OF FORM N-4 PROSPECTUS CAPTION
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
ITEM OF FORM N-4 PART B CAPTION
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
Item of Form N-4
24. Financial Statements and
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
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 favored 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, 1998.
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...................................... 12
THE CONTRACTS............................................................................. 12
Right to Examine........................................................................ 12
Contract Application and Purchase Payments.............................................. 13
Place, Amount and Frequency........................................................... 13
Account Continuation.................................................................. 13
Allocation of Net Purchase Payments................................................... 13
VARIABLE ACCOUNT.......................................................................... 14
Accumulation Units...................................................................... 14
Value of Accumulation Units............................................................. 14
Net Investment Factor................................................................... 14
TRANSFER PRIVILEGE........................................................................ 14
DOLLAR COST AVERAGING..................................................................... 15
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.......................................................... 18
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................................................................. 21
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................................................. 31
</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, and any of its riders, endorsements,
amendments, and the Contract Application (if any), 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, 408A, 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, 408A, 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. The ten percent (10%) free amount does not apply upon full surrender.
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% 0.23% 0.98%
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
Telecommunications 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>
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 1997 to reflect the fees and reimbursement or waiver
arrangements for 1998. If there had been no reimbursement of expenses and no
expense reductions during 1997, 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%, 0.43%, 1.43%;
Variable Europe Fund, 1.00%, 0.41%, 1.41%; Variable Latin America Fund,
1.00%, 0.40%, 1.40%; Variable International Fund, 1.00%, 1.31%, 2.31%;
Variable Infrastructure Fund, 1.00%, 0.49%, 1.49%; Variable Natural
Resources Fund, 1.00%, 0.42%, 1.42%; Variable Emerging Markets Fund, 1.00%,
0.49%, 1.49%; Variable Growth & Income Fund, 1.00%, 0.27%, 1.27%; Variable
Global Government Income Fund, 0.75%, 0.79%, 1.54%; Variable Strategic
Income Fund, 0.75%, 0.32%, 1.07%; Variable U.S. Government Income Fund,
0.75%, 0.87%, 1.62%; Money Market Fund, 0.50%, 0.29%, 0.79%.
** No reimbursements were paid to the Variable America Fund and 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 $ 133 $ 172 $ 301
Variable Europe Division 97 133 172 301
Variable Latin America Division 97 133 172 301
Variable America Division 94 125 159 275
Variable International Division 97 133 172 301
Variable Infrastructure Division 97 133 172 301
Variable Natural Resources
Division 97 133 172 301
Variable Telecommunications
Division 96 131 168 292
Variable Emerging Markets
Division 97 133 172 301
Variable Growth & Income Division 97 133 172 301
Variable Global Government Income
Division 95 126 160 277
Variable Strategic Income
Division 95 126 160 277
Variable U.S. Government Income
Division 95 126 160 277
Money Market Division 92 118 147 251
</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 $ 83 $ 142 $ 301
Variable Europe Division 27 83 142 301
Variable Latin America Division 27 83 142 301
Variable America Division 24 75 129 275
Variable International Division 27 83 142 301
Variable Infrastructure Division 27 83 142 301
Variable Natural Resources
Division 27 83 142 301
Variable Telecommunications
Division 26 81 138 292
Variable Emerging Markets
Division 27 83 142 301
Variable Growth & Income Division 27 83 142 301
Variable Global Government Income
Division 25 76 130 277
Variable Strategic Income
Division 25 76 130 277
Variable U.S. Government Income
Division 25 76 130 277
Money Market Division 22 68 117 251
</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 $ 132 $ 142 $ 301
Variable Europe Division 97 133 142 301
Variable Latin America Division 97 133 142 301
Variable America Division 94 125 129 275
Variable International Division 97 133 142 301
Variable Infrastructure Division 97 133 142 301
Variable Natural Resources
Division 97 133 142 301
Variable Telecommunications
Division 96 131 138 292
Variable Emerging Markets
Division 97 133 142 301
Variable Growth & Income Division 97 133 142 301
Variable Global Government Income
Division 95 126 130 277
Variable Strategic Income
Division 95 126 130 277
Variable U.S. Government Income
Division 95 126 130 277
Money Market Division 92 118 117 251
</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 $50,000.
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, 1997. 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 1997 N/A 12.26 15,631
1996 12.00 N/A 0
Variable
Strategic Income
Division 1997 13.82 14.61 44,913
1996 12.00 13.82 7,310
Variable U.S.
Government
Income Division 1997 12.00 12.71 2,518
</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 1997 15.43 8.96 28,896
1996 11.95 15.43 59,302
1995 12.00 11.95 677
Variable Europe Division 1997 15.34 17.42 8,163
1996 12.00 15.34 4,437
Variable America Division 1997 12.90 14.62 6,419
1996 11.03 12.90 2,236
1995 12.00 11.03 500
<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 Growth & Income Division 1997 12.00 13.88 2,116
Variable Latin America Division 1997 13.23 14.94 13,385
1996 12.00 13.23 8,332
Variable Telecom-
munications Division 1997 13.27 14.99 37,030
1996 11.27 13.27 31,391
1995 12.00 11.27 500
Variable International Division 1997 12.48 13.16 4,879
1996 12.00 12.48 3,217
Variable Emerging Markets Division 1997 13.30 11.31 5,161
1996 12.00 13.30 1,092
Variable Natural Resources Division 1997 13.60 13.59 6,760
1996 12.00 13.60 106
Variable Infrastructure Division 1997 12.79 13.24 780
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 Growth 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 favored 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 certain 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.
On January 30, 1998, Liechtenstein Global Trust, AG ("LGT"), the indirect parent
organization of GT Global Inc. and Chancellor LGT, entered into an agreement
with AMVESCAP PLC ("AMVESCAP") pursuant to which AMVESCAP will acquire LGT's
Asset Management Division, which includes Chancellor LGT (the "Purchase").
AMVESCAP is a holding company formed in 1997 by the merger of INVESCO PLC and A
I M Management Group Inc. Consummation of the purchase is subject to a number of
contingencies, including regulatory approvals. The transaction would constitute
an assignment of, and thereby result in the termination of, the Companies'
investment management agreements with Chancellor LGT. Accordingly, the
Companies' Boards of Trustees have approved, subject to shareholder approval,
new investment management and administration agreements between A I M Advisors,
Inc. ("AIM"), a wholly-owned subsidiary of AMVESCAP, and the Companies, and
sub-advisory and sub-administration agreements between AIM and Chancellor LGT,
which will become a separate, indirect wholly-owned subsidiary of AMVESCAP.
Under the new agreements, AIM would serve as investment manager and
administrator and Chancellor LGT would serve as investment sub-adviser and
sub-administrator of the Companies. In addition to shareholder approval,
implementation of the new investment advisory arrangements is contingent upon
the consummation of the Purchase.
The Boards of Trustees of the Companies have also approved the following
matters, subject to shareholder approval:
1. Amendments to the fundamental investment restrictions of each Fund.
2. The reorganization of the Companies from Massachusetts business trusts into
Delaware business trusts.
A special meeting of the shareholders of the Companies will be held on May 20,
1998 to consider and vote on, among other proposals, the matters noted above
that require shareholder approvals. If the matters are approved by shareholders
and the Purchase consummated, it is anticipated that the changes described above
will become effective on or about June 1, 1998.
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.
Prospectus Page 11
<PAGE>
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 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
Prospectus Page 12
<PAGE>
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.
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
Prospectus Page 13
<PAGE>
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 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.
Prospectus Page 14
<PAGE>
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
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,
Prospectus Page 15
<PAGE>
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 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
Prospectus Page 16
<PAGE>
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
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%
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, 1998.
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
Prospectus Page 17
<PAGE>
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 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.
Prospectus Page 18
<PAGE>
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 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
Prospectus Page 19
<PAGE>
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")
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 "Federal Tax Matters -- Taxation
of Annuities")
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
Prospectus Page 20
<PAGE>
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 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, 408A, 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
Prospectus Page 25
<PAGE>
accrued benefit or the balance under the retirement 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.
This general rule does not apply to certain types of individual retirement
annuities, and other 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. This
general rule does not apply to certain types of individual retirement annuities,
and 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
Prospectus Page 26
<PAGE>
with respect to the potential tax effects of such a transaction.
(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. As of the date of this Prospectus,
the President's budget for fiscal year 1999 includes proposals that would
directly affect variable annuities, and 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 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
Prospectus Page 27
<PAGE>
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.
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA, although Roth IRA's are not available
as part of this Contract. Contributions to a Roth IRA, which are subject to
certain limitations, are not deductible and must be made in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special rules
may apply. You should consult a tax adviser before combining any converted
amounts with any other Roth IRA contributions, including any other conversion
amounts from other tax years. Distributions from a Roth IRA generally are not
taxed, except that, once aggregate distributions exceed contributions to the
Roth IRA, income tax and a ten percent (10%) penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during the five taxable years starting with the year in which the first
contribution is made to the Roth IRA.
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 1997,
Security Equity paid $37,607.52 to GT Global.
Prospectus Page 29
<PAGE>
FINANCIAL STATEMENTS
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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-11
</TABLE>
Prospectus Page 30
<PAGE>
APPENDIX
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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 1 May 1998 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 1 May 1998
S-1
<PAGE>
TABLE OF CONTENTS
PAGE
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
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 1 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 $1,000.
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 quarter 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-10
<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-12
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
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, Variable Strategic Income, and Variable
U.S. Government Income Divisions of Security Equity Separate Account Twenty-six
and of the Variable New Pacific, Variable Europe, Variable America, Variable
Growth & Income, 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, 1997, and the related statements of operations
for the year then ended, changes in net assets for each of the years in the
two-year period then ended, and the 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, 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, 1997 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, Variable Strategic Income, and Variable U.S.
Government Income Divisions of Security Equity Separate Account Twenty-six and
of the Variable New Pacific, Variable Europe, Variable America, Variable Growth
& Income, 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, 1997, the results of their operations for the
year then ended, the changes in their net assets for each of the years in the
two-year period then ended, and the condensed financial information for the
periods presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
ST. LOUIS, MISSOURI
FEBRUARY 12, 1998
D1
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
D2
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX
STATEMENTS OF ASSETS
AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE
VARIABLE U.S.
MONEY STRATEGIC GOVERNMENT
MARKET INCOME INCOME
DIVISION DIVISION DIVISION
--------- --------- -----------
<S> <C> <C> <C>
Assets:
Investments in GT Global Variable
Investment Funds, at market value
(see Schedule of Investments)........ $ 228,914 $ 645,459 $ 32,120
Receivable from Security Equity Life
Insurance Company.................... 0 10,499 0
Receivable from GT Global Financial
Services............................. 815 0 0
--------- --------- -----------
Total assets........................ 229,729 655,958 32,120
--------- --------- -----------
Liability:
Payable to Security Equity Life
Insurance Company.................... 38,058 0 112
--------- --------- -----------
Total net assets.................... $ 191,671 $ 655,958 $ 32,008
--------- --------- -----------
--------- --------- -----------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in Separate
Account.............................. $ 191,671 $ 655,958 $ 32,008
--------- --------- -----------
--------- --------- -----------
Total individual units held............. 15,631 44,913 2,518
Accumulation unit value................. $ 12.26 $ 14.61 $ 12.71
Cost of investments..................... $ 228,914 $ 650,310 $ 31,068
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE
VARIABLE U.S.
MONEY STRATEGIC GOVERNMENT
MARKET INCOME INCOME
DIVISION DIVISION DIVISION *
--------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Dividend income....................... $ 6,207 $ 33,037 $ 1,039
Expenses:
Mortality, expense and administrative
charges.............................. (1,819) (6,417) (270)
--------- ----------- -----------
Net investment income................. 4,388 26,620 769
--------- ----------- -----------
Net realized gain on investments:
Realized gain on sales................ 0 23,729 186
--------- ----------- -----------
Net realized gain on investments...... 0 23,729 186
--------- ----------- -----------
Net unrealized gain (loss) on
investments:
Unrealized gain on investments,
beginning of period.................. 0 9,046 0
Unrealized gain (loss) on investments,
end of period........................ 0 (4,851) 1,053
--------- ----------- -----------
Net unrealized gain (loss) on
investments.......................... 0 (13,897) 1,053
--------- ----------- -----------
Net gain on investments............... 0 9,832 1,239
--------- ----------- -----------
Net increase in net assets resulting
from operations...................... $ 4,388 $ 36,452 $ 2,008
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ----------------
* The Variable U.S. Government Income Division commenced operations June
4, 1997.
See accompanying notes to the financial statements.
D4
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the periods ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
VARIABLE
U.S.
GOVERNMENT
MONEY MARKET STRATEGIC INCOME INCOME
DIVISION * DIVISION ** DIVISION***
-------------------- -------------------- -----------
1997 1996 1997 1996 1997
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income................................................. $ 4,388 $ 1,398 $ 26,620 $ 3,271 $ 769
Net realized gain on investments...................................... 0 0 23,729 14 186
Net unrealized gain (loss) on investments............................. 0 0 (13,897) 9,046 1,053
--------- --------- --------- --------- -----------
Net increase in net assets resulting from operations................ 4,388 1,398 36,452 12,331 2,008
--------- --------- --------- --------- -----------
Deposits into Separate Account........................................ 145,058 8,500 25,039 108,470 0
Transfers into (from) Separate Account................................ 43,617 (9,898) 495,534 2,126 30,000
Withdrawals from Separate Account..................................... (1,392) 0 (2,104) (21,890) 0
--------- --------- --------- --------- -----------
Net deposits into (withdrawals from) Separate Account............... 187,283 (1,398) 518,469 88,706 30,000
--------- --------- --------- --------- -----------
Increase in net assets................................................ 191,671 0 554,921 101,037 32,008
Net assets, beginning of period....................................... 0 0 101,037 0 0
--------- --------- --------- --------- -----------
Net assets, end of period............................................. $ 191,671 $ 0 $ 655,958 $ 101,037 $ 32,008
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
<FN>
- ----------------
* The Money Market Division commenced operations July 26, 1996.
** The Variable Strategic Income Division commenced operations January 30,
1996.
*** The Variable U.S. Government Income Division commenced operations June 4,
1997.
</TABLE>
See accompanying notes to the financial statements.
D5
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF ASSETS
AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
NEW 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)........ $ 259,774 $ 142,709 $ 94,360
Receivable from Security Equity Life
Insurance Company.................... 0 0 0
----------- --------- --------
Total assets........................ 259,774 142,709 94,360
----------- --------- --------
Liability:
Payable to Security Equity Life
Insurance Company.................... 837 503 515
----------- --------- --------
Total net assets.................... $ 258,937 $ 142,206 $ 93,845
----------- --------- --------
----------- --------- --------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in Separate
Account.............................. $ 258,937 $ 142,206 $ 93,845
----------- --------- --------
----------- --------- --------
Total individual units held............. 28,896 8,163 6,419
Accumulation unit value................. $ 8.96 $ 17.42 $ 14.62
Cost of investments..................... $ 316,319 $ 138,192 $ 93,576
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE VARIABLE
GROWTH & VARIABLE TELECOM- VARIABLE EMERGING NATURAL
INCOME LATIN AMERICA MUNICATIONS INTERNATIONAL MARKETS RESOURCES
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)........ $ 29,472 $ 200,394 $ 557,154 $ 64,443 $33,345 $ 92,197
Receivable from Security Equity Life
Insurance Company.................... 0 0 0 0 25,046 0
------------ ------------- ----------- ------------- -------- ---------
Total assets........................ 29,472 200,394 557,154 64,443 58,391 92,197
------------ ------------- ----------- ------------- -------- ---------
Liability:
Payable to Security Equity Life
Insurance Company.................... 103 375 1,967 227 0 325
------------ ------------- ----------- ------------- -------- ---------
Total net assets.................... $ 29,369 $ 200,019 $ 555,187 $ 64,216 $58,391 $ 91,872
------------ ------------- ----------- ------------- -------- ---------
------------ ------------- ----------- ------------- -------- ---------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in Separate
Account.............................. $ 29,369 $ 200,019 $ 555,187 $ 64,216 $58,391 $ 91,872
------------ ------------- ----------- ------------- -------- ---------
------------ ------------- ----------- ------------- -------- ---------
Total individual units held............. 2,116 13,385 37,030 4,879 5,161 6,760
Accumulation unit value................. $ 13.88 $ 14.94 $ 14.99 $ 13.16 $ 11.31 $ 13.59
Cost of investments..................... $ 26,553 $ 195,228 $ 562,466 $ 59,677 $44,707 $ 97,582
<CAPTION>
VARIABLE
INFRASTRUCTURE
DIVISION
--------------
<S> <C>
Assets:
Investments in GT Global Variable
Investment Funds, at market value
(see Schedule of Investments)........ $ 10,360
Receivable from Security Equity Life
Insurance Company.................... 0
--------------
Total assets........................ 10,360
--------------
Liability:
Payable to Security Equity Life
Insurance Company.................... 36
--------------
Total net assets.................... $ 10,324
--------------
--------------
Total net assets represented by:
Individual variable annuity contracts
cash value invested in Separate
Account.............................. $ 10,324
--------------
--------------
Total individual units held............. 780
Accumulation unit value................. $ 13.24
Cost of investments..................... $ 10,859
</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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
NEW PACIFIC EUROPE AMERICA
DIVISION DIVISION DIVISION
----------- ----------- -----------
<S> <C> <C> <C>
Investment income:
Dividend income....................... $ 3,507 $ 321 $ 195
Expenses:
Mortality, expense and administrative
charges.............................. (6,842) (1,902) (1,251)
----------- ----------- -----------
Net investment income (loss)............ (3,335) (1,581) (1,056)
----------- ----------- -----------
Net realized gain on investments:
Realized gain from distributions...... 2,769 11,185 1,436
Realized gain (loss) on sales......... (108,996) 13,386 6,016
----------- ----------- -----------
Net realized gain (loss) on
investments........................ (106,227) 24,571 7,452
----------- ----------- -----------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. 48,545 8,201 (66)
Unrealized gain (loss) on investments,
end of period........................ (56,545) 4,517 783
----------- ----------- -----------
Net unrealized gain (loss) on
investments........................ (105,090) (3,684) 849
----------- ----------- -----------
Net gain (loss) on investments...... (211,317) 20,887 8,301
----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. $(214,652) $ 19,306 $ 7,245
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ----------------
* The Variable Growth & Income Division commenced operations April 8,
1997.
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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE VARIABLE
GROWTH & VARIABLE TELECOM- VARIABLE EMERGING NATURAL
INCOME LATIN AMERICA MUNICATIONS INTERNATIONAL MARKETS RESOURCES
DIVISION * DIVISION DIVISION DIVISION DIVISION DIVISION
----------- ------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income....................... $ 650 $ 0 $ 0 $ 80 $ 158 $ 0
Expenses:
Mortality, expense and administrative
charges.............................. (268) (3,220) (7,287) (773) (663) (1,108)
----------- ------------- ----------- ------------- ----------- -----------
Net investment income (loss)............ 382 (3,220) (7,287) (693) (505) (1,108)
----------- ------------- ----------- ------------- ----------- -----------
Net realized gain on investments:
Realized gain from distributions...... 54 0 62,148 0 2,479 3,662
Realized gain (loss) on sales......... 14 717 908 128 5,855 (70)
----------- ------------- ----------- ------------- ----------- -----------
Net realized gain (loss) on
investments........................ 68 717 63,056 128 8,334 3,592
----------- ------------- ----------- ------------- ----------- -----------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. 0 9,746 (13,796) 1,799 681 149
Unrealized gain (loss) on investments,
end of period........................ 2,919 5,166 (5,313) 4,766 (11,362) (5,384)
----------- ------------- ----------- ------------- ----------- -----------
Net unrealized gain (loss) on
investments........................ 2,919 (4,580) 8,483 2,967 (12,043) (5,533)
----------- ------------- ----------- ------------- ----------- -----------
Net gain (loss) on investments...... 2,987 (3,863) 71,539 3,095 (3,709) (1,941)
----------- ------------- ----------- ------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. $ 3,369 $ (7,083) $ 64,252 $ 2,402 $ (4,214) $ (3,049)
----------- ------------- ----------- ------------- ----------- -----------
----------- ------------- ----------- ------------- ----------- -----------
<CAPTION>
VARIABLE
INFRASTRUCTURE
DIVISION
---------------
<S> <C>
Investment income:
Dividend income....................... $ 56
Expenses:
Mortality, expense and administrative
charges.............................. (105)
-------
Net investment income (loss)............ (49)
-------
Net realized gain on investments:
Realized gain from distributions...... 514
Realized gain (loss) on sales......... 5
-------
Net realized gain (loss) on
investments........................ 519
-------
Net unrealized gain (loss) on
investments:
Unrealized gain (loss) on investments,
beginning of period.................. 76
Unrealized gain (loss) on investments,
end of period........................ (498)
-------
Net unrealized gain (loss) on
investments........................ (574)
-------
Net gain (loss) on investments...... (55)
-------
Net increase (decrease) in net assets
resulting from operations.............. $ (104)
-------
-------
</TABLE>
- ----------------
* The Variable Growth & Income Division commenced operations April 8,
1997.
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, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
NEW PACIFIC DIVISION EUROPE DIVISION * AMERICA DIVISION
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ (3,335) $ (25) $ (1,581) $ (362) $ (1,056) $ 10
Net realized gain (loss) on
investments.......................... (106,227) 38,523 24,571 39 7,452 2,430
Net unrealized gain (loss) on
investments.......................... (105,090) 48,539 (3,684) 8,201 849 391
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net
assets resulting from operations... (214,652) 87,037 19,306 7,878 7,245 2,831
--------- --------- --------- --------- --------- ---------
Deposits into Separate Account........ 322,717 856,376 97,213 58,056 9,078 22,561
Transfers into (from) Separate
Account.............................. (746,617) 3,519 (41,369) 2,126 50,662 0
Withdrawals from Separate Account..... (17,643) (39,770) (1,004) 0 (1,989) (2,060)
--------- --------- --------- --------- --------- ---------
Net deposits into (withdrawals from)
Separate Account................... (441,543) 820,125 54,840 60,182 57,751 20,501
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets..... (656,195) 907,162 74,146 68,060 64,996 23,332
Net assets, beginning of period....... 915,132 7,970 68,060 0 28,849 5,517
--------- --------- --------- --------- --------- ---------
Net assets, end of period............. $ 258,937 $ 915,132 $ 142,206 $ 68,060 $ 93,845 $ 28,849
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE
EMERGING MARKETS NATURAL RESOURCES INFRASTRUCTURE
DIVISION * * DIVISION * * * * DIVISION * * * *
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ (505) $ (56) $ (1,108) $ (6) $ (49) $ (1)
Net realized gain (loss) on
investments.......................... 8,334 0 3,592 0 519 0
Net unrealized gain (loss) on
investments.......................... (12,043) 681 (5,533) 149 (574) 76
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net
assets resulting from operations... (4,214) 625 (3,049) 143 (104) 75
--------- --------- --------- --------- --------- ---------
Deposits into Separate Account........ 38,043 34,636 3,358 1,300 3,352 1,301
Transfers into (from) Separate
Account.............................. 11,719 2,126 90,120 0 5,700 0
Withdrawals from Separate Account..... (1,684) (22,860) 0 0 0 0
--------- --------- --------- --------- --------- ---------
Net deposits into (withdrawals from)
Separate Account................... 48,078 13,902 93,478 1,300 9,052 1,301
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets..... 43,864 14,527 90,429 1,443 8,948 1,376
Net assets, beginning of period....... 14,527 0 1,443 0 1,376 0
--------- --------- --------- --------- --------- ---------
Net assets, end of period............. $ 58,391 $ 14,527 $ 91,872 $ 1,443 $ 10,324 $ 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.
* * * * * The Variable Growth & Income Division commenced operations April 8,
1997.
See accompanying notes to the financial statements.
D10
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF CHANGES IN NET ASSETS (cont'd)
For the periods ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE VARIABLE VARIABLE VARIABLE
GROWTH & INCOME LATIN AMERICA TELECOMMUNICATIONS INTERNATIONAL
DIVISION * * * * * DIVISION * DIVISION DIVISION * * *
--------------- -------------------- -------------------- --------------------
1997 1997 1996 1997 1996 1997 1996
--------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss).......... $ 382 $ (3,220) $ 408 $ (7,287) $ (3,005) $ (693) $ (390)
Net realized gain (loss) on
investments.......................... 68 717 47 63,056 27,064 128 120
Net unrealized gain (loss) on
investments.......................... 2,919 (4,580) 9,746 8,483 (13,458) 2,967 1,799
--------------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) in net
assets resulting from operations... 3,369 (7,083) 10,201 64,252 10,601 2,402 1,529
--------------- --------- --------- --------- --------- --------- ---------
Deposits into Separate Account........ 16,000 66,495 110,075 74,000 450,796 12,347 39,574
Transfers into (from) Separate
Account.............................. 10,000 35,358 0 5,276 0 10,000 0
Withdrawals from Separate Account..... 0 (5,000) (10,027) (4,804) (50,570) (691) (945)
--------------- --------- --------- --------- --------- --------- ---------
Net deposits into (withdrawals from)
Separate Account................... 26,000 96,853 100,048 74,472 400,226 21,656 38,629
--------------- --------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets..... 29,369 89,770 110,249 138,724 410,827 24,058 40,158
Net assets, beginning of period....... 0 110,249 0 416,463 5,636 40,158 0
--------------- --------- --------- --------- --------- --------- ---------
Net assets, end of period............. $ 29,369 $ 200,019 $ 110,249 $ 555,187 $ 416,463 $ 64,216 $ 40,158
--------------- --------- --------- --------- --------- --------- ---------
--------------- --------- --------- --------- --------- --------- ---------
</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.
* * * * * The Variable Growth & Income Division commenced operations April 8,
1997.
See accompanying notes to the financial statements.
D11
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
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 Telecommunications, 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; on July 26,
1996, for the Money Market Division; and on June 4, 1997, for the Variable U.S.
Government Income 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, on August 26, 1996, for
the Variable Natural Resources Division and the Variable Infrastructure
Division; and on April 8, 1997, for the Variable Growth & Income Division. As of
December 31, 1997, no deposits have been directed into the Variable Global
Government Income Division of Separate Account Twenty-six. As such, no financial
statements for this Division 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 RISK 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 Account Twenty-six totaled $7,594 for the period
ended December 31, 1997. Mortality and expense charges for Separate Account
Twenty-seven totaled $20,910 for the period ended December 31, 1997.
SURRENDER CHARGE (CONTINGENT DEFERRED SALES 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
D12
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTE 3 -- CONTRACT CHARGES (CONTINUED)
accumulated values of $20,000 or more. Security Equity charges $25 for each
transfer in excess of twelve (12) during the Contract Year, 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 totaled $912 for the period ended December 31, 1997.
Administrative charges for Separate Account Twenty-seven totaled $2,509 for the
period ended December 31, 1997.
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, 1997, 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............................................................... $2,433,398 $2,204,949
Variable Strategic Income Fund.................................................. 1,329,939 795,680
Variable U.S. Government Income Fund............................................ 41,039 10,158
<CAPTION>
SEPARATE ACCOUNT TWENTY-SEVEN
- --------------------------------------------------------------------------------
<S> <C> <C>
Variable New Pacific Fund....................................................... $1,340,278 $1,785,657
Variable Europe Fund............................................................ 213,689 148,966
Variable America Fund........................................................... 548,363 489,806
Variable Growth & Income Fund................................................... 26,703 165
Variable Latin America Fund..................................................... 607,874 514,232
Variable Telecommunications Fund................................................ 141,424 11,578
Variable International Fund..................................................... 22,427 1,379
Variable Emerging Markets Fund.................................................. 205,784 180,808
Variable Natural Resources Fund................................................. 98,520 2,168
Variable Infrastructure Fund.................................................... 9,622 73
</TABLE>
There were no purchases or sales of GT Global Variable Investment Fund shares
for the Variable Global Government Income Fund Division of Separate Account
Twenty-six.
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, 1997, for the Money Market Division for the period from July 26,
1996 (inception) to December 31, 1997, and for the Variable U.S. Government
Income Division for the period from June 4, 1997 (inception) to December 31,
1997 for Separate Account Twenty-six:
<TABLE>
<CAPTION>
VARIABLE U.S.
VARIABLE GOVERNMENT
MONEY MARKET STRATEGIC INCOME INCOME
DIVISION DIVISION DIVISION
---------------- ---------------- -------------
1997 1996 1997 1996 1997
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Individual units held:
Deposits........................................ 11,950 705 1,797 8,823 0
Transfers....................................... 3,796 (705) 35,859 156 2,518
Withdrawals..................................... (115) 0 (53) (1,669) 0
Outstanding units, beginning of period.......... 0 0 7,310 0 0
------- ------- ------- ------- -------------
Outstanding units, end of period................ 15,631 0 44,913 7,310 2,518
------- ------- ------- ------- -------------
------- ------- ------- ------- -------------
</TABLE>
D13
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTE 5 -- ACCUMULATION UNIT ACTIVITY (CONTINUED)
The following is a summary of the accumulation unit activity for the year ended
December 31, 1997 and the year ended December 31, 1996 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, 1997; the Variable Emerging Markets Division which shows the unit activity
from March 25, 1996 (inception) to December 31, 1997; the Variable International
Division which shows the unit activity from April 9, 1996 (inception) to
December 31, 1997; the Variable Natural Resources Division and the Variable
Infrastructure Division which show the unit activity from August 26, 1996
(inception) to December 31, 1997; and for the Variable Growth & Income Division
which shows the unit activity from April 8, 1997 (inception) to December 31,
1997 for Separate Account Twenty-seven:
<TABLE>
<CAPTION>
VARIABLE
GROWTH &
VARIABLE NEW VARIABLE EUROPE VARIABLE AMERICA INCOME VARIABLE LATIN
PACIFIC DIVISION DIVISION DIVISION DIVISION AMERICA DIVISION
---------------- ---------------- ---------------- ------------ ----------------
1997 1996 1997 1996 1997 1996 1997 1997 1996
------- ------- ------- ------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Individual units held:
Deposits.............................. 20,759 62,117 6,235 4,293 758 1,910 1,333 4,756 9,128
Transfers............................. (49,925) (643) (2,448) 144 3,425 0 783 347 0
Withdrawals........................... (1,240) (2,839) (61) 0 0 (174) 0 (50) (796)
Outstanding units, beginning of
period............................... 59,302 667 4,437 0 2,236 500 0 8,332 0
------- ------- ------- ------- ------- ------- ------------ ------- -------
Outstanding units, end of period...... 28,896 59,302 8,163 4,437 6,419 2,236 2,116 13,385 8,332
------- ------- ------- ------- ------- ------- ------------ ------- -------
------- ------- ------- ------- ------- ------- ------------ ------- -------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE
TELECOMMUN- VARIABLE VARIABLE VARIABLE NATURAL VARIABLE
ICATIONS INTERNATIONAL EMERGING MARKETS RESOURCES INFRASTRUCTURE
DIVISION GROWTH DIVISION DIVISION DIVISION DIVISION
---------------- ---------------- ---------------- ---------------- ----------------
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Individual units held:
Deposits......................... 5,614 34,680 947 3,294 2,634 2,727 263 106 249 108
Transfers........................ 372 0 767 0 1,549 162 6,391 0 423 0
Withdrawals...................... (347) (3,789) (52) (77) (114) (1,797) 0 0 0 0
Outstanding units, beginning of
period.......................... 31,391 500 3,217 0 1,092 0 106 0 108 0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Outstanding units, end of
period.......................... 37,030 31,391 4,879 3,217 5,161 1,092 6,760 106 780 108
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
NOTE 6 -- SUMMARY OF GROSS AND NET DEPOSITS INTO SEPARATE ACCOUNT
Deposits into the Separate Account are used to purchase shares in the 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>
VARIABLE U.S.
GOVERNMENT
MONEY MARKET VARIABLE STRATEGIC INCOME
DIVISION INCOME DIVISION DIVISION*
-------------------- -------------------- -------------
1997 1996 1997 1996 1997
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Total gross deposits.............................. $ 145,058 $ 8,500 $ 25,099 $ 108,470 $ 0
Transfers between fund divisions and Security
Equity........................................... 43,617 (9,898) 495,534 2,126 30,000
Surrenders and withdrawals........................ (1,336) 0 (2,104) (21,890) 0
--------- --------- --------- --------- -------------
Total gross deposits, transfers, and
surrenders between fund divisions............ 187,339 (1,398) 518,529 88,706 30,000
--------- --------- --------- --------- -------------
Deductions:
Account fees.................................... 0 0 (60) 0 0
Surrender charges............................... (56) 0 0 0 0
--------- --------- --------- --------- -------------
Total deductions.............................. (56) 0 (60) 0 0
--------- --------- --------- --------- -------------
Net deposits into (deductions from) Separate
Account.......................................... $ 187,283 $ (1,398) $ 518,469 $ 88,706 $ 30,000
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
</TABLE>
- --------------
* The Variable U.S. Government Income Division commenced operations on June
4, 1997.
D14
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTE 6 -- SUMMARY OF GROSS AND NET DEPOSITS INTO SEPARATE ACCOUNT (CONTINUED)
Deposits into the Separate Account are used to purchase shares in the 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-seven
follows:
<TABLE>
<CAPTION>
VARIABLE NEW PACIFIC VARIABLE EUROPE VARIABLE AMERICA
DIVISION DIVISION* DIVISION
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits.............................. $ 322,747 $ 856,376 $ 97,213 $ 58,056 $ 9,078 $ 22,561
Transfers between fund divisions and Security
Equity........................................... (746,617) 3,519 (41,369) 2,126 50,662 0
Surrenders and withdrawals........................ (17,609) (39,770) (1,004) 0 (1,989) (2,060)
--------- --------- --------- --------- --------- ---------
Total gross deposits, transfers, and
surrenders between fund divisions............ (441,479) 820,125 54,840 60,182 57,751 20,501
--------- --------- --------- --------- --------- ---------
Deductions:
Account fees.................................... (30) 0 0 0 0 0
Surrender charges............................... (34) 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
Total deductions.............................. (64) 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
Net deposits into (deductions from) Separate
Account.......................................... $(441,543) $ 820,125 $ 54,840 $ 60,182 $ 57,751 $ 20,501
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE GROWTH VARIABLE VARIABLE
& INCOME VARIABLE LATIN TELECOMMUNICATIONS INTERNATIONAL
DIVISION***** AMERICA DIVISION* DIVISION DIVISION***
--------------- -------------------- -------------------- --------------------
1997 1997 1996 1997 1996 1997 1996
--------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total gross deposits.................... $ 16,000 $ 66,585 $ 110,075 $ 74,120 $ 450,796 $ 12,347 $ 39,574
Transfers between fund divisions and
Security Equity........................ 10,000 35,358 0 5,276 0 10,000 0
Surrenders and withdrawals.............. 0 (5,000) (10,027) (4,474) (50,570) (691) (945)
--------------- --------- --------- --------- --------- --------- ---------
Total gross deposits, transfers, and
surrenders between fund
divisions.......................... 26,000 96,943 100,048 74,922 400,226 21,656 38,629
--------------- --------- --------- --------- --------- --------- ---------
Deductions:
Account fees.......................... 0 (90) 0 (120) 0 0 0
Surrender charges..................... 0 0 0 (330) 0 0 0
--------------- --------- --------- --------- --------- --------- ---------
Total deductions.................... 0 (90) 0 (450) 0 0 0
--------------- --------- --------- --------- --------- --------- ---------
Net deposits into (deductions from)
Separate Account....................... $ 26,000 $ 96,853 $ 100,048 $ 74,472 $ 400,226 $ 21,656 $ 38,629
--------------- --------- --------- --------- --------- --------- ---------
--------------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
VARIABLE NATURAL VARIABLE
VARIABLE EMERGING RESOURCES INFRASTRUCTURE
MARKETS DIVISION** DIVISION**** DIVISION****
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total gross deposits.............................. $ 38,043 $ 34,636 $ 3,358 $ 1,300 $ 3,352 $ 1,301
Transfers between fund divisions and Security
Equity........................................... 11,719 2,126 90,120 0 5,700 0
Surrenders and withdrawals........................ (1,684) (22,860) 0 0 0 0
--------- --------- --------- --------- --------- ---------
Total gross deposits, transfers, and
surrenders between fund divisions............ 48,078 13,902 93,478 1,300 9,052 1,301
--------- --------- --------- --------- --------- ---------
Deductions:
Account fees.................................... 0 0 0 0 0 0
Surrender charges............................... 0 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
Total deductions.............................. 0 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
Net deposits into (deductions from) Separate
Account.......................................... $ 48,078 $ 13,902 $ 93,478 $ 1,300 $ 9,052 $ 1,301
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- --------------
<TABLE>
<C> <S>
* 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.
***** The Variable Growth & Income Division commenced operations April 8, 1997.
</TABLE>
D15
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
SCHEDULE OF INVESTMENTS*
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPARATE ACCOUNT TWENTY-SIX: NO. OF SHARES MARKET VALUE
- -------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
GT Global: Money Market Fund.................................................. 228,914 $ 228,914
GT Global: Variable Strategic Income Fund..................................... 48,205 645,459
GT Global: U.S. Government Income Fund........................................ 2,745 32,120
<CAPTION>
SEPARATE ACCOUNT TWENTY-SEVEN:
- --------------------------------------------------------------------------------
<S> <C> <C>
GT Global: Variable New Pacific Fund.......................................... 24,717 259,774
GT Global: Variable Europe Fund............................................... 6,337 142,709
GT Global: Variable America Fund.............................................. 4,352 94,360
GT Global: Variable Growth & Income Fund...................................... 1,584 29,472
GT Global: Variable Latin America Fund........................................ 11,823 200,394
GT Global: Variable Telecommunications Fund................................... 30,280 557,154
GT Global: Variable International Fund........................................ 5,066 64,443
GT Global: Variable Emerging Markets Fund..................................... 2,882 33,345
GT Global: Variable Natural Resources Fund.................................... 4,564 92,197
GT Global: Variable Infrastructure Fund....................................... 634 10,360
</TABLE>
- --------------
* There were no investments of GT Global Investment Fund shares for the Variable
Global Government Income Fund.
See accompanying independent auditors' report.
D16
<PAGE>
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SIX AND
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
CONDENSED FINANCIAL INFORMATION
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATION
ACCUMULATION UNIT VALUE: TOTAL UNITS
UNIT VALUE: END OF OUTSTANDING,
BEGINNING OF PERIOD* PERIOD END OF PERIOD
-------------------- ------------ --------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT TWENTY-SIX:
Money Market Division............................................... 1997 N/A 12.26 15,631
1996 12.00 N/A 0
Variable Strategic Income Division.................................. 1997 13.82 14.61 44,913
1996 12.00 13.82 7,310
Variable U.S. Government Income Division............................ 1997 12.00 12.71 2,518
SEPARATE ACCOUNT TWENTY-SEVEN:
Variable New Pacific Division....................................... 1997 15.43 8.96 28,896
1996 11.95 15.43 59,302
1995 12.00 11.95 677
Variable Europe Division............................................ 1997 15.34 17.42 8,163
1996 12.00 15.34 4,437
Variable America Division........................................... 1997 12.90 14.62 6,419
1996 11.03 12.90 2,236
1995 12.00 11.03 500
Variable Growth & Income Division................................... 1997 12.00 13.88 2,116
Variable Latin America Division..................................... 1997 13.23 14.94 13,385
1996 12.00 13.23 8,332
Variable Telecommunications Division................................ 1997 13.27 14.99 37,030
1996 11.27 13.27 31,391
1995 12.00 11.27 500
Variable International Division..................................... 1997 12.48 13.16 4,879
1996 12.00 12.48 3,217
Variable Emerging Markets Division.................................. 1997 13.30 11.31 5,161
1996 12.00 13.30 1,092
Variable Natural Resources Division................................. 1997 13.60 13.59 6,760
1996 12.00 13.60 106
Variable Infrastructure Division.................................... 1997 12.79 13.24 780
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 the Variable Infrastructure
Division which commenced operations on August 26, 1996; the Variable Growth &
Income Division which commenced operations on April 8, 1997; and the Variable
U.S. Government Division which commenced operations on June 4, 1997.
See accompanying independent auditors' report.
D17
<PAGE>
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
April 10, 1998
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, at fair value $58,580,394 58,058,439
Policy loans 4,738,178 5,081,949
Cash and cash equivalents 4,519,584 5,534,380
- ----------------------------------------------------------------------------------------------------------------------------------
Total cash and invested assets 67,838,156 68,674,768
Reinsurance benefits recoverable:
Future policy benefits 5,575,381 6,436,700
Policy and contract claims 1,572,069 2,048,247
Accrued investment income 1,264,239 1,230,483
Goodwill 1,269,661 1,349,013
Deferred policy acquisition costs 1,766,875 3,658,233
Value of business acquired 2,467,000 2,461,000
Deferred tax asset 5,671,074 3,403,349
Other assets 665,967 877,289
Separate account assets 290,409,444 116,625,434
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $378,499,866 206,764,516
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve for future policy benefits 3,426,250 4,321,740
Policyholder account balances 47,594,304 50,194,850
Policy and contract claims 320,358 1,494,338
Other policyholders' funds 13,733 21,723
Advance premiums 3,733,433 1,861,279
Other liabilities and accrued expenses 4,643,201 6,622,653
Payable to affiliates 41,307 75,510
Separate account liabilities 290,409,444 116,625,434
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 350,182,030 181,217,527
- ----------------------------------------------------------------------------------------------------------------------------------
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 1,870,338 59,112
Retained deficit (3,500,394) (4,460,015)
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $378,499,866 206,764,516
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 28,317,836 25,546,989
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Operations
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums $4,246,718 6,371,662 5,368,563
Net investment income 4,774,386 4,546,544 4,699,713
Other income 9,357,336 3,830,965 1,694,087
Realized investment gains (losses) 93,385 313,185 (179,830)
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues 18,471,825 15,062,356 11,582,533
- ----------------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits 1,326,460 3,309,410 3,234,062
Policy surrenders, net 4,335,709 1,635,498 1,016,535
Change in reserve for future policy benefits (3,202,870) (1,893,195) (2,791,166)
Interest credited 2,392,355 2,437,432 2,391,220
Commissions, net of capitalized costs 2,370,739 1,403,608 1,283,902
General and administrative expenses 5,412,113 4,795,193 4,966,525
Amortization of goodwill 79,356 79,356 79,356
Accretion of value of business acquired, net (6,000) (20,000) (28,000)
Other expenses 4,256,509 3,598,595 1,302,092
- ----------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 16,964,371 15,345,897 11,454,526
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations before
Federal income tax expense (benefit): 1,507,454 (283,541) 128,007
- ----------------------------------------------------------------------------------------------------------------------------------
Federal income tax expense (benefit):
Current 3,790,833 15,000 -
Deferred (3,243,000) (92,000) 64,286
- ----------------------------------------------------------------------------------------------------------------------------------
Total Federal income tax expense
(benefit) 547,833 (77,000) 64,286
Net income (loss) $ 959,621 (206,541) 63,721
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<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, 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
Net gain - - - 959,621 959,621
Change in net unrealized gain
(loss) on investments - - 1,811,226 - 1,811,226
- -----------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $2,500,000 27,447,892 1,870,338 (3,500,394) 28,317,836
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 959,621 (206,541) 63,721
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Change in:
Reinsurance benefits ceded 1,337,497 441,300 3,844,903
Accrued investment income (33,756) 48,733 (36,253)
Other assets 211,321 372,746 (824,660)
Deferred policy acquisition costs, net 1,891,358 (2,186,479) (1,471,754)
Policy liabilities (3,496,036) (1,004,266) (1,345,723)
Policy and contract claims (1,173,980) (682,499) (2,880,980)
Other policyholders' funds (7,990) (3,341) 2,425
Federal income tax payable 709,833 15,000 -
Advance premiums 1,872,155 804,215 393,064
Other liabilities and accrued expenses (2,669,279) 4,317,546 190,733
Payable to affiliates (34,203) 23,725 (17,141)
Accretion of bond premiums, net 130,011 189,350 221,543
Deferred tax expense (benefit) (3,243,000) (92,000) 64,286
Net (gain) loss on sale of investments (93,385) (313,185) 179,830
Amortization of goodwill 79,356 79,356 79,356
Accretion of value of business acquired (6,000) (20,000) (28,000)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (3,566,477) 1,783,660 (1,564,650)
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (6,925,121) (12,790,361) (17,056,300)
Sale or maturity of investments 9,153,009 15,141,063 19,355,372
Increase in policy loans, net 343,771 (557,046) (893,507)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,571,659 1,793,656 1,405,565
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Policyholder account balances:
Deposits on interest-sensitive life contracts 147,698,966 48,448,968 18,382,186
Transfers to separate account for
interest-sensitive life contracts, net (147,718,944) (48,468,986) (27,178,119)
- ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (19,978) (20,018) (8,795,933)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (1,014,796) 3,557,298 (8,955,018)
Cash and cash equivalents at beginning of year 5,534,380 1,977,082 10,932,100
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,519,584 5,534,380 1,977,082
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information -
taxes paid $ 3,081,000 - 20,000
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
(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
(Continued)
<PAGE>
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, 1997 and 1996, all long-term securities are carried at
fair 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 fair
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 1997, 1996 and 1995, amortization of VOBA was $134,000,
$121,000 and $112,000, and the accretion of interest on the
unamortized balance was $140,000, $141,000 and $140,000, 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
(Continued)
<PAGE>
and 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 respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which 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 1997, consistent
with 1996 and 1995.
(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 to 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 1997, 1996 and 1995, the Company
deferred $226 thousand, $2.4 million and $1.5 million, respectively,
in acquisition costs related to interest sensitive products and
recognized amortization of $590,000, $168,000 and $12,000,
respectively, based on the estimated gross profits of the underlying
business. During 1997 a policyholder utilized their "free-look"
provision of their variable life contract written in 1996 which
resulted in the return of approximately $13 million in contract
deposits to the policyholder. Additionally, the Company wrote off
$1.5 million of related deferred acquisition costs associated with the
contract which were capitalized in 1996.
(Continued)
<PAGE>
- --------------------------------------------------------------------------------
(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 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 VALUE 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 premium or discount that could 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 (Bonds) 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, 1997 and 1996.
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 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
(Continued)
<PAGE>
- --------------------------------------------------------------------------------
(2) INVESTMENTS
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $4,161,182 4,291,428 4,458,159
Short-term investments 278,606 75,110 43,781
Policy loans and other 409,406 260,276 294,298
---------------------------------------------------------------------------------------------------------
4,849,194 4,626,814 4,796,238
---------------------------------------------------------------------------------------------------------
Investment expenses 74,808 80,270 96,525
---------------------------------------------------------------------------------------------------------
Net investment income $4,774,386 4,546,544 4,699,713
---------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31,
1997 and 1996 are shown below. Fair value is based upon market prices
obtained from independent pricing services.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1997
---------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 6,387,244 369,801 148 6,756,897
Corporate securities 36,700,238 2,523,621 153,514 39,070,345
Mortgage-backed securities 12,615,469 323,476 185,793 12,753,152
---------------------------------------------------------------------------------------------------------
$55,702,951 3,216,898 339,455 58,580,394
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1996
---------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
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 1,456,718 1,365,777 58,058,439
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of bonds at
December 31, 1997 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 $ - -
Due after one year through five years 3,096,420 3,117,591
Due after five years through ten years 6,774,376 7,001,455
Due after ten years 33,216,686 35,708,197
Mortgage-backed securities 12,615,469 12,753,151
---------------------------------------------------------------------------------------------------------
$55,702,951 58,580,394
---------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale, call, and maturity of investments in bonds
during 1997, 1996, and 1995 were $9,153,009, $15,141,063, and
$19,355,372, respectively. Gross gains of $346,842, $381,856, and
$428,522 and gross losses of $253,457, $68,671, and $608,352 were
realized on those sales in 1997, 1996, and 1995, respectively.
The Company has bonds on deposit with various state insurance
departments with an amortized cost of approximately $2,387,000 and
$2,411,000 at December 31, 1997 and 1996, 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.
(Continued)
<PAGE>
- --------------------------------------------------------------------------------
Premiums and related reinsurance amounts for the years ended December
31, 1997, 1996, and 1995 as they relate to transactions with
affiliates are summarized as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded $1,489,006 1,632,262 1,956,568
Policy benefits ceded (23,067) 1,397,188 305,947
---------------------------------------------------------------------------------------------------------
</TABLE>
Premiums and related reinsurance amounts for the years ended
December 31, 1997, 1996, and 1995 as they relate to transactions with
nonaffiliates are summarized as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with nonaffiliates:
Reinsurance premiums ceded $5,352,578 5,744,060 5,489,407
Policy benefits ceded 463,458 3,824,327 2,682,132
---------------------------------------------------------------------------------------------------------
</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>
---------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $528 (99) 45
Amortization of intangibles, net 26 21 18
Other, net (6) 1 1
---------------------------------------------------------------------------------------------------------
Federal income tax expense (benefit) $548 (77) 64
---------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1997
and 1996 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------------------------------------------
<S><C> <C> <C>
Deferred tax assets:
Policy acquisition costs $4,897 1,746
Reserves 3,380 1,694
Capital loss carryforward 101 148
Other, net 1,307 685
---------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 9,685 4,273
Less valuation allowance - -
---------------------------------------------------------------------------------------------------------
Net deferred tax assets 9,685 4,273
---------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 1,023 80
Other, net 2,991 790
---------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 4,014 870
---------------------------------------------------------------------------------------------------------
Net deferred tax asset $5,671 3,403
---------------------------------------------------------------------------------------------------------
</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.
(Continued)
<PAGE>
- --------------------------------------------------------------------------------
(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 $578,000, $529,000, and $463,200 for
1997, 1996, and 1995, 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
$1,467,364, $1,621,268, and $1,842,320 for 1997, 1996, and 1995,
respectively.
On November 18, 1997, General American elected to surrender their
existing VUL policy which was purchased from the Company in November
1996. General American incorporated the cash value from their
surrendered policy of $2,965,211 with an additional contribution of
$37,400,000 to purchase another VUL policy with the Company totaling
$40,365,211.
(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 1997, 1996, and 1995 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 $302,000 and $144,000 in 1997 and
1996, respectively.
In order to attract and retain highly qualified Non-Employee
Directors, the Company enacted an arrangement under which Non-Employee
Directors may elect to reduce their current Director's Compensation in
exchange for future benefits. This plan, known as the Security Equity
Deferred Compensation Plan for Non-Employee Directors, was adopted and
effective as of April 15, 1995. The deferred liabilities were
$222,000, $117,000, and $43,000 in 1997, 1996, and 1995, respectively.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with Statement of Financial Accounting
Standards No. 106, EMPLOYER'S ACCOUNTING FOR POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS (SFAS No. 106). 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 benefit obligation
of approximately $16,427 over a period of 20 years. The unrecognized
initial postretirement benefit obligation was approximately $13,084
and $13,962 at December 31, 1997 and 1996, respectively. The net
periodic post-retirement benefit cost for the years ended December 31,
1997, 1996, and 1995 was $6,600, $8,490, and $6,711, 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 $27,564 and $28,981 at December
31, 1997 and 1996, 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 8% for the
Indemnity Plan, the HMO Plan, and Dental Plan. These rates were
graded to 5.0% over the next 13 years. A one percentage point
increase in the assumed health care cost trend rates would increase
the
(Continued)
<PAGE>
- --------------------------------------------------------------------------------
December 31, 1997 accumulated postretirement obligation by $4,165, and
the estimated service cost and interest cost components of the net
periodic postretirement benefit cost for 1997 by $908.
(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 gain/(loss) of the Company
at December 31, 1997, 1996, and 1995, as determined using statutory
accounting practices, is summarized as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Surplus as reported to regulatory authorities $13,420,004 12,441,081 15,125,968
Net gain/(loss) as reported to regulatory authorities 1,090,966 (2,778,942) (1,465,539)
---------------------------------------------------------------------------------------------------------
</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 requiring the prior
notice and approval of the State of New York Department of Insurance.
The Company did not pay a dividend in 1997, 1996, or 1995.
(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.
(Continued)
<PAGE>
- --------------------------------------------------------------------------------
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, 1997, the Company's actual total adjusted
capital was well in excess of minimum levels which would require
action by the Company or regulatory authorities under the RBC formula.
(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, 1998 $58,600
--------------------------------------------------------------------
</TABLE>
Rent expense totaled approximately $86,700, $82,700, and $83,900 in
1997, 1996, and 1995, respectively.
<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 6000531. 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 9 December 1994.
2 Incorporated herein by reference to Pre-Effective Amendment No. 1
(file no. 33-87248) filed on 14 April 1995.
3 Incorporated herein by reference to Post-Effective Amendment No. 1
(file 33-87144) filed on 29 April 1996.
4 Incorporated herein by reference to Post-Effective Amendment No. 2
(file 33-87248) filed on 25 April 1997.
C-1
<PAGE>
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
OFFICER'S NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH DEPOSITOR
<S> <C>
Ralph H. Gorter Second Vice President
Judith A. Maron Second Vice President
Richard A. Leifels Second Vice President 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
</TABLE>
* 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>
<TABLE>
<CAPTION>
DIRECTORS POSITIONS AND OFFICES
WITH DEPOSITOR
<S> <C>
Willard N. Archie Director
Mitchell, Titus & Company
One Battery Park Plaza
New York, New York 10004-1461
Carson E. Beadle Director
Carson E. Beadle, Inc.
750 Park Avenue, Apt. 14E
New York, New York 10021
James R. Elsesser Director
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Stanley Goldstein Director
Goldstein, Golub, Kessler & Company
New York, New York 10036
David D. Holbrook Director
J&H, 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 Asset Management Company
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
H. Edwin Trusheim Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Directors Positions and Offices
with Depositor
<S> <C>
Virginia V. Weldon, M.D. Director
212 Carlyle Lake
St. Louis, Missouri 63141
Ted C. Wetterau Director
Wetterau Associates, L.L.C.
8112 Maryland Avenue, Suite 250
St. Louis, Missouri 63105
Bernard H Wolzenski Director
General American Life Insurance Company
13045 Tesson Ferry Road
St. Louis, Missouri 63101
A. Greig Woodring Director
Reinsurance Group of America, Inc.
660 Mason Ridge Center Drive, Suite 300
St. Louis, Missouri 63141
</TABLE>
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 Mutual Holding Company: a mutual holding company.
GenAmerica Corporation: formed to hold all of the stock of General American
Life Insurance Company.
Walnut Street Securities, Inc.: wholly-owned, third-tier subsidiary
engaged in the process of selling variable life insurance and variable
annuities and other securities.
Walnut Street Advisers, Inc.: wholly-owned subsidiary of Walnut Street
Securities engaged in the business of giving investment advice.
WSS Insurance Agencies (Alabama, Massachusetts, Ohio, Texas), Inc.:
formed to act as insurance agencies.
Collaborative Strategies, Inc.: wholly-owned business management
consulting company.
GenAmerica Capital I: Wholly-owned Delaware trust formed for the purpose
of issuing securities as an investment vehicle for GenAmerica Corporation.
Missouri Reinsurance (Barbados), Inc.: wholly-owned Barbados exempt life,
accident and health reinsurance company.
General American Life Insurance Company: an insurance company selling
life and health insurance and pensions.
Cova Corporation: wholly-owned subsidiary formed to own the former
Xerox Life companies.
C-5
<PAGE>
Cova Financial Services Life Insurance Company: wholly-owned by Cova
Corporation, engaged in the business of selling annuities and life
insurance.
First Cova Life Insurance Company: wholly-owned by Cova
Financial Services Life Insurance Company, engaged in the sale
of life insurance in 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 in California.
Cova Life Management Company: wholly-owned by Cova Corporation.
Employer of the individuals operating the Cova companies.
Cova Investment Advisory Corporation: wholly-owned by Cova Life
Management Company. Intended to provide investment advice to Cova
Life insureds and annuity owners.
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.
Cova Life Sales Company: wholly-owned by Cova Life Management
Company. Broker-dealer established to supervise sales of Cova
Life contracts.
Cova Life Administration Services Company: 49% owned by Cova
Life Management Company. Provides administrative services for
Cova annuities. (51% owned by Genelco Incorporated.)
General Life Insurance Company: wholly-owned subsidiary, domiciled in
Texas, engaged in the business of selling life insurance and annuities.
C-6
<PAGE>
General Life Insurance Company of America: wholly-owned subsidiary,
domiciled in Illinois, engaged in the business of selling life
insurance and annuities.
Paragon Life Insurance Company: wholly-owned subsidiary engaged in
employer sponsored sales of life insurance.
Equity Intermediary Company: wholly-owned subsidiary holding company
formed to own stock in subsidiaries.
Reinsurance Group of America, Incorporated: subsidiary, of which
approximately 64% is owned by Equity Intermediary and the balance
by the public.
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, existing to hold Chilean reinsurance operations.
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.
RGA Reinsurance Company Chile S.A.: 100% owned by RGA,
engaged in business of reinsuring life and annuity business
of BHIF America.
Manantial Sequros de Vida S.A.: Argentinean subsidiary 100%
owned by RGA, engaged in business as a life, annuity,
disability and survivorship insurer.
RGA Reinsurance Company: subsidiary of Reinsurance Group of
America engaged in the reinsurance business.
C-7
<PAGE>
Fairfield Management Group, Inc. (fka Great Rivers Holding
Company): 100% owned subsidiary.
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.
Great Rivers Reinsurance Management, Inc.: wholly-owned
subsidiary of Fairfield Management Group, Inc., acting
as a reinsurance manager.
RGA (U.K.) Underwriting Agency Limited: 80% owned by
Fairfield Management Group, Inc.
RGA Reinsurance Company (Barbados) Ltd.: subsidiary of
Reinsurance Group of America, Incorporated formed to engage
in the exempt insurance business.
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.
RGA International Ltd.: a New Brunswick corporation
wholly-owned by Reinsurance Group of America, existing to hold
Canadian reinsurance operations.
RGA Canada Management Company, Ltd.: a New Brunswick
corporation wholly-owned by G.A. Canadian Holdings,
existing to accommodate Canadian investors.
C-8
<PAGE>
RGA Life Reinsurance Company of Canada: wholly-owned by RGA
Canada Management Company, Ltd.
RGA Holdings Limited: holding company formed in the United
Kingdom to own two operating companies: RGA Managing Agency
Limited and RGA Capital Limited.
RGA Managing Agency Limited: company has applied to Lloyd's
of London for registration as a managing agent or underwriter.
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.
RGA Insurance Company (Bermuda) Limited: subsidiary formed to
engage in insurance business.
RGA Australian Holdings Pty Limited: holding company formed to
own RGA Reinsurance Company of Australia Limited.
RGA Reinsurance Company of Australia Limited: formed to
reinsure the life, health and accident business of
non-affiliated Australian insurance companies.
Security Equity Life Insurance Company: wholly-owned subsidiary,
domiciled in New York, engaged in the business of selling life
insurance and annuities.
General American Holding Company: wholly-owned subsidiary owning
non-insurance subsidiaries.
Conning Corporation: 63% owned, second-tier subsidiary formed to
own the Conning companies (with the remainder owned by the
public).
C-9
<PAGE>
Conning, Inc.: a holding company organized under Delaware law.
Conning & Company: a Connecticut corporation engaged in
providing asset management and investment advisory services
as well as insurance research services.
Conning Asset Management Company: a Missouri corporation
engaged in providing investment advice.
Consultec, Inc.: wholly-owned, second-tier subsidiary engaged in
providing data processing services for government entities.
Genelco Incorporated: wholly-owned, second-tier subsidiary
engaged in the sale of computer software and in providing third
party administrative services.
International Underwriting Services, Incorporated: 88.3% owned
by Genelco. Provides third party underwriting services to
insurance companies.
Genelco de Mexico: 99% owned by Genelco Incorporated, engaged
in licensing of Genelco software products in Latin America.
Genelco Software, S.A.: 99% owned by Genelco Incorporated,
engaged in licensing of Genelco software products in Spain.
Cova Life Administration Services Company: 51% owned. Provides
administrative services for Cova annuities. (49% owned by
Cova Life Management Company.)
Red Oak Realty Company: wholly-owned, second-tier subsidiary
formed for the purpose of investing in and operating real estate.
C-10
<PAGE>
GenMark Incorporated: wholly-owned, second-tier subsidiary
company acting as distribution company.
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.
White Oak Royalty Company: wholly-owned, second-tier subsidiary
formed to own mineral interests.
Symbience, L.L.C.: 60% owned by General American; administers
notification, billing, and collection of insurance premiums for
group employee welfare benefit plans.
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, 1998: 37
Qualified 3
Non-Qualified 34
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 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
C-11
<PAGE>
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-12
<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-13
<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-14
<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-15
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
<S> <C>
William J. Guilfoyle President and Chairman of the Board
Raymond R. Cunningham Senior Vice President - Director of Sales
and Director
Helge K. Lee Secretary and Chief Legal and Compliance
Officer
Richard W. Healey Senior Vice President - Director of
Marketing and Director
Stephen A. Maginn Senior Vice President - Regional Sales
519 S. Juanita Manager
Redondo Beach, CA 90277
Donna B. Abrahamson Vice President - Account Management
Hallie L. Baron Vice President - Public Relations &
Shareholder Communications
Jon Burke Vice President
31 Darlene Drive
Southboro, MA 01772
Gary M. Castro Assistant Treasurer & Controller
Kenneth W. Chancey Senior Vice President - Fund Accounting
Anthony DiBacco Vice President
30585 Via Lindosa
Laguna Niguel, CA 92677
</TABLE>
C-16
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices
Address* with Underwriter
<S> <C>
Philip B. Christopher Vice President
3621 59th Avenue, SW
Seattle, WA 98116
Stephen Duffy Vice President
1120 Gables Drive
Atlanta, GA 30319
Philip D. Edelstein Senior Vice President - Regional Sales
9 Huntly Circle Manager
Palm Beach Gardens, FL 33418
Glen R. Farinacci Vice President
86 University Place
Staten Island, NY 10301
Ned E. Hammond Vice President
5901 McFarland Ct.
Plano, TX 75093-4317
David P. Hess Assistant Secretary and Director of
Mutual Fund Compliance
Richard Kashnowski Vice President
1368 S. Ridge Drive
Mandeville, LA 70448
Allen M. Kuhn Vice President
19655 Red Maple Lane
Jupiter, FL 33458
Earle A. Malm II Chief Operating Officer
Christine C. Mangan Vice President - Dealer Marketing
Steven C. Manns Vice President
1941 West Wolfram
Chicago, IL 60657
Wayne F. Meyer Vice President
2617 Sun Meadow Drive
Chesterfield, MO 63005
Christine M. Pallatto Senior Vice President - Director of Human
Resources
</TABLE>
C-17
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices
Address* with Underwriter
<S> <C>
Dean Phillips Vice President
3406 Bishop Park Drive, #428
Winter Park, FL 32792
Dennis W. Reichert Assistant Treasurer and Budget Director
Pamela Ruddock Vice President - Fund Administration
Philip Schertz Vice President
25 Ivy Place
Wayne, NJ 07470
Michael A. Silver Assistant Secretary and Assistant General
Counsel
Peter Sykes Vice President
1655 E. Sherman Avenue
Salt Lake City, UT 84105
Margo A. Tammen Vice President - Finance & Administration
Lance Vetter Vice President
10915 La Sallnas Circle
Boca Raton, FL 33428
Tommy D. Wells Vice President
25 Crane Drive
Sam Anselmo, CA 94960
Todd H. Westby Vice President
3405 Goshen Road
Newtown Square, PA 19073
Claus te Wildt Vice President - Director of Strategy and
Business Planning
Peter J. Wolfert Senior Vice President - Information
Technology
Paul Woznlak Vice President - Fund Accounting
Eric T. Zeigler Vice President
437-30th St.
Manhattan Beach, CA 90266
</TABLE>
* Unless otherwise indicated, the business address of each person listed is 50
California Street, San Francisco, California 94111.
C-18
<PAGE>
(c) Principal Underwriter
<TABLE>
<CAPTION>
1997 Brokerage 1997 Compensation
Commission
<S> <C> <C>
GT Global $37,607.52 $37,607.52
</TABLE>
C-19
<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, located at
9735 Landmark Parkway Drive, St. Louis, Missouri 631278-1690.
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 1940 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-20
<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 29th day of April, 1998.
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
C-21
<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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
4/29/98
- ----------------------------
William C. Thater President
(Principal Executive
Officer)
4/29/98
- ----------------------------
Richard A. Leifels Second Vice President
and Controller
*
- ----------------------------
Willard N. Archie Director
*
- ----------------------------
Carson E. Beadle Director
*
- ----------------------------
James R. Elsesser Director
*
- ----------------------------
Stanley Goldstein Director
*
- ----------------------------
David D. Holbrook Director
*
- ----------------------------
Richard A. Liddy Director
*
- ----------------------------
Leonard M. Rubenstein Director
4/29/98
- ----------------------------
William C. Thater Director
</TABLE>
C-22
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*
- ----------------------------
H. Edwin Trusheim Director
*
- ----------------------------
Virginia V. Weldon Director
*
- ----------------------------
Ted C. Wetterau Director
*
- ----------------------------
Bernard H Wolzenski Director
*
- ----------------------------
A. Greig Woodring Director
By 4/29/98
--------------------------
William C. Thater
</TABLE>
* 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.
C-23
<PAGE>
Exhibit Index
10 Consent of Independent Accountants
<PAGE>
Independent Auditors' Consent
The Board of Directors
Security Equity Life Insurance Company
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Financial Statements" in the Registration
Statement and Prospectus for Security Equity Separate Account 26.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SEP. ACCT. 26 - MONEY MARKET
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 229
<INVESTMENTS-AT-VALUE> 229
<RECEIVABLES> 1
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38
<TOTAL-LIABILITIES> 38
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 229
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 192
<DIVIDEND-INCOME> 6
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (2)
<NET-INVESTMENT-INCOME> 4
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 192
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SEP. ACCT. 26 - VAR. STRATEGIC INCOME
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 650
<INVESTMENTS-AT-VALUE> 645
<RECEIVABLES> 11
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 656
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 48
<SHARES-COMMON-PRIOR> 8
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 656
<DIVIDEND-INCOME> 33
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (6)
<NET-INVESTMENT-INCOME> 27
<REALIZED-GAINS-CURRENT> 24
<APPREC-INCREASE-CURRENT> (14)
<NET-CHANGE-FROM-OPS> 37
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 555
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SEP. ACCT. 26 - VAR. U.S. GOV. INCOME
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 31
<INVESTMENTS-AT-VALUE> 32
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 32
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1
<NET-CHANGE-FROM-OPS> 2
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 32
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> SEP. ACCT. 26 - VAR. GLOBAL GOV. INCOME
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
