<PAGE> 1
As filed with the Securities and Exchange Commission on May 21, 1996
Registration No. 33-87144
Securities and Exchange Commission
Washington, DC 20549
FORM N-4
Registration Statement Under the Securities Act of 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 2 /X/
and
Registration Statement Under the Investment Company Act of 1940
Amendment No. 3 /X/
Security Equity Separate Account 27
(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
Juanita M. Thomas, 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> 2
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph
(b), of Rule 485
x on April 29, 1996 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 1995 on 29 February 1996.
-ii-
<PAGE> 3
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
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
<S> <C>
1. Cover Page ............................... Cover Page
2. Definitions .............................. Definitions
3. Synopsis ................................. Questions and Answers
About the Contract
4. Condensed Financial
Information .............................. Financial Statements
5. General Description of
(a) Depositor .......................... Security Equity
(b) Registrant ......................... The Separate Accounts
(c) Portfolio Company .................. GT Global Variable
Investment Funds
(d) Fund Prospectus..................... GT Global
Variable
Investment Funds
(e) Voting Rights....................... Voting Rights
(f) Administrators...................... N/A
6. Deductions and Expenses .................. Charges and
Deductions
(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 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
</TABLE>
-iii-
<PAGE> 4
<TABLE>
<S> <C>
(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
8. Annuity Period ........................... Annuity Provisions;
Annuity Date;
Annuity Options
9. Death Benefit ............................ Death Benefits
l0. 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
Cancelled 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
</TABLE>
iv
<PAGE> 5
PART B
<TABLE>
<CAPTION>
Part B Caption
Item of Form N-4 Information Caption
<S> <C>
15. Cover Page ............................ Cover Page
16. Table of Contents ..................... Table of Contents
17. General Information and History ....... Part A: Security
Equity Life Insurance
Company and The
Separate Accounts
18. Services
(a) Fees and Expenses of Registrant.. N/A
(b) Management Contracts ............ N/A
(c) Custodian ....................... N/A
Independent Public Accountant . Financial Statements
(d) Assets of Registrant ............ Safekeeping of Account
Assets
(e) Affiliated Persons .............. N/A
(f) Principal Underwriter ........... Distribution of the
Contracts
19. Purchase of Securities Being
Offered ............................... Distribution of the
Contracts
20. Underwriters .......................... Distribution of the
Contracts
21. Money Market Yield .................... Money Market Yield
22. Annuity Payments ...................... Computation of Variable
Annuity Income Payments
23. Financial Statements .................. Financial Statements
PART C - OTHER INFORMATION
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
Common Control with the
Depositor or Registrant
</TABLE>
v
<PAGE> 6
<TABLE>
<S> <C>
27. Number of Contractowners............. Number of Contract
Owners
28. Indemnification...................... Indemnification
29. Principal Underwriters............... Principal Underwriters
30. Location of Accounts and
Records............................. Location of Accounts
and Records
31. Management Services.................. Management Services
32. Undertakings......................... Undertakings
Signature Pages...................... Signatures
</TABLE>
vi
<PAGE> 7
----------------------------------
SECURITY EQUITY SEPARATE ACCOUNTS 26 AND 27
PROSPECTUS
FOR THE
INDIVIDUAL VARIABLE ANNUITY CONTRACT
OFFERED BY
SECURITY EQUITY LIFE INSURANCE COMPANY
(A NEW YORK STOCK COMPANY)
84 BUSINESS PARK DRIVE, SUITE 303
ARMONK, NEW YORK 10504
1-800-533-8282
- --------------------------------------------------------------------------------
THIS PROSPECTUS DESCRIBES INDIVIDUAL VARIABLE ANNUITY CONTRACTS OFFERED BY
SECURITY EQUITY LIFE INSURANCE COMPANY ("SECURITY EQUITY"). THESE CONTRACTS,
COLLECTIVELY REFERRED TO AS THE "CONTRACT" OR THE "CONTRACTS" IN THIS
PROSPECTUS, ARE DESIGNED TO AID INDIVIDUALS IN LONG-TERM FINANCIAL PLANNING AND
PROVIDE FOR THE ACCUMULATION OF CAPITAL ON A TAX-DEFERRED BASIS FOR RETIREMENT
OR OTHER LONG-TERM PURPOSES. THE CONTRACTS MAY BE PURCHASED WITH A SINGLE
MINIMUM INITIAL PURCHASE PAYMENT OF $2,000.
PRIOR TO THE ANNUITY DATE, PURCHASE PAYMENTS WILL ACCUMULATE ON A VARIABLE
BASIS. THE CONTRACT OWNER HAS SIGNIFICANT FLEXIBILITY IN DETERMINING THE
FREQUENCY AND AMOUNT OF EACH PURCHASE PAYMENT. THE CONTRACT OWNER MAY ELECT TO
RECEIVE ANNUITY PAYMENTS ON A VARIABLE BASIS, FIXED BASIS, OR A COMBINATION OF
BOTH. THE CONTRACT OWNER ALSO HAS SIGNIFICANT FLEXIBILITY IN DETERMINING THE
ANNUITY DATE ON WHICH ANNUITY PAYMENTS ARE SCHEDULED TO COMMENCE. FULL
SURRENDERS OR PARTIAL WITHDRAWALS MAY BE MADE AT ANY TIME PRIOR TO THE ANNUITY
DATE, ALTHOUGH IN MANY CIRCUMSTANCES THEY MAY BE SUBJECT TO A SURRENDER CHARGE
AND A FEDERAL PENALTY TAX. ANY AMOUNT SURRENDERED OR WITHDRAWN WILL BE PAID IN A
LUMP SUM, OR UPON ANNUITIZATION, THE CONTRACT WILL BE PAID OUT UNDER ONE OF THE
AVAILABLE ANNUITY OPTIONS. THE CONTRACTS PROVIDE THE FLEXIBILITY NECESSARY TO
PERMIT A CONTRACT OWNER TO DEVISE AN ANNUITY THAT BEST FITS HIS OR HER NEEDS.
PURCHASE PAYMENTS MAY BE ALLOCATED TO SECURITY EQUITY SEPARATE ACCOUNTS 26 AND
27. ASSETS OF THE SEPARATE ACCOUNTS ARE INVESTED IN DIVISIONS, WHICH INVEST IN
FUNDS OF GT GLOBAL VARIABLE INVESTMENT FUNDS. A LIST OF THE FUNDS CAN BE FOUND
IN THE ACCOMPANYING PROSPECTUS FOR THE GT GLOBAL VARIABLE INVESTMENT FUNDS.
THIS PROSPECTUS SETS FORTH THE INFORMATION THAT A PROSPECTIVE INVESTOR SHOULD
KNOW BEFORE INVESTING. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR
FUTURE REFERENCE. A STATEMENT OF ADDITIONAL INFORMATION ABOUT THE CONTRACTS AND
THE DIVISIONS IS AVAILABLE FREE BY WRITING TO SECURITY EQUITY AT THE ADDRESS
LISTED ABOVE OR BY CALLING THE PHONE NUMBER LISTED ABOVE. THE STATEMENT OF
ADDITIONAL INFORMATION, WHICH HAS THE SAME DATE AS THIS PROSPECTUS, HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND, AS AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, IS INCORPORATED HEREIN BY REFERENCE THE TABLE OF
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION CAN BE FOUND ON PAGE 32 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 APRIL 29, 1996.
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> 8
----------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS................................................................................. 4
SUMMARY OF CONTRACT FEES AND EXPENSES....................................................... 5
HISTORICAL CHARTS OF UNITS AND UNIT VALUES.................................................. 8
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............................................................................... 13
Right to Examine........................................................................ 13
Contract Application and Purchase Payments.............................................. 13
Place, Amount and Frequency........................................................ 13
Account Continuation............................................................... 14
Allocation of Net Purchase Payments................................................ 14
VARIABLE ACCOUNT............................................................................ 14
Accumulation Units...................................................................... 14
Value of Accumulation Units............................................................. 14
Net Investment Factor................................................................... 14
TRANSFER PRIVILEGE.......................................................................... 15
DOLLAR COST AVERAGING....................................................................... 15
CONTRACT OWNER INQUIRIES.................................................................... 16
CHARGES AND DEDUCTIONS...................................................................... 16
Administrative Charges.................................................................. 16
Annual Contract Fee................................................................ 16
Transfer Fee....................................................................... 16
Special Handling Fees.............................................................. 17
Surrender Charge........................................................................ 17
Mortality and Expense Risk Charge....................................................... 17
Premium Taxes........................................................................... 18
Fees and Expenses of the Funds.......................................................... 18
YIELDS AND TOTAL RETURNS.................................................................... 19
DISTRIBUTIONS UNDER THE CONTRACT............................................................ 20
Cash Withdrawals........................................................................ 20
Systematic Withdrawal Plan.............................................................. 21
Annuity Provisions...................................................................... 21
Annuity Date............................................................................ 21
Annuity Options......................................................................... 21
Election of Annuity Options........................................................ 21
The Options Available.............................................................. 21
Calculation of Payments............................................................ 22
Value of Variable Annuity Payments................................................. 22
</TABLE>
---------------------
Prospectus Page 2
<PAGE> 9
----------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Deferment of Payment.................................................................... 22
The Beneficiary......................................................................... 23
Death Benefits.......................................................................... 23
Death of a Contract Owner who is the Annuitant..................................... 23
Death of a Contract Owner who is not the Annuitant................................. 23
Death of the Annuitant who is not a Contract Owner................................. 23
Death of a Joint Owner............................................................. 24
Payment of Death Benefit........................................................... 24
Amount of Death Benefit................................................................. 24
Assignments and Changes of Ownership.................................................... 24
FEDERAL TAX MATTERS......................................................................... 25
Introduction............................................................................ 25
Taxation of Security Equity............................................................. 25
Tax Status of the Contracts............................................................. 25
Diversification.................................................................... 25
Investor Control................................................................... 26
Required Distributions............................................................. 26
Taxation of the Annuities............................................................... 26
In General......................................................................... 26
Withdrawals and Surrenders......................................................... 27
Annuity Payments................................................................... 27
Penalty Tax........................................................................ 27
Taxation of Death Benefit Proceeds................................................. 27
Transfer, Assignments, or Exchanges of the Contract................................ 28
Multiple Contracts................................................................. 28
Withholding........................................................................ 28
Possible Changes in Taxation....................................................... 28
Other Tax Consequences............................................................. 28
Qualified Contracts................................................................ 28
Individual Retirement Annuities and Accounts............................................ 29
Code Section 403(b) Plans............................................................... 29
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans............................ 29
Deferred Compensation Plans............................................................. 29
Restrictions Under Qualified Contracts.................................................. 30
VOTING RIGHTS............................................................................... 30
PRINCIPAL UNDERWRITER....................................................................... 31
FINANCIAL STATEMENTS........................................................................ 31
STATEMENT OF ADDITIONAL INFORMATION......................................................... 32
APPENDIX A -- Surrender Charge Calculations................................................. 33
</TABLE>
---------------------
Prospectus Page 3
<PAGE> 10
----------------------------------
DEFINITIONS
- --------------------------------------------------------------------------------
Accumulated Value -- The value under the Contract prior to the Annuity Date of
all Net Purchase Payments, plus all gains and losses, less any past charges
deducted or amounts previously withdrawn.
Accumulation Unit -- An accounting unit of measure used to determine the value
of a Division prior to the Annuity Date.
Annuitant -- The individual upon whose life Annuity Payments are based and who
may receive payments from the Contract under an Annuity Option.
Annuity Date -- The date on which Annuity Payments begin.
Annuity Option -- One of several ways in which Annuity Payments may be made.
Annuity Payment -- One of a series of payments made under an Annuity Option.
Annuity Service Office -- The service office of the Company is Security Equity,
GT Global Department, P.O. Box 208, Armonk, New York 10504.
Annuity Unit -- An accounting unit of measure used to calculate variable Annuity
Payments.
Beneficiary -- The person or legal entity that may receive any benefits due
under the Contract in the event of the Annuitant's or Contract Owner's death.
Business Day -- A day on which both Security Equity and the New York Stock
Exchange (the "NYSE") are open for business. The following days are not Business
Days for Security Equity: New Year's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Friday after Thanksgiving,
Christmas Day, and the day after Christmas Day if it is otherwise a regular work
day.
Code -- The Internal Revenue Code of 1986, as amended.
Contract -- The document for each Contract Owner which evidences the coverage of
the Contract Owner. The Contract, its riders, endorsements, and amendments, if
any, and the Contract Application, a copy of which is attached to and made a
part hereof, are the entire Contract.
Contract Application -- The document signed by the Contract Owner that evidences
the Contract Owner's application for the Contract.
Contract Owner ("you", "your") -- The person, persons, or entity entitled to
exercise all rights and privileges of ownership as stated in the Contract and in
whose name the Contract is issued.
Contract Owner's Account -- An account established for each Contract Owner.
Contract Year -- A continuous twelve month period commencing on the Date of
Issue and each anniversary thereof.
Date of Issue -- The date the Initial Purchase Payment is invested in the
Contract.
Division -- A Division of Separate Account 26 or 27. Each Division invests
solely in its corresponding GT Global Variable Investment Fund and takes the
name of the Fund in which it invests.
Fund (or Funds) -- The separate investment portfolios of GT Global Variable
Investment Funds.
GT Global Variable Investment Funds -- Refers to a portfolio of either G.T.
Global Variable Investment Series or G.T. Global Variable Investment Trust or
the two together.
Initial Purchase Payment -- The first payment which the Contract Owner makes.
Net Purchase Payment -- A Purchase Payment, less any applicable deduction for
premium tax.
Non-Tax Qualified Contracts -- Contracts that do not receive favorable tax
treatment under Sections 401, 403, 408, or 457 of the Code. Earnings on these
Contracts currently receive special Federal income tax treatment.
Payee -- The Contract Owner, Annuitant, Beneficiary, or any other person,
estate, or legal entity to whom benefits are to be paid.
Purchase Payment -- Any payment or sum received by the Company from the Contract
Owner.
---------------------
Prospectus Page 4
<PAGE> 11
----------------------------------
Qualified Contracts -- Contracts purchased in connection with a retirement plan
that receives favorable tax treatment under Sections 401, 403, 408, or 457 of
the Code.
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 stock 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:
Sales load imposed on Purchase: ........................................... None
Surrender Charge (contingent deferred sales charge):
Ten percent (10%) of the Accumulated Value may be withdrawn without penalty each
year. After a Net Purchase Payment has been held by the Company for seven years,
it may be withdrawn free of any surrender charge. For Net Purchase Payments held
by the Company for less than seven years, surrender charges are as follows
(expressed as a percentage of Net Purchase Payments withdrawn):
<TABLE>
<CAPTION>
YEARS SINCE RECEIPT
OF SURRENDER CHARGE
NET PURCHASE PAYMENT PERCENTAGE
- -------------------- ----------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
Transfer Fee: Currently, there is no
charge for transfers;
however, the Company
reserves the right to
impose a charge of up to
$25 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.
</TABLE>
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
MANAGEMENT
AND OTHER TOTAL
ADMINI- EXPENSES EXPENSES
STRATION AFTER REIM- AFTER REIM-
GT GLOBAL FEES BURSEMENT* BURSEMENT*
--------- ---------- ---------- ----------
<S> <C> <C> <C>
Variable New
Pacific Fund 1.00% 0.25% 1.25%
Variable
Europe Fund 1.00% 0.25% 1.25%
Variable Latin
America Fund 1.00% 0.25% 1.25%
Variable
America Fund 0.75% 0.25% 1.00%
</TABLE>
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Prospectus Page 5
<PAGE> 12
----------------------------------
<TABLE>
<CAPTION>
INVESTMENT
MANAGEMENT
AND OTHER TOTAL
ADMINI- EXPENSES EXPENSES
STRATION AFTER REIM- AFTER REIM-
GT GLOBAL FEES BURSEMENT* BURSEMENT*
--------- ---------- ---------- ----------
<S> <C> <C> <C>
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 Tele-
communications
Fund 1.00% 0.25% 1.25%
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>
* Figures in the "Other Expenses After Reimbursement" and "Total Expenses After
Reimbursement" columns are restated from the amounts you would have incurred in
1995 to reflect the fees and reimbursement or waiver arrangements for 1996. If
there had been no reimbursement of expenses and no expense reductions during
1995, 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%, 0.61%, 1.61%; Variable Europe Fund, 1.00%, 0.72%, 1.72%;
Variable Latin America Fund, 1.00%, 0.69%, 1.69%; Variable America Fund, 0.75%,
0.31%, 1.06%; Variable International Fund, 1.00%, 2.53%, 3.53%; Variable
Infrastructure Fund, 1.00%, 8.35%, 9.35%; Variable Natural Resources Fund,
1.00%, 8.07%, 9.07%; Variable Telecommunications Fund, 1.00%, 0.26%, 1.26%;
Variable Emerging Markets Fund, 1.00%, 1.22%, 2.22%; Variable Growth & Income
Fund, 1.00%, 0.44%, 1.44%; Variable Global Government Income Fund, 0.75%, 0.91%,
1.66%; Variable Strategic Income Fund, 0.75%, 0.49%, 1.24%; Variable U.S.
Government Income Fund, 0.75%, 1.81%, 2.56%; Money Market Fund, 0.50%, 0.55%,
1.05%.
EXAMPLES
If you surrender your Contract at the end of the applicable 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>
1 3 5 10
GT GLOBAL YEAR YEARS YEARS YEARS
--------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific
Division $97 $ 134 $ 172 $ 302
Variable Europe Division 97 134 172 302
Variable Latin America
Division 97 134 172 302
Variable America Division 95 126 160 278
Variable International
Division 97 134 172 302
Variable Infrastructure
Division 97 134 172 302
Variable Natural
Resources Division 97 134 172 302
Variable
Telecommunications
Division 97 134 172 302
Variable Emerging Markets
Division 97 134 172 302
Variable Growth & Income
Division 97 134 172 302
Variable Global
Government Income
Division 95 126 160 278
Variable Strategic Income
Division 95 126 160 278
Variable U.S. Government
Income Division 95 126 160 278
Money Market Division 92 119 147 252
</TABLE>
If you do not surrender your Contract at the end of the applicable time period,
you would pay the following aggregate expenses per Division on the same
investment:
<TABLE>
<CAPTION>
1 3 5 10
GT GLOBAL YEAR YEARS YEARS YEARS
--------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific
Division $27 $ 84 $ 142 $ 302
Variable Europe Division 27 84 142 302
Variable Latin America
Division 27 84 142 302
Variable America Division 25 76 130 302
</TABLE>
---------------------
Prospectus Page 6
<PAGE> 13
----------------------------------
<TABLE>
<CAPTION>
1 3 5 10
GT GLOBAL YEAR YEARS YEARS YEARS
--------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Variable International
Division 27 84 142 278
Variable Infrastructure
Division 27 84 142 302
Variable Natural
Resources Division 27 84 142 302
Variable
Telecommunications
Division 27 84 142 302
Variable Emerging Markets
Division 27 84 142 302
Variable Growth & Income
Division 27 84 142 302
Variable Global
Government Income
Division 25 76 130 302
Variable Strategic Income
Division 25 76 130 302
Variable U.S. Government
Income Division 25 76 130 278
Money Market Division 22 69 117 252
</TABLE>
If you annuitize at the end of the applicable time period, you would pay the
following aggregate expenses per Division on the same investment:
<TABLE>
<CAPTION>
1 3 5 10
GT GLOBAL YEAR YEARS YEARS YEARS
---------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific
Division $97 $ 134 $ 142 $ 302
Variable Europe Division 97 134 142 302
Variable Latin America
Division 97 134 142 302
Variable America Division 95 126 130 278
Variable International
Division 97 134 142 302
Variable Infrastructure
Division 97 134 142 302
Variable Natural
Resources Division 97 134 142 302
Variable
Telecommunications
Division 97 134 142 302
Variable Emerging Markets
Division 97 134 142 302
Variable Growth & Income
Division 97 134 142 302
Variable Global
Government Income
Division 95 126 130 278
Variable Strategic Income
Division 95 126 130 278
Variable U.S. Government
Income Division 95 126 130 278
Money Market Division 92 119 117 252
</TABLE>
For the purposes of calculating the values in the above examples, the effect of
the $30 annual contract fee is reflected, assuming that one-half of the
Contracts issued have account values of at least $20,000 and that the average
account value for all Contracts is $34,250.
The purpose of the table above is to help you understand the costs and expenses
that a variable annuity Contract Owner will bear directly or indirectly. Note
that the expense amounts in the examples are aggregate amounts for the Divisions
and the Funds for the number of years indicated. For a more complete description
of the GT Global Variable Investment Funds' fees and expenses, see the Funds'
Prospectus. For all GT Global Variable Investment Funds, the expenses shown
under "Other Expenses After Reimbursement" and "Total Expenses After
Reimbursement" reflect reimbursement by LGT Asset Management, Inc. ("LGT Asset
Management") of certain expenses incurred by each Fund. From time to time, LGT
Asset Management in its sole discretion may waive receipt of its fees and
voluntarily assume certain Fund expenses. LGT Asset Management 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.
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- --------------------------------------------------------------------------------
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, 1995. 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
As of December 31, 1995, Separate Account 26 had not commenced operations, thus
no historical data are available for Separate Account 26.
CHART 2 -- SEPARATE ACCOUNT 27
<TABLE>
<CAPTION>
ACCUMULATION TOTAL UNITS
UNIT VALUE ACCUMULATION OUTSTANDING
BEGINNING OF UNIT VALUE: END OF PERIOD
YEAR PERIOD* END OF PERIOD (IN THOUSANDS)
---- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Variable New
Pacific
Division 1995 12.00 11.95 677
Variable
America
Division 1995 12.00 11.03 500
Variable
Telecommunications
Division 1995 12.00 11.27 500
</TABLE>
* At inception on September 7, 1995
- --------------------------------------------------------------------------------
QUESTIONS AND ANSWERS ABOUT
THE CONTRACT
- --------------------------------------------------------------------------------
The following section contains brief questions and answers about the Contract.
Reference should be made to the body of this Prospectus for more detailed
information. With respect to the Contract, it should be noted that the
requirements of a Qualified Contract, an endorsement to the Contract, or
limitations or penalties imposed by the Code may impose limits or restrictions
on payments, surrenders, distributions, or benefits, or on other provisions of
the Contracts, and these short questions do not describe any such limitations or
restrictions. (See "Federal Tax Matters")
1. WHAT IS THE PURPOSE OF THE CONTRACT?
The Contract allows you to accumulate funds on a tax-deferred basis and to
receive Annuity Payments when desired, based on the investment experience of the
assets underlying the Contracts. The Contracts are designed for use in
connection with non-tax qualified and qualified retirement plans.
A Contract may be purchased with proceeds from sources that do not qualify for
special tax treatment. The source of the proceeds affects the way Annuity
Payments are taxed, but not the operation of the Contracts. (See "Federal Tax
Matters")
You will allocate Purchase Payments to Divisions of the Separate Accounts. The
Divisions of the Separate Accounts will invest in the Funds of GT Global
Variable Investment Funds in accordance with your instructions. Because Annuity
Payments and Accumulated Values depend on the investment experience of the
selected Divisions, you bear the entire investment risk under these Contracts.
2. WHAT IS AN ANNUITY AND WHY MAY BENEFITS VARY?
An annuity provides for a series of Annuity Payments beginning on the Annuity
Date. You may select from a number of Annuity Options, including Annuity
Payments for the life of the Annuitant (or the Annuitant and another person, the
"Joint Annuitant") with or without a guaranteed number of Annuity Payments, or
for a designated period. Annuity Payments which are guaranteed throughout the
payment period are referred to in this Prospectus as "Guaranteed Annuity
Payments." Annuity Payments which vary in accordance with the investment
experience of the Divisions selected by you are
---------------------
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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 LGT Asset Management. 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")
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")
---------------------
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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.
- --------------------------------------------------------------------------------
SECURITY EQUITY LIFE INSURANCE
COMPANY AND THE SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
SECURITY EQUITY
Security Equity Life Insurance Company ("Security Equity") is a stock life
insurance company domiciled in New York. It is a wholly-owned subsidiary of
General American Life Insurance Company ("General American"), a mutual life
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. As of December 31, 1995, it had
assets of approximately $150 million. 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 amended on August
11, 1994), and Separate Account 27 was established on August 11, 1994 (and
amended on November 10, 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
---------------------
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<PAGE> 17
----------------------------------
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:
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
Separate Account 27 currently has ten Divisions each of which invests solely in
a corresponding GT Global Variable Investment Fund. These
are:
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
- --------------------------------------------------------------------------------
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.
LGT Asset Management is the investment manager and administrator of each Fund.
On January 1, 1996, G.T. Capital Management, Inc. changed its name to LGT Asset
Management, Inc. Each Fund pays Investment Management and Administration Fees to
LGT Asset Management. (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
---------------------
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----------------------------------
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 IF THEY ATTAIN THEM THAT THEY WILL BE ABLE TO DO SO OVER A
SUSTAINED PERIOD OF TIME.
- --------------------------------------------------------------------------------
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.
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- --------------------------------------------------------------------------------
THE CONTRACTS
- --------------------------------------------------------------------------------
The Contract is available to individuals seeking annuity contracts entitled to
favorable tax treatment under the Code as Qualified Contracts, and also to
individuals seeking annuity contracts not entitled to any special tax benefits.
The rights and benefits of the Contracts are described below and in the
Contract; however, Security Equity reserves the right to make any modification
to conform the Contract to, or to give the Contract Owner the benefit of, any
Federal or state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO EXAMINE
The Contract Owner may cancel the Contract during the Right to Examine Period of
ten days after the Contract Owner receives the Contract. Upon receipt of a
request for cancellation by Security Equity's Annuity Service Office or by the
registered representative through whom it was purchased, the Contract will be
cancelled and a refund will be made. The refund will be an amount equal to the
greater of: (1) the Accumulated Value in any Separate Account Division, plus any
premium tax that had been deducted or, (2) any Purchase Payment made, including
any premium taxes deducted, without any deduction for surrender charges or
administrative charges. As to the Accumulated Value in a Division, the daily
charge for mortality and expense risks and certain operating expenses of the
corresponding Funds will not be returned.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
(a) Place, Amount, and Frequency
Purchase Payments are to be paid to the Company at its Annuity Service Office or
to a broker-dealer where such broker-dealer has made special arrangements with
the Company for collection of Purchase Payments. All Purchase Payments received
at the Annuity Service Office before the close of the NYSE (4:00 p.m. Eastern
Time) on any Business Day will be considered received on that Business Day.
Payment by electronic funds transfer from broker-dealers with whom an
arrangement has been entered into will be considered received on the Business
Day notice of such payment is received by the Annuity Service Office, provided
that such notice is received before the close of the NYSE on that Business Day,
and the funds transferred are actually received at the Annuity Service Office by
9:00 a.m. Eastern Time on the next Business Day.
The amount of Purchase Payments may vary; however, the Company will not accept
an Initial Purchase Payment which is less than $2,000, and each additional
Purchase Payment must be at least $100.
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
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Purchase Payment will be returned immediately unless the prospective Contract
Owner consents in writing to the Company's retaining the Initial Purchase
Payment until the Contract Application is made in good order. Thereafter, the
Initial Purchase Payment must be invested within two Business Days. Subsequent
Net Purchase Payments are invested at the end of the Business Day during which
they are received by the Company at the Annuity Service Office.
Purchase Payments may be made at any time prior to the Annuity Date, full
surrender of the Contract, or death of the Annuitant or Contract Owner.
(b) Account Continuation
The Contract does not require continuing Purchase Payments and will continue in
force until the earlier of the Annuity Date, surrender of the Contract, or death
of the Annuitant or Contract Owner.
(c) Allocation of Net Purchase Payments
The Net Purchase Payment is that portion of a Purchase Payment which remains
after deduction of any applicable premium tax. The initial Net Purchase Payment
will be allocated among the Divisions of the Separate Accounts in accordance
with the allocation percentages specified in the particular Contract
Application. The initial percentages specified in the Contract Application must
be in whole percents totaling 100% and allocate amounts of at least $500 per
Division.
The allocations for additional Net Purchase Payments among the Divisions may be
changed by the Contract Owner at any time by Written Request. Any allocation
change will take effect with the first Purchase Payment received with or after
receipt of a Written Request for change by the Company and will continue in
effect until subsequently changed. If any portions of the Net Purchase Payments
are received for allocation to a Division no longer offered by the Company, the
Company will contact the Contract Owner to secure new allocations. Subsequent
Net Purchase Payments should be at least $100. If the subsequent payment
specifies allocation percentages different from the initial percentages
specified in the Contract Application, they must be in whole percents, and total
100%.
VARIABLE ACCOUNT
ACCUMULATION UNITS
The Company will establish an account in the Contract Owner's name for each
Division to which the Contract Owner allocates Net Purchase Payments or transfer
amounts. Net Purchase Payments and transfer amounts are allocated to Divisions
and credited to such accounts in the form of Accumulation Units.
The number of Accumulation Units to be credited to each account is determined by
dividing the Net Purchase Payment or transfer amount for the account by the
value of an Accumulation Unit for that Division for the Valuation Period during
which the Net Purchase Payment or transfer request is credited. The number of
Accumulation Units in any account will be increased at the end of a Valuation
Period by any Net Purchase Payments allocated to the corresponding Division
during that Valuation Period and by any Accumulated Value transferred to that
Division from another Division during that Valuation Period. The number of
Accumulation Units in any account will be decreased at the end of a Valuation
Period by any transfers of Accumulated Value out of the corresponding 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
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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 of up to $25 for each transfer in excess of twelve
during the Contract Year, excluding transfers made under the dollar cost
averaging program described hereafter.
Permitted transfers will be subject to the additional terms and conditions as
may be imposed by each Division's corresponding Fund. The Contract Owner must
instruct the Company as to what amounts should be transferred from each
Division. Any transfer request received at the Annuity Service Office before the
close of the NYSE (4:00 p.m. Eastern Time) on any Business Day will be
considered received on that Business Day. Under current law, there will not be
any tax liability to the Contract Owner if a Contract Owner makes a transfer. We
may revoke or modify the transfer privilege at any time, including the minimum
amount for a transfer and the transfer charge, if any.
DOLLAR COST AVERAGING
The Company offers a dollar cost averaging program ("DCA") which enables a
Contract Owner to pre-authorize a periodic exercise of the contractual transfer
privileges described above. Contract Owners entering into a DCA agreement
instruct the Company to transfer on the Business Day coincident with or
subsequent to the 15th of each month a predetermined dollar amount of at least
$100 per month. Transfers from the GT Global Money Market Division, GT Global
Variable Growth & Income Division, GT Global Variable Strategic Income Division,
GT Global Variable Global Government Income Division or the GT Global Variable
U.S. Government Income Division will continue until the dollar amount requested
has been transferred or the Accumulated Value in the Division is exhausted,
whichever is sooner. Any DCA transfer allocations for a Division which is no
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
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the risk of investing at the top of a market cycle. The Company makes no
guarantees that dollar cost averaging will result in a profit, protect against
loss, or otherwise. Because the DCA program involves continuous investments in
the Divisions regardless of fluctuating unit values of such Divisions, Contract
Owners should consider their financial ability to continue to purchase through
periods of high unit values. The Company reserves the right to discontinue
offering the DCA program at any time.
CONTRACT OWNER INQUIRIES
Security Equity, either directly or through its service providers, performs all
administrative functions in connection with the Contracts, such as underwriting,
record keeping, Contract Owner servicing, and reporting. Contract Owner
inquiries should be addressed to Security Equity Life Insurance Company, Annuity
Service Office, P.O. Box 208, Armonk, New York 10504, or made by calling (800)
533-8282. All inquiries should include the Contract number, Contract Owner's
name, and Social Security Number.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
No deductions are made from the Initial Purchase Payment, unless a state premium
tax is due. (See "Premium Taxes") Therefore, the full amount of the Initial
Purchase Payment, less any applicable tax, is invested in one or more Divisions
of the Separate Accounts.
ADMINISTRATIVE CHARGES
a) Annual Contract Fee
On the last day of each Contract Year, the Company may deduct a contract fee
(referred to in the Contract as "Account Fee") as partial compensation for
expenses relating to the issue and maintenance of the Contract and the Contract
Owner's account. For Contracts with Accumulated Values of less than $20,000, the
contract fee is equal to the lesser of $30 or 2% of the Accumulated Value for
Contract Years ending prior to December 31, 1999. Thereafter, the contract fee
may be adjusted annually, but in no event may it be adjusted by more than the
amount that reflects the change in the Consumer Price Index since December 31,
1992, and in no event will it exceed $50. The annual contract fee will be waived
for Contracts with Accumulated Values of $20,000 or more.
The annual contract fee will be deducted from the GT Global Money Market
Division or from the Division with the largest portion of Accumulated Value if
no GT Global Money Market Division investment exists on the Contract
Anniversary. To the extent that the contract fee is deducted from a Division,
Accumulation Units will be cancelled to effect the deduction. Upon full
surrender of the Contract or upon the death of the Contract Owner or Annuitant,
the entire annual contract fee, if applicable, will be assessed.
On occasion, the last day of a Contract Year will not fall on a Business Day. In
this case, if the last day of a Contract Year and the next Business Day fall in
the same calendar month, administrative charges will be taken on the next
Business Day. If the last day of a Contract Year and the next Business Day do
not fall in the same calendar month, administrative charges will be taken on the
Business Day immediately preceding the last day of the Contract Year.
After the Annuity Date, the annual contract fee will be deducted in equal
amounts from each variable Annuity Payment made during the year. No such
deduction will be made from fixed Annuity Payments.
The net investment factor incorporates a charge at the end of each Valuation
Period (during both the accumulation period and after Annuity Payments begin) at
an annual rate of 0.15% to reimburse the 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 $25 for each transfer in excess of
twelve during the
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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
OF
NET PURCHASE SURRENDER CHARGE
PAYMENT PERCENTAGE
- -------------------- ----------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>
You may make a partial withdrawal of an amount equal to 10% of Accumulated Value
each year without incurring a surrender charge ("10% free"). The annual 10% free
amount will be equal to 10% of the Accumulated Value on the date that the first
partial withdrawal is made each year. The 10% free amounts withdrawn will not
reduce the Net Purchase Payments still subject to a surrender charge. The 10%
free amount does not apply upon full surrender and is not cumulative.
After the 10% free amount has been withdrawn, additional amounts will be
withdrawn from Net Purchase Payments on a "first in first out" (FIFO) basis and
will be subject to the surrender charge noted in the above table. Net Purchase
Payments which were received more than seven years prior to the date of
withdrawal may be withdrawn without incurring a surrender charge. After all Net
Purchase Payments have been withdrawn, further withdrawals will be made from
earnings without incurring a surrender charge. If the Accumulated Value is less
than the Net Purchase Payments subject to a surrender charge, the surrender
charge will only be applied to the Accumulated Value.
The surrender charge is not applied in the event of annuitization with us after
three Contract Years or upon the death of the Annuitant. Currently, however, we
assess surrender charges upon annuitization within three Contract Years only if
Annuity Option 4 (Income for a Fixed Period) is chosen with Annuity Payments for
a period of less than ten years.
In the event that revenues from surrender charges are not sufficient to cover
certain sales-related expenses, the Company will bear the shortfall; conversely,
if the revenues from surrender charges exceed such expenses, the Company will
retain the excess. Security Equity does not currently believe that the surrender
charge revenues will cover the expected salesrelated 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).
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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>
NON-TAX
TAX-QUALIFIED QUALIFIED
STATE CONTRACTS CONTRACTS
---- ------------- --------
<S> <C> <C>
California .50% 2.35%
District of
Columbia 2.25% 2.25%
Kansas 0% 2.00%
Kentucky 2.00% 2.00%
Maine 0% 2.00%
Nevada 0% 3.50%
South Dakota 0% 1.25%
West Virginia 1.00% 1.00%
Wyoming 0% 1.00%
</TABLE>
Note: The above annuity premium tax rates are in effect as of January 1, 1996.
States not listed above currently have no premium tax on the purchase of
individual variable annuity contracts for use with non-tax qualified or
qualified plans. However, premium tax statutes are subject to amendment by
legislative act and to judicial and administrative interpretations, both of
which may affect the above list of states levying such taxes and the applicable
tax rates. Particularly because a portion of the premium tax charge may be made
at the time Annuity Payments commence, the above list of tax rates may not be
that in effect at the time the premium tax charge is made.
Security Equity reserves the right to defer or waive the charge assessed for
premium taxes in certain jurisdictions until the Contract is surrendered or
until the Contract Owner's death. The Company will notify the Contract Owner in
writing before exercising its right to collect deferred premium taxes from the
Accumulated Value.
Laws relating to premium taxes and the interpretations of such laws are subject
to change which may affect the deductions, if any, made under Contracts for
premium taxes. Some jurisdictions permit payment of premium taxes on the
Accumulated Value which is applied to provide an annuity. In those places,
Security Equity does not make any separate deductions for premium taxes from
Purchase Payments, as it is permitted to do under the Contracts, but defers any
separate deductions for premium taxes until the Accumulated Value is applied to
provide Annuity Payments. (Although Security Equity may be required in some of
these jurisdictions to pay premium taxes currently on surrender charges, it
presently intends to pay the taxes out of the deductions and charges made
against all Contracts.) Security Equity plans, where permissible, to defer any
separate deductions for premium taxes until the Accumulated Value is applied to
provide Annuity Payments, at which time the amount of any applicable premium
taxes will be measured by the Accumulated Value. However, in many jurisdictions
the premium taxes are applied to Purchase Payments, and in those cases the
deductions for such taxes will be made when the Purchase Payments are received.
Thus, Security Equity reserves the right to make a separate deduction from each
Purchase Payment or from the Accumulated Value, depending on which method or
combination of methods results in the appropriate deduction for applicable
premium taxes.
FEES AND EXPENSES OF THE FUNDS
Because the Separate Accounts purchase shares of the GT Global Variable
Investment Funds, the net asset value of each Division will normally reflect the
operating expenses incurred by its corresponding GT Global Variable Investment
Fund. The operating expenses reflect the operating expenses of the Fund,
including the Investment Management and Administration Fees paid to LGT Asset
Management. The annualized rates at which the various Funds pay such fees and
expenses to LGT Asset Management range from 0.75% to 1.25% of a Fund's average
daily net assets. LGT Asset
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Management has undertaken to assume those expenses (other than taxes, brokerage
fees, interest, and extraordinary expenses) incurred by the Fund, to the extent
such expenses exceed the Investment Management and Administration Fees by more
than .25%. (See the accompanying prospectus of the GT Global Variable Investment
Funds.)
YIELDS AND TOTAL RETURNS
Security Equity may advertise the yields, effective yields, and total return for
the Divisions of the Separate Accounts. Of course, such figures will be based
upon past performance and do not indicate what investment returns or unit values
will be in the future. Detailed information on the calculation of performance
information appears in the Statement of Additional Information, but a summary is
given here.
The effective yield and total return of a Division are based upon the investment
performance of the GT Global Variable Investment Fund corresponding to the
Division. (See "GT Global Variable Investment Funds") The investment performance
of a Division will reflect the expenses of the Fund and the Division.
The yield of the GT Global Money Market Division refers to the annual rate of
interest generated by an investment in the Division over a specified seven-day
period. The yield is calculated by assuming that the income earned for that
seven-day period is the same for every other seven-day period in a year and can
be expressed as a percentage of the investment. The effective yield is
calculated in the same way, but income earned is assumed to be reinvested
continuously. This compounding causes the effective yield to be slightly higher
than the yield.
The yield of the other Divisions refers to the annualized rate of return for an
investment in the Division over a specified thirty-day or one-month period. The
thirty-day income is shown as a percentage of the investment and annualized by
assuming that income is earned at the same rate for each month during the year.
The average annual total return of a Division is a quotation assuming that an
investment in the Division has been held in the Division for various time
periods, including a period measured from the date operations of the Division
began up to a maximum period of ten years. In the future, average annual total
returns will be reported for each Division for one, five, and ten years when the
Division has been in operation for those periods of time.
Average annual total return quotations represent the average compounded rates of
return on an initial investment of $1,000 as of the last day of the period for
which the quotations are provided. The report on average annual total return
will show the average percentage change in the value of an investment in the
Division, including any surrender charge that would apply if the Contract is
surrendered at the end of the period, but excluding any deductions for premium
tax.
Advertising and sales literature for the Contract may compute yield or total
return on different bases. Total return may be reported without a deduction for
the surrender charge on the assumption that an investment will persist beyond
the seven year period during which a surrender charge is applicable. Such
persistency would be consistent with the idea that the Contract is a long-term
investment suitable for retirement income. Total return for the Funds may be
advertised, but such information will always be accompanied by the total return
for the corresponding Divisions. Security Equity may present illustrations
showing total return performance for a hypothetical Contract based on an
assumption such as allocation of an amount to one or more Divisions, or monthly
transfers to selected Division under the dollar cost averaging program. Such
illustrations will reflect the performance of the selected Divisions, including
all charges except the surrender charge, over various time periods in the past.
Advertising and sales literature for the Contracts may also compare the
performance of one or more 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.
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- --------------------------------------------------------------------------------
DISTRIBUTIONS UNDER THE CONTRACT
- --------------------------------------------------------------------------------
CASH WITHDRAWALS
At any time before the Annuity Date and during the lifetime of the Annuitant,
the Contract Owner may elect to receive a cash withdrawal payment from the
Company. Any such election must be in the form of a Written Request and specify
the amount of the withdrawal. It will be effective on the date that it is
received by the Company. Any request received at the Annuity Service Office
before the close of the NYSE (4:00 p.m. Eastern Time) on any Business Day will
be considered received on that Business Day.
The Contract Owner may request a full surrender of the Contract or a partial
withdrawal. A full surrender will result in a cash withdrawal payment equal to
the value of the Contract Owner's Account at the end of the Valuation Period
during which the election becomes effective, less any applicable administrative
charges and surrender charge. A request for a partial withdrawal will result in
a reduction in the Contract Owner's Accumulated Value equal to the amount you
receive plus any applicable administrative charges and surrender charge. The
amount you receive can be less than the amount requested if the Accumulated
Value is insufficient to cover applicable charges and produce the requested
amount. Any withdrawal request cannot exceed the Accumulated Value of the
Contract. Any applicable surrender charge will be calculated based upon the
gross amount of withdrawal.
There is no limit on the frequency of partial withdrawals. In the case of a
partial withdrawal, the Contract Owner must instruct the Company as to the
amounts to be withdrawn from each Division. However, the amount withdrawn must
be at least $500 or, if less, the entire balance in the Division. If after the
withdrawal (and deduction of any applicable administrative charges and surrender
charge) the amount remaining in the Division would be less than $500, the
Company may treat the partial withdrawal as a withdrawal of the entire amount
held in the Division. If a partial withdrawal plus any applicable administrative
charges and surrender charges would reduce the Accumulated Value to less than
$500, the Company may treat the partial withdrawal as a full surrender of the
Contract.
Cash withdrawals from a Division will result in the cancellation of Accumulation
Units attributable to the Contract Owner's Account with an aggregate value on
the effective date of the withdrawal equal to the total amount by which the
Accumulated Value in the Division is reduced. The cancellation of such units
will be based on the Accumulation Unit values of the Division at the end of the
Valuation Period during which the cash withdrawal is effective.
If at the time the Contract Owner makes a request for a full surrender of the
Contract or a partial withdrawal, he or she does not provide us with a written
election not to have Federal income taxes withheld, the Company must by law
withhold such taxes and any applicable state taxes from the taxable portion of
any surrender or withdrawal.
The Company, upon request, will provide the Contract Owner with an estimate of
the amounts that would be payable in the event of a full surrender or partial
withdrawal. The Company reserves the right to charge a reasonable fee to recover
the administrative expenses associated with these requests. (See "Special
Handling Fees")
Requests for cash withdrawal payments to a party, other than the Contract Owner
and/or to an address other than the Contract Owner's address of record, require
a signature guarantee. In addition, if the Contract Owner's address of record
has been changed within the preceding thirty days, a signature guarantee is
required. Any cash withdrawal payment will be paid within seven days from our
receipt of the Written Request, subject to postponement under Deferment of
Payment provisions described herein. (See "Deferment of Payments")
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
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Contract or a Non-Tax Qualified Contract offered by this Prospectus also may
result in a Federal penalty tax. The tax consequences of a cash withdrawal
payment under both Qualified Contracts and Non-Tax Qualified Contracts should be
carefully considered. (See "Tax Status of the Contracts")
SYSTEMATIC WITHDRAWAL PLAN
Security Equity administers a systematic withdrawal plan ("SWP") which allows
certain Contract Owners to authorize periodic withdrawals during the
accumulation period. Contract Owners entering into an SWP agreement instruct
Security Equity to withdraw selected amounts from the Contract on a Business Day
coincident with or subsequent to the 25th of a month on a monthly, quarterly,
semiannual, or annual basis. Currently, the SWP is available to Contract Owners
who request a minimum $200 periodic withdrawal. Amounts withdrawn may be subject
to a surrender charge. (See "Federal Tax Matters"). Withdrawals taken under the
SWP may be subject to the 10% Federal penalty tax on early withdrawals and to
income taxes. (See "Federal Tax Matters") Contract Owners interested in SWP may
obtain an Annuity Service Request Form from their registered representative or
the Annuity Service Office. Security Equity reserves the right to amend the SWP
on thirty days' notice. The SWP may be terminated at any time by the Contract
Owner or Security Equity.
ANNUITY PROVISIONS
The Accumulated Value on the Annuity Date, less any applicable administration
charges, surrender charge, and premium tax will be applied to an Annuity Option.
If the Annuity Date of the Contract occurs within the first three Contract
Years, surrender charges may be deducted upon annuitization. Currently, we
assess surrender charges only if Annuity Option 4 (Income for a Fixed Period) is
chosen with Annuity Payments lasting for a period of less than ten years.
ANNUITY DATE
Annuity Payments will begin under the Contract on the Annuity Date, unless the
Contract has been fully surrendered or the proceeds have been paid to the
designated Beneficiary prior to that date. The Annuity Date will be no later
than the Annuitant's 85th birthday. Under certain qualified arrangements,
distributions may be required before the Annuity Date.
The Contract Owner may change the Annuity Date. An Annuity Date may be changed
only by Written Request during the Annuitant's lifetime, and such a request must
reach the Annuity Service Office at least thirty days before (1) the then
current Annuity Date and (2) the new Annuity Date. The new Annuity Date must be
no later than the Annuity Date as defined in the paragraph above.
ANNUITY OPTIONS
(a) Election of Annuity Options
The Annuity Option may be elected or changed (if the Annuity Option was not
irrevocable) by Written Request, provided the Annuitant is still alive. This
election must be made no later than thirty days prior to the Annuity Date.
The Annuity Options selected may be either variable, fixed, or a combination of
the two. In the absence of an election to the contrary, variable Annuity
Payments will be made as a Life Annuity with 120 Monthly Payments Guaranteed
(Option 2 below).
The minimum amount which may be applied under an option will be based upon our
rules at the time the option becomes effective (or as required by law). Our
current rules state that the minimum amount which may be applied under an option
is $5,000 and the minimum Annuity Payment is $50. If the Accumulated Value is
less than $5,000 when the Annuity Date arrives, Security Equity will make a lump
sum payment of such amount to the Contract Owner. If at any time payments are or
become less than $50, Security Equity has the right to change the frequency of
payments to intervals that will result in payments of at least $50.
(b) The Options Available
OPTION 1 -- Life Annuity -- An annuity payable in monthly, quarterly,
semi-annual, or annual payments during the lifetime of the Annuitant, ceasing
with the last installment due prior to the death of the Annuitant. SINCE THERE
IS NO PROVISION FOR A MINIMUM NUMBER OF PAYMENTS UNDER THIS ANNUITY OPTION, THE
PAYEE WOULD RECEIVE ONLY ONE PAYMENT IF THE ANNUITANT DIED PRIOR TO THE DUE DATE
OF THE SECOND PAYMENT, TWO
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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.
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
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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.
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(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.
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.
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- --------------------------------------------------------------------------------
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 non-tax qualified basis ("Non-Tax Qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). Qualified Contracts are intended
to be purchased in connection with plans entitled to special income tax
treatment under Sections 401, 408, and 457 of the Code or as tax sheltered
annuities under Section 403(b) of the Code. The ultimate effect of Federal
income taxes on the amounts held under a Contract or Annuity Payments, and on
the economic benefit to the Contract Owner, the Annuitant, or the Beneficiary
depends on the type of retirement plan and on the tax and employment status of
the individual concerned. In addition, certain requirements must be satisfied in
purchasing a Qualified Contract and receiving distributions from a Qualified
Contract in order to continue receiving favorable tax treatment. Therefore,
purchasers of Qualified Contracts should seek competent legal and tax advice
regarding the suitability of the Contract for their situation, the applicable
requirements, and the tax treatment of the rights and benefits of the Contract.
The following discussion assumes that a Qualified Contract is purchased with
proceeds from and/or contributions under retirement plans that qualify for the
intended special Federal income tax treatment.
TAXATION OF SECURITY EQUITY
Security Equity is taxed as a life insurance company under Part I of Subchapter
L of the Code. Since the operations of the Separate Accounts form a part of
Security Equity, they will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. Investment income and realized capital
gains are automatically applied to increase reserves under the Contract. Under
existing Federal income tax law, Security Equity believes that the investment
income and realized net capital gains of the Separate Accounts will not be taxed
to the extent that such income and gains are applied to increase the reserves
under the Contract.
Accordingly, Security Equity does not anticipate that it will incur any Federal
income tax liability attributable to the Separate Accounts and, therefore,
Security Equity does not intend to make provisions for any such taxes. However,
if changes in the Federal tax laws or interpretations thereof result in Security
Equity being taxed on income or gains attributable to the Separate Accounts,
then Security Equity may impose a charge against the Separate Accounts (with
respect to some or all Contracts) in order to set aside amounts to pay such
taxes.
TAX STATUS OF THE CONTRACTS
(a) Diversification
Section 817(h) of the Code requires that with respect to Non-Tax Qualified
Contracts, the investments of the Divisions be "adequately diversified" in
accordance with Treasury Department regulations in order for the Contracts to
qualify as annuity contracts under Federal tax law. The Separate Accounts,
through the Funds, intend to comply with the diversification requirements
prescribed by the
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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 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 Accounts. 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.
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Any Contract Owner who is not a natural person generally must include in income
any increase in the excess of the Contract's account value over the "investment
in the Contract" (discussed below) during the taxable year. There are some
exceptions to this rule, and a prospective Contract Owner that is not a natural
person may wish to discuss these with a competent tax adviser.
The following discussion generally applies to a Contract owned by a natural
person.
(b) Withdrawals and Surrenders
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the "investment in
the Contract" to the individual's total accrued benefit or the balance under the
retirement plan. The "investment in the Contract" generally equals the amount of
any premium payments paid by or on behalf of any individual with after-tax
dollars. For a Contract issued in connection with qualified plans, the
"investment in the Contract" can be zero. Special tax rules may be available for
certain distributions from a Qualified Contract.
With respect to Non-Tax Qualified Contracts, partial withdrawals, including any
withdrawals under the systematic withdrawal plan, are generally treated as
taxable income to the extent that the account value immediately before the
withdrawal exceeds the "investment in the Contract" at that time. Full
surrenders are treated as taxable income to the extent that the amount received
exceeds the "investment in the Contract".
(c) Annuity Payments
Although the tax consequences may vary depending on the Annuity Payment elected
under the Contract, in general, only the portion of the Annuity Payment that
represents the amount by which the Accumulated Value exceeds the "investment in
the Contract" will be taxed; after the "investment in the Contract" is
recovered, the full amount of any additional Annuity Payments is taxable.
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
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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 age 59 1/2, a penalty tax equal to 10% of the taxable
amount may also be imposed. Increases in the value of a Contract that has been
assigned will continue to be taxable annually to the Contract Owner until the
assignment is released.
Any Contract Owner contemplating any such transfer, assignment, designation, or
exchange should contact a competent tax adviser for advice with respect to the
potential tax effects of such a transaction.
(g) Multiple Contracts
All Non-Tax Qualified Contracts that are issued by Security Equity (or its
affiliates) to the same Contract Owner during any calendar year are treated as
one annuity Contract for purposes of determining the amount includable in gross
income under Section 72(e) of the Code. In addition, the Treasury Department has
specific authority to issue regulations that prevent the avoidance of Section
72(e) through the serial purchase of annuity contracts or otherwise.
(h) Withholding
Pension and annuity distributions generally are subject to withholding from the
recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Different rules may apply to United States citizens or
expatriates living abroad and, effective January 1, 1993, to certain
distributions under Qualified Contracts. In addition, some states have enacted
legislation requiring withholding.
(i) Possible Changes in Taxation
In past years, legislation has been proposed that would have adversely modified
the Federal taxation of certain annuities. For example, one such proposal would
have changed the tax treatment of non-qualified annuities that did not have
"substantial life contingencies" by taxing income as it is credited to the
annuity. Although as of the date of this Prospectus Congress is not considering
any legislation regarding the taxation of annuities, there is always the
possibility that the tax treatment of annuities could change by legislation or
other means (such as the IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it 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
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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 appropriate 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 Qualified Contract is issued in
connection with an employer's Simplified Employee Pension ("SEP") plan, Contract
Owners, Annuitants, and Beneficiaries are cautioned that the rights of any
person to any benefits under qualified plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract. A Qualified Contract will be amended as necessary to conform to
the requirements of the Code.
CODE SECTION 403(B) PLANS
Under Code Section 403(b), payments made by public school systems and certain
tax exempt organizations to purchase annuity contracts for their employees are
excludable from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes.
Code Section 403(b)(11) restricts the distribution under Code Section 403(b)
annuity contracts of: (1) elective contributions made in years beginning after
December 31, 1988; (2) earnings on those contributions; and (3) earnings in such
years on amounts held as of the last year beginning before January 1, 1989.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. Income attributable to elective contributions may not be distributed
in the case of hardship. Distributions prior to age 59 1/2 due to separation
from service or financial hardship are subject to the nondeductible 10% penalty
tax for premature distributions, in addition to income tax.
The 1940 Act has distribution requirements which differ from the requirements of
Code Section 403(b) set forth above. However, these Contracts are being offered
in reliance upon, and in compliance with, the provisions of no-action letter
number IP-6-88 issued by the Securities and Exchange Commission to the American
Council of Life Insurance. The no-action letter allows the Separate Accounts to
apply the restrictions created by Code Section 403(b)(11) as long as specified
steps, such as this disclosure, are taken to ensure that Contract Owners are
aware of the Code restrictions. Security Equity believes it is in compliance
with the provisions of the no-action letter.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of retirement
plans for employees and permits selfemployed 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. 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.
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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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for Security Equity and Separate Account 27 (as well as
the auditors' report thereon) are in the Statement of Additional Information.
As of December 31, 1995, Separate Account 26 had not commenced operations
and had no assets, liabilities, income, or expenses. Accordingly, no condensed
financial information or financial statements for Separate Account 26 are
included.
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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
FINANCIAL STATEMENTS....................................................................... S-12
</TABLE>
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APPENDIX A
- --------------------------------------------------------------------------------
EXAMPLE OF SURRENDER CHARGE CALCULATIONS
This example assumes that the date of the full surrender or partial withdrawal
is during the 10th Contact Year.
<TABLE>
<CAPTION>
1 3
-- 2 -- 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
= Net Purchase Payment 7 Column 2 x Net Purchase Payment 7 Column 3
= $2,000 x 4%
= $80
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 33
<PAGE> 40
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Prospectus Page 34
<PAGE> 41
Part B Registration No. 33-87144
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 27
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 April 29, 1996, 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 1-800-533-8282 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 April 29, 1996
S-1
<PAGE> 42
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-4
(a) Money Market Yield................................. S-4
(b) Yields of other Divisions.......................... S-6
(c) Total Return....................................... S-7
(d) Effect of the Annual Contract Fee.................. S-8
GENERAL MATTERS............................................ S-9
Incorrect Age or Sex..................................... S-9
Annuity Data............................................. S-10
Annual Reports........................................... S-10
Incontestability......................................... S-10
Ownership................................................ S-10
DISTRIBUTION OF THE CONTRACTS.............................. S-10
SAFEKEEPING OF ACCOUNT ASSETS.............................. S-11
STATE REGULATION........................................... S-11
RECORDS AND REPORTS........................................ S-11
LEGAL PROCEEDINGS.......................................... S-11
OTHER INFORMATION.......................................... S-12
FINANCIAL STATEMENTS....................................... S-12
</TABLE>
S-2
<PAGE> 43
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> 44
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.
Yield and Performance Calculations
(a) Money Market Yield
S-4
<PAGE> 45
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> 46
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 Trust and 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
S-6
<PAGE> 47
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)
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.
S-7
<PAGE> 48
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.
Average annual total return will be calculated using Division unit values
calculated on each Business Day based on the performance of the corresponding
underlying Fund, with deductions for the mortality and expense risk charge, the
administrative charge, and the annual contract fee at the rate of $2.50 per
month. The calculation will assume the Contract is surrendered at the end of the
period in question, producing a surrender charge for periods of seven years or
less. All of this means total return can be calculated according to the
following formula:
1/N
TR = ((ERV/P) -1
Where:
TR = the average annual total return net of recurring Contract charges at the
Division level (such as the mortality and expense risk charge, the
administrative charge, and the annual contract fee).
ERV = the ending redeemable value (net of any applicable surrender charge) at
the end of the period in question for an account with an initial value of
$l,000.
P = a hypothetical initial payment into the Division of $1,000.
N = the number of years in the period.
Security Equity may also quote total returns in its sales literature or
advertisements that do not reflect the surrender charge. These are calculated in
exactly the same way as the average annual total returns described above, except
that the ending redeemable value of the hypothetical account is not net of a
surrender charge.
(d) Effect of the Annual Contract Fee
The Contract provides for the deduction each year of the lesser of $30 or 2% of
an account's value provided the account value is less than $20,000. If the
account value equals or exceeds $20,000, then no contract fee is charged. So
that this charge
S-8
<PAGE> 49
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.
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
S-9
<PAGE> 50
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.
Annuity Data
Security Equity will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to Security Equity.
Annual Reports
Once a year Security Equity will give the Contract Owner a report of the current
Accumulated Value allocated to each Division and of any Purchase Payments,
charges, transfers, or surrenders during that period. This report will also give
the Contract Owner any other information required by law or regulation. The
Contract Owner may ask for a report like this at any time. The annual report
will be distributed without charge. Security Equity reserves the right to charge
a fee for additional reports.
Incontestability
Security Equity cannot contest this Contract.
Ownership
The Owner of the Contract on the Contract Date is the Annuitant, unless
otherwise specified in the application. The Owner may specify a new Owner by
Written Notice at any time thereafter. During the Annuitant's lifetime all
rights and privileges under this Contract may be exercised solely by the Owner.
DISTRIBUTION OF THE CONTRACTS
GT Global, Inc. ("GT Global"), the principal underwriter of the Contracts, is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc.
The Contracts are offered to the public through individuals licensed under the
federal securities laws and state insurance laws. These individuals are sales
agents of Security Equity and registered representatives of broker/dealers which
have entered into selling agreements with GT Global. Included in this group of
broker/dealers is Walnut Street Securities, Inc., a
S-10
<PAGE> 51
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.
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
S-11
<PAGE> 52
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.
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, 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> 53
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Security Equity Life Insurance Company and Contractholders
of Security Equity Separate Account 27:
We have audited the statements of assets and liabilities, including the schedule
of investments and condensed financial information, of the Variable New Pacific,
Variable America and Variable Telecommunications Divisions of Security Equity
Separate Account Twenty-seven as of December 31, 1995, and the related
statements of operations and changes in net assets for the period September 7,
1995 (inception) to December 31, 1995. These financial statements and condensed
financial information are the responsibility of management. Our responsibility
is to express an opinion on these financial statements, schedule and condensed
financial information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 at December 31, 1995 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 Variable New Pacific, Variable America and Variable
Telecommunications Divisions of Security Equity Separate Account Twenty-seven as
of December 31, 1995, and the results of their operations and changes in their
net assets for the period September 7, 1995 (inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
February 9, 1996
<PAGE> 54
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
Variable
Variable Variable Telecom-
New Pacific America munications
Division Division Division
----------- -------- -----------
<S> <C> <C> <C>
Assets:
Investments in GT Global Variable Investment Funds,
at market value (see Schedule of Investments): $7,980 $5,523 $5,642
------ ------ ------
Total assets 7,980 5,523 5,642
------ ------ ------
Liability:
Payable to Security Equity Life
Insurance Company 10 6 6
------ ------ ------
Total net assets $7,970 $5,517 $5,636
====== ====== ======
Total net assets represented by:
Individual variable annuity contracts cash value
invested in Separate Account $7,970 $5,517 $5,636
====== ====== ======
Total individual units held 667 500 500
Accumulation unit value $11.95 $11.03 $11.27
Cost of investments $7,974 $5,980 $5,980
</TABLE>
See accompanying notes to the financial statements.
<PAGE> 55
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF OPERATIONS
For the period September 7, 1995 (inception) to December 31, 1995
<TABLE>
<CAPTION>
Variable
Variable Variable Telecom-
New Pacific America munications
Division Division Division
----------- -------- -----------
<S> <C> <C> <C>
Expenses:
Mortality, expense and administrative charges $ (35) $ (25) $ (25)
----- ----- -----
Net investment loss (35) (25) (25)
Net realized loss on investments:
Real gain from distributions 25 18 18
Realized gain on sales 26 19 19
----- ----- -----
Net realized loss on investments (1) (1) (1)
Net unrealized gain (loss) on investments:
Unrealized gain (loss) on investments,
end of period 6 (457) (338)
----- ----- -----
Net unrealized gain (loss) on investments 6 (457) (338)
----- ----- -----
Net gain (loss) on investments 5 (458) (339)
----- ----- -----
Net decrease in net assets
resulting from operations $ (30) $(483) $(364)
===== ===== =====
</TABLE>
See accompanying notes to the financial statements.
<PAGE> 56
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
STATEMENTS OF CHANGES IN NET ASSETS
For the period September 7, 1995 (inception) to December 31, 1995
<TABLE>
<CAPTION>
Variable
Variable Variable Telecom-
New Pacific America munications
Division Division Division
----------- --------- -----------
1995 1995 1995
------- ------- -------
<S> <C> <C> <C>
Operations:
Net investment loss $ (35) $ (25) $ (25)
Net realized loss on investments (1) (1) (1)
Net unrealized gain (loss) on investments 6 (457) (338)
------- ------- -------
Net decrease in net assets
resulting from operations (30) (483) (364)
Deposits into Separate Account 8,000 6,000 6,000
======= ======= =======
Net assets, end of period $ 7,970 $ 5,517 $ 5,636
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
<PAGE> 57
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE 1--ORGANIZATION
Security Equity Separate Account Twenty-seven (the Separate Account) commenced
operations on September 7, 1995, and is registered under the Investment Company
Act of 1940 (1940 Act) as a unit investment trust. The Separate Account receives
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-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-seven invests in the Variable New Pacific, Variable
Europe, Variable America, Variable Growth & Income, Variable Latin America,
Variable Telecommuncations, Variable International Growth, 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 the Variable New Pacific Division, Variable
America Division and the Variable Telecommunications Division of Separate
Account Twenty-seven began at $12.00 on September 7, 1995. As of December 31,
1995 no deposits have been directed into the Variable Europe Division, Variable
Growth & Income Division, Variable Latin America Division, Variable
International Growth Division, Variable Emerging Markets Division, Variable
Natural Resources Division and the Variable Infrastructure Division of the
Separate Account. As such, no financial statements for these Divisions are
included.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in the preparation of financial statements. The policies
followed are in conformity with generally accepted accounting principles.
A. Investments
The Separate Account's 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 the same as 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 Account are not taxable. Therefore, no
Federal income tax expense has been provided.
C. Dividend Reinvestment
Dividends are recorded on the ex-dividend date and immediately reinvested on the
pay date.
D. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
NOTE 3--CONTRACT CHARGES
Mortality and Expense Assurance Charge: Security Equity assumes the mortality
and expense risks and provides certain administrative services related to
operating the Separate Account, for which the Separate Account is charged an
annual fee of 1.25% based on the values at the end of each valuation period.
Mortality and expense charges totaled $76 for the period ended December 31,
1995.
<PAGE> 58
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTES TO FINANCIAL STATEMENTS
(continued)
December 31, 1995
Surrender charge: Under Separate Account contractual arrangements, Security
Equity is entitled to collect payment for sales charges. Contracts are subject
to a deferred sales charge contingent upon surrender of the contract or a
greater than 10% partial withdrawal of funds on deposit. The sales charge is 7%
the first contract year, decreasing by 1% each subsequent year. The contingent
deferred sales charge will be waived in the event of annuitization after the
third year or on death. There were no sales charges as a result of surrenders
for the period ended December 31, 1995.
Account Fee and Administrative Charges: Security Equity has the responsibility
for the administration of the contract. As reimbursement for account
administrative expenses, on the last day of the contract year, Security Equity
deducts an account fee. For contracts with accumulated values less than $20,000,
the fee is the lesser of $30 or 2% of the accumulated value for contract years
ending prior to December 31, 1999. Thereafter, the account fee may be adjusted
annually. The account fee is waived for contracts with accumulated values of
$20,000 or more. Security Equity charges $25 for each transfer in excess of
twelve (12) during the Contract Year, excluding transfers made under the Dollar
Cost Averaging program and reserves the right to charge a fee to cover the
expenses for special handling. There were no Account fees for the period ended
December 31, 1995. Security Equity also provides certain administrative services
for which it charges an administrative charge to the Separate Account at an
annual rate of 0.15% at the end of each valuation period. Administrative charges
totaled $9 for the period ended December 31, 1995.
Premium Taxes: In states which charge premium taxes, the taxes are withdrawn
from the purchase payment or the accumulated value of the contract.
NOTE 4--PURCHASES AND SALES OF GT GLOBAL VARIABLE INVESTMENT FUND SHARES
During the period from September 7, 1995 (inception) through December 31, 1995,
cost of purchases and proceeds from sales of GT Global Variable Investment Fund
shares were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
--------- -----
<S> <C> <C>
SEPARATE ACCOUNT TWENTY-SEVEN
Variable New Pacific Fund $ 8,000 $ 25
Variable America Fund 6,000 18
Variable Telecommunications Fund 6,000 18
</TABLE>
There were no purchases or sales of GT Global Variable Investment Fund shares
for the Variable Europe Fund, Variable Growth & Income Fund, Variable Latin
America Fund, Variable International Growth Fund, Variable Emerging Markets
Fund, Variable Natural Resources Fund or the Variable Infrastructure Fund.
<PAGE> 59
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
NOTES TO FINANCIAL STATEMENTS
(Continued)
December 31, 1995
Note 5--Accumulation Unit Activity
The following is a summary of the accumulation unit activity for the period from
September 7, 1995 (inception) through December 31, 1995 for the Variable New
Pacific Division, Variable America Division and the Variable Telecommunications
Division.
<TABLE>
<CAPTION>
Variable
Variable Variable Telecom-
New Pacific America munications
Division Division Division
------------- ------------ ------------
<S> <C> <C> <C>
Individual units held:
Deposits 667 500 500
------------- ------------ ------------
Outstanding units, end of period 667 500 500
============= ============ ============
</TABLE>
No accumulation unit activity existed for the Variable Europe Division, Variable
Growth & Income Division, Variable Latin America Division, Variable
International Growth Division, Variable Emerging Markets Division, Variable
Natural Resources Division and the Variable Infrastructure Division.
<PAGE> 60
Table 1
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Accumulation Accumulation Total Units
Unit Value: Unit Value: Outstanding,
Beginning of Period: End of Period: End of Period:
September 7, 1995 December 31, 1995 December 31, 1995
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Variable New Pacific Division 12.00 11.95 677
Variable America Division 12.00 11.03 500
Variable Telecommunications Division 12.00 11.27 500
</TABLE>
<PAGE> 61
SECURITY EQUITY SEPARATE ACCOUNT TWENTY-SEVEN
SCHEDULE OF INVESTMENTS*
December 31, 1995
<TABLE>
<CAPTION>
Market
No. of Shares Value
-------------- -------
<S> <C> <C>
GT Global: Variable New Pacific Fund 573 7,980
GT Global: Variable America Fund 284 5,523
GT Global: Variable Telecommunications Fund 335 5,642
</TABLE>
* There were no investments of GT Global Investment Fund shares for the
Variable Europe Fund, Variable Growth & Income Fund, Variable Latin America
Fund, Variable International Growth Fund, Variable Emerging Markets Fund,
Variable Natural Resources Fund or the Variable Infrastructure Fund.
<PAGE> 62
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, 1995 and 1994, and the related statements
of operations, stockholder's equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 22, 1996
<PAGE> 63
SECURITY EQUITY LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, at fair value $ 63,256,127 56,646,779
Policy loans 4,524,903 3,631,396
Cash and cash equivalents 1,977,082 10,932,100
- ---------------------------------------------------------------------------------------------------------
Total cash and invested assets 69,758,112 71,210,275
Reinsurance benefits recoverable:
Future policy benefits 7,221,329 8,322,263
Policy and contract claims 1,704,918 4,448,887
Accrued investment income 1,279,216 1,242,963
Other assets 1,250,035 425,375
Goodwill 1,428,369 1,507,725
Deferred policy acquisition costs 1,471,754 --
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 2,251,570 5,574,273
Separate account assets 61,273,212 35,407,408
- ---------------------------------------------------------------------------------------------------------
Total assets $ 150,079,515 130,552,169
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
- ---------------------------------------------------------------------------------------------------------
Reserve for future policy benefits 55,520,856 56,866,579
Policy and contract claims 2,176,837 5,057,817
Other policyholders' funds 25,064 22,639
Advance premiums 1,057,064 664,000
Other liabilities and accrued expenses 2,290,147 2,099,414
Payable to affiliates 51,785 68,926
Due to separate account -- 8,795,904
Separate account liabilities 61,273,212 35,407,408
- ---------------------------------------------------------------------------------------------------------
Total liabilities 122,394,965 108,982,687
- ---------------------------------------------------------------------------------------------------------
Commitments and contingencies
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 (loss) on investments, net of taxes 1,990,132 (4,061,215)
Retained deficit (4,253,474) (4,317,195)
- ---------------------------------------------------------------------------------------------------------
Total stockholder's equity 27,684,550 21,569,482
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $ 150,079,515 130,552,169
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 64
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Operations
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Premiums and contract charges $ 6,379,803 9,025,429
Net investment income 4,699,713 4,095,545
Commissions and expense allowances on reinsurance ceded - 843,891
Realized investment losses (179,830) (515,975)
- --------------------------------------------------------------------------------------------------------------------
Total revenues 10,899,958 13,448,890
- --------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits 3,234,062 2,539,611
Policy surrenders, net 1,016,535 1,786,502
Change in reserve for future policy benefits (2,791,166) 1,296,603
Interest credited 2,391,220 2,349,814
Commissions, net of capitalized costs 1,283,902 3,930,807
General and administrative expenses 4,966,525 5,531,872
Amortization of goodwill 79,356 79,354
Accretion of value of business acquired, net (28,000) (50,000)
Other expenses 619,517 1,131,898
- --------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 10,771,951 18,596,461
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations before
federal income tax expense (benefit) 128,007 (5,147,571)
Federal income tax expense (benefit) - deferred 64,286 (830,376)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 63,721 (4,317,195)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 65
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1995 and 1994
<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, 1993 $ 2,500,000 17,447,892 - - 19,947,892
Net loss - - - (4,317,195) (4,317,195)
Contribution of capital from Parent - 10,000,000 - - 10,000,000
Change in unrealized gain (loss) on
investments - - (4,061,215) - (4,061,215)
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 2,500,000 27,447,892 (4,061,215) (4,317,195) 21,569,482
Net income - - - 63,721 63,721
Change in net unrealized gain (loss) on
investments - - 6,051,347 - 6,051,347
- --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 2,500,000 27,447,892 1,990,132 (4,253,474) 27,684,550
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 66
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 63,721 (4,317,195)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Change in:
Reinsurance benefits ceded 3,844,903 (1,354,981)
Accrued investment income (36,253) (279,331)
Other assets (824,660) (164,367)
Deferred policy acquisition costs (1,471,754) -
Policy liabilities (1,345,723) 2,392,502
Policy and contract claims (2,880,980) 2,268,697
Other policyholders' funds 2,425 534
Unearned premiums 393,064 664,000
Other liabilities and accrued expenses 190,733 1,295,393
Payable to affiliates (17,141) (224,158)
Amortization of bond discounts 221,543 536,812
Deferred tax expense (benefit) 64,286 (830,376)
Net loss on sale of investments 179,830 515,975
Amortization of goodwill 79,356 79,354
Change in value of business acquired (28,000) (50,000)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (1,564,650) 532,859
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (17,056,300) (26,813,376)
Sale or maturity of investments 19,355,372 16,780,012
Increase in policy loans, net (893,507) (747,167)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,405,565 (10,780,531)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Contribution of capital from Parent - 10,000,000
Policyholder account balances:
Deposits on interest-sensitive life contracts 18,382,186 35,046,849
Transfers to separate account for interest-sensitive life contracts (27,178,119) (26,250,945)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (8,795,933) 18,795,904
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (8,955,018) 8,548,232
Cash and cash equivalents at beginning of year 10,932,100 2,383,868
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,977,082 10,932,100
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 67
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
(1) 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 39 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. Products for the New York marketplace continue to be more
traditional in nature.
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 of these
5 (Continued)
<PAGE> 68
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
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
Effective with the acquisition of the Company by General American,
the Company adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
SFAS No. 115 requires debt and equity securities to be classified
into categories of available-for-sale, trading securities, or
held-to-maturity depending on an entity's ability and intent to
hold the security to maturity. SFAS No. 115 expands the use of
fair value accounting for investments in debt and equity
securities, and allows debt securities to be classified as
"held-to-maturity" and reported in the financial statements at
amortized cost only if the reporting entity has the positive
intent and ability to hold the securities to maturity.
Furthermore, SFAS No. 115 clarifies that securities that might be
sold in response to changes in market interest rates, changes in
the security's prepayment risk, or other similar factors must be
classified as "available-for-sale" and carried at fair value.
At December 31, 1995 and 1994, all long-term securities are
carried at market value with the unrealized gain (loss), net of
tax impact, being reflected as a separate component of
stockholder's equity as the Company considers all long-term
securities as available-for-sale. Short-term investments are
carried at cost which approximates market value. Policy loans are
valued at aggregate unpaid balances. The fair value of policy
loans is assumed to equal the carrying value because the loans
have no fixed maturity date and, therefore, it is not practicable
to determine a fair value.
Realized gains or losses on the sale of securities are determined
on the basis of specific identification and include the impact of
any related amortization of premium or accretion of discount which
is generally computed consistent with the interest method.
(c) VALUE OF BUSINESS ACQUIRED
Value of business acquired (VOBA) represents the present value of
future profits resulting from the acquisition of insurance
policies in a purchase transaction. VOBA is amortized in
proportion to the estimated premiums or gross profits, depending
on the type of contract, with accretion of interest on the
unamortized discounted balance. In 1995 and 1994, amortization of
VOBA was $112,000 and $89,000, and the accretion of interest on
the unamortized balance was $140,000 and $139,000, respectively.
The carrying value of VOBA is periodically evaluated to ascertain
recoverability from future operations. Impairment would be
recognized in current operations when determined.
6 (Continued)
<PAGE> 69
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
(d) GOODWILL
Goodwill, representing the excess of purchase price over the fair
value of assets acquired, is amortized on a straight-line basis
over 20 years. The carrying value of goodwill is periodically
evaluated to ascertain recoverability from future operations.
Impairment would be recognized in current operations when
determined.
(e) RESERVE FOR FUTURE POLICY BENEFITS
Liabilities for future benefits on life policies are established
in amounts adequate to meet the estimated future obligations on
policies in force. Liabilities for future policy benefits on
certain life insurance policies are computed using the net level
premium method and are based upon assumptions as to future
investment yield, mortality, and withdrawals. Mortality and
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. The liability also includes provisions for
the unearned portion of certain policy charges.
(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 1995,
consistent with 1994.
(g) REINSURANCE
Reinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on a
basis consistent with terms of the risk transfer reinsurance
contracts. Premiums ceded to other companies have been reported as
a reduction of premium income. Amounts applicable 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
7 (Continued)
<PAGE> 70
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
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
8 (Continued)
<PAGE> 71
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
future premiums. Such costs may include commissions, as well as
certain costs of policy issuance and underwriting. In 1995, the
Company deferred $1.5 million in acquisition costs related to
interest sensitive products and recognized amortization of $75,000
based on the estimated gross profits of the underlying business.
The Company did not defer any acquisition costs in 1994 or have
any deferred acquisition costs at December 31, 1994. This was a
result of the nature of the policies written through December 31,
1994 for which management determined that deferrable acquisition
costs were insignificant.
(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 MARKET DISCLOSURES
Fair value disclosures are required under SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. Such fair
value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any 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 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,
1995 and 1994, respectively.
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.
9 (Continued)
<PAGE> 72
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
(l) RECLASSIFICATION
Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
(2) INVESTMENTS
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 4,458,159 3,840,763
Short-term investments 43,781 133,755
Policy loans and other 294,298 216,942
- ---------------------------------------------------------------------------------------------------------------
4,796,238 4,191,460
Investment expenses 96,525 95,915
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 4,699,713 4,095,545
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1995 and 1994 are shown below. Market value is based upon market prices
obtained from independent pricing services which approximate fair value.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,299,846 287,844 (273,583) 9,314,107
Corporate securities 40,799,139 3,013,425 (388,584) 43,423,980
Mortgage-backed securities 10,095,402 432,140 (9,502) 10,518,040
- ----------------------------------------------------------------------------------------------------------------
$ 60,194,387 3,733,409 (671,669) 63,256,127
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
10 (Continued)
<PAGE> 73
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1994
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,139,278 - (586,288) 8,552,990
Corporate securities 44,318,248 15,896 (4,736,372) 39,597,772
Mortgage-backed securities 9,437,276 332 (941,591) 8,496,017
- ----------------------------------------------------------------------------------------------------------------
$ 62,894,802 16,228 (6,264,251) 56,646,779
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1995, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Estimated
Amortized market
cost value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,371,569 1,367,612
Due after one year through five years 3,353,833 4,098,436
Due after five years through ten years 11,595,734 8,359,789
Due after ten years 29,190,691 34,593,969
Mortgage-backed securities 14,682,560 14,836,323
- ------------------------------------------------------------------------------------------------------------------
$ 60,194,387 63,256,127
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale, call, and maturity of investments in bonds during
1995 and 1994 were $19,355,372 and $16,780,012, respectively. Gross gains
of $428,522 and $119,699 and gross losses of $608,352 and $635,674 were
realized on those sales in 1995 and 1994, respectively.
The Company has bonds on deposit with various state insurance departments
with an amortized cost of approximately $2,421,000 and $1,313,000 at
December 31, 1995 and 1994, 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.
11 (Continued)
<PAGE> 74
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
Premiums and related reinsurance amounts for the years ended December 31,
1995 and 1994 as they relate to transactions with affiliates are
summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded $ 1,956,568 2,391,067
Policy benefits ceded 305,947 2,340,522
Commissions and expenses ceded - 169,453
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Premiums and related reinsurance amounts for the years ended December 31,
1995 and 1994 as they relate to transactions with nonaffiliates are
summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance transactions with nonaffiliates:
Reinsurance premiums ceded $ 5,489,407 6,299,344
Policy benefits ceded 2,682,132 3,050,824
Commissions and expenses ceded - 674,438
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company remains contingently liable with respect to any reinsurance
ceded and would become actually liable if the assuming company was unable
to meet its obligations under the reinsurance treaty.
(4) FEDERAL INCOME TAXES
A reconciliation of the Company's "expected" federal income tax expense
(benefit), computed by applying the federal U.S. corporate tax rate of
35% to income (loss) from operations before federal income tax expense
(benefit), is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense (benefit) $ 45 (1,802)
Amortization of intangibles, net 18 10
Other, net 1 962
- ----------------------------------------------------------------------------------------------------------------
Federal income tax expense (benefit) $ 64 (830)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
12 (Continued)
<PAGE> 75
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1995 and
1994 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Investments $ - 2,187
Policy acquisition costs 1,157 1,116
Reserves 2,072 2,661
Capital loss carryforward 243 -
Net operating loss carryforward 323 70
Other, net 410 262
- ----------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 4,205 6,296
Less valuation allowance - -
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax assets 4,205 6,296
- ----------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 1,097 -
Other, net 856 722
- ----------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 1,953 722
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 2,252 5,574
================================================================================================================
</TABLE>
On December 31, 1994, 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.
13 (Continued)
<PAGE> 76
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) RELATED-PARTY TRANSACTIONS
In 1995 and 1994, the Company purchased certain administrative services
from General American. Charges for services performed are based upon
personnel and other costs involved in providing such services. The net
expenses incurred for these services were $463,200 and $407,000 for 1995
and 1994, respectively.
Effective January 1, 1994, the Company entered into an administrative
service agreement with Security Mutual with respect to the provision of
routine services for policies issued through December 31, 1993. The net
expense incurred for these services was $1,842,320 and $1,980,812 for
1995 and 1994, respectively.
(6) PENSION, INCENTIVE, AND HEALTH AND LIFE INSURANCE BENEFIT PLANS
Associates of SELIC participate in a noncontributory multi-employer
defined benefit pension plan jointly sponsored by SELIC and General
American. The benefits are based on years of service and compensation
level. No pension expense was recognized in 1995 or 1994 due to
overfunding of the plan.
In addition, SELIC has adopted in 1995 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 for 1995 were $59,500. In 1994, the Company accrued
bonuses of $150,000 under a nonrelated associate bonus plan.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with SFAS No. 106, Employer's Accounting
for Postretirement Benefits Other Than Pensions. SFAS No. 106 requires
the Company to accrue the estimated cost of retiree benefit payments
during the years the employee provides services.
SFAS No. 106 allows recognition of the cumulative effect of the liability
in the year of the adoption or the amortization of the transition
obligation over a period of up to 20 years. The Company has elected to
recognize the initial post-retirement benefit obligation of approximately
$16,427 over a period of 20 years. The unrecognized initial
post-retirement benefit obligation was approximately $14,784 and $15,606
at December 31, 1995 and 1994, respectively. Net periodic post-retirement
benefit cost for the years ended December 31, 1995 and 1994 were
approximately $6,711 and $6,232, respectively. This includes expected
costs of benefits for newly eligible or vested employees, interest costs,
gains and losses from differences between actuarial and actual
experience, and amortization of the initial post-retirement benefit
obligation. The accumulated post-retirement benefit obligation was
approximately $17,089 and $16,427 at December 31, 1995 and 1994,
respectively. The discount rate used in determining the accumulated
post-retirement benefit obligation was 8.25%. The health care cost trend
rates were 10% for the Indemnity Plan, 9% for the HMO Plan, and 10% for
the Dental Plan. These rates were graded to 6% over the next 14 years. A
one percentage point increase in the assumed health care cost 3 trend
rates would increase the December 31, 1995 accumulated post-retirement
obligation by 11%, and the estimated service cost and interest cost
components of the net periodic post-retirement benefit cost for 1995 by
14%.
(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
14 (Continued)
<PAGE> 77
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
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; and (7) non-recognition of
certain assets as nonadmitted through a direct charge to surplus.
A reconciliation of stockholder's equity of the Company at December 31,
1995 and 1994, as determined using statutory accounting practices, to
that reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of stockholder's equity:
Statutory surplus as reported to regulatory authorities $ 15,125,968 17,264,148
Asset valuation reserve 583,391 568,742
Interest maintenance reserve 1,227,492 1,049,290
Unrealized gain (loss) on investments 1,990,132 (4,061,215)
Goodwill 1,428,369 1,507,725
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 3,349,179 3,387,465
Differences between statutory and GAAP insurance reserves
and other, net 1,539,019 (559,673)
- --------------------------------------------------------------------------------------------------------------------
Stockholder's equity as reported herein $ 27,684,550 21,569,482
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of net gain (loss) of the Company at December 31, 1995
and 1994, as determined using statutory accounting practices, to that
reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net loss:
Net loss as reported to regulatory authorities $ (1,465,539) (3,779,205)
Premium and annuity considerations (18,336,148) (34,935,560)
Insurance reserves 19,119,961 35,752,650
Interest maintenance reserve, net (72,752) (118,754)
Investment income and capital gains and losses (491,428) (1,131,731)
Deferred policy acquisition costs 1,471,754 -
Goodwill amortization (79,356) (79,354)
Value of business acquired accretion, net 28,000 50,000
Other, net (110,771) (75,241)
- --------------------------------------------------------------------------------------------------------------------
Net gain (loss) as reported herein $ 63,721 (4,317,195)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15 (Continued)
<PAGE> 78
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
- --------------------------------------------------------------------------------
(8) DIVIDEND RESTRICTIONS
Dividend payments by the Company are restricted by state insurance laws
as to the amount that may be paid as well as the prior notice and
approval of the State of New York Department of Insurance. The Company
did not pay a dividend in 1995, 1994, or 1993.
(9) RISK-BASED CAPITAL
The insurance departments of various states, including the Company's
domiciliary state of New York, impose risk-based capital (RBC)
requirements on insurance enterprises. The RBC calculation serves as a
benchmark for the regulation of life insurance companies by state
insurance regulators. The requirements apply various weighted factors to
financial balances or activity levels based on their perceived degree of
risk.
The RBC guidelines define specific capital levels where action by the
Company or regulatory authorities is required based on the ratio of a
company's actual total adjusted capital (sum of capital and surplus and
asset valuation reserve) to control levels determined by the RBC formula.
At December 31, 1995, the Company's actual total adjusted capital was in
excess of minimum levels which would require action by the Company or
regulatory authorities under the RBC formula.
(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>
- ------------------------------------------------------------------------------
Year ended December 31:
<S> <C>
1996 $ 81,300
1997 84,600
1998 58,600
- ------------------------------------------------------------------------------
$ 224,500
- ------------------------------------------------------------------------------
</TABLE>
Rent expense totaled $83,900 and $50,700 in 1995 and 1994, respectively.
16
<PAGE> 79
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
<TABLE>
<S> <C>
(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 contact. (2)
(b) -- Form of individual retirement account
endorsement. (2)
(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, H
Edwin Trusheim, Virginia V. Weldon, Ted C.
Wetterau, Carson E. Beadle, David D. Holbrook,
Stanley Goldstein, James R. Elsesser, Bernard H
Wolzenski, Timothy C. Nicholson, Leonard M.
Rubenstein, A. Greig Woodring, William C. Thater,
and Kiri Parankirinathan. (1) Willard N. Archie
</TABLE>
1 Incorporated herein by reference to the initial
Registration Statement (file no. 33-87144) filed on
December 9, 1994.
2 Incorporated herein by reference to Pre-Effective
Amendment No. 1 (file no. 33-87144) filed on April 14,
1995.
C-1
<PAGE> 80
Item 25. Directors and Officers of the Depositor
Officer's Name and Principal Positions and Offices
Business Address* with Depositor
Richard J. Gatesman Second Vice President
Ralph H. Gorter Second Vice President
Judith A. Maron Second Vice President
Fabio Pieroni Vice President,
Treasurer,
and Controller
William C. Thater President and Director
Juanita M. Thomas Vice President,
General American Life Secretary, and General
Insurance Company Counsel
700 Market Street
St. Louis, MO 63101
* The principal business address of each person listed is Security Equity Life
Insurance Company, 84 Business Park Drive, Suite 303, Armonk, New York 10504,
unless otherwise indicated.
C-2
<PAGE> 81
<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
William M. Mercer, Incorporated
1166 Avenue of the Americas
New York, New York 10036
James R. Elsesser Director
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Stanley Goldstein Director
1185 Sixth Avenue
New York, New York 10036
David D. Holbrook Director
Marsh & McLennan, Inc.
1166 Avenue of the Americas
New York, New York 10036
Richard A. Liddy Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
Timothy C. Nicholson Director
General American Life Insurance Company
13045 Tesson Ferry Road
St. Louis, Missouri 63128
Leonard M. Rubenstein Director
General American Life Insurance 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> 82
<TABLE>
<CAPTION>
Directors Positions and Offices
with Depositor
<S> <C>
Virginia V. Weldon, M.D. Director
Monsanto Company
800 North Lindbergh Boulevard
St. Louis, Missouri 63167
Ted C. Wetterau Director
Wetterau Associates, L.L.C.
7700 Bonhomme, Suite 750
St. Louis, Missouri 63l05
Bernard H Wolzenski Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
A. Greig Woodring Director
Reinsurance Group of America, Inc.
660 Mason Ridge Center Drive, Suite 300
St. Louis, Missouri 63141
</TABLE>
C-4
<PAGE> 83
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"):
<PAGE> 84
General American Life Insurance Company: a Missouri mutual insurance company
selling life and health insurance and pensions. Principal place of business: St.
Louis, Missouri.
Cova Corporation: wholly-owned Missouri subsidiary formed to own the
Cova Life companies. Principal place of business: St. Louis, Missouri.
Cova Financial Services Life Insurance Company: wholly-owned
Missouri subsidiary of Cova Corporation, engaged in the
business of selling annuities and life insurance. Principal
place of business: Oakbrook, Illinois.
First Cova Life Insurance Company: wholly-owned New York
subsidiary of Cova Financial Services Life Insurance Company.
Engaged in the sale of life insurance in New York. Principal
place of business: New York, New York.
Cova Financial Life Insurance Company: wholly-owned California
subsidiary of Cova Corporation, engaged in the sale of life insurance
and annuities. Principal place of business: Oakbrook, Illinois.
Cova Life Management Company: wholly-owned Delaware subsidiary of Cova
Corporation. Employer of the individuals operating the Cova companies.
Principal place of business: Oakbrook, Illinois
Cova Investment Advisory Corporation: wholly-owned Illinois
subsidiary of Cova Life Management Company. Intended to
provide investment advice to Cova Life insureds and annuity
owners. Principal place of business: Oakbrook, Illinois.
Cova Investment Allocation Corporation: wholly-owned Illinois
subsidiary of Cova Life Management Company. Intended to
provide advice on allocation of premiums to Cova Life insureds
and annuity owners. Principal place of business: Oakbrook,
Illinois.
C-5
<PAGE> 85
Cova Life Sales Company: wholly-owned Delaware subsidiary of
Cova Life Management Company. Broker-dealer established to
supervise sales of Cova Life contracts. Principal place of
business: Oakbrook, Illinois.
General Life Insurance Company of America: wholly-owned subsidiary,
domiciled in Illinois, engaged in the business of selling life
insurance and annuities. Principal place of business: Edwardsville,
Illinois.
General Life Insurance Company: wholly-owned subsidiary, domiciled in
Texas, engaged in the business of selling life insurance and annuities.
Principal place of business: Edwardsville, Illinois.
Paragon Life Insurance Company: wholly-owned Missouri subsidiary
engaged in employer sponsored sales of life insurance. Principal place
of business: St. Louis, Missouri.
Equity Intermediary Company: wholly-owned subsidiary holding company
formed to own stock in subsidiaries. Principal place of business: St.
Louis, Missouri.
Reinsurance Group of America, Incorporated: Missouri
corporation, of which approximately 64% is owned by Equity
Intermediary Company and the balance by the public, owning RGA
Reinsurance Company and G.A. Canadian Holdings, Ltd., (i.e.
all reinsurance business). Principal place of business: St.
Louis, Missouri.
RGA Sudamerica S.A.: Chilean subsidiary, of which all
but one share is owned by RGA and one share is owned
by RGA Reinsurance Company (fka Saint Louis
Reinsurance Company), existing to hold Chilean
reinsurance operations. Principal place of business:
Santiago, Chile.
BHIF America Seguros de Vida S.A.: Chilean
subsidiary, of which 50% is owned by RGA
Sudamerica S.A. and 50% is owned by Chilean
interests, engaged in business as a
life/annuity insurer. Principal place of
business: Santiago, Chile.
C-6
<PAGE> 86
Manantial Seguros de Vida S.A.: Argentinean
subsidiary, of which 50% is owned by RGA and 50% by
Argentinean interests called the Sojo Group, engaged
in business as a life, annuity, disability, and
survivorship insurer. Principal place of business:
Buenos Aires, Argentina.
RGA Reinsurance Company (formerly Saint Louis
Reinsurance Company): Missouri subsidiary of
Reinsurance Group of America engaged in the
reinsurance business. Principal place of business:
St. Louis, Missouri.
Fairfield Management Group, Inc.: 51% owned
Missouri subsidiary of RGA Reinsurance
Company (fka Saint Louis Reinsurance
Company) and 49% is owned by management.
Principal place of business: St. Louis,
Missouri.
Reinsurance Partners, Inc.: wholly-owned
Missouri subsidiary of Fairfield Management
Group, Inc., engaged in business as a
reinsurance brokerage company. Principal
place of business: St. Louis, Missouri.
Great Rivers Reinsurance Management, Inc.:
wholly-owned Missouri subsidiary of
Fairfield Management Group, Inc., acting as
a reinsurance manager. Principal place of
business: St. Louis, Missouri.
RGA (U.K.) Underwriting Agency Limited: 80%
owned by Fairfield Management Group, Inc..
Principal place of business: London,
England.
RGA Reinsurance Company (Barbados) Ltd.: subsidiary
of Reinsurance Group of America, Incorporated formed
to engage in the exempt insurance business. Principal
place of business: Barbados, West Indies.
RGA/Swiss Financial Group, L.L.C.:
subsidiary formed to market and manage
financial reinsurance business to be assumed
by RGA Reinsurance Company. Principal place
of business: St. Louis, Missouri
C-7
<PAGE> 87
TAIMS L.L.C.: 51% owned by RGA; 49% owned by TAIMS
Holding Corp., a Canadian corporation. Acts as a
holding company in a joint venture with IBM to sell
computers and software for the application process to
brokers and agents. Principal place of business: St.
Louis, Missouri.
G.A. Canadian Holdings, Ltd.: a New Brunswick
corporation wholly-owned by Reinsurance Group of
America, existing to hold Canadian reinsurance
operations. Principal place of business: Montreal,
Canada.
RGA Canada Management Company, Ltd.: a New
Brunswick corporation wholly-owned by G.A.
Canadian Holdings, existing to accommodate
Canadian investors. Principal place of
business: Montreal, Canada.
RGA Life Reinsurance Company of
Canada: Federally chartered
corporation wholly-owned
by RGA Canada Management Company,
Ltd. Principal place of business:
Montreal, Canada.
RGA Holdings Limited: holding company formed in the United
Kingdom to own two operating companies: RGA Managing Agency
Limited and RGA Capital Limited.
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 syndicate which will underwrite accident
and health business.
RGA Reinsurance Company (Bermuda) Ltd.: subsidiary formed to
reinsure the foreign (international) and domestic (U.S.)
business of affiliated and non-affiliated companies.
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.
C-8
<PAGE> 88
Security Equity Life Insurance Company: wholly-owned subsidiary,
domiciled in New York, engaged in the business of selling life
insurance and annuities. Principal place of business: Armonk, New York.
General American Holding Company: wholly-owned Missouri subsidiary
owning non-insurance subsidiaries. Principal place of business: St.
Louis, Missouri.
Conning Asset Management Company: wholly-owned, second-tier
Missouri subsidiary formed to own General American Investment
Management Company and Conning Corporation. Principal place of
business: St. Louis, Missouri.
General American Investment Management Company:
wholly-owned, third-tier Missouri subsidiary engaged
in providing investment advice. Principal place of
business: St. Louis, Missouri.
Conning Corporation: a holding company organized
under Delaware law. Principal place of business: St.
Louis, Missouri.
Conning & Company: a Connecticut corporation
engaged in providing asset management and
investment advisory services as well as
insurance research services. Principal place
of business: Hartford, Connecticut.
Conning International, Inc.: an inactive
company formed to engage in international
activities. Principal place of business:
Hartford, Connecticut.
Consultec, Inc.: wholly-owned, second-tier Georgia subsidiary
engaged in providing data processing services for government
entities. Principal place of business: Atlanta, Georgia.
Genelco Incorporated: wholly-owned, second-tier Missouri
subsidiary engaged in the sale of computer software and in
providing third-party administrative services. Principal place
of business: St. Louis, Missouri.
International Underwriting Services, Incorporated:
Illinois corporation 88.3% owned by Genelco. Provides
third-party underwriting services to insurance
companies. Principal place of business: Barrington,
Illinois.
C-9
<PAGE> 89
Genelco de Mexico: Mexican corporation 99% owned by
Genelco Incorporated; engaged in licensing of Genelco
software products in Latin America. Principal place
of business: Mexico City, Mexico.
Genelco Software, S.A.: a Spanish corporation, 99%
owned by Genelco Incorporated, engaged in licensing
of Genelco software products in Spain.
Red Oak Realty Company: wholly-owned, second-tier Missouri
subsidiary formed for the purpose of investing in and
operating real estate. Principal place of business: St. Louis,
Missouri.
GenMark Incorporated: wholly-owned, second-tier Missouri
subsidiary company acting as distribution company. Principal
place of business: St. Louis, Missouri.
Walnut Street Securities, Inc.: wholly-owned,
third-tier Missouri subsidiary engaged in the process
of selling variable life insurance and variable
annuities and other securities. Principal place of
business: St. Louis, Missouri.
Walnut Street Advisers, Inc.: wholly-owned
Missouri subsidiary of Walnut Street
Securities engaged in the business of giving
investment advice. Principal place of
business: St. Louis, Missouri.
Stan Mintz Associates, Inc.: wholly-owned Wisconsin
subsidiary purchased to maintain a significant
marketing presence in the Madison, Wisconsin area
upon the retirement of General Agent Stan Mintz.
Principal place of business: Madison, Wisconsin.
White Oak Royalty Company: wholly-owned, second-tier Oklahoma
subsidiary formed to own mineral interests. Principal place of
business: St. Louis, Missouri.
Item 27. Number of Contract Owners as of March 1, 1996: Four
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
C-10
<PAGE> 90
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 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:
C-11
<PAGE> 91
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, 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
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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.
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
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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 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
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<PAGE> 94
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices with
Address* Underwriter
<S> <C>
David A. Minella Chairman of the Board of
Directors
William J. Guilfoyle President and Director
James R. Tufts Senior Vice President -
Finance and Director
Helge K. Lee Senior Vice President and
Secretary
Raymond R. Cunningham Senior Vice President -
National Sales
Manager and Director
Donald F. MacLeod Senior Vice President
375 Park Avenue, Suite 3404
New York, NY 10152
Peter R. Guarino Assistant Secretary
David J. Thelander Assistant Secretary
David P. Anderson, Jr. Vice President
1012 William
Plymouth, MI 48170
Jon Burke Vice President
31 Darlene Drive
Southboro, MA 01772
Bruce Caldwell Vice President
1003 Medinah Ct.
Kennesaw, GA 30144
Philip B. Christoper Vice President
Rt. 2
Box 232A
Charlottesville, VA 22901
Anthony DiBacco Vice President
30585 Via Lindon
Laguna Niguel, CA 92677
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices with
Address* Underwriter
<S> <C>
Stephen Donovick Vice President
2806 Carriage Lane
Carrollton, TX 75019
Philip D. Edelstein Vice President
9 Huntly Circle
Palm Beach Gardens, FL 33418
Jon Fessel Vice President
1781 Pine Harrier Circle
Sarasota, FL 34231
Ned E. Hammond Vice President
8080 N. Central Expressway
Suite 400
Dallas, TX 75206
Campbell Judge Vice President
4312 Linden Hills Blvd.
Minneapolis, MN 55410
Richard Kashnowski Vice President
1454 High School Drive
Brentwood, MO 63144
Allen M. Kuhn Vice President
7220 Garfield Street
New Orleans, LA 70118
Jeffrey S. Kulik Vice President
l00l3 Cape Ann Drive
Columbia, MD 21046
Stephen A. Maginn Senior Vice President
519 S. Juanita and Regional Sales
Redondo Beach, CA 90277 Manager
Steven C. Manns Vice President
3025 Caswell Drive
Troy, MI 48084
</TABLE>
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<PAGE> 96
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices
Address* with Underwriter
<S> <C>
C. David Matthews Vice President
2445 Pebblebrook
Westlake, OH 44145
Anthony R. Rogers Vice President
100 Southbank Drive
Cary, NC 27511
James B. Sandidge Vice President
758 Chimney Creek Drive
Golden, CO 80401
Philip Schertz Vice President
25 Ivy Place
Wayne, NJ 07470
Peter Sykes Vice President
3490 East Brockbank Drive
Salt Lake City, UT 84124
Tommy D. Wells Vice President
25 Crane Drive
San Anselmo, CA 94960
Todd H. Westby Vice President
3405 Goshen Road
Newtown Square, PA 19073
Brian A. Williams Vice President
655 Cherry Street
Winnetka, IL 60093
Robert J. Wolf Vice President
71 South 20th Street Regional Sales
Suite 120 Manager
Battlecreek, MI 49015
Eric T. Zeigler Vice President
437 30th Street
Manhattan Beach, CA 90266
</TABLE>
* Unless otherwise indicated, the business address of each person listed is 50
California Street, San Francisco, California 94111.
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<PAGE> 97
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by Security Equity at its
administrative offices, 84 Business Park Drive, Suite 303, Armonk, New York
10504, or by its service provider, General American Life Insurance Company (or
its wholly-owned, second tier subsidiary, Genelco Incorporated), at its National
Service Center located at 13045 Tesson Ferry Road, St. Louis, Missouri 63128.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) The Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for so long as Purchase Payments under the Contracts may be
accepted.
(b) The Registrant undertakes to include, as part of the application to purchase
a Contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information.
(c) The Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to Security Equity at the address or phone
number listed in the prospectus.
(d) The Registrant represents that it is relying upon a "no-action" letter (No.
IP-6-88) issued to the American Council of Life Insurance concerning the
conflict between the redeemability requirements of sections 22(e), 27(c)(1), and
27(d) of the Investment Company Act of 1940 and the limits on the redeemability
of variable annuities imposed by section 403(b)(11) of the Internal Revenue
Code. Registrant has included disclosure concerning the 403(b)(11) 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.
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<PAGE> 98
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 22nd day of
April, 1996.
SECURITY EQUITY SEPARATE ACCOUNT
27 (REGISTRANT)
(Seal) By: SECURITY EQUITY LIFE
INSURANCE COMPANY (for
Registrant and as Depositor)
Attest: /s/ Juanita M. Thomas By: /s/ William C. Thater
------------------------- ---------------------------
Juanita M. Thomas William C. Thater
Secretary President
Security Equity Life Security Equity Life
Insurance Company Insurance Company
<PAGE> 99
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>
/s/ William C. Thater
- ------------------------
William C. Thater President 4/22/96
(Principal Executive
Officer)
/s/ Fabio Pieroni
- ------------------------
Fabio Pieroni Vice President, Treasurer, 4/22/96
and Controller (Principal
Accounting Officer)
**
- ------------------------
Willard N. Archie Director
*
- ------------------------
Carson E. Beadle Director
*
- ------------------------
James R. Elsesser Director
*
- ------------------------
Stanley Goldstein Director
*
- ------------------------
David D. Holbrook Director
*
- ------------------------
Richard A. Liddy Director
*
- ------------------------
Timothy C. Nicholson Director
*
- ------------------------
Leonard M. Rubenstein Director
</TABLE>
<PAGE> 100
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William C. Thater Director 4/22/96
- ----------------------------------------
William C. Thater
* Director
- ----------------------------------------
H Edwin Trusheim
* Director
- ----------------------------------------
Virginia V. Weldon
* Director
- ----------------------------------------
Ted C. Wetterau
* Director
- ----------------------------------------
Bernard H Wolzenski
* Director
- ----------------------------------------
A. Greig Woodring
*By /s/ Juanita M. Thomas 4/22/96
- ----------------------------------------
Juanita M. Thomas
</TABLE>
*Original powers of attorney authorizing Juanita M. Thomas and William C.
Thater, and each of them singly, to sign the Registration Statement and
amendments thereto on behalf of the Directors of Security Equity Life Insurance
Company were filed as Exhibits to the initial Registration Statement (file no.
33-87144) on December 9, 1994.
**Original power of attorney authorizing Juanita M. Thomas and William C.
Thater, and each of them singly, to sign the Registration Statement and
amendments thereto on behalf of Willard N. Archie is being filed with this
Post-Effective Amendment No. 1 (file no. 33-87144).
<PAGE> 101
Exhibit Index
10 Consent of Independent Accountants
14 Power of Attorney for Willard N. Archie
<PAGE> 1
Exhibit 10
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE> 2
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 of our
firm under the heading "Financial Statements" in the Registration Statement and
Prospectus for Security Equity Separate Account 27.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 29, 1996
<PAGE> 1
Exhibit 14
POWER OF ATTORNEY FOR WILLARD N. ARCHIE
<PAGE> 2
POWER OF ATTORNEY
I, the undersigned, as a director or officer of Security Equity Life Insurance
Company, hereby constitute Juanita M. Thomas and William C. Thater, and each of
them singly, with full power to them and each of them singly to sign for me, in
my name and in the capacity mentioned below, any and all Registration
Statements, documents, instruments, and/or exhibits related thereto, and any and
all amendments to Registration Statements filed with the Securities and Exchange
Commission for the purpose of registering Variable Contracts issued by Security
Equity in connection with Separate Account 27, and I hereby ratify and confirm
my signature as it may be signed by the above-mentioned people to said
Registration Statements and to any and all amendments thereto.
Witness my hand on the date set forth below.
Signature
/s/ Willard N. Archie Director x Officer
- --------------------------
Willard N. Archie
Name (typed or printed)
Date: March 29, 1996
