<PAGE>
SECURITY EQUITY SEPARATE ACCOUNTS 26 AND 27
PROSPECTUS
FOR THE
INDIVIDUAL VARIABLE ANNUITY CONTRACT
OFFERED BY
SECURITY EQUITY LIFE INSURANCE COMPANY
(A NEW YORK COMPANY)
84 BUSINESS PARK DRIVE, SUITE 303
ARMONK, NEW YORK 10504
1-800-533-8282
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This Prospectus describes individual variable annuity contracts offered by
Security Equity Life Insurance Company ("Security Equity"). These contracts,
collectively referred to as the "Contract" or the "Contracts" in this
Prospectus, are designed to aid individuals in long-term financial planning and
provide for the accumulation of capital on a tax favored basis for retirement or
other long-term purposes. The Contracts may be purchased with a single minimum
Initial Purchase Payment of $2,000.
Prior to the Annuity Date, Purchase Payments will accumulate on a variable
basis. The Contract Owner has significant flexibility in determining the
frequency and amount of each Purchase Payment. The Contract Owner may elect to
receive Annuity Payments on a variable basis, fixed basis, or a combination of
both. The Contract Owner also has significant flexibility in determining the
Annuity Date on which Annuity Payments are scheduled to commence. Full
surrenders or partial withdrawals may be made at any time prior to the Annuity
Date, although in many circumstances they may be subject to a surrender charge
and a Federal penalty tax. Any amount surrendered or withdrawn will be paid in a
lump sum, or upon annuitization, the Contract will be paid out under one of the
available Annuity Options. The Contracts provide the flexibility necessary to
permit a Contract Owner to devise an annuity that best fits his or her needs.
Purchase Payments may be allocated to Security Equity Separate Accounts 26 and
27. Assets of the Separate Accounts are invested in Divisions, which invest in
Funds of GT Global Variable Investment Funds. A list of the Funds can be found
in the accompanying prospectus for the GT Global Variable Investment Funds.
This Prospectus sets forth the information that a prospective investor should
know before investing. Please read this Prospectus carefully and retain it for
future reference. A Statement of Additional Information about the Contracts and
the Divisions is available free by writing to Security Equity at the address
listed above or by calling the phone number listed above. The Statement of
Additional Information, which has the same date as this Prospectus, has been
filed with the Securities and Exchange Commission and, as amended or
supplemented from time to time, is incorporated herein by reference. The table
of contents of the Statement of Additional Information can be found at the end
of this Prospectus. This Prospectus must be accompanied by a current Prospectus
for the GT Global Variable Investment Funds.
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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 1, 1998, As Revised June 1, 1998.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
Prospectus Page 1
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
---------
<S> <C>
DEFINITIONS............................................................................... 4
SUMMARY OF CONTRACT FEES AND EXPENSES..................................................... 5
QUESTIONS AND ANSWERS ABOUT THE CONTRACT.................................................. 8
SECURITY EQUITY LIFE INSURANCE COMPANY AND THE SEPARATE ACCOUNTS.......................... 10
Security Equity......................................................................... 10
The Separate Accounts................................................................... 10
GT GLOBAL VARIABLE INVESTMENT FUNDS....................................................... 11
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS...................................... 11
THE CONTRACTS............................................................................. 12
Right to Examine........................................................................ 12
Contract Application and Purchase Payments.............................................. 12
Place, Amount and Frequency........................................................... 12
Account Continuation.................................................................. 13
Allocation of Net Purchase Payments................................................... 13
VARIABLE ACCOUNT.......................................................................... 13
Accumulation Units...................................................................... 13
Value of Accumulation Units............................................................. 14
Net Investment Factor................................................................... 14
TRANSFER PRIVILEGE........................................................................ 14
DOLLAR COST AVERAGING..................................................................... 14
CONTRACT OWNER INQUIRIES.................................................................. 15
CHARGES AND DEDUCTIONS.................................................................... 15
Administrative Charges.................................................................. 15
Annual Contract Fee................................................................... 15
Transfer Fee.......................................................................... 16
Special Handling Fees................................................................. 16
Surrender Charge........................................................................ 16
Mortality and Expense Risk Charge....................................................... 17
Premium Taxes........................................................................... 17
Fees and Expenses of the Funds.......................................................... 17
YIELDS AND TOTAL RETURNS.................................................................. 18
DISTRIBUTIONS UNDER THE CONTRACT.......................................................... 19
Cash Withdrawals........................................................................ 19
Systematic Withdrawal Plan.............................................................. 20
Annuity Provisions...................................................................... 20
Annuity Date............................................................................ 20
Annuity Options......................................................................... 20
Election of Annuity Options........................................................... 20
The Options Available................................................................. 20
Calculation of Payments............................................................... 21
Value of Variable Annuity Payments.................................................... 21
</TABLE>
Prospectus Page 2
<PAGE>
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Deferment of Payment.................................................................... 21
The Beneficiary......................................................................... 22
Death Benefits.......................................................................... 22
Death of a Contract Owner who is the Annuitant........................................ 22
Death of a Contract Owner who is not the Annuitant.................................... 22
Death of the Annuitant who is not a Contract Owner.................................... 22
Death of a Joint Owner................................................................ 22
Payment of Death Benefit.............................................................. 23
Amount of Death Benefit................................................................. 23
Assignments and Changes of Ownership.................................................... 23
FEDERAL TAX MATTERS....................................................................... 24
Introduction............................................................................ 24
Taxation of Security Equity............................................................. 24
Tax Status of the Contracts............................................................. 24
Diversification....................................................................... 24
Investor Control...................................................................... 24
Required Distributions................................................................ 25
Taxation of the Annuities............................................................... 25
In General............................................................................ 25
Withdrawals and Surrenders............................................................ 25
Annuity Payments...................................................................... 26
Penalty Tax........................................................................... 26
Taxation of Death Benefit Proceeds.................................................... 26
Transfer, Assignments, or Exchanges of the Contract................................... 26
Multiple Contracts.................................................................... 27
Withholding........................................................................... 27
Possible Changes in Taxation.......................................................... 27
Other Tax Consequences................................................................ 27
Qualified Contracts................................................................... 27
Individual Retirement Annuities and Accounts............................................ 27
Code Section 403(b) Plans............................................................... 28
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans............................ 28
Deferred Compensation Plans............................................................. 28
Restrictions under Qualified Contracts.................................................. 28
VOTING RIGHTS............................................................................. 29
PRINCIPAL UNDERWRITER..................................................................... 29
FINANCIAL STATEMENTS...................................................................... 30
STATEMENT OF ADDITIONAL INFORMATION....................................................... 30
APPENDIX -- Surrender Charge Calculations................................................. 31
</TABLE>
Prospectus Page 3
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DEFINITIONS
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ACCUMULATED VALUE -- The value under the Contract prior to the Annuity Date of
all Net Purchase Payments, plus all gains and losses, less any past charges
deducted or amounts previously withdrawn.
ACCUMULATION UNIT -- An accounting unit of measure used to determine the value
of a Division prior to the Annuity Date.
ANNUITANT -- The individual upon whose life Annuity Payments are based and who
may receive payments from the Contract under an Annuity Option.
ANNUITY DATE -- The date on which Annuity Payments begin.
ANNUITY OPTION -- One of several ways in which Annuity Payments may be made.
ANNUITY PAYMENT -- One of a series of payments made under an Annuity Option.
ANNUITY SERVICE OFFICE -- The service office of the Company is Security Equity,
GT Global Department, P.O. Box 208, Armonk, New York 10504.
ANNUITY UNIT -- An accounting unit of measure used to calculate variable Annuity
Payments.
BENEFICIARY -- The person or legal entity that may receive any benefits due
under the Contract in the event of the Annuitant's or Contract Owner's death.
BUSINESS DAY -- A day on which both Security Equity and the New York Stock
Exchange (the "NYSE") are open for business. The following days are not Business
Days for Security Equity: New Year's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Friday after Thanksgiving,
Christmas Day, and the day after Christmas Day if it is otherwise a regular work
day.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTRACT -- The document for each Contract Owner which evidences the coverage of
the Contract Owner. The Contract, and any of its riders, endorsements,
amendments, and the Contract Application (if any) a copy of which is attached to
and made a part hereof, are the entire Contract.
CONTRACT APPLICATION -- The document signed by the Contract Owner that evidences
the Contract Owner's application for the Contract.
CONTRACT OWNER ("YOU", "YOUR") -- The person, persons, or entity entitled to
exercise all rights and privileges of ownership as stated in the Contract and in
whose name the Contract is issued.
CONTRACT OWNER'S ACCOUNT -- An account established for each Contract Owner.
CONTRACT YEAR -- A continuous twelve month period commencing on the Date of
Issue and each anniversary thereof.
DATE OF ISSUE -- The date the Initial Purchase Payment is invested in the
Contract.
DIVISION -- A Division of Separate Account 26 or 27. Each Division invests
solely in its corresponding GT Global Variable Investment Fund and takes the
name of the Fund in which it invests.
FUND (OR FUNDS) -- The separate investment portfolios of GT Global Variable
Investment Funds.
GT GLOBAL VARIABLE INVESTMENT FUNDS -- Refers to a portfolio of either GT Global
Variable Investment Series or GT Global Variable Investment Trust or the two
together.
INITIAL PURCHASE PAYMENT -- The first payment which the Contract Owner makes.
NET PURCHASE PAYMENT -- A Purchase Payment, less any applicable deduction for
premium tax.
NON-TAX QUALIFIED CONTRACTS -- Contracts that do not receive favorable tax
treatment under Sections 401, 403, 408, 408A, or 457 of the Code. Earnings on
these Contracts currently receive special Federal income tax treatment.
PAYEE -- The Contract Owner, Annuitant, Beneficiary, or any other person,
estate, or legal entity to whom benefits are to be paid.
PURCHASE PAYMENT -- Any payment or sum received by the Company from the Contract
Owner.
QUALIFIED CONTRACTS -- Contracts purchased in connection with a retirement plan
that receives favorable tax treatment under Sections 401, 403, 408, 408A, or 457
of the Code.
Prospectus Page 4
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RIGHT TO EXAMINE PERIOD -- The period during which the Contract can be cancelled
and treated as void from the Date of Issue.
SECURITY EQUITY ("COMPANY", "WE", "US", "OUR") -- Security Equity Life Insurance
Company, a New York insurance company.
SEPARATE ACCOUNT -- A segregated investment account created by Security Equity.
The Separate Accounts for this Contract are numbers 26 and 27. Each is
registered with the Securities and Exchange Commission as a unit investment
trust and meets the definition of a "separate account" under the Federal
securities laws.
VALUATION PERIOD -- A period commencing at the close of business each Business
Day and ending at the close of business of the following Business Day.
WRITTEN NOTICE (OR WRITTEN REQUEST) -- A notice or request in writing signed by
the Contract Owner and received by our Annuity Service Office. Such a request
must be in a format and have content acceptable to Security Equity.
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SUMMARY OF CONTRACT FEES AND
EXPENSES
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CONTRACT OWNER TRANSACTION EXPENSES:
<TABLE>
<S> <C>
SALES LOAD imposed on Purchase:........ None
</TABLE>
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE):
Ten percent (10%) of the Accumulated Value may be withdrawn without penalty each
year. The ten percent (10%) free amount does not apply upon full surrender.
After a Net Purchase Payment has been held by the Company for seven years, it
may be withdrawn free of any surrender charge. For Net Purchase Payments held by
the Company for less than seven years, surrender charges are as follows
(expressed as a percentage of Net Purchase Payments withdrawn):
<TABLE>
<CAPTION>
YEARS SINCE RECEIPT OF SURRENDER CHARGE
NET PURCHASE PAYMENT PERCENTAGE
- --------------------------- ---------------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7+ 0%
</TABLE>
TRANSFER FEE: Currently, there is no charge for transfers. However, the Company
reserves the right to impose a charge equal to the lesser of $25 or 2% of the
amount transferred, for each transfer in excess of twelve during the Contract
Year, excluding transfers made under the dollar cost averaging program.
ANNUAL CONTRACT FEE: The lesser of $30 or 2% of Accumulated Value if the
Accumulated Value is less than $20,000. If the Accumulated Value is $20,000 or
greater, the contract fee is waived.
SEPARATE ACCOUNT ANNUAL EXPENSES:
<TABLE>
<S> <C>
Mortality and expense risk charge 1.25%
Administrative expense charge .15%
Other fees and expenses .00%
---------
Total Separate Account annual expenses 1.40%
---------
---------
</TABLE>
COMBINED ANNUAL EXPENSES OF FUNDS
UNDERLYING EACH DIVISION:
(expressed as a percentage of combined net assets)
<TABLE>
<CAPTION>
INVESTMENT
MANAGEMENT OTHER EXPENSES TOTAL EXPENSES
AND ADMINIS- AFTER REIM- AFTER REIM-
GT GLOBAL TRATION FEES BURSEMENT* BURSEMENT*
- -------------------------- ----------------- --------------- ---------------
<S> <C> <C> <C>
Variable New Pacific Fund 1.00% 0.25% 1.25%
Variable Europe Fund 1.00% 0.25% 1.25%
Variable Latin America
Fund 1.00% 0.25% 1.25%
Variable America Fund 0.75% 0.23% 0.98%
Variable International
Fund 1.00% 0.25% 1.25%
Variable Infrastructure
Fund 1.00% 0.25% 1.25%
Variable Natural Resources
Fund 1.00% 0.25% 1.25%
Variable
Telecommunications Fund** 1.00% 0.17% 1.17%
Variable Emerging Markets
Fund 1.00% 0.25% 1.25%
Variable Growth & Income
Fund 1.00% 0.25% 1.25%
Variable Global Government
Income Fund 0.75% 0.25% 1.00%
Variable Strategic Income
Fund 0.75% 0.25% 1.00%
Variable U.S. Government
Income Fund 0.75% 0.25% 1.00%
Money Market Fund 0.50% 0.25% 0.75%
</TABLE>
(SEE FOOTNOTES ON NEXT PAGE)
Prospectus Page 5
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* Figures in the "Other Expenses After Reimbursement" and "Total Expenses
After Reimbursement" columns are restated from the amounts you would have
incurred in 1997 to reflect the fees and reimbursement or waiver
arrangements for 1998. If there had been no reimbursement of expenses and no
expense reductions during 1997, the actual expenses of each Fund, expressed
as a percentage of net assets, with Investment Management and Administration
Fees stated first, then Other Expenses, followed by Total Expenses, would
have been as follows: Variable New Pacific Fund, 1.00%, 0.43%, 1.43%;
Variable Europe Fund, 1.00%, 0.41%, 1.41%; Variable Latin America Fund,
1.00%, 0.40%, 1.40%; Variable International Fund, 1.00%, 1.31%, 2.31%;
Variable Infrastructure Fund, 1.00%, 0.49%, 1.49%; Variable Natural
Resources Fund, 1.00%, 0.42%, 1.42%; Variable Emerging Markets Fund, 1.00%,
0.49%, 1.49%; Variable Growth & Income Fund, 1.00%, 0.27%, 1.27%; Variable
Global Government Income Fund, 0.75%, 0.79%, 1.54%; Variable Strategic
Income Fund, 0.75%, 0.32%, 1.07%; Variable U.S. Government Income Fund,
0.75%, 0.87%, 1.62%; Money Market Fund, 0.50%, 0.29%, 0.79%.
** No reimbursements were paid to the Variable America Fund and the Variable
Telecommunications Fund as the total operating expenses were below the
voluntary limit.
EXAMPLES
If you surrender your Contract at the end of the specified time period, you
would pay the following aggregate expenses per Division on a $1,000 investment,
assuming 5% annual return and reimbursement for expenses, as described below:
<TABLE>
<CAPTION>
GT GLOBAL 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific Division $ 97 $ 133 $ 172 $ 301
Variable Europe Division 97 133 172 301
Variable Latin America Division 97 133 172 301
Variable America Division 94 125 159 275
Variable International Division 97 133 172 301
Variable Infrastructure Division 97 133 172 301
Variable Natural Resources
Division 97 133 172 301
Variable Telecommunications
Division 96 131 168 292
Variable Emerging Markets
Division 97 133 172 301
Variable Growth & Income Division 97 133 172 301
Variable Global Government Income
Division 95 126 160 277
Variable Strategic Income
Division 95 126 160 277
Variable U.S. Government Income
Division 95 126 160 277
Money Market Division 92 118 147 251
</TABLE>
If you do not surrender your Contract at the end of the specified time period,
you would pay the following aggregate expenses per Division on the same
investment:
<TABLE>
<CAPTION>
GT GLOBAL 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific Division $ 27 $ 83 $ 142 $ 301
Variable Europe Division 27 83 142 301
Variable Latin America Division 27 83 142 301
Variable America Division 24 75 129 275
Variable International Division 27 83 142 301
Variable Infrastructure Division 27 83 142 301
Variable Natural Resources
Division 27 83 142 301
Variable Telecommunications
Division 26 81 138 292
Variable Emerging Markets
Division 27 83 142 301
Variable Growth & Income Division 27 83 142 301
Variable Global Government Income
Division 25 76 130 277
Variable Strategic Income
Division 25 76 130 277
Variable U.S. Government Income
Division 25 76 130 277
Money Market Division 22 68 117 251
</TABLE>
If you annuitize at the end of the specified time period, you would pay the
following aggregate expenses per Division on the same investment:
<TABLE>
<CAPTION>
GT GLOBAL 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------- ----- ----- ----- -----
<S> <C> <C> <C> <C>
Variable New Pacific Division $ 97 $ 132 $ 142 $ 301
Variable Europe Division 97 133 142 301
Variable Latin America Division 97 133 142 301
Variable America Division 94 125 129 275
Variable International Division 97 133 142 301
Variable Infrastructure Division 97 133 142 301
Variable Natural Resources
Division 97 133 142 301
Variable Telecommunications
Division 96 131 138 292
Variable Emerging Markets
Division 97 133 142 301
Variable Growth & Income Division 97 133 142 301
Variable Global Government Income
Division 95 126 130 277
Variable Strategic Income
Division 95 126 130 277
Variable U.S. Government Income
Division 95 126 130 277
Money Market Division 92 118 117 251
</TABLE>
For the purposes of calculating the values in the above examples, the effect of
the $30 annual contract fee is reflected, assuming that one-half of the
Contracts issued have account values of at least $20,000 and that the average
account value for all Contracts is $50,000.
The purpose of the table above is to help you understand the costs and expenses
that a variable annuity Contract Owner will bear directly or indirectly. Note
that the expense amounts in the examples are aggregate amounts for the Divisions
and the Funds for the number of years indicated. For a more complete description
of the GT Global Variable Investment Funds' fees and expenses, see the Funds'
Prospectus. For all GT Global Variable Investment Funds, the expenses shown
under "Other Expenses After Reimbursement" and "Total
Prospectus Page 6
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Expenses After Reimbursement" reflect reimbursement by A I M Advisors, Inc.
("A I M") of certain expenses incurred by each Fund. From time to time, A I M in
its sole discretion may waive receipt of its fees and voluntarily assume certain
Fund expenses. A I M 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
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The initial value of an accumulation unit in Separate Account 26 and Separate
Account 27 was $12.00. The charts below show accumulation unit values and the
numbers of units outstanding from inception of each Division through December
31, 1997. There can be no assurance that the future investment performance of
these Separate Account Divisions will be comparable to past performance.
CHART 1 -- SEPARATE ACCOUNT 26
<TABLE>
<CAPTION>
ACCUMULATION
OUTSTANDING,
UNIT VALUE: ACCUMULATION TOTAL UNITS
BEGINNING OF UNIT VALUE: END OF PERIOD
YEAR PERIOD* END OF PERIOD (IN THOUSANDS)
--------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Money Market
Division 1997 N/A 12.26 15,631
1996 12.00 N/A 0
Variable
Strategic Income
Division 1997 13.82 14.61 44,913
1996 12.00 13.82 7,310
Variable U.S.
Government
Income Division 1997 12.00 12.71 2,518
</TABLE>
<TABLE>
<CAPTION>
CHART 2 -- SEPARATE ACCOUNT 27
ACCUMULATION
OUTSTANDING, ACCUMULATION
UNIT VALUE: UNIT VALUE: TOTAL UNITS
BEGINNING OF END OF END OF PERIOD
YEAR PERIOD* PERIOD (IN THOUSANDS)
---- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Variable New Pacific Division 1997 15.43 8.96 28,896
1996 11.95 15.43 59,302
1995 12.00 11.95 677
Variable Europe Division 1997 15.34 17.42 8,163
1996 12.00 15.34 4,437
Variable America Division 1997 12.90 14.62 6,419
1996 11.03 12.90 2,236
1995 12.00 11.03 500
Variable Growth & Income Division 1997 12.00 13.88 2,116
Variable Latin America Division 1997 13.23 14.94 13,385
1996 12.00 13.23 8,332
Variable Telecommunications Division 1997 13.27 14.99 37,030
1996 11.27 13.27 31,391
1995 12.00 11.27 500
Variable International Division 1997 12.48 13.16 4,879
1996 12.00 12.48 3,217
Variable Emerging Markets Division 1997 13.30 11.31 5,161
1996 12.00 13.30 1,092
Variable Natural Resources Division 1997 13.60 13.59 6,760
1996 12.00 13.60 106
Variable Infrastructure Division 1997 12.79 13.24 780
1996 12.00 12.79 108
</TABLE>
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* At inception of separate accounts on September 7, 1995, except for the
Variable Strategic Income Division, the Variable Europe Division, and the
Variable Latin America Division, which commenced operations on January 30,
1996; the Variable Emerging Markets Division, which commenced operations on
March 25, 1996; the Variable International Growth Division, which commenced
operations on April 9, 1996; the Money Market Division, which commenced
operations on July 26, 1996; the Variable Natural Resources Division and the
Variable Infrastructure Division which commenced operations on August 26,
1996.
Prospectus Page 7
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE CONTRACT
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The following section contains brief questions and answers about the Contract.
Reference should be made to the body of this Prospectus for more detailed
information. With respect to the Contract, it should be noted that the
requirements of a Qualified Contract, an endorsement to the Contract, or
limitations or penalties imposed by the Code may impose limits or restrictions
on payments, surrenders, distributions, or benefits, or on other provisions of
the Contracts, and these short questions do not describe any such limitations or
restrictions. (See "Federal Tax Matters")
1. WHAT IS THE PURPOSE OF THE CONTRACT?
The Contract allows you to accumulate funds on a tax favored basis and to
receive Annuity Payments when desired, based on the investment experience of the
assets underlying the Contracts. The Contracts are designed for use in
connection with non-tax qualified and certain qualified retirement plans.
A Contract may be purchased with proceeds from sources that do not qualify for
special tax treatment. The source of the proceeds affects the way Annuity
Payments are taxed, but not the operation of the Contracts. (See "Federal Tax
Matters")
You will allocate Purchase Payments to Divisions of the Separate Accounts. The
Divisions of the Separate Accounts will invest in the Funds of GT Global
Variable Investment Funds in accordance with your instructions. Because Annuity
Payments and Accumulated Values depend on the investment experience of the
selected Divisions, you bear the entire investment risk under these Contracts.
2. WHAT IS AN ANNUITY AND WHY MAY BENEFITS VARY?
An annuity provides for a series of Annuity Payments beginning on the Annuity
Date. You may select from a number of Annuity Options, including Annuity
Payments for the life of the Annuitant (or the Annuitant and another person, the
"Joint Annuitant") with or without a guaranteed number of Annuity Payments, or
for a designated period. Annuity Payments which are guaranteed throughout the
payment period are referred to in this Prospectus as "Guaranteed Annuity
Payments." Annuity Payments which vary in accordance with the investment
experience of the Divisions selected by you are referred to in this Prospectus
as "variable Annuity Payments."
3. WHAT TYPES OF INVESTMENTS UNDERLIE THE SEPARATE ACCOUNTS?
Currently, the Separate Accounts invest in shares of GT Global Variable
Investment Series and GT Global Variable Investment Trust (together, "GT Global
Variable Investment Funds"). Both are management investment companies offering
access to investments advised by the Manager. A list of the Funds currently
offered is given in the prospectus for the GT Global Variable Investment Funds,
which must accompany this Prospectus.
4. HOW DO I PURCHASE A CONTRACT?
You may purchase a Contract with a single minimum Initial Purchase Payment of
$2,000. Subsequent Purchase Payments generally may be made at any time prior to
the Annuity Date as long as the Annuitant is living. (See "Contract Application
and Purchase Payments")
5. HOW DO I ALLOCATE NET PURCHASE PAYMENTS?
Net Purchase Payments will be allocated among one or more of the Divisions, in
accordance with the allocation percentages selected by you in your Contract
Application. The initial allocations must be in whole percents totaling 100% and
involve amounts of at least $500 per Division. Allocations for additional Net
Purchase Payments may be changed by sending Written Notice to us. (See
"Allocation of Net Purchase Payments")
6. CAN I TRANSFER AMOUNTS AMONG THE DIVISIONS?
Transfers among the Divisions can be made subject to certain limitations. (See
"Transfer Privilege")
7. CAN I GET TO MY MONEY IF I NEED IT?
All or part of the Accumulated Value of the Contract may be withdrawn before the
earlier of the Annuitant's death or the Annuity Date. However, amounts withdrawn
may be subject to a surrender charge depending on how long the withdrawn Net
Purchase Payments have been invested in the Contract. In addition, certain
surrenders may be subject to a Federal penalty tax. (See "Distributions under
the Contract" and "Federal Tax Matters")
Prospectus Page 8
<PAGE>
8. WHAT ARE THE CHARGES AND DEDUCTIONS UNDER THE CONTRACT?
We deduct a daily charge equal to a percentage of the value of the net assets in
the Divisions for the mortality and expense risks assumed by us and for the cost
of administering these Contracts. The annual rate of this charge is 1.40% (1.25%
for mortality and expense risk and .15% for administrative expenses). In
addition, Contracts with Accumulated Values of less than $20,000 on the Contract
Anniversary may be assessed an annual contract fee equal to the lesser of $30 or
2% of Accumulated Value in Contract Years ending prior to December 31, 1999.
Thereafter, the contract fee may be adjusted annually, subject to limitations.
(See "Administrative Charges")
In order to permit investment of the entire Net Purchase Payment, we currently
do not deduct a sales load at the time of investment. However, a surrender
charge is imposed on certain full or partial withdrawals from the Contracts to
cover expenses relating to the sale of the Contracts, including commissions to
registered representatives and other promotional expenses. The surrender charge,
calculated as a percentage of each Net Purchase Payment, will apply to Net
Purchase Payments for seven years from the date each such Net Purchase Payment
is received. The surrender charge ranges from 7% during the first Contract Year
after a Net Purchase Payment is received, to 1% during the seventh year after
such a Net Purchase Payment is received. (See "Surrender Charge") Also, premium
taxes may be deducted, if applicable. Certain states impose a premium tax,
currently ranging up to 3.5%. (See "Premium Taxes")
9. WHAT ANNUITY OPTIONS ARE AVAILABLE UNDER THE CONTRACT?
You may receive Annuity Payments on a variable basis, a fixed basis, or both.
You also have flexibility in choosing the Annuity Date, subject to current laws.
Four Annuity Options are included in the Contract: (1) Life Annuity; (2) Life
Annuity with 60, 120, 180, or 240 Monthly Payments Guaranteed; (3) Joint and
Survivor Income for Life; and (4) Income for a Fixed Period which may range from
five to thirty years. (See "Annuity Options")
10. CAN THE CONTRACT BE CANCELLED AFTER IT IS DELIVERED?
The Contract contains a provision for a Right to Examine Period which permits
you to cancel the Contract by returning it to us at our Annuity Service Office,
or to the registered representative through whom it was purchased, within ten
days of receipt of the Contract. You will then receive from us the refund made
on the Contract. The refund will be an amount equal to the greater of: (1) the
Accumulated Value in any Separate Account Division plus any premium tax that had
been deducted or, (2) any purchase payments made including any premium taxes
deducted without any deduction for surrender charge or administrative charges.
11. WHOM DO I CALL IF I HAVE QUESTIONS ABOUT MY CONTRACT?
Any questions about privileges or your Contract will be answered by our Annuity
Service Office, P.O. Box 208, Armonk, New York 10504, (800) 533-8282. All
inquiries should include the Contract number and the Contract Owner's name.
12. WHAT CAN I EXPECT TO RECEIVE FROM SECURITY EQUITY?
Confirmations will be mailed to you for any financial transactions that take
place, and quarterly statements will be sent showing the Accumulated Value in
each Division and any Purchase Payments, charges, transfers, or partial
withdrawals during the time period covered. In addition, we will send you
financial reports of the Separate Accounts and for the GT Global Variable
Investment Funds.
Prospectus Page 9
<PAGE>
SECURITY EQUITY LIFE INSURANCE
COMPANY AND THE SEPARATE ACCOUNTS
- --------------------------------------------------------------------------------
SECURITY EQUITY
Security Equity Life Insurance Company ("Security Equity") is a company
domiciled in New York. It is a wholly-owned subsidiary of General American Life
Insurance Company ("General American"), a stock insurance company domiciled in
Missouri.
Security Equity was incorporated in 1983 under the laws of the State of New York
as a wholly-owned subsidiary of Security Mutual Life Insurance Company of New
York. It was purchased by General American on December 31, 1993. Security Equity
is licensed to do business in 40 states of the United States and the District of
Columbia. The principal office of Security Equity is located at 84 Business Park
Drive, Suite 303, Armonk, NY 10504. The telephone number is (914) 273-1290.
Security Equity is principally engaged in writing individual and corporate owned
life insurance policies and annuity contracts. Assets derived from such business
should be considered by purchasers of variable annuity contracts only as bearing
upon the ability of Security Equity to meet its obligations under the variable
annuity contracts and should not be considered as bearing on the investment
performance of the Separate Accounts.
THE SEPARATE ACCOUNTS
Separate Account 26 was established on February 10, 1994, and Separate Account
27 was established on August 11, 1994, pursuant to authorization by the Board of
Directors of Security Equity. Although they are an integral part of Security
Equity and not separate corporations, the Separate Accounts are registered as
unit investment trusts with the Securities and Exchange Commission (the "SEC")
under the Investment Company Act of 1940, as amended (the "1940 Act"). Such
registration does not involve supervision of the management, investment
practices, policies of the Separate Accounts, or of Security Equity by the SEC.
Purchase Payments may be received by the Separate Accounts from individual
variable annuity contracts that are Qualified Contracts entitled to favorable
tax treatments under the Code, and also from individual variable annuity
contracts not entitled to any special tax benefits. Any such Purchase Payments
are pooled together and invested separately from the General Account of Security
Equity (the general assets of the insurance company other than separate account
assets). The persons participating in these Contracts look to the investment
experience of the assets in the Separate Accounts.
Under New York law, the net assets of the Separate Accounts are held for the
exclusive benefit of the owners of the Contracts and for the persons entitled to
Annuity Payments which reflect the investment results of the Separate Accounts.
That portion of the assets of each Separate Account equal to the reserves and
other liabilities under the Contracts participating in it is not chargeable with
liabilities arising out of any other business that Security Equity may conduct.
The income, gains, and losses, whether or not realized, from the assets of each
Division of a Separate Account are credited to or charged against that Division,
without regard to any other income, gains, or losses.
Separate Account 26 currently has four Divisions, each of which invests solely
in a corresponding GT Global Variable Investment Fund. These are:
<TABLE>
<S> <C>
GT Global Variable Global Government Income
Division
GT Global Variable Strategic Income Division
GT Global Variable U.S. Government Income
Division
GT Global Money Market Division
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
</TABLE>
Prospectus Page 10
<PAGE>
GT GLOBAL
VARIABLE INVESTMENT FUNDS
- --------------------------------------------------------------------------------
Each of the GT Global Variable Investment Funds (the "Funds") described above is
a separate investment portfolio of either GT Global Variable Investment Series
(the "Series") or GT 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 Delaware 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.
A I M Advisors, Inc. ("A I M") is the investment manager and administrator of
each Fund. INVESCO (NY) Inc. (the "Sub-Adviser") is the investment sub-adviser
and sub-administrator of each Fund. Each Fund pays Investment Management and
Administration Fees to A I M.
Detailed information concerning the Funds, their investment objectives and
policies, and the charges levied upon them can be found in the current
Prospectus for the GT Global Variable Investment Funds, which accompanies this
Prospectus. Security Equity assumes no responsibility for the Prospectus of the
GT Global Variable Investment Funds. Each Prospectus should be read carefully
before any decision is made concerning the allocation of Purchase Payments to a
Division that corresponds to a particular Fund.
THERE IS NO ASSURANCE THAT ANY OF THE FUNDS WILL ATTAIN THEIR RESPECTIVE STATED
OBJECTIVES, OR THAT ATTAINMENT CAN BE SUSTAINED.
- --------------------------------------------------------------------------------
ADDITIONS, DELETIONS, OR
SUBSTITUTIONS OF INVESTMENTS
- --------------------------------------------------------------------------------
Security Equity reserves the right, subject to applicable law and to the Plans
of Operations for the Separate Accounts, to make additions to, deletions from,
or substitutions for the shares of a Fund that are held or purchased by the
Separate Accounts for the Divisions. Security Equity reserves the right to
eliminate the shares of any of the Funds and to substitute shares of another
Fund of GT Global Variable Investment Funds or of another registered open-end
investment company, if the shares of a Fund are no longer available for
investment, or if in its judgment further investment in any Fund becomes
inappropriate in view of the purposes of the Separate Accounts. Security Equity
will not replace any shares attributable to a Contract Owner's interest in a
Division of the Separate Accounts without at least thirty days notice to the
Contract Owner and prior approval of the SEC, to the extent required by the 1940
Act or other applicable law. Nothing contained in this Prospectus shall prevent
the Separate Accounts from purchasing other securities for other series or
classes of policies, or from permitting a conversion between series or classes
of policies on the basis of requests made by Contract Owners.
Security Equity also reserves the right to establish additional Divisions of the
Separate Accounts, each of which would invest in a new Fund of GT Global
Variable Investment Series or GT 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
Prospectus Page 11
<PAGE>
existing Contract Owners on a basis to be determined by Security Equity. To the
extent approved by the SEC (and not disapproved by the Superintendent of the New
York State Insurance Department), Security Equity may also eliminate or combine
one or more Divisions, substitute one Division for another Division, or transfer
assets between Divisions if, in its sole discretion, marketing, tax, or
investment conditions warrant.
In the event of a substitution or change, Security Equity may make such changes
it considers necessary in the Contracts by appropriate endorsement. Security
Equity will notify all Contract Owners of any such changes.
If it is deemed by Security Equity to be in the best interests of persons having
voting rights under the Contracts, and to the extent any necessary SEC approvals
or Contract Owner votes are obtained, the Separate Accounts may be: (a) operated
as management companies under the 1940 Act; (b) deregistered under the 1940 Act
in the event such registration is no longer required; or (c) combined with other
separate accounts of Security Equity. To the extent permitted by applicable law,
Security Equity may also transfer the assets of the Separate Accounts associated
with the Contracts to another separate account.
- --------------------------------------------------------------------------------
THE CONTRACTS
- --------------------------------------------------------------------------------
The Contract is available to individuals seeking annuity contracts entitled to
favorable tax treatment under the Code as Qualified Contracts, and also to
individuals seeking annuity contracts not entitled to any special tax benefits.
The rights and benefits of the Contracts are described below and in the
Contract; however, Security Equity reserves the right to make any modification
to conform the Contract to, or to give the Contract Owner the benefit of, any
Federal or state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO EXAMINE
The Contract Owner may cancel the Contract during the Right to Examine Period of
ten days after the Contract Owner receives the Contract. Upon receipt of a
request for cancellation by Security Equity's Annuity Service Office or by the
registered representative through whom it was purchased, the Contract will be
cancelled and a refund will be made. The refund will be an amount equal to the
greater of: (1) the Accumulated Value in any Separate Account Division, plus any
premium tax that had been deducted or, (2) any Purchase Payment made, including
any premium taxes deducted, without any deduction for surrender charges or
administrative charges. As to the Accumulated Value in a Division, the daily
charge for mortality and expense risks and certain operating expenses of the
corresponding Funds will not be returned.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
(A) PLACE, AMOUNT, AND FREQUENCY
Purchase Payments are to be paid to the Company at its Annuity Service Office or
to a broker-dealer where such broker-dealer has made special arrangements with
the Company for collection of Purchase Payments. All Purchase Payments received
at the Annuity Service Office before the close of the NYSE (4:00 p.m. Eastern
Time) on any Business Day will be considered received on that Business Day.
Payment by electronic funds transfer from broker-dealers with whom an
arrangement has been entered into will be considered received on the Business
Day notice of such payment is received by the Annuity Service Office, provided
that such notice is received before the close of the NYSE on that Business Day,
and the funds transferred are actually received at the Annuity Service Office by
9:00 a.m. Eastern Time on the next Business Day.
The amount of Purchase Payments may vary; however, the Company will not accept
an Initial Purchase Payment which is less than $2,000, and each additional
Purchase Payment must be at least $100.
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
Prospectus Page 12
<PAGE>
Company will notify the Contract Owner in writing, at his or her address last
known to us, at least sixty days prior to exercising these rights. In addition,
the prior approval of the Company is required before it will accept a Purchase
Payment which would cause the value of a Contract Owner's Account to exceed
$1,000,000.
If the value of a Contract Owner's Account exceeds $1,000,000, no additional
Purchase Payments will be accepted without the prior approval of the Company. In
addition, the Date of Issue for the Contract must be before the Annuitant's 80th
birthday.
A completed Contract Application and the Initial Purchase Payment are forwarded
to the Company for acceptance. Upon acceptance, the Contract is issued to the
Contract Owner, and the Initial Purchase Payment is credited to the Contract
Owner's Account. The Date of Issue will be the date the Initial Purchase Payment
is invested. The Initial Purchase Payment must be invested within two Business
Days of receipt by the Company of a Contract Application in good order. The
Company may retain the Initial Purchase Payment for up to five Business Days
while attempting to complete an incomplete Contract Application. If the Contract
Application cannot be made complete within five Business Days, the prospective
Contract Owner will be informed of the reasons for the delay. The Initial
Purchase Payment will be returned immediately unless the prospective Contract
Owner consents in writing to the Company's retaining the Initial Purchase
Payment until the Contract Application is made in good order. Thereafter, the
Initial Purchase Payment must be invested within two Business Days. Subsequent
Net Purchase Payments are invested at the end of the Business Day during which
they are received by the Company at the Annuity Service Office.
Purchase Payments may be made at any time prior to the Annuity Date, full
surrender of the Contract, or death of the Annuitant or Contract Owner.
(B) ACCOUNT CONTINUATION
The Contract does not require continuing Purchase Payments and will continue in
force until the earlier of the Annuity Date, surrender of the Contract, or death
of the Annuitant or Contract Owner.
(C) ALLOCATION OF NET PURCHASE PAYMENTS
The Net Purchase Payment is that portion of a Purchase Payment which remains
after deduction of any applicable premium tax. The initial Net Purchase Payment
will be allocated among the Divisions of the Separate Accounts in accordance
with the allocation percentages specified in the particular Contract
Application. The initial percentages specified in the Contract Application must
be in whole percents totaling 100% and allocate amounts of at least $500 per
Division.
The allocations for additional Net Purchase Payments among the Divisions may be
changed by the Contract Owner at any time by Written Request. Any allocation
change will take effect with the first Purchase Payment received with or after
receipt of a Written Request for change by the Company and will continue in
effect until subsequently changed. If any portions of the Net Purchase Payments
are received for allocation to a Division no longer offered by the Company, the
Company will contact the Contract Owner to secure new allocations. Subsequent
Net Purchase Payments should be at least $100. If the subsequent payment
specifies allocation percentages different from the initial percentages
specified in the Contract Application, they must be in whole percents, and total
100%.
VARIABLE ACCOUNT
ACCUMULATION UNITS
The Company will establish an account in the Contract Owner's name for each
Division to which the Contract Owner allocates Net Purchase Payments or transfer
amounts. Net Purchase Payments and transfer amounts are allocated to Divisions
and credited to such accounts in the form of Accumulation Units.
The number of Accumulation Units to be credited to each account is determined by
dividing the Net Purchase Payment or transfer amount for the account by the
value of an Accumulation Unit for that Division for the Valuation Period during
which the Net Purchase Payment or transfer request is credited. The number of
Accumulation Units in any account will be increased at the end of a Valuation
Period by any Net Purchase Payments allocated to the corresponding Division
during that Valuation Period and by any Accumulated Value transferred to that
Division from another Division during that Valuation Period. The number of
Accumulation Units in any account will be decreased at the end of a Valuation
Period by any transfers of Accumulated Value out of the corresponding 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.
Prospectus Page 13
<PAGE>
VALUE OF ACCUMULATION UNITS
The value of Accumulation Units in each Division will vary from one Valuation
Period to the next depending upon the investment results of that particular
Division. The value of an Accumulation Unit for each Division was arbitrarily
set at $12 for the first Valuation Period. The value of an Accumulation Unit for
any subsequent Valuation Period is determined by multiplying the value of an
Accumulation Unit for the immediately preceding Valuation Period by the net
investment factor for such Division (described below) for the Valuation Period
for which the value is being determined.
NET INVESTMENT FACTOR
Each Business Day we will calculate each Division's net investment factor. A
Division's net investment factor measures its investment performance during a
Valuation Period. The net investment factor for each Division for any Valuation
Period is determined by dividing (a) by (b) and subtracting (c) from the result:
Where (a) is: (1) the net asset value per share of a Fund share held in the
Division determined at the end of the current Valuation Period, plus (2) the per
share amount of any dividend or capital gain distribution made by a Fund on
shares held in the Division if the "ex-dividend" date occurs during the current
Valuation Period.
Where (b) is: the net asset value per share of a Fund share held in the Division
determined as of the end of the immediately preceding Valuation Period.
Where (c) is: a factor representing the charges deducted from the Division on a
daily basis for mortality and expense risks and administrative expenses. Such
factor is equal, on an annual basis, to 1.40% (1.25% for mortality and expense
risk and 0.15% for administrative expenses).
The net investment factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may increase, decrease, or remain
the same. The value of an Annuity Unit, described in the Statement of Additional
Information, is also affected by the net investment factor.
TRANSFER PRIVILEGE
At any time during the accumulation period the Contract Owner may transfer all
or part of the Contract Owner's Accumulated Value to one or more Divisions of
the Separate Accounts, subject to the following conditions: (1) transfers must
be made by Written Request in good order completed by the Contract Owner; (2)
transfers from a Division must be at least $500, or the entire amount remaining
in the Division, if less than $500; (3) any Contract Owner's Accumulated Value
remaining in a Division may not be less than $500, or the request may be treated
as a request to transfer the entire amount in that Division; and (4) there is no
limit to the number of transfers that the Contract Owner may request.
Currently, there is no charge for transfers; however, the Company reserves the
right to impose a charge equal to the lesser of $25 or 2% of the amount
transferred, for each transfer in excess of twelve during the Contract Year,
excluding transfers made under the dollar cost averaging program described
hereafter.
Permitted transfers will be subject to the additional terms and conditions as
may be imposed by each Division's corresponding Fund. The Contract Owner must
instruct the Company as to what amounts should be transferred from each
Division. Any transfer request received at the Annuity Service Office before the
close of the NYSE (4:00 p.m. Eastern Time) on any Business Day will be
considered received on that Business Day. Under current law, there will not be
any tax liability to the Contract Owner if a Contract Owner makes a transfer. We
may revoke or modify the transfer privilege at any time, including the minimum
amount for a transfer and the transfer charge, if any.
DOLLAR COST AVERAGING
The Company offers a dollar cost averaging program ("DCA") which enables a
Contract Owner to pre-authorize a periodic exercise of the contractual transfer
privileges described above. Contract Owners entering into a DCA agreement
instruct the Company to transfer on the Business Day coincident with or
subsequent to the 15th of each month a predetermined dollar amount of at least
$100 per month. Transfers from the GT Global Money Market Division, GT Global
Variable Growth & Income Division, GT Global Variable Strategic Income Division,
GT Global Variable Global Government Income Division or the GT Global Variable
U.S. Government Income Division will continue until the dollar amount requested
has been transferred or the Accumulated Value in the Division is exhausted,
whichever is sooner. Any DCA transfer allocations for a Division which is no
longer offered will remain in that Division until the allocation instructions
are changed by the Contract Owner.
Prospectus Page 14
<PAGE>
Contract Owners entering the DCA program must designate at least $2,000 for
investment through DCA. Contract Owners interested in the DCA program may elect
to participate in the program through a Written Request to the Company.
The DCA program is intended to permit Contract Owners to utilize "dollar cost
averaging," a long-term investment method which provides for investments to be
made in regular equal installments over time to control the risk of investing at
the top of a market cycle. The Company makes no guarantees that dollar cost
averaging will result in a profit, protect against loss, or otherwise. Because
the DCA program involves continuous investments in the Divisions regardless of
fluctuating unit values of such Divisions, Contract Owners should consider their
financial ability to continue to purchase through periods of high unit values.
The Company reserves the right to discontinue offering the DCA program at any
time.
CONTRACT OWNER INQUIRIES
Security Equity, either directly or through its service providers, performs all
administrative functions in connection with the Contracts, such as underwriting,
record keeping, Contract Owner servicing, and reporting. Contract Owner
inquiries should be addressed to Security Equity Life Insurance Company, Annuity
Service Office, P.O. Box 208, Armonk, New York 10504, or made by calling (800)
533-8282. All inquiries should include the Contract number, Contract Owner's
name, and Social Security Number.
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
No deductions are made from the Initial Purchase Payment, unless a state premium
tax is due. (See "Premium Taxes") Therefore, the full amount of the Initial
Purchase Payment, less any applicable tax, is invested in one or more Divisions
of the Separate Accounts.
ADMINISTRATIVE CHARGES
A) ANNUAL CONTRACT FEE
On the last day of each Contract Year, the Company may deduct a contract fee
(referred to in the Contract as "Account Fee") as partial compensation for
expenses relating to the issue and maintenance of the Contract and the Contract
Owner's account. For Contracts with Accumulated Values of less than $20,000, the
contract fee is equal to the lesser of $30 or 2% of the Accumulated Value for
Contract Years ending prior to December 31, 1999. Thereafter, the contract fee
may be adjusted annually, but in no event may it be adjusted by more than the
amount that reflects the change in the Consumer Price Index since December 31,
1992, and in no event will it exceed $50. The annual contract fee will be waived
for Contracts with Accumulated Values of $20,000 or more.
The annual contract fee will be deducted from the GT Global Money Market
Division or from the Division with the largest portion of Accumulated Value if
no GT Global Money Market Division investment exists on the Contract
Anniversary. To the extent that the contract fee is deducted from a Division,
Accumulation Units will be cancelled to effect the deduction. Upon full
surrender of the Contract or upon the death of the Contract Owner or Annuitant,
the entire annual contract fee, if applicable, will be assessed.
On occasion, the last day of a Contract Year will not fall on a Business Day. In
this case, if the last day of a Contract Year and the next Business Day fall in
the same calendar month, administrative charges will be taken on the next
Business Day. If the last day of a Contract Year and the next Business Day do
not fall in the same calendar month, administrative charges will be taken on the
Business Day immediately preceding the last day of the Contract Year.
After the Annuity Date, the annual contract fee will be deducted in equal
amounts from each variable Annuity Payment made during the year. No such
deduction will be made from fixed Annuity Payments.
The net investment factor incorporates a charge at the end of each Valuation
Period (during both the accumulation period and after Annuity Payments begin) at
an annual rate of 0.15% to reimburse the Company for those administrative
expenses attributable to the Contracts, the Contract Owner's
Prospectus Page 15
<PAGE>
Accounts, and the Separate Accounts which exceed the revenues received from the
contract fee. The Company believes the administrative expense charge and the
contract fee have been set at a level that will recover no more than the actual
costs associated with administering the Contract. (See "Net Investment Factor")
B) TRANSFER FEE
The Company reserves the right to charge the lesser of $25 or 2% of the amount
transferred, for each transfer in excess of twelve during the Contract Year,
excluding transfers made under the dollar cost averaging program.
C) SPECIAL HANDLING FEES
The Contract provides that the Company reserves the right to charge a fee to
cover the Company's expenses for special handling. Items currently considered as
special handling (and the current charges assessed) include: wire transfer
charges ($11.50), checks returned to us for insufficient funds ($15), minimum
distribution calculations ($10), annuitization calculations in excess of four
annually ($10), duplicate contracts ($25), and additional copies of confirmation
notices or quarterly statements (currently no charge). The fee for special
handling will not exceed $50 per request. The Company does not expect to make a
profit from these charges.
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
No deduction for a sales load is made from Purchase Payments. A surrender charge
is imposed on certain surrenders and withdrawals to cover certain expenses
relating to the sale of the Contracts, including commissions to registered
representatives and other promotional expenses.
Upon full surrender of the Contract or partial withdrawal of Accumulated Value,
Security Equity will apply a surrender charge to the gross withdrawal amount,
excluding any applicable administrative charges. This surrender charge,
expressed as a percentage of each Net Purchase Payment, will apply to Net
Purchase Payments for seven complete years measured from the date the Net
Purchase Payment is received. The surrender charge schedule is as follows:
<TABLE>
<CAPTION>
YEARS SINCE RECEIPT OF NET SURRENDER CHARGE
PURCHASE 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
Prospectus Page 16
<PAGE>
expected sales-related expenses. Any shortfall will be made up from the
Company's General Account which may include amounts derived from the mortality
and expense risk charge described below.
See the Appendix for examples of the surrender charge calculation.
MORTALITY AND EXPENSE RISK CHARGE
During the accumulation period and after Annuity Payments begin, the net
investment factor incorporates charges to cover mortality and expense risk at
the end of each Valuation Period as a percentage of the Accumulated Value in the
Divisions. The charge for mortality and expense risk is 1.25% annually (1.00%
for mortality risk and .25% for expense risk).
The mortality risk that Security Equity assumes is that Annuitants may live for
a longer period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the Annuity Payments received. The mortality
risk that Security Equity assumes also includes a guarantee to pay a death
benefit if the Annuitant dies before the Annuity Date. The expense risk that
Security Equity assumes is the risk that the surrender charge and administrative
charges will be insufficient to cover actual future expenses.
PREMIUM TAXES
Under the laws of certain jurisdictions, taxes are payable in respect of
so-called "annuity considerations," which term in the case of applicable
Contracts could include the Purchase Payments or the Accumulated Value of such
Contracts. The tax rates range from 0% to 3.50%. The list of jurisdictions
imposing annuity taxes follows:
STATE ANNUITY PREMIUM TAX RATES
<TABLE>
<CAPTION>
NON-TAX
TAX-QUALIFIED QUALIFIED
STATE CONTRACTS CONTRACTS
- -------------------------------- ----------------- -------------
<S> <C> <C>
California .50% 2.35%
District of Columbia 2.25% 2.25%
Kentucky 2.00% 2.00%
Maine 0% 2.00%
Nevada 0% 3.50%
South Dakota 0% 1.25%
West Virginia 1.00% 1.00%
Wyoming 0% 1.00%
</TABLE>
Note: The above annuity premium tax rates are in effect as of January 1, 1998.
States not listed above currently have no premium tax on the purchase of
individual variable annuity contracts for use with non-tax qualified or
qualified plans. However, premium tax statutes are subject to amendment by
legislative act and to judicial and administrative interpretations, both of
which may affect the above list of states levying such taxes and the applicable
tax rates. Particularly because a portion of the premium tax charge may be made
at the time Annuity Payments commence, the above list of tax rates may not be
that in effect at the time the premium tax charge is made.
Security Equity reserves the right to defer or waive the charge assessed for
premium taxes in certain jurisdictions until the Contract is surrendered or
until the Contract Owner's death. The Company will notify the Contract Owner in
writing before exercising its right to collect deferred premium taxes from the
Accumulated Value.
Laws relating to premium taxes and the interpretations of such laws are subject
to change which may affect the deductions, if any, made under Contracts for
premium taxes. Some jurisdictions permit payment of premium taxes on the
Accumulated Value which is applied to provide an annuity. In those places,
Security Equity does not make any separate deductions for premium taxes from
Purchase Payments, as it is permitted to do under the Contracts, but defers any
separate deductions for premium taxes until the Accumulated Value is applied to
provide Annuity Payments. (Although Security Equity may be required in some of
these jurisdictions to pay premium taxes currently on surrender charges, it
presently intends to pay the 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.
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The operating expenses reflect the operating expenses of the Fund, including the
Investment Management and Administration Fees paid to A I M. The annualized
rates at which the various Funds pay such fees and expenses to A I M range from
0.75% to 1.25% of a Fund's average daily net assets. A I M 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.)
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YIELDS AND TOTAL RETURNS
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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.
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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
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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
Prospectus Page 19
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provisions described herein. (See "Deferment of Payments")
Since the Qualified Contracts offered by this Prospectus will be issued in
connection with retirement plans which meet the requirements of the Code,
reference should be made to the terms of the particular retirement plan for any
limitations or restriction on cash withdrawals. A cash withdrawal under either a
Qualified Contract or a Non-Tax Qualified Contract offered by this Prospectus
also may result in a Federal penalty tax. The tax consequences of a cash
withdrawal payment under both Qualified Contracts and Non-Tax Qualified
Contracts should be carefully considered. (See "Federal Tax Matters - Taxation
of Annuities.")
SYSTEMATIC WITHDRAWAL PLAN
Security Equity administers a systematic withdrawal plan ("SWP") which allows
certain Contract Owners to authorize periodic withdrawals during the
accumulation period. Contract Owners entering into an SWP agreement instruct
Security Equity to withdraw selected amounts from the Contract on a Business Day
coincident with or subsequent to the 25th of a month on a monthly, quarterly,
semiannual, or annual basis. Currently, the SWP is available to Contract Owners
who request a minimum $200 periodic withdrawal. Amounts withdrawn may be subject
to a surrender charge. (See "Federal Tax Matters"). Withdrawals taken under the
SWP may be subject to the 10% Federal penalty tax on early withdrawals and to
income taxes. (See "Federal Tax Matters") Contract Owners interested in SWP may
obtain an Annuity Service Request Form from their registered representative or
the Annuity Service Office. Security Equity reserves the right to amend the SWP
on thirty days' notice. The SWP may be terminated at any time by the Contract
Owner or Security Equity.
ANNUITY PROVISIONS
The Accumulated Value on the Annuity Date, less any applicable administration
charges, surrender charge, and premium tax will be applied to an Annuity Option.
If the Annuity Date of the Contract occurs within the first three Contract
Years, surrender charges may be deducted upon annuitization. Currently, we
assess surrender charges only if Annuity Option 4 (Income for a Fixed Period) is
chosen with Annuity Payments lasting for a period of less than ten years.
ANNUITY DATE
Annuity Payments will begin under the Contract on the Annuity Date, unless the
Contract has been fully surrendered or the proceeds have been paid to the
designated Beneficiary prior to that date. The Annuity Date will be no later
than the Annuitant's 85th birthday. Under certain qualified arrangements,
distributions may be required before the Annuity Date.
The Contract Owner may change the Annuity Date. An Annuity Date may be changed
only by Written Request during the Annuitant's lifetime, and such a request must
reach the Annuity Service Office at least thirty days before (1) the then
current Annuity Date and (2) the new Annuity Date. The new Annuity Date must be
no later than the Annuity Date as defined in the paragraph above.
ANNUITY OPTIONS
(A) ELECTION OF ANNUITY OPTIONS
The Annuity Option may be elected or changed (if the Annuity Option was not
irrevocable) by Written Request, provided the Annuitant is still alive. This
election must be made no later than thirty days prior to the Annuity Date.
The Annuity Options selected may be either variable, fixed, or a combination of
the two. In the absence of an election to the contrary, variable Annuity
Payments will be made as a Life Annuity with 120 Monthly Payments Guaranteed
(Option 2 below).
The minimum amount which may be applied under an option will be based upon our
rules at the time the option becomes effective (or as required by law). Our
current rules state that the minimum amount which may be applied under an option
is $5,000 and the minimum Annuity Payment is $50. If the Accumulated Value is
less than $5,000 when the Annuity Date arrives, Security Equity will make a lump
sum payment of such amount to the Contract Owner. If at any time payments are or
become less than $50, Security Equity has the right to change the frequency of
payments to intervals that will result in payments of at least $50.
(B) THE OPTIONS AVAILABLE
OPTION 1 -- LIFE ANNUITY -- An annuity payable in monthly, quarterly,
semi-annual, or annual payments during the lifetime of the Annuitant, ceasing
with the last installment due prior to the death of the Annuitant. SINCE THERE
IS NO PROVISION FOR A MINIMUM NUMBER OF PAYMENTS UNDER THIS ANNUITY OPTION, THE
PAYEE WOULD RECEIVE ONLY ONE PAYMENT IF THE ANNUITANT DIED PRIOR TO THE DUE DATE
OF THE SECOND PAYMENT, TWO PAYMENTS IF THE ANNUITANT DIED PRIOR TO THE DUE DATE
OF THE THIRD PAYMENT, ETC.
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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 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
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reasonably practicable or (b) it is not reasonably practicable to determine the
value of the net assets of the Funds; or (3) for such other periods as the SEC
may by order permit for the protection of investors.
THE BENEFICIARY
The Beneficiary is the person or legal entity that may receive benefits under
the Contract in the event of the Annuitant's or Contract Owner's death. (See
"Death Benefits") The original Beneficiary is named in the Contract Application.
Subject to any assignment of a Contract, the Beneficiary designation may be
changed by the Contract Owner during the lifetime of the Annuitant by the filing
of a Written Request acceptable to Security Equity at its Annuity Service
Office. If Annuity Option 3 (Joint and Survivor Income for Life) is selected,
the designation of the second Annuitant may not be changed after Annuity
Payments begin. If the Beneficiary designation is changed, Security Equity
reserves the right to require that the Contract be returned for endorsement. A
Beneficiary who becomes entitled to receive benefits under the Contract may also
designate, in the same manner, a secondary Beneficiary to receive any benefits
which may become payable under the Contract to him or her by reason of the
primary Beneficiary's death. If a Beneficiary has not been designated by the
Contract Owner or if a Beneficiary so designated is not living on the date a
lump sum death benefit is payable or on the date any Annuity Payments are to be
made, the Beneficiary shall be the Contract Owner's estate.
DEATH BENEFITS
In every case of death, Security Equity must receive due proof of death of the
Contract Owner or Annuitant before we are obliged to act. For purposes of the
death benefit, if the Contract Owner not an individual, the Annuitant shall be
treated as the Contract Owner.
(A) DEATH OF A CONTRACT OWNER WHO IS THE ANNUITANT
If a Contract Owner dies prior to the Annuity Date, the death benefit will
become payable to the Contract Owner's Beneficiary. If the surviving spouse is
the Contract Owner's Beneficiary, the spouse may elect to continue the Contract
as the new Owner and Annuitant. The death benefit, if more than the Accumulated
Value, will be paid to the surviving spouse by crediting the Contract with an
amount equal to the difference between the death benefit and the Accumulated
Value. The amount equal to the difference between the death benefit and the
Accumulated Value will be allocated to the Divisions as indicated on the
Contract Application or as subsequently changed by a Written Request from the
Contract Owner.
If a Contract Owner dies on or after the Annuity Date, no death benefit will be
payable under the Contract, except as may be provided under the Annuity Option
elected.
(B) DEATH OF A CONTRACT OWNER WHO IS NOT THE ANNUITANT
If a Contract Owner dies prior to the Annuity Date, the Accumulated Value, less
any applicable administrative charges or surrender charge, will be distributed
to the Contract Owner's Beneficiary. However, if the surviving spouse is the
Annuitant or the Contract Owner's Beneficiary, the spouse may continue the
Contract as the new Owner.
If a Contract Owner dies on or after the Annuity Date, no death benefit will be
payable under the Contract, and the Contract must continue to be distributed at
least as rapidly as the method of distributions being used as of the date of the
Contract Owner's death.
(C) DEATH OF THE ANNUITANT WHO IS NOT A CONTRACT OWNER
If the Annuitant dies prior to the Annuity Date and before a Contract Owner, the
death benefit will become payable to the Annuitant's Beneficiary.
If the Annuitant dies on or after the Annuity Date, no death benefit will be
payable under the Contract, except as may be provided under the Annuity Option
elected.
(D) DEATH OF A JOINT OWNER
If any joint Owner dies prior to the Annuity Date, the Contract must be
distributed. Joint ownership must be limited to spousal joint ownership. For the
Contract to continue under the spousal Beneficiary exception, the Contract
Owner's Beneficiary designation must read "surviving spouse". If the surviving
spouse is not the Contract Owner's Beneficiary, the Contract will be
distributed.
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
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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
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THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
The following discussion is a general description of the Federal income tax
considerations relating to the Contract and is not intended as tax advice. This
discussion is not intended to address the tax consequences resulting from all of
the situations in which a person may be entitled to or may receive a
distribution under the Contract. Any person concerned about these tax
implications should consult a competent tax advisor before initiating any
transaction. The discussion is based upon Security Equity's understanding of the
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the likelihood of the
continuation of the present Federal income tax laws or of the current
interpretation by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws.
The Contract may be purchased on a nonqualified basis ("Nonqualified Contract")
or purchased and used in connection with plans qualifying for favorable tax
treatment ("Qualified Contract"). Qualified Contracts are intended to be
purchased in connection with plans entitled to special income tax treatment
under Sections 401, 408, 408A, and 457 of the Code or as tax sheltered annuities
under Section 403(b) of the Code. The ultimate effect of Federal income taxes on
the amounts held under a Contract or Annuity payments, and on the economic
benefit to the Contract Owner, the Annuitant, or the Beneficiary depends on the
type of retirement plan, and on the tax and employment status of the individual
concerned. In addition, certain requirements must be satisfied in purchasing a
Qualified Contract and receiving distributions from a Qualified Contract in
order to continue receiving favorable tax treatment. Therefore, purchasers of
Qualified Contracts should seek competent legal and tax advice regarding the
suitability of the Contract for their situation, the applicable requirements,
and the tax treatment of the rights and benefits of the Contract. The following
discussion assumes that a Qualified Contract is purchased with proceeds from
and/or contributions under retirement plans that qualify for the intended
special Federal income tax treatment.
TAXATION OF SECURITY EQUITY
Security Equity is taxed as a life insurance company under Part I of Subchapter
L of the Code. Since the operations of the Separate Accounts form a part of
Security Equity, they will not be taxed separately as a "regulated investment
company" under Subchapter M of the Code. Investment income and realized capital
gains are automatically applied to increase reserves under the Contract. Under
existing Federal income tax law, Security Equity believes that the investment
income and realized net capital gains of the Separate Accounts will not be taxed
to the extent that such income and gains are applied to increase the reserves
under the Contract.
Accordingly, Security Equity does not anticipate that it will incur any Federal
income tax liability attributable to the Separate Accounts and, therefore,
Security Equity does not intend to make provisions for any such taxes. However,
if changes in the Federal tax laws or interpretations thereof result in Security
Equity being taxed on income or gains attributable to the Separate Accounts,
then Security Equity may impose a charge against the Separate Accounts (with
respect to some or all Contracts) in order to set aside amounts to pay such
taxes.
TAX STATUS OF THE CONTRACTS
(A) DIVERSIFICATION
Section 817(h) of the Code requires that with respect to Non-Tax Qualified
Contracts, the investments of the Divisions be "adequately diversified" in
accordance with Treasury Department regulations in order for the Contracts to
qualify as annuity contracts under Federal tax law. The Separate Accounts,
through the Funds, intend to comply with the diversification requirements
prescribed by the Treasury Department in Treas. Reg. Sec. 1.817-5.
(B) INVESTOR CONTROL
The Treasury Department has from time to time suggested that under some
circumstances the owner of a variable contract will be deemed to be in
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control over the investments of a separate account supporting the contract,
which may cause the owner, rather than the insurance company, to be treated as
the owner of the assets in the separate account. If a Contract Owner is
considered the owner of the assets of a separate account, income and gains from
that account would be included in the owner's gross income. The Treasury
Department also has stated on past occasions that it will issue regulations or
rulings addressing this issue.
The ownership rights under the Contract are different in certain respects from
those described by the IRS in rulings in which it was determined that Contract
Owners were not owners of separate account assets. For example, a Contract owner
has the choice of more Divisions and narrower investment strategies in which to
allocate net purchase Payments and Accumulation Value, and may be able to
transfer among Divisions more frequently than in such rulings. These differences
could result in a Contract Owner being treated as the owner of the assets of the
Separate Account. In addition, Security Equity does not know what standards will
be set forth, if any, in the additional regulations or rulings which the
Treasury Department has stated it expects to issue. Security Equity therefore
reserves the right to modify the Contract as necessary to attempt to prevent a
Contract Owner from being considered the owner of a pro rata share of the assets
of the Separate Accounts.
(C) REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for Federal income tax purposes,
Section 72(s) of the Code requires any Non-Tax Qualified Contract to provide
that (a) if any Contract Owner dies on or after the Annuity Date, but prior to
the time the entire interest in the Contract has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Contract Owner's death;
and (b) if any Contract Owner dies prior to the Annuity Date, the entire
interest in the Contract will be distributed within five years after the date of
that Contract Owner's death. These requirements will be considered satisfied as
to any portion of the Contract Owner's interest which is payable to or for the
benefit of a "designated beneficiary" and which is distributed over the life of
such "designated beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary, provided that such distributions begin within
one year of that Contract Owner's death. The Contract Owner's "designated
beneficiary" is the person or entity designated by such Owner as a Beneficiary
and to whom ownership of the Contract passes by reason of death. If the Contract
Owner's "designated beneficiary" is the surviving spouse of the Contract Owner,
the Contract may be continued with the surviving spouse as the new owner.
The Non-Tax Qualified Contracts contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Security Equity intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise. There are other rules that apply to Qualified Contracts.
The following discussion is based on the assumption that the Contract qualifies
as an annuity contract for Federal income tax purposes.
TAXATION OF ANNUITIES
(A) IN GENERAL
Section 72 of the Code governs taxation of annuities in general. Security Equity
believes that a Contract Owner who is a natural person generally is not taxed on
increases in the value of a Contract until distribution occurs by withdrawing
all or part of the account value (e.g., partial withdrawals, surrenders, or
Annuity Payments under the Annuity Option elected). For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the account
value (and in the case of a Qualified Contract, any portion of an interest in
the qualified plan) generally will be treated as a distribution. The taxable
portion of a distribution (in the form of a single lump sum payment or an
annuity) is taxable as ordinary income.
Any Contract Owner who is not a natural person generally must include in income
any increase in the excess of the Contract's account value over the "investment
in the Contract" (discussed below) during the taxable year. There are some
exceptions to this rule, and a prospective Contract Owner that is not a natural
person may wish to discuss these with a competent tax adviser.
The following discussion generally applies to a Contract owned by a natural
person.
(B) WITHDRAWALS AND SURRENDERS
In the case of a withdrawal under a Qualified Contract, a ratable portion of the
amount received is taxable, generally based on the ratio of the "investment in
the Contract" to the individual's total
Prospectus Page 25
<PAGE>
accrued benefit or the balance under the retirement plan. The "investment in the
Contract" generally equals the amount of any premium payments paid by or on
behalf of any individual with after-tax dollars. For a Contract issued in
connection with qualified plans, the "investment in the Contract" can be zero.
This general rule does not apply to certain types of individual retirement
annuities, and other special tax rules may be available for certain
distributions from a Qualified Contract.
With respect to Non-Tax Qualified Contracts, partial withdrawals, including any
withdrawals under the systematic withdrawal plan, are generally treated as
taxable income to the extent that the account value immediately before the
withdrawal exceeds the "investment in the Contract" at that time. Full
surrenders are treated as taxable income to the extent that the amount received
exceeds the "investment in the Contract".
(C) ANNUITY PAYMENTS
Although the tax consequences may vary depending on the Annuity Payment elected
under the Contract, in general, only the portion of the Annuity Payment that
represents the amount by which the Accumulated Value exceeds the "investment in
the Contract" will be taxed; after the "investment in the Contract" is
recovered, the full amount of any additional Annuity Payments is taxable. This
general rule does not apply to certain types of individual retirement annuities,
and special rules may apply to Qualified Contracts.
For variable Annuity Payments, the taxable portion is generally determined by an
equation that establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the "investment in the
Contract" by the total number of expected periodic payments. However, the entire
distribution will be taxable once the recipient has recovered the dollar amount
of his or her "investment in the Contract."
For fixed Annuity Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the Contract"
bears to the total expected value of the Annuity Payments for the term of the
payments; however, the remainder of each Annuity Payment is taxable. In all
cases, after the "investment in the Contract" is recovered, the full amount of
any additional Annuity Payment is taxable.
(D) PENALTY TAX
In the case of a distribution pursuant to a Non- Tax Qualified Contract, there
may be imposed a Federal penalty tax equal to 10% of the amount treated as
taxable income. In general, however, there is no penalty tax on distributions:
(1) made on or after the date on which the Contract Owner attains age 59 1/2;
(2) made as a result of death or disability of the Contract Owner; (3) received
in substantially equal periodic payments as a life annuity or a joint and
survivor annuity for the lives or life expectancies of the Contract Owner and a
"designated beneficiary"; (4) from a qualified plan*; (5) allocable to
investment in the Contract before August 14, 1982; (6) under a qualified funding
asset (as defined in Code Section 130(d)); or (7) under an immediate annuity (as
defined in Code Section (u)(4)).
*Other tax penalties may apply to certain distributions under a Qualified
Contract, including a penalty similar to the penalty for distributions from
Non-Tax Qualified Contracts described above.
(E) TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of the death of a Contract
Owner or an Annuitant. Generally, such amounts are includable in the income of
the recipient as follows: (1) if distributed in a lump sum, they are taxed in
the same manner as a full surrender of the Contract, as described above, or (2)
if distributed under an annuity option, they are taxed in the same manner as
annuity payments as described above. For these purposes, the investment in the
contract is not affected by the owner's or annuitant's death. That is, the
investment in the contract remains the amount of any purchase payments paid
which were not excluded from gross income.
(F) TRANSFERS, ASSIGNMENTS, OR EXCHANGES OF THE CONTRACT
In general, a transfer of ownership of a Contract, the collateral assignment of
a Contract, the designation of an Annuitant or Beneficiary who is not also the
Contract Owner, or the exchange of a Contract may result in certain tax
consequences to the Contract Owner. For example, when a Contract is assigned as
collateral for a loan, the entire excess of the Contract's account value over
the investment in the contract becomes taxable as ordinary income, and, if the
Contract Owner is under the age of 59 1/2, a penalty tax equal to 10% of the
taxable amount may also be imposed. Increases in the value of a Contract that
has been assigned will continue to be taxable annually to the Contract Owner
until the assignment is released.
Any Contract Owner contemplating any such transfer, assignment, designation, or
exchange should contact a competent tax adviser for advice
Prospectus Page 26
<PAGE>
with respect to the potential tax effects of such a transaction.
(G) MULTIPLE CONTRACTS
All Non-Tax Qualified Contracts that are issued by Security Equity (or its
affiliates) to the same Contract Owner during any calendar year are treated as
one annuity Contract for purposes of determining the amount includable in gross
income under Section 72(e) of the Code. In addition, the Treasury Department has
specific authority to issue regulations that prevent the avoidance of Section
72(e) through the serial purchase of annuity contracts or otherwise.
(H) WITHHOLDING
Pension and annuity distributions generally are subject to withholding from the
recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Different rules may apply to United States citizens or
expatriates living abroad and, effective January 1, 1993, to certain
distributions under Qualified Contracts. In addition, some states have enacted
legislation requiring withholding.
(I) POSSIBLE CHANGES IN TAXATION
In past years, legislation has been proposed that would have adversely modified
the Federal taxation of certain annuities. As of the date of this Prospectus,
the President's budget for fiscal year 1999 includes proposals that would
directly affect variable annuities, and there is always the possibility that the
tax treatment of annuities could change by legislation or other means (such as
the IRS regulations, revenue rulings, judicial decisions, etc.). Moreover, it is
also possible that any change could be effective prior to the date of any such
change.
(J) OTHER TAX CONSEQUENCES
As noted above, the foregoing discussion of the Federal income tax consequences
under the Contract is not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
Federal income tax consequences discussed herein reflect Security Equity's
understanding of current law, and the law may change. Federal estate and state
and local estate, inheritance, and other tax consequences of ownership or
receipt of distributions under the Contract depend on the individual
circumstances of each Contract Owner or recipient of the distribution. A
competent tax adviser should be consulted for further information.
(K) QUALIFIED CONTRACTS
The Qualified Contract is designed for use with several types of retirement
plans. The tax rules applicable to participants and beneficiaries in retirement
plans vary according to the type of plan and the terms and conditions of the
plan. Special favorable tax treatment may be available for certain types of
contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; aggregate distributions in excess
of a specified annual amount; and in other specified circumstances.
We make no attempt to provide more than general information about use of the
Contracts with the various types of retirement plans. Owners and participants
under retirement plans, as well as Annuitants and Beneficiaries, are cautioned
that the rights of any person to any benefits under Qualified Contracts may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contract issued in connection with such a plan. Some
retirement plans are subject to distribution and other requirements that are not
incorporated in the administration of the Contracts. Contract Owners are
responsible for determining that contributions, distributions and other
transactions with respect to the Contracts satisfy applicable law. Purchasers of
Contracts for use with any retirement plan should consult their legal counsel
and tax adviser regarding the suitability of the Contract.
INDIVIDUAL RETIREMENT ANNUITIES AND ACCOUNTS
The Contract is designed for use with individual retirement annuities and
individual retirement accounts. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
individual retirement annuity or individual retirement account (each hereinafter
referred to as an "IRA"). Also, distributions from certain other types of
qualified plans may be "rolled over" on a tax-deferred basis into an IRA. The
sale of a Contract for use with an IRA may be subject to special disclosure
requirements of the Internal Revenue Service. Purchasers of the Contract for use
with IRAs will be provided with supplemental information required by the
Internal Revenue Service or other applicable agency. Such purchasers will have
the right to revoke their purchase within seven days of the earlier of the
establishment of the IRA or their purchase. If a Qualified Contract is issued in
connection with
Prospectus Page 27
<PAGE>
an employer's Simplified Employee Pension ("SEP") or Simple Retirement Account
("SIMPLE") plan, Contract Owners, Annuitants, and Beneficiaries are cautioned
that the rights of any person to any benefits under employer plans may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the Contract. A Qualified Contract will be amended as
necessary to conform to the requirements of the Code.
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA, although Roth IRA's are not available
as part of this Contract. Contributions to a Roth IRA, which are subject to
certain limitations, are not deductible and must be made in cash or as a
rollover or transfer from another Roth IRA or other IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax and other special rules
may apply. You should consult a tax adviser before combining any converted
amounts with any other Roth IRA contributions, including any other conversion
amounts from other tax years. Distributions from a Roth IRA generally are not
taxed, except that, once aggregate distributions exceed contributions to the
Roth IRA, income tax and a ten percent (10%) penalty tax may apply to
distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2)
during the five taxable years starting with the year in which the first
contribution is made to the Roth IRA.
CODE SECTION 403(b) PLANS
Under Code Section 403(b), payments made by public school systems and certain
tax exempt organizations to purchase annuity contracts for their employees are
excludable from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes.
Code Section 403(b) (11) restricts the distribution under Code Section 403(b)
annuity contracts of: (1) elective contributions made in years beginning after
December 31, 1988; (2) earnings on those contributions; and (3) earnings in such
years on amounts held as of the last year beginning before January 1, 1989.
Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. Income attributable to elective contributions may not be distributed
in the case of hardship. Distributions prior to age 59 1/2 due to separation
from service or financial hardship are subject to the nondeductible 10% penalty
tax for premature distributions, in addition to income tax.
The 1940 Act has distribution requirements which differ from the requirements of
Code Section 403(b) set forth above. However, these Contracts are being offered
in reliance upon, and in compliance with, the provisions of no-action letter
number IP-6-88 issued by the Securities and Exchange Commission to the American
Council of Life Insurance. The no-action letter allows the Separate Accounts to
apply the restrictions created by Code Section 403(b)(11) as long as specified
steps, such as this disclosure, are taken to ensure that Contract Owners are
aware of the Code restrictions. Security Equity believes it is in compliance
with the provisions of the no-action letter.
CORPORATE PENSION AND PROFIT-SHARING PLANS AND H.R. 10 PLANS
Code Section 401(a) permits employers to establish various types of retirement
plans for employees and permits self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans may
permit the purchase of the Contracts to provide benefits under the plans.
Adverse tax consequences to the plan, to the participant or to both may result
if this Contract is assigned or transferred to any individual as a means to
provide benefit payments.
DEFERRED COMPENSATION PLANS
Code Section 457 provides for certain deferred compensation plans. These plans
may be offered with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax exempt organizations. With respect to non-governmental
Section 457 plans, all investments are owned by the sponsoring employer and are
subject to the claims of the general creditors of the employer. Distributions
are taxable in full. Depending on the terms of the particular plan, the employer
may be entitled to draw on deferred amounts for purposes unrelated to its
Section 457 plan obligations. These plans are subject to various restrictions on
contributions and distributions.
RESTRICTIONS UNDER QUALIFIED CONTRACTS
Other restrictions with respect to the election, commencement, or distribution
of benefits may apply under Qualified Contracts or under the terms of the plans
in respect of which Qualified Contracts are issued.
Prospectus Page 28
<PAGE>
VOTING RIGHTS
- --------------------------------------------------------------------------------
To the extent required by law, the GT Global Variable Investment Fund shares
held in the Divisions of the Separate Accounts will be voted by Security Equity
at shareholder meetings of such Funds in accordance with instructions received
from persons having voting interests in the corresponding Divisions of the
Separate Accounts. The Contract Owner holds a voting interest in each Division
to which the Accumulated Value is allocated or from which Annuity Payments are
generated. If, however, the 1940 Act or any regulation thereunder should be
amended or if the present interpretation thereof should change, and, as a
result, Security Equity determines that it is allowed to vote the Fund shares in
its own right, Security Equity may elect to do so.
The number of votes which are available to a Contract Owner will be calculated
separately for each Division of the Separate Accounts. That number will be
determined by applying the Contract Owner's percentage interest, if any, in a
particular Division to the total number of votes attributable to the Division.
The number of votes is equal to the number of dollars: (a) during the
accumulation period, in the Accumulated Value attributable to a Division divided
by the net asset value of a share of the corresponding Fund; and (b) during the
annuity period, in the reserve credited to the Annuity Units held in the
Division(s) under the variable Annuity Option in effect divided by the net asset
value of a share of the corresponding Fund. Generally, during the annuity period
the number of votes applicable to the Annuitant will decrease.
At most Fund shareholder meetings, votes may be cast in person or by proxy, and
fractional votes will be counted.
The number of votes of a Division which are available will be determined as of
the date established by the corresponding Fund for determining shareholders
eligible to vote at the meeting. This determination will include any other
separate accounts investing in the Fund. Voting instructions will be solicited
by written communication from us prior to such meeting in accordance with
procedures established.
Fund shares as to which no timely instructions are received or shares held by
Security Equity as to which Contract Owners have no beneficial interest will be
voted in proportion to the voting instructions which are received with respect
to all Contracts participating in that Fund. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
Each person having a voting interest in a Division will receive proxy material,
reports, and other materials relating to the appropriate Fund.
To the extent that Security Equity, as shareholder of the Funds, is entitled to
vote any interest in the Funds held by the Separate Accounts, it will do so on
the same basis as described above.
- --------------------------------------------------------------------------------
PRINCIPAL UNDERWRITER
- --------------------------------------------------------------------------------
GT Global, Inc. ("GT Global") is the principal underwriter of the Contracts. On
January 1, 1996, GT Global Financial Services, Inc. changed its name to GT
Global, Inc. GT Global's address is 50 California Street, 27th Floor, San
Francisco, California 94111. GT Global will pay distribution compensation to
selling broker/dealers in varying amounts which under normal circumstances are
not expected to exceed 6.00% of Purchase Payments for such Contracts. From time
to time, GT Global may enter into a special arrangement with a selling
broker/dealer which provides for the payment of higher commissions to such
selling broker/dealer in connection with sale of the Contracts. In 1997,
Security Equity paid $37,607.52 to GT Global.
Prospectus Page 29
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for Security Equity and Separate Accounts 26 and 27 (as
well as the auditors' report thereon) are in the Statement of Additional
Information.
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
A Statement of Additional Information is available which contains more details
concerning the subjects discussed in this Prospectus. The following is the Table
of Contents for that Statement:
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
---------
<S> <C>
THE CONTRACTS............................................................................. S-3
Computation of Variable Annuity Income Payments......................................... S-3
(a) Value of an Annuity Unit.......................................................... S-3
(b) Amount of First Installment....................................................... S-3
(c) Values of Annuity Installments.................................................... S-4
Yield and Performance Calculations...................................................... S-5
(a) Money Market Yield................................................................ S-5
(b) Yields of Other Divisions......................................................... S-6
(c) Total Return...................................................................... S-7
(d) Effect of the Annual Contract Fee................................................. S-8
GENERAL MATTERS........................................................................... S-9
Incorrect Age or Sex.................................................................... S-9
Annuity Data............................................................................ S-10
Annual Reports.......................................................................... S-10
Incontestability........................................................................ S-10
Ownership............................................................................... S-10
DISTRIBUTION OF THE CONTRACTS............................................................. S-10
SAFEKEEPING OF ACCOUNT ASSETS............................................................. S-11
STATE REGULATION.......................................................................... S-11
RECORDS AND REPORTS....................................................................... S-11
LEGAL PROCEEDINGS......................................................................... S-11
OTHER INFORMATION......................................................................... S-11
</TABLE>
Prospectus Page 30
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
EXAMPLE OF SURRENDER CHARGE CALCULATIONS
This example assumes that the date of the full surrender or partial withdrawal
is during the 10th Contract Year.
<TABLE>
<CAPTION>
1 2 3 4
- ---- --------- ---- ---------
<S> <C> <C> <C>
1 $ 2,000 0% $ 0
2 $ 2,000 0% $ 0
3 $ 2,000 0% $ 0
4 $ 2,000 1% $ 20
5 $ 2,000 2% $ 40
6 $ 2,000 3% $ 60
7 $ 2,000 4% $ 80
8 $ 2,000 5% $ 100
9 $ 2,000 6% $ 120
10 $ 2,000 7% $ 140
--------- ---------
$ 20,000 $ 560
--------- ---------
--------- ---------
</TABLE>
EXPLANATION OF COLUMNS IN TABLE
COLUMN 1
Represents Contract Years
COLUMN 2:
Represents amounts of Net Purchase Payments. Each Net Purchase Payment was made
on the first day of each Contract Year.
COLUMN 3:
Represents the surrender charge percentages imposed on the amounts in Column 2.
COLUMN 4:
Represents the surrender charge imposed on each Net Purchase Payment. It is
determined by multiplying the amount in Column 2 by the percentage in Column 3.
For example, the surrender charge imposed on Net Purchase Payment 7
<TABLE>
<S> <C>
= Net Purchase Payment 7 Column 2 X Net
Purchase Payment 7 Column 3
= $2,000 X 4%
= $80
</TABLE>
FULL SURRENDER
The total of Column 4, $560, represents the total amount of surrender charge
imposed on Net Purchase Payments in this example. No free amount is allowed upon
full surrender. If the Accumulated Value is $25,000, the amount received upon
surrender would be $24,440 less any applicable administrative fees.
PARTIAL WITHDRAWAL
The sum of amounts in Column 4 corresponding to the Net Purchase Payment
liquidated reflects the surrender charge imposed in the case of a partial
withdrawal.
If the Accumulated Value is $25,000, $2,500 can be withdrawn without incurring a
surrender charge (10% free). The free amount does not reduce premiums still
subject to charge.
For example, if $16,500 were withdrawn, the first $2,500 represents the 10%
free. The next $14,000 would be a withdrawal of the first seven Net Purchase
Payments. The amount of surrender charges imposed would be the sum of amounts in
Column 4 for Net Purchase Payments 1, 2, 3, 4, 5, 6, and 7, which is $200.
The amount received would be $16,300.
FULL SURRENDER FOLLOWING PARTIAL WITHDRAWAL
The Accumulated Value remaining after the partial withdrawal is $8,500. The
first seven Net Purchase Payments were withdrawn as part of the partial
withdrawal. If the Contract is fully surrendered in the tenth Contract Year
after the partial withdrawal, the remaining three Net Purchase Payments will
incur a surrender charge equal to the sum of the amounts in Column 4 for Net
Purchase Payments 8, 9, and 10, which is $360.
The amount received would be $8,140, less any applicable administrative fees.
Prospectus Page 31
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