File Nos. 33-87144
811-08892
================================================================================
Securities and Exchange Commission
Washington, DC 20549
FORM N-4
Registration Statement Under the Securities Act of 1933 [ X ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [ X ]
Registration Statement Under the Investment Company Act of 1940
Amendment No. 6 [ X ]
(check appropriate box or boxes)
Security Equity Separate Account 27
(Exact Name of Registrant)
Security Equity Life Insurance Company
(Name of Depositor)
84 Business Park Drive, Suite 303
Armonk, New York 10504
(Address of Depositor's Principal Executive Office) (Zip Code)
Depositor's Telephone Number, including Area Code: (914) 273-1290
Name and address of Agent for Service
Matthew P. McCauley
General American Life Insurance Company
700 Market Street
St. Louis, MO 63101
Copy to:
Raymond A. O'Hara III
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ X ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of rule 485
If appropriate, check the following:
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Individual Variable Annuity Contracts
Cross Reference Sheet
Pursuant to Rule 481
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration Statement
Information Required by Form N-4
PART A
Item of Form N-4 Prospectus Caption
1. Cover Page. . . . . . . . . . . . . . . Cover Page
2. Definitions . . . . . . . . . . . . . . Index of Special Terms
3. Synopsis. . . . . . . . . . . . . . . . Highlights
4. Condensed Financial
Information . . . . . . . . . . . . . . Financial Statements
5. General Description of Registrant,
Depositor and Portfolio Companies. . . The Company; Investment
Options
6. Deductions and Expenses. . . . . . . . Charges and Deductions
7. General Description of Variable
Annuity Contracts. . . . . . . . . . . The Annuity Contracts
8. Annuity Period. . . . . . . . . . . . . Annuity Provisions
9. Death Benefit . . . . . . . . . . . . . Death Benefit
10 Purchases and Contract Value. . . . . . Purchase
11. Redemptions. . . . . . . . . . . . . . Access to Your Money
12. Taxes. . . . . . . . . . . . . . . . . Taxes
13. Legal Proceedings . . . . . . . . . . . None
14. Table of Contents of the
Statement of Additional
Information . . . . . . . . . . . . . . Table of Contents of the
Statement of Additional
Information
PART B
Item of Form N-4 Part B Caption
15. Cover Page. . . . . . . . . . . . . . . Cover Page
16. Table of Contents . . . . . . . . . . . Table of Contents
17. General Information . . . . . . . . . . Company
and History
18. Services. . . . . . . . . . . . . . . . Not Applicable
19. Purchase of Securities
Being Offered . . . . . . . . . . . . . Distribution
20. Underwriters . . . . . . . . . . . . . Distribution
21. Calculation of Performance Data . . . . Performance Information
22. Annuity Payments. . . . . . . . . . . . Annuity Provisions
23. Financial Statements. . . . . . . . . . Financial Statements
PART C - OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item so numbered in Part C to this Registration Statement.
PART A
PROSPECTUS
SECURITY EQUITY LIFE INSURANCE COMPANY
SECURITY EQUITY SEPARATE ACCOUNTS 26 & 27
PROSPECTUS
FOR THE
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
This prospectus describes individual variable annuity contracts offered by
Security Equity Life Insurance Company (we, us, our). The Contracts are deferred
variable annuities. These Contracts provide for accumulation of Contract values
and annuity payments on a fixed and variable basis, or a combination fixed and
variable basis. The Contracts are no longer offered for sale. Existing Contract
owners may continue to make additional purchase payments to their Contracts.
The Contracts have a number of current investment choices (1 Fixed Account and 7
Investment Funds). The Fixed Account is part of our general assets and provides
an investment rate guaranteed by us. The seven Investment Funds available are
portfolios of AIM Variable Insurance Funds, Inc. which are listed below. You can
put your money in any of these Investment Funds which are offered through our
separate accounts, Security Equity Separate Account 26 and Security Equity
Separate Account 27.
AIM VARIABLE INSURANCE FUNDS, INC.
Managed by: AIM Advisors, Inc.
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Global Growth and Income Fund
AIM V.I. Government Securities Fund
AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Telecommunications Fund
Please read this Prospectus before investing. You should keep it for future
reference. It contains important information. To learn more about the Contract,
you can obtain a copy of the Statement of Additional Information (SAI) (dated
___________, 1999). The SAI has been filed with the Securities and Exchange
Commission (SEC) and is legally a part of the Prospectus. If you wish to
receive, at no charge, the SAI, call us at (800) 533-8282 (toll free) or write
us at: 84 Business Park Drive, Suite 303, Armonk, New York 10504. The SEC has a
website (http://www.sec.gov) that contains the SAI, material incorporated by
reference, and other information regarding companies that file electronically.
The Contracts:
* are not bank deposits
* are not federally insured
* are not endorsed by any bank or government agency
* are not guaranteed and may be subject to possible loss of
principal
The SEC has not approved these Contracts or determined that this prospectus is
accurate or complete. Any representation that it has is a criminal offense.
___________, 1999
TABLE OF CONTENTS
Page
INDEX OF SPECIAL TERMS
SUMMARY OF CONTRACT FEES AND EXPENSES
HIGHLIGHTS
THE COMPANY
THE ANNUITY CONTRACTS
PURCHASE
Purchase Payments
Allocation of Purchase Payments
Account Continuation
INVESTMENT OPTIONS
AIM Variable Insurance Funds, Inc.
Fixed Account
Transfer Privilege
Dollar Cost Averaging
Personal Portfolio Rebalancing
Interest Sweep Option
Additions, Deletions or Substitutions of Investments
CHARGES AND DEDUCTIONS
Administrative Charges
Special Handling Fees
Surrender Charge (Contingent Deferred Sales Charge)
Interest Change Adjustment
Charge-Free Amounts
Reduction of Surrender Charge for Contracts Issued Under Group or
Sponsored Arrangements
Mortality and Expense Risk Charge
Transfer Fees
Fees and Expenses of the Funds
Premium Tax
Other Taxes
VARIABLE ACCOUNT
Accumulation Units
Value of Accumulation Units
Net Investment Factor
ACCESS TO YOUR MONEY
Surrenders and Partial Withdrawals
Systematic Withdrawal Plan
DEATH BENEFIT
Death of a Contract Owner who is the Annuitant
Death of a Contract Owner who is not the Annuitant
Death of the Annuitant who is not a Contract Owner
Other Provisions
Amount of Death Benefit
Contracts Issued Under Section 401/457 of the Code
ANNUITY PROVISIONS
Annuity Date
Annuity Options
Value of Variable Annuity Payments
FEDERAL TAX MATTERS
Annuity Contracts in General
Qualified and Non-Qualified Contracts
Withdrawals - Non-Qualified Contracts
Withdrawals - Qualified Contracts
Withdrawals - Tax-Sheltered Annuities
Diversification
Section 403(b) Plans
Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans
Deferred Compensation Plans
YIELDS AND TOTAL RETURNS
OTHER INFORMATION
The Separate Accounts
Principal Underwriter
Voting Rights
Written Notice or Written Request
Assignments and Changes of Ownership
Ownership
The Beneficiary
Deferment of Payment
Year 2000
Financial Statements
Statement of Additional Information
APPENDIX A
Example of Surrender Charge Calculations
Explanation of Columns in Table
Full Surrender
Partial Withdrawal
Full Surrender Following Partial Withdrawal
INDEX OF SPECIAL TERMS
We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the Contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms. They are identified in the text in italic and the page that is
indicated here is where we believe you will find the best explanation for the
word or term.
Page
Accumulation Phase
Accumulation Unit
Annuitant
Annuity Date
Annuity Options
Annuity Payments
Annuity Unit
Beneficiary
Business Day
Fixed Account
Guarantee Period
Income Phase
Funds
Joint Owner
Non-Qualified
Owner
Purchase Payment
Qualified
Tax Deferral
SUMMARY OF CONTRACT FEES AND EXPENSES
Contract Owner Transaction Expenses
Surrender Charge (contingent deferred sales charge):
After a purchase payment has been held by us for six complete years it may be
withdrawn free of any surrender charge. For purchase payments held by us for
less than six complete years, surrender charges are as follows (expressed as a
percentage of net purchase payments withdrawn):
Years Since Receipt of Surrender Charge
Purchase Payment Percentage
---------------- ----------
0 6%
1 5%
2 4%
3 3%
4 2%
5 1%
6 0%
Each contract year you can withdraw up to ten percent of the accumulated value
of your Contract without having a surrender charge imposed. Up to twenty percent
of your accumulated value may be withdrawn without a surrender charge if no
withdrawals were made in the prior contract year.
Transfer Fee:
There is no charge for the first 12 transfers during a contract year. For each
transfer after 12, we reserve the right to charge a fee of $25.00 or 2% of the
amount transferred, whichever is less. Transfers made pursuant to the dollar
cost averaging, personal portfolio rebalancing or interest sweep programs are
not included in determining the number of transfers that occur in a contract
year.
Annual Contract Fee:
If the accumulated value of your Contract is less than $20,000, we charge a fee
of $30.00 or 2% of accumulated value, whichever is less. If your accumulated
value is $20,000 or greater, or if all assets are invested in the Fixed Account,
the Contract fee is waived.
Separate Account Annual Expenses:
Mortality and expense risk charge 1.25%
Administrative expense charge .15%
---
Total Separate Account annual expenses 1.40%
<TABLE>
<CAPTION>
Investment Fund Expenses:
(expressed as a percentage of average daily net assets)
Investment Management
and
Administration Fees Other Expenses Total Expenses
--------------------- -------------- ---------------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
AIM V.I. Diversified Income Fund 0.60% 0.17% 0.77%
AIM V.I. Global Growth and Income Fund* 1.00% ____% ____%
AIM V.I. Government Securities Fund 0.50% 0.26% 0.76%
AIM V.I. International Equity Fund 0.75% 0.16% 0.91%
AIM V.I. Money Market Fund 0.40% 0.18% 0.58%
AIM V.I. Telecommunications Fund* 1.00% ____% ____%
<FN>
* Estimated. These Funds have not yet commenced investment operations.
</FN>
</TABLE>
Examples
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) if you surrendered your contract after the end of the specified time
period;
(b) if you do not surrender your contract after the end of the specified
time period;
(c) if you annuitize after the end of the specified time period.
<TABLE>
<CAPTION>
Time Periods
1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund (a)$____ (a)$____ (a)$____ (a)$____
(b)$____ (b)$____ (b)$____ (b)$____
(c)$____ (c)$____ (c)$____ (c)$____
AIM V.I. Diversified Income Fund (a)$ 93 (a)$120 (a)$150 (a)$257
(b)$ 23 (b)$ 70 (b)$120 (b)$257
(c)$ 93 (c)$120 (c)$120 (c)$257
AIM V.I. Global Growth and Income Fund (a)$____ (a)$____ (a)$____ (a)$____
(b)$____ (b)$____ (b)$____ (b)$____
(c)$____ (c)$____ (c)$____ (c)$____
AIM V.I. Government Securities Fund (a)$____ (a)$____ (a)$____ (a)$____
(b)$____ (b)$____ (b)$____ (b)$____
(c)$____ (c)$____ (c)$____ (c)$____
AIM V.I. International Equity Fund (a)$ 84 (a)$114 (a)$147 (a)$271
(b)$ 24 (b)$ 74 (b)$127 (b)$271
(c)$ 84 (c)$114 (c)$127 (c)$271
AIM V.I. Money Market Fund (a)$ 81 (a)$104 (a)$130 (a)$237
(b)$ 21 (b)$ 64 (b)$110 (b)$237
(c)$ 81 (c)$104 (c)$110 (c)$237
AIM V.I. Telecommunications Fund (a)$____ (a)$____ (a)$____ (a)$____
(b)$____ (b)$____ (b)$____ (b)$____
(c)$____ (c)$____ (c)$____ (c)$____
</TABLE>
Notes to Table of Fees and Expenses and Examples
1. For the purposes of calculating the values in the above examples, we have
translated the administration fees into an annual asset charge of 0.070%,
based on the total annual administrative charges collected in 1998 divided
by the average total assets held under the Contracts offered by this
Prospectus.
2. 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.
3. Note that the expense amounts in the examples are aggregate amounts for the
Investment Funds for the number of years indicated.
4. For a more complete description of the Investment Funds' fees and expenses,
see the Investment Funds' Prospectuses.
5. From time to time, AIM in its sole discretion may waive receipt of its fees
and voluntarily assume certain Investment Fund expenses. AIM currently has
undertaken to assume the expenses (other than taxes, brokerage fees,
interest, and extraordinary expenses) incurred by each Investment Fund, to
the extent such expenses exceed the Investment Management and
Administration fees, as set forth above, by more than 0.25%.
6. The examples above are not a representation of past or future expenses, and
the Investment Funds' actual expenses may be higher or lower than those
shown.
7. Neither the table nor the examples reflect any premium tax 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 this Prospectus.
HIGHLIGHTS
The variable annuity contract that we are offering is a contract between you,
the owner, and us, the insurance company. The Contract provides a means for
investing on a tax-deferred basis in our Fixed Account and the Investment Funds.
The Contract is intended for retirement savings or other long-term investment
purposes and provides for a death benefit as well as other insurance related
benefits. If you choose to have your money invested in the Investment Funds you
will bear the entire investment risk.
The Contract, like all deferred annuity contracts, has two phases: the
accumulation phase and the income phase. During the accumulation phase, earnings
accumulate on a tax-deferred basis. You can make withdrawals during this phase.
However, the earnings you take out will be taxed as income, and we may assess a
surrender charge of up to 6% of the amount you withdraw. The income phase
occurs when you begin receiving regular payments from your Contract.
You can choose to receive annuity payments on a variable basis, fixed basis or
combination of both. If you choose variable payments, the amount of the variable
annuity payments will depend upon the investment performance of the Investment
Funds you select for the income phase. If you choose fixed payments, the amount
of the fixed annuity payments are level for the payout period.
Free Look. If you cancel your Contract within 10 days after receiving it (or
whatever period is required in your state), we will give you back your purchase
payments. In some states we are required to give you back the value of your
contract that is invested in the Investment Funds plus any purchase payments you
allocated to the Fixed Account.
Tax Penalty. The earnings in your Contract are not taxed until you take money
out of your Contract. If you take money out during the accumulation phase,
earnings come out first and are taxed as income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal tax penalty on these
earnings. Payments during the income phase are considered partly a return of
your original investment.
Inquiries. If you need more information or require assistance after you purchase
a Contract, please contact us at:
Security Equity Life Insurance Company
Annuity Service Office
P.O. Box 208
Armonk, New York 10504
(800) 533-8282
All inquiries should include the Contract number and the name of the contract
owner and/or the annuitant.
THE COMPANY
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.
On August 10, 1999, General American consented to an Order of Administrative
Supervision with the Missouri Department of Insurance. It advised the Department
of its inability to meet substantial demands for surrenders arising from its
institutional funding agreement business without jeopardizing interest of its
other policyholders. Under the Order, General American is allowed to continue
its normal course of business.
In 1993, General American formed a marketing relationship with ARM Financial to
offer a highly specialized portfolio of funding agreements to institutional
investors. General American ceded 50% of the business to an ARM subsidiary. In
June of this year, ARM put itself up for sale, announcing that it was
de-emphasizing its involvement in the institutional business. This led to
General American's recapture of the ARM portion of the business, approximately
$3.4 billion in assets and related liabilities. Moody's Investor Services
reviewed these events and lowered General American's financial strength rating
from A2 to A3. A significant number of the institutional investors reacted to
Moody's action by recalling their assets. While General American is fully
capitalized to meet these obligations, the unexpected volume of recalls created
severe pressure on General American's liquidity position and the ability to
convert the assets within the tight time frame required. Defaults on the
institutional business caused the rating agencies to rate General American below
investment grade.
THE ANNUITY CONTRACTS
This Prospectus describes the variable annuity contracts that we are offering.
An annuity is a Contract between you, the owner, and us, the insurance company,
where we promise to pay you an income, in the form of annuity payments,
beginning on a designated date in the future. Until you decide to begin
receiving annuity payments, your Contract is in the accumulation phase. Once you
begin receiving annuity payments, your Contract enters the income phase.
The Contract benefits from tax deferral. Tax deferral means that you are not
taxed on earnings or appreciation on the assets in your Contract until you take
money out of your Contract.
The Contract is called a variable annuity because you can choose among the
Investment Funds, and depending upon market conditions, you can make or lose
money in any of these Investment Funds. If you select the variable annuity
portion of the Contract, the amount of money you are able to accumulate in your
Contract during the accumulation phase depends upon the investment performance
of the Investment Fund(s) you select. If you select the fixed annuity portion of
the Contract, the value will depend upon the interest we credit to the Fixed
Account.
The Contract is available to individuals seeking annuity contracts entitled to
favorable tax treatment under the Internal Revenue Code ("Code") as traditional
Individual Retirement Annuity (IRA) plans and qualified plans under Sections
401, 403 and 457. The Contract is also available to individuals not entitled to
any special tax benefits under the Code. 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.
PURCHASE
You can purchase this Contract by completing an application and providing us
with an initial purchase payment. We will not issue a Contract after the first
day of the first month following the annuitant's 90th birthday.
Purchase Payments
The minimum initial purchase payment permitted is $2,000. Each purchase payment
made thereafter must be for at least $100. The amount of purchase payments made
in the first Contract year may be limited to the greater of double your initial
purchase payment or $25,000. Afterwards, the purchase payments allowed each
Contract year cannot exceed the annual equivalent of twice the amount of
purchase payments made in the first Contract year. Any purchase payments over
this amount, or any purchase payments that would cause the accumulated value of
your Contract to exceed $1,000,000, will be accepted after our prior approval.
You can make purchase payments at any time prior to:
* the annuity date;
* full surrender of the Contract; or
* your death or the death of the annuitant.
Instead of making the minimum initial purchase payment of $2,000, you may elect
to deposit your initial purchase payment in monthly installments by means of a
pre-authorized check ("PAC") procedure. Under a PAC procedure, amounts will be
deducted each month from your checking account and applied as a purchase payment
under your Contract. The PAC procedure can also be used to make additional
purchase payment deposits. The minimum monthly PAC deduction must be at least
$100 and you can cancel at any time by contacting us at least 5 business days
prior to the next scheduled withdrawal.
Allocation of Purchase Payments
You specify how you want your purchase payments allocated. You may allocate each
purchase payment to one or more of the Investment Funds and/or the Fixed
Account. However, the requested allocations must be in whole number percentages
and total 100%. The minimum initial allocation to any Investment Fund and/or the
Fixed Account must be at least $500. You can change the allocation instructions
for future purchase payments. If any of the investment options are no longer
offered by us when you make an allocation, we will contact you to secure new
allocations.
If the application is in good order, your initial purchase payment will be
credited within two business days after we receive your application. However, if
your application is not in good order (missing information, etc.), we may retain
the initial purchase payment for up to five business days while attempting to
complete the application. If the application cannot be made in good order within
five business days, the initial purchase payment will be returned immediately to
you unless you consent in writing to us retaining the initial purchase payment
until the application is in good order. Subsequent purchase payments are
credited within one business day.
Our business days are each day when both we and the New York Stock Exchange are
open for business. Our business day ends when the New York Stock Exchange
closes, usually 4:00 PM Eastern Time.
Account Continuation
Your Contract will stay in force until the earlier of the annuity date,
surrender of the Contract, or your death or the death of the annuitant. However,
we may cancel your Contract at the end of any two consecutive Contract years
when no purchase payments have been made if:
(i) the total purchase payments made over the life of the Contract, less
any withdrawals, are less than $2,000; and
(ii) the accumulated value at the end of such two year period is less than
$2,000.
Upon cancellation, we will pay you the accumulated value computed as of the
valuation period when the cancellation occurs less any administrative charges.
Cancellation of your Contract could have adverse tax consequences.
INVESTMENT OPTIONS
The Contract gives you the choice of allocating purchase payments to our Fixed
Account, or to one or more of the Investment Funds listed below. Additional
Investment Funds may be available in the future.
Each of these Investment Funds has a separate prospectus that is provided with
this Prospectus. You should read the Investment Fund Prospectus before you
decide to allocate your assets to the Investment Fund.
AIM Variable Insurance Funds, Inc.
AIM Variable Insurance Funds, Inc. is a management investment company with
multiple portfolios. AIM Advisors, Inc. is the investment adviser to each
Portfolio. Each Portfolio pays Investment Management and Administration Fees to
AIM Advisors, Inc. The following Portfolios will be available under your
contract:
AIM V.I. Capital Appreciation Fund
AIM V.I. Diversified Income Fund
AIM V.I. Global Growth and Income Fund
AIM V.I. Government Securities Fund
AIM V.I. International Equity Fund
AIM V.I. Money Market Fund
AIM V.I. Telecommunications Fund
THERE IS NO ASSURANCE THAT ANY OF THE INVESTMENT FUNDS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES, OR THAT ATTAINMENT CAN BE SUSTAINED.
Fixed Account
Under the Fixed Account option, you choose among various time periods to which
you allocate purchase payments or transfers. These time periods are established
by us and are referred to as Guarantee Periods. Each Guarantee Period will have
a duration of at least one year. The Guarantee Period selected will determine
the interest rate we credit to your Contract. You may select one or more
Guarantee Period(s) from among those we make available.
OUR MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED INTEREST RATES TO
BE DECLARED. WE CANNOT PREDICT OR GUARANTEE THE LEVEL OF FUTURE GUARANTEED
INTEREST RATES, EXCEPT THAT WE GUARANTEE THAT FUTURE INTEREST RATES WILL NOT BE
BELOW 3% PER YEAR COMPOUNDED ANNUALLY.
Transfer Privilege
At any time during the accumulation period you may transfer all or part of your
accumulated value to any of the Investment Funds and/or the Fixed Account,
subject to the following conditions:
(1) transfers from the Fixed Account are not allowed during the first
twelve months of the Guarantee Period you choose;
(2) transfers must be made by written request or by telephone, provided we
have a telephone authorization in good order completed by you;
(3) transfers from an Investment Fund or a Guarantee Period of the Fixed
Account must be for at least $500, or the entire amount if less than
$500;
(4) any accumulated value remaining in an Investment Fund or Guarantee
Period of the Fixed Account may not be less than $500, or the request
may be treated as a request to transfer the entire amount in that
Investment Fund; and
(5) currently, you may make up to twelve transfers in a year (one per
calendar month). This limitation does not apply to transfers made
under the dollar cost averaging, personal portfolio rebalancing or
interest sweep programs.
Transfers involving an Investment Fund may further be limited by additional
terms and conditions imposed by the Investment Funds. You must instruct us as to
what amounts you want transferred from each Investment Fund and Guarantee Period
of the Fixed Account. A transfer will be effective on the date we receive your
transfer request. 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 dollar cost averaging program allows you to systematically transfer a set
amount from a selected Investment Fund or the Fixed Account to any of the other
Investment Funds. By allocating amounts on a regular schedule as opposed to
allocating the total amount at one particular time, you may be less susceptible
to the impact of market fluctuations.
Dollar cost averaging does not assure a profit and does not protect you against
loss in declining markets. Since dollar cost averaging involves continuous
investment in securities regardless of fluctuating price levels of such
securities, you should consider your financial ability to continue the dollar
cost averaging program through periods of fluctuating price levels.
Under the dollar cost averaging program you must designate at least $2,000 for
investment. Transfers from the _______________ Fund, ________________ Fund,
_______________ Fund, _________________ Fund, the _________________ Fund, or the
Dollar Cost Averaging Guarantee Periods will continue until the dollar amount
requested has been transferred or the accumulated value in the Investment Fund
or Guarantee Period is exhausted, whichever is sooner. Dollar cost averaging
transfer allocations for a Guarantee Period or Investment Fund which is no
longer offered will remain in that Investment Fund until you change the
allocation instructions.
Transfers made under the dollar cost averaging program are not taken into
account in determining any applicable transfer fee. We reserve the right to
modify, suspend, or terminate the dollar cost averaging program at any time.
Personal Portfolio Rebalancing
The accumulated value allocated to each Investment Fund increases or decreases
at different rates depending on the investment performance of the Investment
Fund. Personal portfolio rebalancing automatically reallocates the accumulated
value in the Investment Funds and Guarantee Periods to maintain your selected
allocation. The goal of the personal portfolio rebalancing is to assist you by
selling from the Investment Funds that have appreciated most, and purchasing
additional units in the Investment Funds or Guarantee Periods that have
appreciated least.
You may choose the specific investment options that you want included in your
personal portfolio. However, the personal portfolio must contain at least two
investment options and may include all available investment options.
You may select rebalancing on a monthly, quarterly, semiannual, or annual basis.
The minimum amount that will be transferred from any Investment Fund or
Guarantee Period under this program is the greater of $50 or 0.5% of the
accumulated value of that Investment Fund or Guarantee Period. Certain
Investment Funds and personal portfolio rebalancing Guarantee Periods are
available investment options under this program. The number of available
investment options may change. The designated allocation can be changed at any
time upon your written request.
Transfers made under the personal portfolio rebalancing program are not taken
into account in determining any applicable transfer fee. We reserve the right to
modify, suspend, or terminate the personal portfolio rebalancing program at any
time. Participation in the personal portfolio rebalancing program does not
assure that you will profit from purchases under the program nor will it prevent
or lessen losses in a declining market.
Interest Sweep Option
Under this program we will automatically transfer earnings from selected
Guarantee Periods in your Fixed Account, which are called Interest Sweep
Guarantee Periods, to one or more selected Investment Funds. By allocating these
earnings to the Investment Funds, you can pursue further growth in the value of
your Contract through more aggressive investments. If you have allocated net
purchase payments or transfers to more than one Interest Sweep Guarantee Period,
the Interest Sweep transfer will occur from the oldest Interest Sweep Guarantee
Period. We will transfer a minimum of $25 from the Interest Sweep Guarantee
Period to the designated Investment Funds. These transfers can be made on a
monthly, quarterly, semiannual, or annual basis.
Transfers made under the interest sweep program are not taken into account in
determining any applicable transfer fee. We reserve the right to modify,
suspend, or terminate the interest sweep program at any time. The interest sweep
option does not assure profit and does not protect against loss in declining
markets.
Additions, Deletions or Substitutions of Investments
We may be required to substitute one of the Investment Funds you have selected
with another Investment Fund. We would not do this without the prior approval of
the Securities and Exchange Commission. We may also limit further investment in
an Investment Fund. We will give you notice of either of these actions.
CHARGES AND DEDUCTIONS
The full amount of your initial purchase payment, less any applicable tax, is
invested in the investment option(s) you choose.
Administrative Charges
Annual Contract Fee. On the last day of each Contract year, we deduct an annual
Contract fee, which we refer to as an account fee, to compensate us for expenses
relating to the issue and maintenance of your Contract and your account. For
Contract years ending prior to December 31, 1999, we will deduct the lesser of
$30 or 2% of the accumulated value of your Contract if your accumulated value is
less than $20,000. Afterwards, the account fee may be adjusted annually subject
to the following:
* in no event will the fee 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 account fee will be waived if your Contract has an accumulated value of
$20,000 or more. Also, we will not deduct an account fee if you allocated all of
the accumulated value of your Contract to our Fixed Account during the entire
previous Contract year. We will deduct the account fee if you make a full
surrender of your Contract or upon your death or the annuitant's death.
During the income phase, the account fee will be deducted in equal amounts from
each variable annuity payment made during the year. This deduction will not be
made from fixed annuity payments.
Also, the net investment factor incorporates an administrative expense 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 us for those
administrative expenses attributable to your Contract, your account, and the
separate accounts which exceed the revenues received from the account fee. We
believe the administrative expense charge and the account fee have been set at a
level that will recover no more than the actual costs of administering your
Contract.
Special Handling Fees
We reserve the right to charge a special handling fee to recover costs
associated with certain activities and requests. These activities and requests
include: wire transfer charges ($11.50), checks returned to us for insufficient
funds ($15), Interest Change Adjustment estimations in excess of four annually
($10), 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).
This fee will be deducted from the first available option in this list:
(a) Money Market Fund;
(b) Variable Fund with the largest accumulated value;
(c) Guaranteed Interest Option.
The fee for special handling will not exceed $50 per request. We do not expect
to profit from these charges.
Surrender Charge (Contingent Deferred Sales Charge)
We may deduct a surrender charge on certain surrenders and withdrawals to cover
our expenses relating to the sale of the Contracts, including commissions to
registered representatives and other promotional expenses.
When you make a full surrender of your Contract or partial withdrawal of
accumulated value, we will apply a surrender charge to the gross withdrawal
amount, excluding any applicable charges from the Fixed Account or
administrative charges. This surrender charge will apply to purchase payments
made within six complete years measured from the date the purchase payment is
received by us. The surrender charge schedule is as follows:
Complete Years Since Receipt Surrender
of Purchase Payment Charge Percentage
-------------------- -----------------
0 6%
1 5%
2 4%
3 3%
4 2%
5 1%
6+ 0%
When you make a surrender or partial withdrawal, the amounts that you withdraw
will be done on a "first in first out" (FIFO) basis. Purchase payments which we
received more than six years before the date of your withdrawal will not be
subject to a surrender charge. If you withdraw all of your purchase payments,
further withdrawals will be made from your earnings without incurring a
surrender charge. If your accumulated value is less than the purchase payments
subject to a surrender charge, the surrender charge will only be applied to your
accumulated value.
We will not assess a surrender charge in the event of annuitization with us
after three Contract years, or on death of the annuitant if the date of issue is
prior to the annuitant's 80th birthday. 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.
If revenues from surrender charges are not sufficient to cover certain
sales-related expenses, we will bear the shortfall. If the revenues from
surrender charges exceed such expenses, we will retain the excess. We do not
currently believe that the surrender charge revenues will cover the expected
sales-related expenses.
Interest Change Adjustment
If you make a full surrender or partial withdrawal from the Fixed Account before
thirty days prior to the expiration date of the Guarantee Period you selected,
you may be subject to an Interest Change Adjustment deduction.
Charge-Free Amounts
You can withdraw up to 10% of your accumulated value each year without incurring
a surrender charge. We refer to this as the charge-free amount. After your first
Contract anniversary, you can withdraw up to 20% of your accumulated value
without charge if you did not make any charge-free withdrawals in the prior
Contract year.
The charge-free amounts withdrawn will not reduce the purchase payments still
subject to a surrender charge. The charge-free amount does not apply upon full
surrender.
Reduction of Surrender Charge for Contracts Issued Under Group or Sponsored
Arrangements
Contracts may be sold to members of a class of associated individuals or to a
trustee, an employer, or some other entity representing such a class. We may
waive or reduce the surrender charge on some policies when the sales efforts and
administrative costs are lower due to various factors such as:
* the expected number of participants and the amount of purchase
payments anticipated;
* the nature of the group, association or class;
* the expected persistency and the possibility of favorable mortality;
and
* the amount and timing of the premium payment; and any selling cost.
Any reductions will be made uniformly to all individuals falling in the class
benefitting from the reduction. We may also modify the criteria for
qualification for sales charge reductions as experience is gained, subject to
the limit that such reductions will not be unfavorably discriminatory against
the interest of any Contract owner.
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
Investment Funds. This charge is 1.25% annually (1.00% for mortality risk and
.25% for expense risk).
The mortality risk that we assume is that annuitants may live for a longer
period of time than estimated when the guarantees in your 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 we assume also includes a guarantee to pay a death benefit if the
annuitant dies before the annuity date. The expense risk that we assume is the
risk that the surrender charge and administrative charges will be insufficient
to cover actual future expenses.
Transfer Fees
For each transfer in excess of twelve during the Contract year, we charge an
amount equal to the lesser of $25 or 2% of the amount transferred. Currently,
Contract owners are limited to no more than twelve transfers per year. Transfers
made under the dollar cost averaging program, the personal portfolio rebalancing
program, or the interest sweep program are not included in determining the
amount of transfers. Transfers from the Fixed Account may be subject to an
Interest Change Adjustment deduction.
Fees and Expenses of the Funds
There are deductions from and expenses paid out of the assets of the various
Investment Funds, which are described in the attached Fund prospectuses.
Premium Tax
Some states and other governmental entities (e.g., municipalities) charge
premium taxes or similar taxes. We are responsible for the payment of these
taxes and will make a deduction from the value of your Contract for them. Some
of these taxes are due when your Contract is issued, and others are due when
annuity payments begin. When a premium tax is due at the time you make a
purchase payment, we will deduct from the payment such tax. Premium taxes
generally range from 0% to 3.5%, depending on the state.
We reserve the right to defer or waive the charge assessed for premium tax in
certain jurisdictions until your Contract is surrendered or until your death. We
will notify you in writing before exercising our right to collect deferred
premium tax from the accumulated value.
Other Taxes
We charge in the future for any tax or economic burden we incur attributable to
the separate accounts or to the Contracts.
VARIABLE ACCOUNT
Accumulation Units
We will establish an account in your name for each Investment Fund to which you
allocate purchase payments or transfer amounts. Purchase payments and transfer
amounts are allocated to Investment Funds and credited in the form of
accumulation units.
The number of accumulation units credited to each account is determined by
dividing the purchase payment or transfer amount for the account by the value of
an accumulation unit for that Investment Fund for the valuation period during
which the 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 purchase payments allocated to the corresponding Investment Fund
during that valuation period and by any accumulated value transferred to that
Investment Fund from another Investment Fund or from a guarantee period 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 Investment Fund, by any partial withdrawals or
surrenders from that Investment Fund, and by any administrative charges or
surrender charge deducted from that Investment Fund during that valuation
period.
Value of Accumulation Units
The value of accumulation units in each Investment Fund will vary from one
valuation period to the next depending upon the investment results of the
particular Investment Fund. The value of an accumulation unit for each
Investment Fund 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 Investment Fund for the
valuation period for which the value is being determined.
Net investment factor
Each business day we will calculate each Investment Fund's net investment
factor. An Investment Fund's net investment factor measures its investment
performance during a valuation period. The net investment factor for each
investment fund 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 an Investment Fund share
held in the Investment Fund determined at the end of the current valuation
period, plus (2) the per share amount of any dividend or capital gain
distribution made by an Investment Fund on shares held in the Investment
Fund if the "ex-dividend" date occurs during the current valuation period.
Where (b) is: the net asset value per share of an Investment Fund share
held in the Investment Fund determined as of the end of the immediately
preceding valuation period.
Where (c) is: a factor representing the charges deducted from the
Investment Fund 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.
ACCESS TO YOUR MONEY
You can have access to the money in your Contract:
* by making a withdrawal (either a partial or a complete withdrawal);
* when a death benefit is paid; or
* by electing to receive annuity payments.
Surrenders and Partial Withdrawals
You may surrender your Contract or make a partial withdrawal to receive all or
part of the accumulated value of your Contract at any time before you begin
receiving annuity payments and while the annuitant is living.
A full surrender will result in a cash withdrawal payment equal to the
accumulated value of your Contract, less any applicable administrative charges,
interest charge adjustment, and surrender charge. If you request a partial
withdrawal, it will result in a reduction in your accumulated value equal to the
amount you receive plus any applicable surrender charge, administrative charges
and interest change adjustment.
There is no limit on the frequency of partial withdrawals. However, the minimum
amount that you may withdraw is $500 or your entire balance in the Investment
Fund or Guarantee Period, if less. If you do not tell us otherwise, the amounts
that we will withdraw from the Investment Funds will be on a pro rata basis. If
you make a partial withdrawal from the Fixed Account, you may be subject to
further limitations.
If, after the withdrawal (and deduction of any applicable administrative
charges, interest change adjustment and surrender charge), the amount remaining
in the Investment Fund is less than $500, we may treat the partial withdrawal as
a withdrawal of the entire amount held in the Investment Fund. If a partial
withdrawal plus any applicable administrative charges, interest change
adjustment and surrender charge would reduce the accumulated value to less than
$500, we may treat the partial withdrawal as a full surrender of your Contract.
The amount you receive can be less than the amount requested if your accumulated
value is insufficient to cover applicable charges. Any withdrawal request cannot
exceed the accumulated value of your Contract. If a partial withdrawal would
result in the remaining accumulated value being lower than the surrender charges
due, the partial withdrawal request will be treated as a full surrender.
We will, upon request, provide you with an estimate of the amounts that would be
payable in the event of a full surrender or partial withdrawal. We reserve the
right to charge a reasonable fee to recover the administrative expenses
associated with these requests.
Income taxes, tax penalties and certain restrictions may apply to any withdrawal
you make. If at the time you make a written request for a full surrender or a
partial withdrawal, you do not provide us with a written election not to have
Federal income taxes withheld, we must by law withhold such taxes from the
taxable portion of any surrender or withdrawal.
Systematic Withdrawal Plan
We administer a systematic withdrawal plan ("SWP") which allows you to authorize
periodic withdrawals during the accumulation period. If you enter into a SWP
agreement, you will instruct us to withdraw selected amounts from your Contract
on a monthly, quarterly, semiannual or annual basis. In requesting a SWP, you
must specify the amounts to be withdrawn from each Investment Fund and Guarantee
Period, if any. If you do not so specify, the total amount including any
applicable surrender charges will be deducted from all Investment Funds
pro-rata. Currently, the SWP is available if you request a minimum $200 periodic
withdrawal. Amounts withdrawn may be subject to a surrender charge. Amounts
withdrawn from the Fixed Account may be subject to the interest change
adjustment and other restrictions. Withdrawals taken under the SWP may also be
subject to the 10% Federal penalty tax on early withdrawals and to income taxes.
The SWP may be terminated at any time by you or us.
DEATH BENEFIT
In every case of death, we must receive proof of your death or the death of the
annuitant before we are obliged to act. The annuitant is the person whose life
we look to when we make annuity payments.
Death of a Contract Owner who is the Annuitant.
If you die during the accumulation phase, and if your surviving spouse is the
beneficiary, the spouse may continue the Contract as the new owner. The death
benefit, if more than the accumulated value, will be paid to the surviving
spouse by crediting the Contract with an amount equal to the difference between
the death benefit and the accumulated value. If your surviving spouse is not the
beneficiary, the death benefit will become payable to the beneficiary.
If you die during the income phase, we will not pay a death benefit except as
may be provided under the annuity option elected.
Death of a Contract Owner who is not the Annuitant.
If a you die during the accumulation phase, and if your surviving spouse is the
annuitant, the spouse may continue the Contract as the new owner. If your
surviving spouse is not the annuitant, the accumulated value, less any
applicable administration fees, interest change adjustment, or surrender charge,
will be distributed to the beneficiary.
If you die during the income phase, we will not pay a death benefit.
Death of the Annuitant who is not a Contract Owner.
If the annuitant dies during the accumulation phase and before you or any joint
owner, the death benefit is paid to the beneficiary. The beneficiary may elect
to receive these benefits through one of the annuity options available under the
Contract or in a single lump sum. If an election is not made by written request
within one year after the death of the annuitant, the death benefit will be paid
in a single lump sum.
If the annuitant dies during the income phase, we will not pay a death benefit
except as may be provided under the annuity option elected.
Other provisions.
Except as otherwise provided above, payments made under the death benefit
provisions will be made in one lump sum and must be made within 5 years after
the date of your death or that of the annuitant. If, however, you or your
beneficiary make a written choice of one of the two options described below, we
will treat the proceeds as you or your beneficiary has chosen. The two options
are:
(i) Leave the proceeds of the Contract with us. The entire accumulated
value must be paid in a lump sum to the beneficiary before the end of
the fifth year after your death or that of the annuitant's death.
(ii) Apply the proceeds to create an immediate annuity for the beneficiary,
who will be the owner and annuitant. Payments under the annuity, or
under any other method of payment we make 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 your death, and must begin within one
year after your death or that of the annuitant's.
Amount of Death Benefit
If your Contract is issued on or after the annuitant's 80th birthday, the death
benefit amount is the accumulated value, less any applicable interest change
adjustment, surrender charge or administrative charges.
If your Contract is issued before the annuitant's 80th birthday, the death
benefit amount is the amount described below, less any applicable interest
change adjustment and administrative charges. The death benefit amount for the
first Contract year is the greater of:
(a) the sum of all net purchase payments made, less any amounts
deducted through partial withdrawals; or
(b) the accumulated value of your Contract.
After the first year, the death benefit amount will be the greater of:
(a) the accumulated value of your Contract; or
(b) the death benefit reset amount.
The first death benefit reset amount will be determined on the last day of the
first Contract Year and will be the greater of a) the accumulated value or b)
the sum of all net purchase payments less any amounts withdrawn. Thereafter, the
death benefit reset amount will be the greater of a) the accumulated value on
the last day of the Contract Year or b) the prior death benefit reset amount
plus any net purchase payments less withdrawals since the prior death benefit
reset amount was determined.
If the Contract was issued prior to the annuitant's 75th birthday, the death
benefit reset will occur on the last day of each Contract Year until the
annuitant's 80th birthday. After age 80, the death benefit reset will occur
every six Contract Years measured from the date the Contract was issued.
However, if the Contract was issued on or after the annuitant's 75th birthday,
the death benefit reset amount will continue to be the amount which was
calculated on the last day of the Contract Year prior to the annuitant's 80th
birthday and will not be redetermined.
The death benefit amount is determined as of the date due proof of death,
Written Request for payment and all other requirements have been received at our
Annuity Service Office.
Contracts Issued Under Section 401/457 of the Code
If the annuitant dies during the accumulation phase the death benefit will equal
the accumulated value, less any applicable interest change adjustment, surrender
charge, or administrative charges for Contracts issued under Section 401 or 457
of the Code with multiple participants.
ANNUITY PROVISIONS
The accumulated value on the annuity date, less any applicable administration
charges, interest change adjustment, surrender charge and premium tax will be
applied to an annuity option. 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 on the annuity date, unless your Contract has been
surrendered or the proceeds have been paid to the designated beneficiary prior
to that date. The annuity date must be on the later of the first day of the
first month following the annuitant's 85th birthday or upon completion of five
Contract years measured from the date of issue. Under certain qualified
arrangements, distributions may be required before the annuity date. You may
change the annuity date.
Annuity Options
The annuity option may be elected or changed if it was not irrevocable by
written request, provided the annuitant is still alive. Election of an annuity
option must be made before thirty days before the annuity date.
Currently, the minimum amount which you may apply under an annuity option is
$5,000 and the minimum annuity payment is $50. If the accumulated value of your
Contract is less than $5,000 when the annuity date arrives, we will make a lump
sum payment of the remaining amount to you. If at any time payments are, or
become, less than $50, we may change the frequency of payments to intervals that
will result in payments of at least $50. We reserve the right to change these
requirements.
The following options are currently available:
Option 1 - Life Annuity - An annuity payable in monthly, quarterly,
semi-annual or annual payments during the lifetime of the annuitant,
ceasing with the last installment due prior to the death of the annuitant.
Since there is no provision for a minimum number of payments under this
annuity option, the payee would receive only one payment if the annuitant
died prior to the due date of the second payment, two payments if the
annuitant died prior to the due date of the third payment, etc.
Option 2 - Life Annuity with 60, 120, 180, or 240 Monthly Payments
Guaranteed - An annuity payable in monthly, quarterly, semi-annual, or
annual payments during the lifetime of the annuitant, with the guarantee
that if, at the death of the annuitant, payments have been made for less
than 60 months, 120 months, 180 months, or 240 months, as elected, payments
will be continued to the beneficiary during the remainder of the elected
period.
Option 3 - Joint and Survivor Income for Life - An annuity payable in
monthly, quarterly, semi-annual, or annual payments while both the
annuitant and a second person remain alive, and thereafter during the
remaining lifetime of the survivor, ceasing with the last installment due
prior to the death of the survivor. If the primary payee dies after
payments begin, full payments or payments of 1/2 or 2/3, (whichever you
elected when applying for this option) will continue to the other payee
during his or her lifetime. Since there is no provision for a minimum
number of payments under Annuity Option 3, the payees would receive only
one payment if both the annuitant and the second person died prior to the
due date of the second payment, two payments if they died prior to the due
date of the third payment, etc.
Option 4 - Income for a Fixed Period - An annuity payable in annual,
semiannual, quarterly, or monthly payments over a specified number of
years, not less than five nor more than thirty. When a variable annuity
basis is selected, a mortality and expense risk charge continues to be
assessed, even though we incur no mortality risk under this option.
With respect to any Option not involving a life contingency (e.g., Option 4 -
Income for a Fixed Period), you may elect to have the present value of the
guaranteed monthly annuity payments remaining, as of the date we receive proof
of the claim, commuted and paid in a lump sum.
Value of Variable Annuity Payments
The dollar amount of your payment from the Investment Fund(s) will depend upon
four things:
* the value of your Contract in the Investment Fund(s) on the annuity
commencement date;
* the 4% assumed investment rate used in the annuity table for the
Contract; and
* the performance of the Investment Funds you selected; and
* if permitted in your state and under the type of Contract you have
purchased, the age and sex of the annuitant(s).
If the actual performance exceeds the 4% assumed rate plus the deductions for
expenses, your annuity payments will increase. Similarly, if the actual
performance is less than 4% plus the amount of the deductions, your annuity
payments will decrease.
The value of all payments (both guaranteed and variable) will be greater for
shorter guaranteed periods than for longer guaranteed 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.
FEDERAL TAX MATTERS
NOTE: We have prepared the following information on taxes as a general
discussion of the subject. It is not intended as tax advice to any individual.
You should consult your own tax adviser about your own circumstances. We have
included in the Statement of Additional Information an additional discussion
regarding taxes.
Annuity Contracts in General
Annuity contracts are a means of setting aside money for future needs - usually
retirement. Congress recognized how important saving for retirement was and
provided special rules in the Internal Revenue Code (Code) for annuities.
Simply stated, these rules provide that you will not be taxed on the earnings on
the money held in your annuity contract until you take the money out. This is
referred to as tax deferral. There are different rules as to how you are taxed
depending on how you take the money out and the type of contract - qualified or
non-qualified (see following sections).
Under non-qualified contracts, you, as the owner, are not taxed on increases in
the value of your contract until a distribution occurs - either as a withdrawal
or as annuity payments. When you make a withdrawal, you are taxed on the amount
of the withdrawal that is earnings. For annuity payments, different rules apply.
A portion of each annuity payment is treated as a partial return of your
purchase payments and is not taxed. The remaining portion of the annuity payment
is treated as ordinary income. How the annuity payment is divided between
taxable and non-taxable portions depends upon the period over which the annuity
payments are expected to be made. Annuity payments received after you have
received all of your purchase payments are fully includible in income.
When a non-qualified contract is owned by a non-natural person (e.g.,
corporation or certain other entities other than a trust holding the contract as
an agent for a natural person), the contract will generally not be treated as an
annuity for tax purposes.
Qualified and Non-Qualified Contracts
If you purchase the Contract as an individual and not under any pension plan,
specially sponsored program or an individual retirement annuity, your Contract
is referred to as a non-qualified Contract.
If you purchase the Contract under a pension plan, specially sponsored program,
or an individual retirement annuity, your Contract is referred to as a qualified
Contract. Examples of qualified plans are: Individual Retirement Annuities
(IRAs), Tax-Sheltered Annuities (sometimes referred to as 403(b) contracts), and
pension and profit-sharing plans, which include 401(k) plans and H.R. 10 Plans.
Withdrawals - Non-Qualified Contracts
If you make a withdrawal from your Contract, the Code treats such a withdrawal
as first coming from earnings and then from your purchase payments. Such
withdrawn earnings are includible in income.
The Code also provides that any amount received under an annuity contract which
is included in income may be subject to a penalty. The amount of the penalty is
equal to 10% of the amount that is includible in income. Some withdrawals will
be exempt from the penalty. They include any amounts:
(1) paid on or after the taxpayer reaches age 59 1/2;
(2) paid after you die;
(3) paid if the taxpayer becomes totally disabled (as that term is defined
in the Code);
(4) paid in a series of substantially equal payments made annually (or
more frequently) for life or a period not exceeding life expectancy;
(5) paid under an immediate annuity; or
(6) which come from purchase payments made prior to August 14, 1982.
Withdrawals - Qualified Contracts
The above information describing the taxation of non-qualified Contracts does
not apply to qualified Contracts. There are special rules that govern with
respect to qualified Contracts. We have provided a more complete discussion in
the Statement of Additional Information.
Withdrawals - Tax-Sheltered Annuities
The Code limits the withdrawal of purchase payments made by owners from certain
Tax-Sheltered Annuities. Withdrawals can only be made when an owner:
(1) reaches age 59 1/2;
(2) leaves his/her job;
(3) dies;
(4) becomes disabled (as that term is defined in the Code); or
(5) in the case of hardship.
However, in the case of hardship, the owner can only withdraw the purchase
payments and not any earnings.
Diversification
The Code provides that the underlying investments for a variable annuity must
satisfy certain diversification requirements in order to be treated as an
annuity contract. We believe that the Investment Funds are managed so as to
comply with the requirements.
Neither the Code nor the Internal Revenue Service Regulations issued to date
provide guidance as to the circumstances under which you, because of the degree
of control you exercise over the underlying investments, are considered the
owner of the shares of the Investment Funds. If you are considered owner of the
shares, it will result in the loss of the favorable tax treatment for the
Contract. It is unknown to what extent owners are permitted to select Investment
Funds, to make transfers among the Investment Funds or the number and type of
Investment Funds owners may select from without being considered owner of the
shares. If any guidance is provided which is considered a new position, then the
guidance is generally applied prospectively. However, if such guidance is
considered not to be a new position, it may be applied retroactively. This would
mean that you, as the owner of the Contract, could be treated as the owner of
the Investment Funds.
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 Investment Company Act of 1940 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 Account to apply the restrictions created by Code
Section 403(b)(11) as long as specified steps, such as this disclosure, are
taken to ensure Contract Owners are aware of the Code restrictions. General
American 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.
Due to the uncertainty in this area, we reserve the right to modify the Contract
in an attempt to maintain favorable tax treatment.
YIELDS AND TOTAL RETURNS
We periodically advertise performance of the various Investment Funds. We will
calculate performance by determining the percentage change in the accumulated
value for selected periods. This performance number reflects the deduction of
the insurance charges. It does not reflect the deduction of any surrender
charge. The deduction of any surrender charges would reduce the percentage
increase or make greater any percentage decrease. Any advertisement will also
include total return figures which reflect the deduction of the mortality and
expense charges, and surrender charges.
We may, from time to time, include in our advertising and sales materials, tax
deferred compounding charts and other hypothetical illustrations, which may
include comparisons of currently taxable and tax deferred investment programs,
based on selected tax brackets.
OTHER INFORMATION
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 our Board of
Directors. 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 us 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 our General Account (the
general assets of the insurance company other than separate account assets). The
persons participating in the variable portion of 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 we may conduct. The income,
gains, and losses, whether or not realized, from the assets of each Investment
Fund of a Separate Account are credited to or charged against that Investment
Fund without regard to any other income, gains, or losses.
Separate Accounts 26 and 27 currently have seven Investment Funds. These are:
* AIM V.I. Capital Appreciation Fund
* AIM V.I. Diversified Income Fund
* AIM V.I. Global Growth and Income Fund
* AIM V.I. Government Securities Fund
* AIM V.I. International Equity Fund
* AIM V.I. Money Market Fund
* AIM V.I. Telecommunications Fund
These are the only Investment Funds currently available under the Contracts.
Principal Underwriter
________________________[address], acts as the distributor of the Contracts.
_______________ is one of our affiliates. _______________ will pay distribution
compensation to selling broker/dealers in varying amounts which under normal
circumstances are not expected to exceed 5.25% of purchase payments for such
Contracts, plus 0.25% of the Contract value in all Investment Funds per year. As
an alternative, _______________ may pay distribution compensation to selected
broker/dealers in amounts which are not expected to exceed 6.0% of purchase
payments for such Contracts, with no residual payments.
Voting Rights
We are the legal owner of the Investment Fund shares. However, we believe that
when an Investment Fund solicits proxies in conjunction with a vote of
shareholders, it is required to obtain from you and other owners instructions as
to how to vote those shares. When we receive those instructions, we will vote
all of the shares we own in proportion to those instructions. This will also
include any shares that we own on our own behalf. Should we determine that we
are no longer required to comply with the above, we will vote the shares in our
own right.
Written Notice or Written Request
A written notice or written request is any notice or request that you send to us
requesting any changes or making any request affecting your Contract. Such a
request or notice must be in a format and content acceptable to us.
Assignments and Changes of Ownership
With respect to nonqualified individual Contracts, an assignment or change in
ownership of the Contract or of any interest in it will not bind us unless:
(1) it is made in a written instrument;
(2) the original instrument or a certified copy is filed at our Annuity
Service Office; and
(3) we send you a receipt.
We are 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 a security for the
performance of an obligation or any other purpose, to any person other than to
us at our Annuity Service Office.
Any request received by us which is not specifically addressed in an assignment
document must be in writing and signed by both the assignor and the assignee.
Ownership
You, as the owner of the Contract, have all the rights under the Contract. Prior
to the Annuity Commencement Date, the owner is as designated at the time the
Contract is issued, unless changed. If there are joint owners, any rights of
ownership must be done by joint action.
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 your death. The original
beneficiary is named in the Contract Application. Subject to any assignment of a
Contract, you may change the beneficiary designation during the lifetime of the
annuitant by the filing of a written request acceptable to us at our 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, we reserve
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 second 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 you 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 your estate.
Deferment of Payment
We may be required to suspend or postpone payments for surrenders or transfers
for any period when:
1. the New York Stock Exchange is closed (other than customary weekend
and holiday closings);
2. trading on the New York Stock Exchange is restricted;
3. an emergency exists as a result of which disposal of shares of the
Investment Funds is not reasonably practicable or we cannot reasonably
value the shares of the Investment Funds;
4. during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of owners.
We may also delay the payment of a surrender or partial withdrawal from the
Fixed Account for up to six months from receipt of written request. If payment
is delayed, the amount due will continue to be credited with the rate of
interest then credited to the General Account until the payment is made.
Year 2000
We have developed and initiated plans to assure that our computer systems will
function properly in the year 2000 and later years. These efforts have included
receiving assurances from outside service providers that their computer systems
will also function properly in this context. Included within these plans are the
computer systems of the advisers and sub-advisers of the various investment
portfolios underlying the Separate Account.
Although an assessment of the total cost of implementing these plans has not
been completed, the total amounts to be expended are not expected to have a
material effect on our financial position or results of operation. We believe
that we have taken all reasonable steps to address these potential problems.
There can be no assurance, however, that the steps taken will be adequate to
avoid any adverse impact.
Financial Statements
The financial statements for Security Equity and both Separate Accounts 26 and
27 (as well as the auditors' reports thereon) are included in the Statement of
Additional Information.
Statement of Additional Information - Table of Contents
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:
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
Reduction of the Surrender Charge
PERFORMANCE INFORMATION
Total Return
Money Market Yield Calculation
Yields of Other Investment Funds
Historical Unit Values
Effect of the Annual Contract Fee
FEDERAL TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
ANNUITY PROVISIONS
Computation of the Value of an Annuity Unit
Determination of the Amount of the First Annuity Installment
Determination of the Fluctuating Values of the Annuity Installments
GENERAL MATTERS
Participating
Incorrect Age or Sex
Annuity Data
Quarterly Reports
Incontestability
Ownership
Reinstatement
SAFEKEEPING OF ACCOUNT ASSETS
STATE REGULATION
RECORDS AND REPORTS
LEGAL PROCEEDINGS
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX A
<TABLE>
<CAPTION>
Example of Surrender Charge Calculations
This example assumes that the date of the full surrender or partial withdrawal
is during the 10th Contract Year.
1 2 3 4
- - - -
<S> <C> <C> <C> <C>
1 $2,000 0% $0
2 $2,000 0% $0
3 $2,000 0% $0
4 $2,000 0% $0
5 $2,000 1% $20.00
6 $2,000 2% $40.00
7 $2,000 3% $60.00
8 $2,000 4% $80.00
9 $2,000 5% $100.00
10 $2,000 6% $120.00
------ -------
$20,000 $420.00
</TABLE>
Explanation of Columns in Table
Column 1:
Represents Contract Years
Column 2:
Represents amounts of Net Purchase Payments. Each Net Purchase Payment is made
on the first day of each Contract Year.
Column 3:
Represents the surrender charge percentages imposed on the amounts in Column 2.
Column 4:
Represents the surrender charge imposed on each Net Purchase Payment. It is
determined by multiplying the amount in Column 2 by the percentage in Column 3.
For example, the surrender charge imposed on Net Purchase Payment 7
= Net Purchase Payment 7 Column 2 x Net Purchase Payment 7 Column 3
= $2,000 x 3%
= $60
Full Surrender
The total of Column 4, $420, 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 $30,000, the amount received upon
surrender would be $29,580, less any applicable interest change adjustment or
administrative fees.
Partial Withdrawal
The sum of amounts in Column 4 for as many Net Purchase Payments as are
liquidated reflects the surrender charge imposed in the case of a partial
withdrawal.
If the Accumulated Value is $30,000, $6,000 can be withdrawn without incurring a
surrender charge ("free amount"). This assumes that there have been at least two
Contract Years since January 1, 1996, and no free amounts have been withdrawn in
the prior Contract year. The free amount does not reduce premiums still subject
to charge.
For example, if $20,000 were withdrawn, the first $6,000 represents the free
amount. 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 $120.
The amount received would be $19,880, less any applicable interest change
adjustment.
Full Surrender following Partial Withdrawal
The Accumulated Value remaining after the partial withdrawal is $10,000. The
first seven Net Purchase Payments were withdrawn as part of the partial
withdrawal. If the Contract is fully surrendered in the 10th 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 $300.
The amount received would be $9,700, less any applicable interest change
adjustment or administrative fees.
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL VARIABLE ANNUITY CONTRACT
issued by
SECURITY EQUITY SEPARATE ACCOUNT 27
AND
SECURITY EQUITY LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DATED ________, 1999, FOR THE INDIVIDUAL
VARIABLE ANNUITY CONTRACT WHICH IS DESCRIBED HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: SECURITY EQUITY LIFE INSURANCE COMPANY, GT GLOBAL DEPARTMENT, P.O.
BOX 208, ARMONK, NY 10504, (800) 533-8282.
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED ___________, 1999.
TABLE OF CONTENTS
Page
COMPANY
EXPERTS
LEGAL OPINIONS
DISTRIBUTION
Reduction of the Surrender Charge
PERFORMANCE INFORMATION
Total Return
Money Market Yield
Yields of Other Investment Funds
Historical Unit Values
Effect of the Annual Contract Fee
FEDERAL TAX STATUS
General
Diversification
Multiple Contracts
Contracts Owned by Other than Natural Persons
Tax Treatment of Assignments
Income Tax Withholding
Tax Treatment of Withdrawals - Non-Qualified Contracts
Qualified Plans
Tax Treatment of Withdrawals - Qualified Contracts
Tax-Sheltered Annuities - Withdrawal Limitations
ANNUITY PROVISIONS
Computation of the Value of an Annuity Unit
Determination of the Amount of the First Annuity Installment
Determination of the Fluctuating Values of the Annuity Installments
GENERAL MATTERS
Participating
Incorrect Age or Sex
Annuity data
Quarterly Reports
Incontestability
Ownership
Reinstatement
SAFEKEEPING OF ACCOUNT ASSETS
STATE REGULATION
RECORDS AND REPORTS
LEGAL PROCEEDINGS
OTHER INFORMATION
FINANCIAL STATEMENTS
COMPANY
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.
EXPERTS
Audited financial statements of Security Equity Life Insurance Company and the
Separate Account have been included in reliance upon the reports of ___________,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contracts.
DISTRIBUTION
___________________ ("_____________"), the principal underwriter of the
Contracts, is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is a member of the
National Association of Securities Dealers, Inc.
Reduction of the Surrender Charge
The amount of the surrender charge on the Contracts may be reduced or eliminated
when sales of the Contracts are made to individuals or to a group of individuals
in a manner that results in savings of sales expenses. The entitlement to
reduction of the surrender charge will be determined by the Company after
examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made. Generally, the
sales expenses for a larger group are less than for a smaller group because
of the ability to implement large numbers of Contracts with fewer sales
contacts.
2. The total amount of purchase payments to be received. Per Contract sales
expenses are likely to be less on larger purchase payments than on smaller
ones.
3. Any prior or existing relationship with the Company. Per Contract sales
expenses are likely to be less when there is a prior existing relationship
because of the likelihood of implementing the Contract with fewer sales
contacts.
4. Other circumstances, of which the Company is not presently aware, which
could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines that
there will be a reduction in sales expenses, the Company may provide for a
reduction of the surrender charge.
The surrender charge may be eliminated when the Contracts are issued to an
officer, director or employee of the Company or any of its affiliates. In no
event will any reduction of the surrender charge be permitted where the
reduction or elimination will be unfairly discriminatory to any person.
PERFORMANCE INFORMATION
Total Return
From time to time, the Company may advertise performance data. Such data will
show the percentage change in the value of an accumulation unit based on the
performance of a Investment Fund over a period of time, usually a calendar year,
determined by dividing the increase (decrease) in value for that unit by the
accumulation unit value at the beginning of the period.
Any such advertisement will include total return figures for the time periods
indicated in the advertisement. Such total return figures will reflect the
deduction of the expenses for the underlying Investment Fund being advertised
and any applicable surrender charges.
The hypothetical value of a Contract purchased for the time periods described in
the advertisement will be determined by using the actual accumulation unit
values for an initial $1,000 purchase payment, and deducting any applicable
surrender charge to arrive at the ending hypothetical value. The average annual
total return is then determined by computing the fixed interest rate that a
$1,000 purchase payment would have to earn annually, compounded annually, to
grow to the hypothetical value at the end of the time periods described. The
formula used in these calculations is:
n
P (1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the time periods used (or
fractional portion thereof) of a hypothetical $1,000 payment made at the
beginning of the time periods used.
The Company may also advertise performance data which will be calculated in the
same manner as described above but which will not reflect the deduction of any
surrender charge. The deduction of any surrender charge would reduce any
percentage increase or make greater any percentage decrease.
Owners should note that the investment results of each Investment Fund will
fluctuate over time, and any presentation of the Investment Fund's total return
for any period should not be considered as a representation of what an
investment may earn or what an owner's total return may be in any future period.
Money Market Yield Calculation
Advertisements and sales literature concerning the Contracts may report the
"current annualized yield" for the Investment Funds of the Separate Accounts
that invests in the AIM Money Market Fund, without taking into account any
realized or unrealized gains or losses on shares in the Fund. The annualized
yield is computed by:
(a) determining the net change after 7 days (exclusive of realized gains and
losses on shares of the underlying Investment Fund or on its respective
portfolio securities and unrealized appreciation and depreciation) in the
value of a hypothetical account having a balance of 1 unit at the beginning
of the period;
(b) dividing such net change in account value by the value of the account at
the beginning of the 7-day period to determine the base period return; and
(c) annualizing the result of this division on a 365-day basis.
The net change in account value reflects (1) net income from the Investment Fund
attributable to the hypothetical account; and (2) charges and deductions imposed
under the contract upon the hypothetical account. The charges and deductions
include the per unit charges for mortality and expense risk, the administrative
charge for the Investment Fund, and the annual contract fee. For the purpose of
calculating current yields for a Contract, an average per unit contract fee is
used, as described below. Current yield will be calculated according to the
following formula:
Current Yields = (NCF - ES/UV) X (365/7)
Where:
NCF = the net change in the value of one unit in the Division
(exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation) for the 7-day
period specified.
ES = per unit expenses for a hypothetical account having one unit
over the 7-day period.
UV = the unit value for the first day of the 7-day period.
Security Equity advertisement and sales literature may also quote the "effective
yield" of the Investment Fund investing in the AIM Money Market Fund for the
same 7-day period, determined on a compounded basis. The effective yield is
calculated by compounding the unannualized base period return according to the
following formula:
365/7
Effective Yield = (1+((NCF-ES)/UV)) - 1,
Where:
NCF = the net change in the value of one unit in the Investment Fund
(exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation) for the 7-day
period specified.
ES = per unit expenses for a hypothetical account having one unit
over the 7-day period.
UV = the unit value for the first day of the 7-day period.
Because of the charges and deductions imposed on units according to the terms of
the Contract, the yield for the Money Market Fund will be lower than the yield
for the Investment Fund or the corresponding Trust which underlie the Investment
Fund.
Yields on amounts in the Money Market Fund will normally fluctuate on a daily
basis. For that reason the yield for any past period is not an indication nor a
representation of future yields. The actual yield for the Investment Fund is
affected by changes in interest rates on money market securities, the average
portfolio maturity of the underlying Fund, the types and qualities of portfolio
securities held by the Investment Fund, and the operating expenses of the Fund.
Yields on amounts held in the Money Market Fund may also be presented for
periods other than seven days.
Yields of Other Investment Funds
Advertisements and sales literature for the Contract may report the current
annualized yield of one or more of the Investment Funds (other than the Money
Market Fund) for a 30-day or one-month period. The annualized yield of an
Investment Fund refers to income generated by the Investment Fund during a
specified 30-day or one-month period. Because the yield is annualized, the yield
generated by the Investment Fund during the specified period is assumed to be
generated every 30-day or one-month period over a year. The yield is computed
by:
(1) dividing the net investment income of the fund corresponding to the
Investment Fund less expenses for the Investment Fund for the period; by
(2) the maximum offering price per unit of the Investment Fund on the last day
of the period times the daily average number of units outstanding for the
period; then
(3) compounding that yield for a 6-month period; and then
(4) multiplying that result by 2.
Expenses attributable to the Investment Fund include the mortality and expense
risk charge, the administrative charge for the Investment Fund, and the annual
contract fee. A contract fee of $2.50 is used to calculate the 30-day or
one-month yield as in the following equation:
6
Yield = 2x((((N1-ES)/(UxUV))+1) - 1)
Where:
NI = net investment income of the Fund for the 30-day or one-month
period in question
ES = expenses of the Investment Fund for the 30-day or one-month
period
U = the average number of units outstanding
UV = the unit value at the close of the last day in the 30-day or
one- month period
Because of the charges and deductions imposed under the Contracts (ES in the
equation) the yield for an Investment Fund will be lower than the yield for the
corresponding Fund.
The yield on amounts in any Investment Fund will normally fluctuate. For that
reason yields for any past periods are not indications nor representations of
future yields. The actual yield for an Investment Fund is affected by the type
and the quality of the portfolio securities held in the underlying Fund, and the
operating expenses of the Fund.
Yield calculations do not take surrender charges into account, but such charges
are deducted from amounts greater than ten percent of the Accumulated Value
under a Contract if such amounts are withdrawn within the first six contract
years after they were deposited.
Historical Unit Values
The Company may also show historical accumulation unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual accumulation unit values.
In addition, the Company may distribute sales literature which compares the
percentage change in accumulation unit values for any of the Investment Funds
against established market indices such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average or other management
investment companies which have investment objectives similar to the Investment
Fund being compared. The Standard & Poor's 500 Composite Stock Price Index is an
unmanaged, unweighted average of 500 stocks, the majority of which are listed on
the New York Stock Exchange. The Dow Jones Industrial Average is an unmanaged,
weighted average of thirty blue chip industrial corporations listed on the New
York Stock Exchange. Both the Standard & Poor's 500 Composite Stock Price Index
and the Dow Jones Industrial Average assume quarterly reinvestment of dividends.
Effect of the Annual Contract Fee
The Contract provides for the deduction each year of the lesser of $30 or 2% of
an account's value provided the account value is less than $20,000. If the
account value exceeds $20,000, or if the entire account value is in the Fixed
Account, then no contract fee is charged. So that this charge can be reflected
in yield and total return calculations it is assumed that the annual charge will
be $30 and this charge is converted into a per-dollar, per-day charge based on
the average Accumulated Value in the Separate Accounts of all the Contracts as
of the last day of the period for which quotations are provided. The average
value of Contracts in the Separate Accounts is assumed to be $20,000. The
per-dollar, per-day average charge will be adjusted to reflect the assumptions
underlying a particular performance quotation.
FEDERAL TAX STATUS
General
NOTE: THE FOLLOWING DESCRIPTION IS BASED UPON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL INCOME TAX LAW APPLICABLE TO ANNUITIES IN GENERAL. THE COMPANY
CANNOT PREDICT THE PROBABILITY THAT ANY CHANGES IN SUCH LAWS WILL BE MADE.
PURCHASERS ARE CAUTIONED TO SEEK COMPETENT TAX ADVICE REGARDING THE POSSIBILITY
OF SUCH CHANGES. THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE CONTRACTS.
PURCHASERS BEAR THE COMPLETE RISK THAT THE CONTRACTS MAY NOT BE TREATED AS
"ANNUITY CONTRACTS" UNDER FEDERAL INCOME TAX LAWS. IT SHOULD BE FURTHER
UNDERSTOOD THAT THE FOLLOWING DISCUSSION IS NOT EXHAUSTIVE AND THAT SPECIAL
RULES NOT DESCRIBED HEREIN MAY BE APPLICABLE IN CERTAIN SITUATIONS. MOREOVER, NO
ATTEMPT HAS BEEN MADE TO CONSIDER ANY APPLICABLE STATE OR OTHER TAX LAWS.
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment or as annuity payments under the Annuity
Option selected. For a lump sum payment received as a total withdrawal (total
surrender), the recipient is taxed on the portion of the payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the purchase payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Accounts are not a separate entity from the
Company, and its operations form a part of the Company.
Diversification
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity Contracts. The Code provides that a
variable annuity Contract will not be treated as an annuity Contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity Contract would result in the imposition of federal income
tax to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity Contracts such as the Contract meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas.
Reg.1.817-5), which established diversification requirements for the Investment
Funds underlying variable Contracts such as the Contract. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an Investment Fund will be deemed adequately diversified
if: (1) no more than 55% of the value of the total assets of the option is
represented by any one investment; (2) no more than 70% of the value of the
total assets of the option is represented by any two investments; (3) no more
than 80% of the value of the total assets of the option is represented by any
three investments; and (4) no more than 90% of the value of the total assets of
the option is represented by any four investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable Contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Investment Funds underlying the Contracts will be
managed in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Accounts will cause the Owner to be treated as the
owner of the assets of the Separate Accounts, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of the Separate Accounts. It is unknown
whether these differences, such as the Owner's ability to transfer among
investment choices or the number and type of investment choices available, would
cause the Owner to be considered as the owner of the assets of the Separate
Accounts resulting in the imposition of federal income tax to the Owner with
respect to earnings allocable to the Contract prior to receipt of payments under
the Contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owners being
retroactively determined to be the owners of the assets of the Separate
Accounts.
Due to the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
Multiple Contracts
The Code provides that multiple non-qualified annuity Contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity Contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of Contracts. For purposes of this rule, Contracts received in a
Section 1035 exchange will be considered issued in the year of the exchange.
Owners should consult a tax adviser prior to purchasing more than one
non-qualified annuity Contract in any calendar year.
Contracts Owned by Other than Natural Persons
Under Section 72(u) of the Code, the investment earnings on premiums for the
Contracts will be taxed currently to the Owner if the Owner is a non-natural
person, e.g., a corporation or certain other entities. Such Contracts generally
will not be treated as annuities for federal income tax purposes. However, this
treatment is not applied to a Contract held by a trust or other entity as an
agent for a natural person nor to Contracts held by Qualified Plans. Purchasers
should consult their own tax counsel or other tax adviser before purchasing a
Contract to be owned by a non-natural person.
Tax Treatment of Assignments
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
Income Tax Withholding
All distributions or the portion thereof which is includible in the gross income
of the Owner are subject to federal income tax withholding. Generally, amounts
are withheld from periodic payments at the same rate as wages and at the rate of
10% from non-periodic payments. However, the Owner, in most cases, may elect not
to have taxes withheld or to have withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
federal income tax. The 20% withholding requirement generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary or for a specified period of 10
years or more; or b) distributions which are required minimum distributions; or
c) the portion of the distributions not includible in gross income (i.e. returns
of after-tax contributions); or d) hardship withdrawals. Participants should
consult their own tax counsel or other tax adviser regarding withholding
requirements.
Tax Treatment of Withdrawals - Non-Qualified Contracts
Section 72 of the Code governs treatment of distributions from annuity
Contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includible in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
With respect to (d) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception was used.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Qualified Plans
The Contracts offered herein are designed to be suitable for use under various
types of Qualified Plans. Taxation of participants in each Qualified Plan varies
with the type of plan and terms and conditions of each specific plan. Owners,
Annuitants and Beneficiaries are cautioned that benefits under a Qualified Plan
may be subject to the terms and conditions of the plan regardless of the terms
and conditions of the Contracts issued pursuant to the plan. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into the Company's administrative procedures. Owners, Annuitants
and Beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Following are general descriptions of the types of Qualified
Plans with which the Contracts may be used. Such descriptions are not exhaustive
and are for general informational purposes only. The tax rules regarding
Qualified Plans are very complex and will have differing applications depending
on individual facts and circumstances. Each purchaser should obtain competent
tax advice prior to purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described
herein. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts" below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by the Company in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employees until the
employees receive distributions from the Contracts. The amount of contributions
to the tax-sheltered annuity is limited to certain maximums imposed by the Code.
Furthermore, the Code sets forth additional restrictions governing such items as
transferability, distributions, nondiscrimination and withdrawals. (See "Tax
Treatment of Withdrawals - Qualified Contracts" and "Tax-Sheltered Annuities -
Withdrawal Limitations" below.) Employee loans are not allowable under the
Contracts. Any employee should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to an
IRA which will be deductible from the individual's taxable income. These IRAs
are subject to limitations on eligibility, contributions, transferability and
distributions. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Under certain conditions, distributions from other IRAs and other Qualified
Plans may be rolled over or transferred on a tax-deferred basis into an IRA.
Sales of Contracts for use with IRAs are subject to special requirements imposed
by the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of Contracts to be
qualified as Individual Retirement Annuities should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
Roth IRAs
Section 408A of the Code provides that beginning in 1998, individuals may
purchase a new type of non-deductible IRA, known as a Roth IRA. Purchase
payments for a Roth IRA are limited to a maximum of $2,000 per year and are not
deductible from taxable income. Lower maximum limitations apply to individuals
with adjusted gross incomes between $95,000 and $110,000 in the case of single
taxpayers, between $150,000 and $160,000 in the case of married taxpayers filing
joint returns, and between $0 and $10,000 in the case of married taxpayers
filing separately. An overall $2,000 annual limitation continues to apply to all
of a taxpayer's IRA contributions, including Roth IRA and non-Roth IRAs.
Qualified distributions from Roth IRAs are free from federal income tax. A
qualified distribution requires that an individual has held the Roth IRA for at
least five years and, in addition, that the distribution is made either after
the individual reaches age 59 1/2, on the individual's death or disability, or
as a qualified first-time home purchase, subject to a $10,000 lifetime maximum,
for the individual, a spouse, child, grandchild, or ancestor. Any distribution
which is not a qualified distribution is taxable to the extent of earnings in
the distribution. Distributions are treated as made from contributions first and
therefore no distributions are taxable until distributions exceed the amount of
contributions to the Roth IRA. The 10% penalty tax and the regular IRA
exceptions to the 10% penalty tax apply to taxable distributions from a Roth
IRA.
Amounts may be rolled over from one Roth IRA to another Roth IRA. Furthermore,
an individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents income or a
previously deductible IRA contribution.
Purchasers of Contracts to be qualified as a Roth IRA should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
c. Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit employers, including self-employed
individuals, to establish various types of retirement plans for employees. These
retirement plans may permit the purchase of the Contracts to provide benefits
under the Plan. Contributions to the Plan for the benefit of employees will not
be includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions on
all Plans including on such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
Purchasers of Contracts for use with Pension or Profit Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such an
investment.
Tax Treatment of Withdrawals - Qualified Contracts
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 individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Contract. Section 72(t) of the Code imposes a 10% penalty tax on the taxable
portion of any distribution from qualified retirement plans, including Contracts
issued and qualified under Code Sections 401 (Pension and Profit-Sharing Plans),
403(b)(Tax-Sheltered Annuities) and 408 and 408A (Individual Retirement
Annuities). To the extent amounts are not includible in gross income because
they have been rolled over to an IRA or to another eligible Qualified Plan, no
tax penalty will be imposed. The tax penalty will not apply to the following
distributions: (a) if distribution is made on or after the date on which the
Owner or Annuitant (as applicable) reaches age 59 1/2; (b) distributions
following the death or disability of the Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m) (7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the Owner or Annuitant (as applicable) or the joint lives
(or joint life expectancies) of such Owner or Annuitant (as applicable) and his
or her designated Beneficiary; (d) distributions to an Owner or Annuitant (as
applicable) who has separated from service after he has attained age 55; (e)
distributions made to the Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Owner or Annuitant (as applicable) for amounts paid during
the taxable year for medical care; (f) distributions made to an alternate payee
pursuant to a qualified domestic relations order; (g) distributions from an
Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Owner or Annuitant (as
applicable) and his or her spouse and dependents if the Owner or Annuitant (as
applicable) has received unemployment compensation for at least 12 weeks (this
exception will no longer apply after the Owner or Annuitant (as applicable) has
been re-employed for at least 60 days); (h) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) to the extent
such distributions do not exceed the qualified higher education expenses (as
defined in Section 72(t)(7) of the Code) of the Owner or Annuitant (as
applicable) for the taxable year; and (i) distributions from an Individual
Retirement Annuity made to the Owner or Annuitant (as applicable) which are
qualified first-time home buyer distributions (as defined in Section 72(t)(8)of
the Code.) The exceptions stated in (d) and (f) above do not apply in the case
of an Individual Retirement Annuity. The exception stated in (c) above applies
to an Individual Retirement Annuity without the requirement that there be a
separation from service.
With respect to (c) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years on which the exception was used.
Generally, distributions from a qualified plan must begin no later than April
1st of the calendar year following the later of (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
Tax-Sheltered Annuities - Withdrawal Limitations
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect transfers between Tax-Sheltered Annuity Plans. Owners should consult
their own tax counsel or other tax adviser regarding any distributions.
ANNUITY PROVISIONS
Computation of the Value of an Annuity Unit
The table of contractual guaranteed annuity rates is based on an assumed
interest rate. The assumed interest rate is 4% for all contracts.
As a starting point, the value of a Separate Account 26 and 27 annuity unit was
established at $12.00. The value of the annuity unit at the end of any
subsequent business day is determined by multiplying such value for the
preceding business day by the product of (a) the daily reduction factor
(.99989256) once for each calendar day expiring between the end of the sixth
preceding business day and the end of the fifth preceding business day and (b)
the net investment factor for the fifth business day preceding such business
day.
These daily reduction factors are necessary to neutralize the assumed net
investment rate built into the annuity tables. Calculations are performed as of
the fifth preceding business day to permit calculation of amounts and the
mailing of checks in advance of their due date.
This may be illustrated by the following hypothetical example. Assuming that the
net investment factor for the fifth preceding business day was 1.00176027, and
assuming that the annuity unit value for the preceding business day was $12.20,
then the annuity unit for the current business day is $12.22, determined as
follows:
1.00176027 $12.200000
X .99989256 X 1.00165264
----------- ------------
1.00165264 $12.220162208
Determination of the Amount of the First Annuity Installment
When annuity installments begin, the accumulated value of the Contract is
established. This is the sum of the products of the values of an accumulation
unit in each Investment Fund on the fifth business day preceding the annuity
commencement date and the number of accumulation units credited to the Contract
as of the annuity commencement date.
The Contract contains tables indicating the dollar amount of the first annuity
installment under each form of variable annuity for each $1,000 of value of the
Contract. The amount of the first annuity installment depends on the option
chosen and the sex (if applicable) and age of the annuitant.
The first annuity installment is determined by multiplying the benefit per
$1,000 of value shown in the tables in the Contract by the number of thousands
of dollars of accumulated value of the Contract allocated to the Investment
Fund.
If a greater first installment would result, Security Equity will compute the
first installment on the same mortality basis as is used in determining such
installments under individual variable annuity Contracts then being issued for a
similar class of annuitants.
Determination of the Fluctuating Values of the Annuity Installments
The dollar amount of the first annuity installment, determined as described
above, is translated into annuity units by dividing that dollar amount by the
value of an annuity unit on the due date of the first annuity installment. The
number of annuity units remains fixed and the amount of each subsequent annuity
installment is determined by multiplying this fixed number of annuity units by
the value of an annuity unit on the date the installment is due.
If in any month after the first the application of the above net investment
factors produces a net investment increment exactly equivalent to the assumed
annualized rate of 4%, then the payment in that month will not change. Since it
is unlikely that it will be exactly equivalent, installments will vary up or
down depending upon whether such investment increment is greater or less than
the assumed annualized rate of 4%. A higher assumption would mean a higher
initial annuity payment but a more slowly rising series of subsequent annuity
payments (or a more rapidly falling series of subsequent annuity payments if the
value of an annuity unit is decreasing). A lower assumption would have the
opposite effect.
GENERAL MATTERS
Participating
The Contracts share in Security Equity's divisible surplus while they are in
force prior to the annuity commencement date. Each year Security Equity will
determine the share of divisible surplus, if any, accruing to the Contracts.
Investment results are credited directly through the changes in the value of the
accumulation units and annuity units. Also, most mortality and expense savings
are credited directly through decreases in the appropriate charges. Therefore,
the Company expects little or no divisible surplus to be credited to a Contract.
If any divisible surplus is credited to a Contract, the Contract Owner may
choose to take the distribution in cash, reduce the stipulated payment, or leave
the distribution with Security Equity to accumulate with interest.
Incorrect Age or Sex
If the age at issue or sex of the annuitant as shown in the Contract is
incorrect, any benefit payable under a supplemental agreement will be such as
the premiums paid would have purchased at the correct age at issue and sex.
After Security Equity begins paying monthly income installments, appropriate
adjustment will be made in any remaining installments.
Annuity Data
Security Equity will not be liable for obligations which depend on receiving
information from a payee until such information is received in a form
satisfactory to Security Equity.
Quarterly Reports
Quarterly, Security Equity will give the contract owner a report of the current
accumulated value allocated to each Investment Fund; the current accumulated
value allocated to the General Account; and any purchase payments, charges,
transfers, or surrenders during that period. This report will also give the
contract owner any other information required by law or regulation. The contract
owner may ask for a report like this at any time. The quarterly reports will be
distributed without charge. Security Equity reserves the right to charge a fee
for additional reports.
Incontestability
Security Equity cannot contest this Contract.
Ownership
The owner of the Contract on the contract date is the annuitant, unless
otherwise specified in the application. The owner may specify a new owner by
written notice at any time thereafter. During the annuitant's lifetime all
rights and privileges under this Contract may be exercised solely by the owner.
Reinstatement
A Contract may be reinstated if a stipulated payment is in default and if the
accumulated value has not been applied under the surrender provision.
Reinstatement may be made during the lifetime of the annuitant but before the
annuity date by the payment of one stipulated payment. Benefits provided by any
supplemental agreement attached to this Contract may be reinstated by providing
evidence of insurability satisfactory to Security Equity. The reinstatement
provisions incorporated in such supplemental agreement must be complied with.
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Accounts is held by Security Equity. The assets
are kept physically segregated and held separate and apart from Security
Equity's general account assets. Records are maintained of all purchases and
redemptions of eligible shares held by each of the Investment Funds of the
separate account.
STATE REGULATION
Security Equity is a stock life insurance company organized under the laws of
the State of New York, and is subject to regulation by the New York State
Insurance Department. An annual statement is filed with the New York State
Insurance Department on or before March 1 of each year covering the operations
and reporting on the financial condition of Security Equity as of December 31 of
the preceding calendar year. Periodically, the New York State Insurance
Department examines the financial condition of Security Equity, including
the liabilities and reserves of the Separate Accounts.
In addition, Security Equity is subject to the insurance laws and regulations of
all the states where it is licensed to operate. The availability of certain
contract rights and provisions depends on state approval and filing and review
processes. Where required by state law or regulation, the Contracts will be
modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Accounts will be maintained by
Security Equity. As presently required by the Investment Company Act of 1940 and
regulations promulgated thereunder, Security Equity will mail to all contract
owners at their last known address of record, at least semi-annually, reports
containing such information as may be required under that Act or by any other
applicable law or regulation.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Accounts are a party or to
which the assets of the Separate Accounts are subject. Security Equity is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Accounts.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments, and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company and the financial
statements of the Separate Account included herein should be considered only as
bearing upon the ability of the Company to meet its obligations under the
Contracts.
[TO BE FILED BY AMENDMENT]
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
[To be filed by amendment]
(b) Exhibits
(1) -- Resolutions of the Board of Directors of Security Equity Life
Insurance Company ("Security Equity") establishing the
Separate Account. 1
(2) -- Not Applicable
(3) (a)-- Distribution Agreement. 2
(b)-- Agency (Selling) Agreement. 2
(4) (a)-- Form of variable annuity contract 6000531. 4
(b)-- Form of individual retirement account endorsement 6090031. 4
(5) -- Form of Contract Application. 2
(6) (a)-- Certificate of Incorporation of Security Equity. 1
(b)-- By-laws of Security Equity. 1
(7) -- Not applicable
(8) -- Participation Agreement. 2
(9) -- Opinion and Consent of Counsel. (To be filed by amendment)
(10)-- Consent of Independent Accountants. (To be filed by amendment)
(11)-- No financial statements are omitted from item 23.
(12)-- Not applicable
(13)-- Not applicable
(14)-- Powers of attorney for Security Equity Life Insurance Company
Directors Richard A. Liddy, Edwin Trusheim, Virginia V. Weldon,
Ted C. Wetterau, Carson E. Beadle, David D. Holbrook, Stanley
Goldstein, James R. Elsesser, Bernard H Wolzenski, Leonard M.
Rubenstein, A. Greig Woodring, William C. Thater. 1 Willard N.
Archie 3
1 Incorporated herein by reference to the initial Registration
Statement (file no. 33-87144) filed on 9 December 1994.
2 Incorporated herein by reference to Pre-Effective Amendment No. 1
(file no. 33-87144) filed on 14 April 1995.
3 Incorporated herein by reference to Post-Effective Amendment No. 1
(file 33-87144) filed on 29 April 1996.
4 Incorporated herein by reference to Post-Effective Amendment No. 2
(file 33-87248) filed on 25 April 1997.
C-1
Item 25. Directors and Officers of the Depositor
OFFICER'S NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH DEPOSITOR
Ralph H. Gorter Second Vice President
Judith A. Maron Second Vice President
Karla Huskey Controller
General American Life
Insurance Company
700 Market Street
St. Louis, MO 63101
William C. Thater President and Director
Matthew P. McCauley Secretary and
General American Life and General Counsel
Insurance Company
700 Market Street
St. Louis, MO 63101
* The principal business address of each person listed is Security Equity
Life Insurance Company, 84 Business Park Drive, Suite 303, Armonk, New York
10504, unless otherwise indicated.
C-2
DIRECTORS POSITIONS AND OFFICES
WITH DEPOSITOR
Willard N. Archie Director
Mitchell, Titus & Company
One Battery Park Plaza
New York, New York 10004-1461
Carson E. Beadle Director
Carson E. Beadle, Inc.
750 Park Avenue, Apt. 14E
New York, New York 10021
James R. Elsesser Director
Ralston Purina Company
Checkerboard Square
St. Louis, Missouri 63164
Stanley Goldstein Director
Goldstein, Golub, Kessler & Company
New York, New York 10036
David D. Holbrook Director
J&H, Marsh & McLennan, Inc.
1166 Avenue of the Americas
New York, New York 10036
Richard A. Liddy Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
Leonard M. Rubenstein Director
Conning Asset Management Company
700 Market Street
St. Louis, Missouri 63101
William C. Thater Director and President
Security Equity Life Insurance Company
84 Business Park Drive, Suite 303
Armonk, New York 10504
H. Edwin Trusheim Director
General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
C-3
Directors Positions and Offices
with Depositor
Virginia V. Weldon, M.D. Director
212 Carlyle Lake
St. Louis, Missouri 63141
Ted C. Wetterau Director
Wetterau Associates, L.L.C.
8112 Maryland Avenue, Suite 250
St. Louis, Missouri 63105
Bernard H Wolzenski Director
General American Life Insurance Company
13045 Tesson Ferry Road
St. Louis, Missouri 63101
A. Greig Woodring Director
Reinsurance Group of America, Inc.
660 Mason Ridge Center Drive, Suite 300
St. Louis, Missouri 63141
C-4
Item 26.Persons Controlled by or Under Common Control With the Depositor or
Registrant
The Depositor, Security Equity Life Insurance Company ("Security Equity"), is
under common control with the following companies, all of which are controlled
by General American Life Insurance Company ("General American"):
General American Mutual Holding Company: a mutual holding company.
GenAmerica Corporation: formed to hold all of the stock of General American Life
Insurance Company.
Walnut Street Securities, Inc.: wholly-owned, third-tier subsidiary engaged in
the process of selling variable life insurance and variable annuities and other
securities.
Walnut Street Advisers, Inc.: wholly-owned subsidiary of Walnut
Street Securities engaged in the business of giving investment advice.
WSS Insurance Agencies (Alabama, Massachusetts, Ohio, Texas), Inc.:
formed to act as insurance agencies.
Collaborative Strategies, Inc.: wholly-owned business management consulting
company.
GenAmerica Capital I: Wholly-owned Delaware trust formed for the purpose of
issuing securities as an investment vehicle for GenAmerica Corporation.
Missouri Reinsurance (Barbados), Inc.: wholly-owned Barbados exempt life,
accident and health reinsurance company.
NaviSys Incorporated: wholly-owned holding company formed to hold NaviSys
Insurance Solutions, Inc., NaviSys Illustration Solutions, Inc., and
NaviSys Enterprise Solutions, Inc.
NaviSys Enterprise Solutions, Inc. (fka Beacon Software Development
Company, Inc.): 80% owned by NaviSys Incorporated. New Jersey
corporation providing enterprise life administration software.
NaviSys Illustration Solutions, Inc. (fka ECTA Corporation): 100%
owned by NaviSys Incorporated. Pennsylvania corporation providing
sales illustration software.
General American Life Insurance Company: an insurance company selling life
and health insurance and pensions.
Cova Corporation: wholly-owned subsidiary formed to own the former
Xerox Life companies.
Cova Financial Services Life Insurance Company: wholly-owned by
Cova Corporation, engaged in the business of selling annuities
and life insurance.
First Cova Life Insurance Company: wholly-owned by Cova
Financial Services Life Insurance Company, engaged in
the sale of life insurance in New York.
Cova Financial Life Insurance Company: wholly-owned by
Cova Corporation, engaged in the sale of life insurance and
annuities in California.
Cova Life Management Company: wholly-owned by Cova Corporation.
Employer of the individuals operating the Cova companies.
Cova Investment Advisory Corporation: wholly-owned by Cova
Life Management Company. Intended to provide investment
advice to Cova Life insureds and annuity owners.
Cova Investment Allocation Corporation: wholly-owned by Cova
Life Management Company. Intended to provide advice on
allocation of premiums to Cova Life insureds and annuity
owners.
Cova Life Sales Company: wholly-owned by Cova Life
Management Company. Broker-dealer established to
supervise sales of Cova Life contracts.
Cova Life Administration Services Company: 49% owned by
Cova Life Management Company. Provides administrative
services for Cova annuities. (51% owned by Genelco
Incorporated.)
General Life Insurance Company: wholly-owned subsidiary, domiciled in
Texas, engaged in the business of selling life insurance and
annuities.
General Life Insurance Company of America: wholly-owned
subsidiary, domiciled in Illinois, engaged in the business of
selling life insurance and annuities.
Paragon Life Insurance Company: wholly-owned subsidiary engaged in
employer sponsored sales of life insurance.
Equity Intermediary Company: wholly-owned subsidiary holding company
formed to own stock in subsidiaries.
Reinsurance Group of America, Incorporated: subsidiary, of which
approximately 64% is owned by Equity Intermediary and the balance
by the public.
RGA Sudamerica S.A.: Chilean subsidiary, of which all but
one share is owned by RGA and one share is owned by RGA
Reinsurance Company, existing to hold Chilean reinsurance
operations.
BHIF America Sequros de Vida S.A.: Chilean
subsidiary, of which 50% is owned by RGA Sudamerica
S.A. and 50% is owned by Chilean interests, engaged
in business as a life/annuity insurer.
RGA Reinsurance Company Chile S.A.: 100% owned
by RGA, engaged in business of reinsuring life and
annuity business of BHIF America.
General American Argentina Sequros de Vida S.A.: Argentinean
subsidiary 100% owned by RGA, engaged in business as a life,
annuity, disability and survivorship insurer.
Reinsurance Company of Missouri, Incorporated: wholly owned
subsidiary formed for the purpose of owning RGA Reinsurance
Company.
RGA Reinsurance Company: subsidiary of Reinsurance
Group of America engaged in the reinsurance business.
Fairfield Management Group, Inc.: 100% owned
subsidiary.
Reinsurance Partners, Inc.: wholly-owned
subsidiary of Fairfield Management Group,
Inc., engaged in business as a reinsurance
brokerage company.
Great Rivers Reinsurance Management,
Inc.: wholly-owned subsidiary of Fairfield
Management Group, Inc., acting as a
reinsurance manager.
RGA (U.K.) Underwriting Agency Limited:
wholly-owned by Fairfield Management Group,
Inc.
RGA Reinsurance Company (Barbados) Ltd.: subsidiary of
Reinsurance Group of America, Incorporated formed to engage
in the exempt insurance business.
RGA/Swiss Financial Group, L.L.C.: 40% owned
subsidiary formed to market and manage financial
reinsurance business to be assumed by RGA Reinsurance
Company.
Triad Re, Ltd.: Reinsurance Group of America, Incorporated
owns 100% of all outstanding and issued shares of the
Company's preferred stock. Reinsurance Group of America,
Inc. owns 66.67% of all outstanding and issued shares of the
Company's common stock. Schmitt-Sussman Enterprises, Inc.
owns 33.33% of all outstanding and issued shares of the
Company's common stock.
RGA Americas Reinsurance Company, Ltd.: Reinsurance Group of
America, Incorporated owns 100% of this company.
RGA International Ltd.: a New Brunswick corporation
wholly-owned by Reinsurance Group of America, existing to
hold Canadian reinsurance operations.
RGA Financial Products Limited: 50% owned
by RGA International Ltd. (100 Class A shares).
Consolidated Risk Management Solutions Inc. owns
other 50% (100 Class B shares).
RGA Canada Management Company, Ltd.: a New
Brunswick corporation wholly-owned by G.A. Canadian
Holdings, existing to accommodate Canadian investors.
RGA Life Reinsurance Company of Canada:
wholly-owned by RGA Canada Management Company,
Ltd.
RGA Holdings Limited: holding company formed in the United Kingdom to
own two operating companies: RGA Managing Agency Limited and RGA
Capital Limited.
RGA Capital Limited: company is a corporate
member of a Lloyd's life syndicate.
Benefit Resource Life Insurance Company (Bermuda) Ltd. (fka
RGA Insurance Company (Bermuda) Limited): subsidiary formed
to engage in insurance business.
RGA Australian Holdings Pty Limited: holding company formed to own RGA
Reinsurance Company of Australia Limited.
RGA Reinsurance Company of Australia Limited: formed to
reinsure the life, health and accident business of
non-affiliated Australian insurance companies.
RGA South African Holdings (Pty) Ltd.: 100% owned by
Reinsurance Group of America, Incorporated formed for the
purpose of holding RGA Reinsurance Company of South Africa
Limited.
RGA Reinsurance Company of South Africa Limited: 100% owned
by RGA South African Holdings (Pty) Ltd.
Security Equity Life Insurance Company: wholly-owned subsidiary,
domiciled in New York, engaged in the business of selling life
insurance and annuities.
General American Holding Company: wholly-owned subsidiary owning
non-insurance subsidiaries.
NaviSys Insurance Solutions, Inc. (fka Genelco Incorporated):
wholly-owned, second-tier subsidiary engaged in the sale of
computer software and in providing third party administrative
services.
Genelco de Mexico, S.A. de C.V.: 99% owned by NaviSys
Insurance Solutions, Inc., engaged in licensing of Genelco
software products in Latin America.
Genelco Software, S.A.: 99% owned by NaviSys Insurance
Solutions, Inc., engaged in licensing of Genelco software
products in Spain.
Cova Life Administration Services Company: 51% owned.
Provides administrative services for Cova annuities. (49%
owned by Cova Life Management Company.)
Conning Corporation: 63% owned, second-tier subsidiary formed to
own the Conning companies (with the remainder owned by the
public).
Conning, Inc.: a holding company organized under Delaware
law.
Conning & Company: a Connecticut corporation
engaged in providing asset management and investment
advisory services as well as insurance research
services.
Conning Asset Management Company: a Missouri
corporation engaged in providing investment
advice.
Consultec, Inc.: wholly-owned, second-tier subsidiary engaged in
providing data processing services for government entities.
Red Oak Realty Company: wholly-owned, second-tier subsidiary
formed for the purpose of investing in and operating real estate.
GenMark Incorporated: wholly-owned, second-tier subsidiary
company acting as distribution company.
Stan Mintz Associates, Inc.: wholly-owned subsidiary
purchased to maintain a significant marketing presence in
the Madison, Wisconsin area upon the retirement of General
Agent Stan Mintz.
White Oak Royalty Company: wholly-owned, second-tier subsidiary
formed to own mineral interests.
Mutual funds associated with General American Life Insurance Company:
General American Capital Company
Item 27. Number of Contract Owners as of __________, 1999: ____
Qualified ____
Non-Qualified ____
Item 28. Indemnification
Sections 721 and 722 of the New York Business Corporation Law, in brief, allow a
corporation to indemnify any person made or threatened to be made a party to an
action or proceeding other than one by or in the right of the corporation to
procure a judgment in its favor, whether civil or criminal, including an action
by or in the right of any other corporation of any type or kind, domestic or
foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the corporation served in any
capacity at the request of the corporation, by reason of the fact that he, his
testator or intestate, was a director or officer of the corporation, or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorney's fees actually and
C-11
necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such director or officer acted, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service for any other
corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the corporation and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful. Where any person is made, or threatened to be
made, a party to an action by or in the right of the corporation to procure a
judgment in its favor, indemnification shall not be made in respect of (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
court on which the action was brought, or, if no action was brought, any court
of competent jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper. A corporation has the power to give any further indemnification
and advancement of expenses to any person who is or was a director, officer, or
other corporate personnel, whether such right is contained in the certificate of
incorporation or the by-laws or, when authorized by such certificate of
incorporation or by-laws, (i) a resolution of shareholders, (ii) a resolution of
directors, or (iii) an agreement providing for such indemnification, provided
that no indemnification may be made to or on behalf of any director or officer
if a judgment or other final adjudication adverse to the director or officer
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
In accordance with New York law, Security Equity's Board of Directors adopted
the following by-law:
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section VII.1. Indemnification of Directors and Officers. The Corporation may
indemnify any person made, or threatened to be made, a party to an action by or
in the right of the Corporation to procure a judgment in its favor by reason of
the fact that he or she, his or her testator, testatrix or intestate,
C-12
is or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of any other corporation of
any type or kind, domestic or foreign, of any partnership, joint venture, trust,
employee benefit plan or other enterprise, against amounts paid in settlement
and reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him or her in connection with the defense or settlement of such
action, or in connection with an appeal therein, if such director or officer
acted, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interests of the Corporation, except that no indemnification under this
Section shall be made in respect of (1) a threatened action, or a pending action
which is settled or is otherwise disposed of, or (2) any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation, unless and only to the extent that the court in which the action
was brought, or, if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such portion of
the settlement amount and expenses as the court deems proper.
The Corporation may indemnify any person made, or threatened to be made, a party
to an action or proceeding (other than one by or in the right of the Corporation
to procure a judgment in its favor), whether civil or criminal, including an
action by or in the right of any other corporation of any type or kind, domestic
or foreign, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, which any director or officer of the Corporation served in any
capacity at the request of the Corporation, by reason of the fact that he or
she, his or her testator, testatrix or intestate, was a director or officer of
the Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, if such director or officer acted, in good
faith, for a purpose which he or she reasonably believed to be in, or, in the
case of service for any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise, not opposed to, the best
interests of the Corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his or her conduct was
unlawful.
C-13
The termination of any such civil or criminal action or proceeding by judgment,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not in itself create a presumption that any such director or officer did
not act, in good faith, for a purpose which he or she reasonably believed to be
in, or, in the case of service for any other corporation or any partnership,
joint venture, trust, employee benefit plan or other enterprise, not opposed to,
the best interest of the Corporation or that he or she had reasonable cause to
believe that his or her conduct was unlawful.
A person who has been successful, on the merits or otherwise, in the defense of
a civil or criminal action or proceeding of the character described in the first
two paragraphs of this Article VII, shall be entitled to indemnification as
authorized in such paragraphs. Except as provided in the preceding sentence and
unless ordered by a court, any indemnification under such paragraphs shall be
made by the Corporation, only if authorized in the specific case:
(1) By the Board of Directors acting by a quorum consisting of directors
who are not parties to such action or proceeding upon a finding that
the director, officer or employee has met the standard of conduct set
forth in the first two paragraphs of this Article VII, as the case may
be or
(2) If such a quorum is not obtainable with due diligence or, even if
obtainable, a quorum of disinterested directors so directs,
(a) By the Board of Directors upon the opinion in writing of
independent legal counsel that indemnification is proper in the
circumstances because the applicable standard of conduct set
forth in the first two paragraphs of this Article VII has been
met by such director, officer of employee, or
(b) By the shareholders upon a finding that the director, officer or
employee has met the applicable standard of conduct set forth in
such paragraphs.
Expenses, including attorneys' fees, incurred in defending a civil or criminal
action or a proceeding may be paid by the Corporation in advance of the final
disposition of such action or proceeding, if authorized in accordance with the
preceding paragraph, subject to repayment to the Corporation in case the person
receiving such advancement is ultimately found, under the procedure set forth in
this Article VII, not to be entitled to
C-14
indemnification or, where indemnification is granted, to the extent the expenses
so advanced by the Corporation exceed the indemnification to which he or she is
entitled.
Nothing herein shall affect the right of any person to be awarded
indemnification or, during the pendency of litigation, an allowance of expenses,
including attorneys' fees, by a court in accordance with law.
If any expenses or other amounts are paid by way of indemnification, otherwise
than by court order or action by the shareholders, the Corporation shall, not
later than the next annual meeting of shareholders unless such meeting is held
within three months from the date of such payment, and in any event, within
fifteen months from the date of such payment, mail to its shareholders of record
at the time entitled to vote for the election of directors a statement
specifying the persons paid, the amounts paid, and the nature and status at the
time of such payment of the litigation or threatened litigation.
The Corporation shall have the power, in furtherance of the provisions of this
Article VII, to apply for, purchase and maintain insurance of the type and in
such amounts as is or may hereafter be permitted by Section 726 of the Business
Corporation Law.
No payment of indemnification, advancement or allowance under Sections 721 to
726, inclusive, of the Business Corporation Law shall be made unless a notice
has been filed with the Superintendent of Insurance of the State of New York,
not less than thirty days prior to such payment, specifying the persons to be
paid, the amounts to be paid, the manner in which such payment is authorized and
the nature and status, at the time of such notice, of the litigation or
threatened litigation.
Item 29. Principal Underwriters
(a) ______________ serves as the principal underwriter and distributor for
the variable annuity contracts using Separate Account 26 and Separate
Account 27 of Security Equity and funded by AIM Variable Insurance
Funds, Inc.
(b) Directors and Officers
C-15
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER
William J. Guilfoyle President and Chairman of the Board
Raymond R. Cunningham Senior Vice President - Director of Sales
and Director
Helge K. Lee Secretary and Chief Legal and Compliance
Officer
Richard W. Healey Senior Vice President - Director of
Marketing and Director
Stephen A. Maginn Senior Vice President - Regional Sales
519 S. Juanita Manager
Redondo Beach, CA 90277
Donna B. Abrahamson Vice President - Account Management
Hallie L. Baron Vice President - Public Relations &
Shareholder Communications
Jon Burke Vice President
31 Darlene Drive
Southboro, MA 01772
Gary M. Castro Assistant Treasurer & Controller
Kenneth W. Chancey Senior Vice President - Fund Accounting
Anthony DiBacco Vice President
30585 Via Lindosa
Laguna Niguel, CA 92677
C-16
Name and Principal Business Positions and Offices
Address* with Underwriter
Philip B. Christopher Vice President
3621 59th Avenue, SW
Seattle, WA 98116
Stephen Duffy Vice President
1120 Gables Drive
Atlanta, GA 30319
Philip D. Edelstein Senior Vice President - Regional Sales
9 Huntly Circle Manager
Palm Beach Gardens, FL 33418
Glen R. Farinacci Vice President
86 University Place
Staten Island, NY 10301
Ned E. Hammond Vice President
5901 McFarland Ct.
Plano, TX 75093-4317
David P. Hess Assistant Secretary and Director of
Mutual Fund Compliance
Richard Kashnowski Vice President
1368 S. Ridge Drive
Mandeville, LA 70448
Allen M. Kuhn Vice President
19655 Red Maple Lane
Jupiter, FL 33458
Earle A. Malm II Chief Operating Officer
Christine C. Mangan Vice President - Dealer Marketing
Steven C. Manns Vice President
1941 West Wolfram
Chicago, IL 60657
Wayne F. Meyer Vice President
2617 Sun Meadow Drive
Chesterfield, MO 63005
Christine M. Pallatto Senior Vice President - Director of Human
Resources
C-17
Name and Principal Business Positions and Offices
Address* with Underwriter
Dean Phillips Vice President
3406 Bishop Park Drive, #428
Winter Park, FL 32792
Dennis W. Reichert Assistant Treasurer and Budget Director
Pamela Ruddock Vice President - Fund Administration
Philip Schertz Vice President
25 Ivy Place
Wayne, NJ 07470
Michael A. Silver Assistant Secretary and Assistant General
Counsel
Peter Sykes Vice President
1655 E. Sherman Avenue
Salt Lake City, UT 84105
Margo A. Tammen Vice President - Finance & Administration
Lance Vetter Vice President
10915 La Sallnas Circle
Boca Raton, FL 33428
Tommy D. Wells Vice President
25 Crane Drive
Sam Anselmo, CA 94960
Todd H. Westby Vice President
3405 Goshen Road
Newtown Square, PA 19073
Claus te Wildt Vice President - Director of Strategy and
Business Planning
Peter J. Wolfert Senior Vice President - Information
Technology
Paul Woznlak Vice President - Fund Accounting
Eric T. Zeigler Vice President
437-30th St.
Manhattan Beach, CA 90266
* Unless otherwise indicated, the business address of each person listed is
50 California Street, San Francisco, California 94111.
C-18
(c) Principal Underwriter
1998 Brokerage 1998 Compensation
Commission
___________ $_________ $___________
C-19
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by Security Equity at its
administrative offices, 84 Business Park Drive, Suite 303, Armonk, New York
10504, or by its service provider, General American Life Insurance Company or
its wholly-owned, second tier subsidiary, Genelco Incorporated, located at 9735
Landmark Parkway Drive, St. Louis, Missouri 631278-1690.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) The Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Purchase Payments under the Contracts may
be accepted.
(b) The Registrant undertakes to include, as part of the application to
purchase a Contract offered by the prospectus, a space that an applicant
can check to request a Statement of Additional Information.
(c) The Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request to Security Equity at
the address or phone number listed in the prospectus.
(d) The Registrant represents that it is relying upon a "no-action" letter (No.
IP-6-88) issued to the American Council of Life Insurance concerning the
conflict between the redeemability requirements of sections 22(e),
27(c)(l), and 27(d) of the Investment Company Act of 1940 and the limits on
the redeemability of variable annuities imposed by section 403(b)(ll) of
the Internal Revenue Code. Registrant has included disclosure concerning
the 403(b)(ll) restrictions in its prospectus and sales literature, and
established a procedure whereby each plan participant will sign a statement
acknowledging these restrictions before the contract is issued. Sales
representatives have been instructed to bring the restrictions to the
attention of potential plan participants.
(e) Security Equity hereby represents that the fees and charges deducted under
the Contracts are, in the aggregate, reasonable in relationship to the
services rendered, the expenses expected, and the risks incurred by
Security Equity.
C-20
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this amended Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized in the City of
Armonk, State of New York, on the 18th day of August, 1999.
SECURITY EQUITY SEPARATE
ACCOUNT 27 (REGISTRANT)
By: SECURITY EQUITY LIFE INSURANCE
COMPANY (for Registrant and as
Depositor)
By: /s/WILLIAM C. THATER
-------------------------------
William C. Thater
President
Security Equity Life
Insurance Company
C-21
As required by the Securities Act of 1933, this amended Registration Statement
has been signed below by the following persons in their capacities with Security
Equity Life Insurance Company and on the dates indicated.
SIGNATURE TITLE DATE
/s/WILLIAM C. THATER 8/18/99
- -----------------------------
William C. Thater President
(Principal Executive
Officer)
/s/KARLA HUSKEY
- ----------------------------- Controller 8/23/99
Karla Huskey
*
- -----------------------------
Willard N. Archie Director
*
- -----------------------------
Carson E. Beadle Director
*
- -----------------------------
James R. Elsesser Director
*
- -----------------------------
Stanley Goldstein Director
*
- -----------------------------
David D. Holbrook Director
*
- -----------------------------
Richard A. Liddy Director
*
- -----------------------------
Leonard M. Rubenstein Director
/s/WILLIAM C. THATER 8/18/99
- -----------------------------
William C. Thater Director
C-22
SIGNATURE TITLE DATE
*
- -----------------------------
H. Edwin Trusheim Director
*
- -----------------------------
Virginia V. Weldon Director
*
- -----------------------------
Ted C. Wetterau Director
*
- -----------------------------
Bernard H Wolzenski Director
*
- -----------------------------
A. Greig Woodring Director
By: /s/WILLIAM C. THATER
--------------------------
William C. Thater
* Original powers of attorney authorizing William C. Thater to sign the
Registration Statement and amendments thereto on behalf of the Directors of
Security Equity Life Insurance Company are on file with the SEC.
C-23
Exhibit Index
