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Prospectus
Flexible Premium Variable Life Insurance Contract
Issued by Security Equity Life Insurance Company
Security Equity's Separate Account 13
Prospectus dated August 12, 1996
Security Equity Life Insurance Company
84 Business Park Drive
Suite 303
Armonk, NY 10504
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Flexible Premium Variable Life Insurance Contract
Issued by
Security Equity Life Insurance Company
84 Business Park Drive
Suite 303
Armonk, NY 10504
Tel:(914) 273-1290
This Prospectus describes the Individual Flexible Premium Variable Life
Insurance Contract (the "Contract") offered by Security Equity Life
Insurance Company ("SELIC" or the "Company"). The Contract is designed to
provide lifetime insurance protection to age 100 and at the same time
provide maximum flexibility to vary premium payments and change the level of
death benefits payable under the Contract. This flexibility allows a
Contract Holder to provide for changing insurance needs under a single
insurance Contract. A Contract Holder also has the opportunity to allocate
Net Premiums among several investment portfolios with different investment
objectives.
The Contract provides for: (1) a Net Cash Value that can be obtained by
surrendering the Contract; (2) Contract loans; and (3) a Death Benefit
payable at the Insured's death. Contract Holders may also attach a rider
that amends the Contract to instead provide insurance coverage on the lives
of two Insureds, with proceeds payable upon the death of the last surviving
Insured. As long as a Contract remains in force, the Death Benefit will not
be less than the current Face Amount of the Contract. A Contract will remain
in force so long as its Net Cash Value is sufficient to pay certain monthly
charges imposed in connection with the Contract.
During the "Free Look" period, Net Premiums are allocated to the Money
Market Division as specified in Appendix A. After the end of the "Free
Look" period, Net Premiums may be allocated to one or more of the Available
Divisions of the Separate Account or to the Fixed Fund. If Net Premiums are
allocated to the Separate Account, the duration of the Contract and the
amount of the Insurance Account Value will vary to reflect the investment
performance of the Available Divisions selected by the Contract Holder, and
depending on the Death Benefit option elected, the amount of the Death
Benefit above the minimum may also vary with that investment performance.
The Contract Holder bears the entire investment risk for all amounts
allocated to the Separate Account; there is no minimum guaranteed Insurance
Account Value.
Each Available Division of the Separate Account 13 will invest in one of the
Underlying Portfolios shown in Appendix A. The accompanying Prospectuses
for these portfolios describe the investment objectives and policies, and
the risks of the portfolios.
This Prospectus generally describes only the portion of the Contracts involving
the Available
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Divisions of the Separate Account. For a brief summary of the Fixed Fund,
see "The Fixed Fund".
It may not be advantageous to purchase a Contract as a replacement for
another type of life insurance or as a means to obtain additional insurance
protection if the purchaser already owns another Flexible Premium Variable
Life Insurance Contract. Within certain limits, a Contract Holder may
return the Contract, or convert it to a Contract that provides benefits that
do not vary with the investment results of Available Divisions by exercising
the Conversion Right.
This Prospectus must be accompanied or preceded by the current prospectuses
for the Underlying Portfolios listed in Appendix A.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR DEPOSITORY INSTITUTION, AND THE CONTRACT IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Contracts are not available in all states.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
Please read this Prospectus carefully and retain it for future reference.
The date of this Prospectus is August 12, 1996
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Definitions 6
Summary of Contract 10
Explanation of a Case 10
Purpose of the Contract 11
The Contract Holder and Beneficiary 11
Availability of the Contract 12
Joint Insureds 12
Contract Values 12
The Separate Account 12
Death Benefit 13
Premiums 13
Charges and Deductions 14
Contract Loans 15
Surrender and Partial Withdrawals 16
Termination 16
Illustrations 16
Replacement of Existing Coverage 16
Tax Considerations 16
Free Look and Conversion Rights 17
Information About SELIC 17
The Separate Account 18
The Contract 19
Availability of Insurance Coverage 20
Evidence of Insurability 21
Premiums 21
Contract Values 23
Transfers 26
Contract Loan Privilege 27
Surrender and Partial Withdrawals 30
Death Benefits Under the Contract 31
Charges and Deductions 36
Premium Load 36
Daily Charges 38
Monthly Charges 39
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Underwriting Charges 41
Annual Charges 42
Other Charges 42
Termination 43
Maturity Date 43
Termination for Insufficient Net Cash Value 43
Reinstatement of a Contract Terminated for Insufficient Value 44
The Fixed Fund 44
General Description 44
Allocation of Amounts to the Fixed Fund 45
Fixed Fund Benefits 45
Fixed Fund Insurance Account Value 45
Fixed Fund Transfers, Surrenders, Partial Withdrawals and
Contract Loans 47
Federal Income Tax Considerations 47
Additional Provisions of the Contract 53
Addition, Deletion, or Substitution of Investments 53
Incontestability 54
Conversion Rights 55
Misstatement of Age or Sex 55
Suicide 55
Availability of Funds 55
Entire Contract 56
Representations in Application 56
Contract Application and Contract Schedules 56
Right to Amend Contract 57
Computation of Contract Values 57
Claims of Creditors 57
Notice 57
Assignments 57
Construction 58
Severability 58
State Variations 58
Unisex Requirements Under Montana Law 58
Records and Reports 58
Sale of the Contract 58
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Voting Rights 59
State Regulation of the Company 60
Management of the Company 61-63
Legal Matters 64
Legal Proceedings 64
Experts 64
Additional Information 64
Financial Statements 64-89
Appendix A - Underlying Portfolios A1-A8
Appendix B - Contract Riders B1-B7
Appendix C - Illustrations of Death Benefits and
Insurance Account Value C1-C11
</TABLE>
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DEFINITIONS
See Appendix B for modifications to Definitions in the event that riders are
added to the Contract.
Attained Age: The Insured's Issue Age under the Contract plus the number of
completed Contract Years.
Application: The application form that must be completed by any purchaser
of the Contract, before the Contract can be issued.
Available Division: A Division of the Separate Account to which Net
Premiums may be allocated or Separate Account Value or Fixed Fund Insurance
Account Value may be transferred under the Contracts. Each Available
Division invests exclusively in the shares of a corresponding Underlying
Portfolio listed in Appendix A.
Beneficiary: The person(s), entity or entities named on SELIC's records to
receive the insurance proceeds payable under the Contract after the Insured
dies.
Borrowed Fund: An account established in SELIC's General Account for any
amounts transferred from the Available Divisions and the Fixed Fund and held
as collateral for Contract Loans. (See "Contract Loan Privilege")
Case: A grouping of one or more Contracts connected by a non-arbitrary
factor, presented to SELIC as a group. (An example of such a factor is a
common employer for the Insureds under each Contract in the grouping.) (See
"Explanation of a Case")
Contract: The Flexible Premium Variable Life Insurance Contract offered by
SELIC that is described in this Prospectus.
Contract Anniversary: An anniversary of the Contract Date. It marks the
start of a new Contract Year.
Contract Date: The date used to begin calculating Monthly Charges and
Annual Charges under the Contract. It will be shown in the Contract.
Contract Holder: The owner of the Contract, as shown in the records of
SELIC. All of the rights and benefits of the Contract belong to the
Contract Holder, unless otherwise stated in the Contract.
Contract Loan: An amount borrowed by the Contract Holder from the Insurance
Account Value of the Contract.
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Contract Month: Each one month period commencing on the Contract Date and
on each Monthiversary thereafter.
Contract Year: Each successive twelve month period starting on the Contract
Date and on each Contract Anniversary thereafter.
Death Benefit: The benefit payable to the Beneficiary when the Insured
dies.
Death Benefit Option Accumulation Rate: The rate at which Premiums are
accumulated for purposes of calculating Death Benefit Option 3.
Division: A sub-account of the Separate Account. Only Available Divisions
(described in this Prospectus) are available for investment under the
Contracts.
Employer: A corporation, partnership, sole proprietorship, association,
trust, and other similar or related entity. Affiliated Employers are
considered one Employer.
Excess Premium: Any amount of Premium paid in a Contract Year over and
above the Target Premium.
Face Amount: The amount of insurance under the contract, excluding any
Supplemental Term Insurance Amount. The Initial Face Amount on the Issue
Date is shown in the Contract. Thereafter, it may change in accordance with
the terms of the Contract.
Fixed Fund: The portion of the Insurance Account Value allocated to the
Company's General Account (excluding the Borrowed Fund).
Governing Jurisdiction: The state or jurisdiction in which the Contract is
delivered and whose laws govern its terms. The Governing Jurisdiction is
set forth in the Contract.
Home Office: The principal administrative office of SELIC, which is located
at 84 Business Park Drive, Suite 303, Armonk, NY 10504.
Initial Net Premium: The Initial Premium paid under the Contract less the
applicable Premium Load.
Initial Premium: The first Premium paid under the Contract.
Insurance Account Value: The total amount that a Contract provides for
investment at any time. It is equal to the total of the amounts credited to
the Contract Holder in the Separate Account, the Fixed Fund, and the
Borrowed Fund.
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Insured: The person whose life is insured under the terms of the Contract.
The Insured is shown in the Contract.
Issue Age: The Insured's age at his/her nearest birthday as of the Contract
Date.
Issue Date: The day the Initial Premium is received and accepted by SELIC.
This is also the date that insurance coverage becomes effective. All
Contract values based on the Separate Account are determined beginning on
the Issue Date. The Issue Date is shown in the Contract.
Maturity Date: The date on which the Contract will mature. The Maturity
Date is shown in the Contract.
Maximum Loan Amount: The maximum amount of Insurance Account Value that can
be borrowed by the Contract Holder under the Contract.
Minimum Insurance Coverage: The minimum amount of Total Insurance Coverage,
which includes any Supplemental Term Insurance Amount, under the Contract.
It is currently $25,000.
Minimum Premium: The Minimum Premium is equal to the Minimum Net Premium
plus any applicable Premium Load.
Minimum Net Premium: The Minimum Net Premium at any time is equal to twelve
(12) times the Monthly Charges for the first month in the then current
Contract Year.
Monthiversary: The first day of each Contract Month. It is the day as of
which Monthly Charges are deducted from the Insurance Account Value. The
Monthiversary and the Contract Date coincide, except in months in which the
Monthiversary falls on a day which is not a Valuation Day. In such months,
the Valuation Day is deemed to fall on the next Valuation Day. If any
Monthiversary would fall on the 29th, 30th, or 31st of a month that does not
have that number of days, then the Monthiversary is deemed to be the last
day of that month.
Monthly Charges: The Contract charges that are deducted monthly from
Insurance Account Value. Monthly Charges include the Administration Charge,
the Cost of Insurance Charge, any Monthly Charges for benefits provided by
Contract rider, and any charges for special insurance class rating. (See
"Charges and Deductions").
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Net Amount At Risk: The Net Amount at Risk for the Insured is calculated on
any Monthiversary by subtracting the Insurance Account Value from the Death
Benefit, discounted one month at a 4% assumed annual effective interest
rate.
Net Cash Value: The Contract's Insurance Account Value minus any Contract
Loan balance and interest accrued thereon and unpaid.
Net Premium: The amount of a Premium less applicable Premium Load.
Planned Renewal Premium: An amount of Premium, specified in the
Application, which the Contract Holder anticipates will be paid in each
Contract Year after the first.
Premium: Premiums are the payments made to SELIC under the Contract by the
Contract Holder to purchase insurance on the life of the Insured and to
contribute to the Insurance Account Value of the Contract. Each Premium
amount may consist of Target Premium, Excess Premium, or both.
Premium Load: An amount deducted from each Premium prior to allocation of
the Premium to the Separate Account and/or the Fixed Fund. Premium Load
includes the Distribution Charge (comprised of a Premium Expense Load and a
Commission Charge), a Premium Tax Charge and a DAC Tax Charge.
SELIC: Security Equity Life Insurance Company, the issuer of the Contract.
Separate Account: A separate investment account established by the Board of
Directors of SELIC to support the benefits payable under the Contract. Each
Available Division of the Separate Account invests in a single corresponding
Underlying Portfolio.
Separate Account Value: The portion of the Contract's Insurance Account
Value invested in the Separate Account. It will be equal to the Contract's
Insurance Account Value, less the total of amounts in the Borrowed Fund and
amounts in the Fixed Fund.
Supplemental Term Insurance Amount: The amount of insurance provided by the
Supplemental Term Insurance Rider, if any. This amount is shown in the
Contract. The Supplemental Term Insurance Rider is described in Appendix B.
Target Premium: An amount of Premium used to determine Premium Loads under
the Contract. The annual Target Premium is based upon the Face Amount and
is shown in the Contract. For Contracts with a Face Amount equal to the
Minimum Face Amount, the Target Premium will be zero (0).
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Total Insurance Coverage: Total amount of insurance, including coverage
provided by any Supplemental Term Insurance Rider under the Contract.
Underlying Portfolio: An investment portfolio, managed by one or more
investment managers, the shares or units of which comprise the investment of
an Available Division of the Separate Account.
Valuation Day: A day that is a regular business day of SELIC and that the
New York Stock Exchange (or its successor) is open for trading. Each
Valuation Day ends at the Valuation Time.
Valuation Time: The close of trading on the New York Stock Exchange (or any
successor exchange), which is generally 4 p.m. Eastern Time.
Valuation Period: The period of time between Valuation Days. A Valuation
Period begins immediately after the Valuation Time on the previous Valuation
Day and ends as of the Valuation Time on the next succeeding Valuation Day.
SUMMARY OF THE CONTRACT
This summary provides a brief overview of the more significant aspects of
the Contract and should be read in conjunction with the detailed information
appearing elsewhere in this Prospectus. Further detail is provided in the
Contract, the Application, and the prospectuses for the Underlying
Portfolios. See Appendix B for modifications to this section in the event
that riders are added to the Contract.
Explanation of a Case
Every Contract issued by SELIC will be part of a Case. A Case is a grouping
of one or more Contracts linked together by a non-arbitrary factor such as a
common Employer of each Insured under the Contracts. SELIC in its sole
discretion will determine what constitutes a Case. A Case may have one
Contract Holder (i.e., a single entity owns all the Contracts in the Case)
or as many Contract Holders as there are Contracts in the Case. The Premium
Load, Minimum Initial Premiums, and underwriting standards for an individual
Contract are determined based on the characteristics of the Case to which
the Contract belongs (see "Charges and Deductions").
A Contract is the agreement between SELIC and the Contract Holder to provide
benefits on the life of an Insured. Every Contract will belong to a Case.
Each Contract will be treated as an individual Contract, yet will also be
linked to the Case it belongs for purposes of determining certain Contract
features and charges.
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Purpose of the Contract
The Contract offers a means to obtain insurance protection relating to the
life of a person in whom the Contract Holder has an insurable interest. A
Death Benefit is payable to the applicable Beneficiary upon the death of the
Insured so long as the Contract remains in force. The accumulated values
and benefits under the Contract may be used by Contract Holders for any
valid purpose. Unlike traditional life insurance, which provides a
guaranteed Insurance Account Value, a Contract's Insurance Account Value
will vary to reflect investment results of the Available Divisions and
interest credited to the Fixed Fund.
Life insurance is not a short-term investment. Prospective Contract Holders
should evaluate the need for insurance and the Contract's long-term
investment potential and risks before purchasing a Contract.
The Contract is a long-term investment designed to provide a Death Benefit,
and should only be purchased for purposes consistent with these features.
The Death Benefit and Net Cash Value under Contracts in a Case may be used
to provide proceeds for various planning purposes. However, the Contracts
are not liquid investments: partial withdrawals may be currently taxable;
and Contract Loans and partial withdrawals may significantly affect current
and future Death Benefit proceeds and Net Cash Value, and cause Contracts to
lapse. In addition, if the performance of the Available Divisions to which
Insurance Account Value is allocated is not sufficient to provide proceeds
for the specific planning purpose contemplated, or if insufficient premiums
are paid or Contract values maintained, then Contracts may not achieve the
purpose for which they were purchased, or may lapse. Because the Contracts
are designed to provide benefits on a long-term basis, before purchasing
Contracts for a specialized purpose, a purchaser should consider whether the
long-term nature of the Contract, and the potential impact of any
contemplated Contract Loans and partial withdrawals, are consistent with the
purpose for which the Contracts are being considered. Using the Contracts
for a specialized purpose may have tax consequences. (See generally
"Federal Income Tax Considerations," and in particular, "Other Tax
Consequences."
The Contract Holder and Beneficiary
The Contract Holder is the individual or entity set forth in the
Application, unless subsequently changed on the records of SELIC. The
Contract Holder retains all rights and responsibilities of ownership
pertaining to its interest in the Contract, including but not limited to,
investment allocation, payment of Premiums, borrowing, taking partial
withdrawals, and surrendering the Contract.
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The Beneficiary is also named in the Application. The Contract Holder has
the right to change a revocable Beneficiary with prior written notice to
SELIC. The Beneficiary will receive all insurance benefits payable upon the
death of the Insured. Unless the Insured is named as Contract Holder, or
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the Contract Holder assigns the right to designate the Beneficiary to the
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Insured, or unless otherwise agreed, the Insured has no direct or indirect
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interest in the Contract.
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Availability of the Contract
The Contract is offered only to individuals, corporations, partnerships,
sole proprietorships, associations, trusts, and other similar or related
entities, which satisfy certain suitability standards. The Contract may be
purchased to acquire insurance on the life of a person in whom the Contract
Holder has an appropriate insurable interest. Failure to establish an
insurable interest may result in adverse financial and tax consequences to
the Contract Holder.
Joint Insureds
A rider may be added to the Contract to provide coverage on the lives of two
Insureds, with the Death Benefit payable on the death of the last surviving
Insured. Most of the discussions in this Prospectus referencing a single
Insured may also be read as though the single Insured were the two Insureds
under a joint Contract. Certain discussions in the Prospectus are modified
if a Joint and Last Survivor Rider is added to the Contract. (See Appendix
B -- "Joint and Last Survivor Rider").
Contract Values
Net Premiums are allocated to one or more Available Divisions and/or the
Fixed Fund. To the extent Net Premiums are allocated to the Available
Divisions, the Insurance Account Value will, and the Death Benefit may, vary
with the investment performance of the chosen Available Divisions. To the
extent Net Premiums are allocated to the Fixed Fund, the Insurance Account
Value will accrue interest at a guaranteed minimum rate (see "The Fixed
Fund"). To the extent that Net Premiums are allocated to the Available
Divisions of the Separate Account, the Contract Holder bears the entire
investment risk associated with the investments of the selected Available
Divisions, and there is no guaranteed minimum Insurance Account Value.
The Separate Account
Several Divisions of the Separate Account are available for allocation of
Net Premiums paid under the Contract, subject to certain limitations set
forth in the Contract. (See "The Contract -- Premiums") A description of
each Available Division --a Division of the
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Separate Account currently available under the Contract for allocation of Net
Premiums and transfers -- is set forth in this Prospectus.
Each Available Division of the Separate Account invests its assets in shares
or units of an Underlying Portfolio managed by one or more investment
managers. Each Available Division, and the Underlying Portfolio in which it
invests, are described at Appendix A. Each Underlying Portfolio has a
different investment objective, and is described more fully in the
prospectus for the Underlying Portfolio which accompanies this Prospectus.
In the future, Available Divisions may be added, and existing Available
Divisions may be deleted. The Contract Holder will be notified in writing
of any such change. (See "The Separate Account")
Death Benefit
Death Benefit proceeds are payable to the named Beneficiary when the Insured
under the Contract dies. The Death Benefit payable under the Contract will
depend upon the Death Benefit Option in effect for the Contract. So long as
the Contract remains in force, the minimum death benefit under each Death
Benefit Option will be at least equal to the current Face Amount of the
Contract. (See "The Contract -- Death Benefits Under the Contract")
Premiums
A Contract Holder will have considerable flexibility under a Contract as to
both the timing and amount of Premiums. SELIC will not issue a Contract
unless it receives a Premium payment at least equal to the initial Minimum
Premium amount, which is equal to twelve (12) times the Monthly Charges due
under that Contract in the first Contract Month, plus any applicable Premium
Load. SELIC may, in its sole discretion, require a reduced initial Minimum
Premium in connection with the purchase of certain Contracts. Each
subsequent Premium must be at least $50 per Contract. Subsequent Premiums
may be paid at any time and in any frequency, subject to certain
restrictions (See "The Contract--Premiums") If the Initial Premium and
subsequent Premiums prove to be too low, insurance coverage under the
Contract may cease.
The initial Net Premium will be allocated during the Free Look period to the
Money Market Division specified in Appendix A. After the Free Look period,
Separate Account Value will be allocated among the Available Divisions of
the Separate Account and the Fixed Fund according to the Contract Holder's
instructions as specified in the Application or as subsequently changed
prior to the end of the Free Look period.
Insurance Account Value may be transferred among the Available Divisions of
the Separate Account and the Fixed Fund by written request, subject to
certain restrictions.
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Amounts may be transferred by dollar amounts or by percentages. (See "The
Contract -- Transfers")
Charges and Deductions
Certain charges are deducted from Premiums and from Insurance Account Value
under the Contract. For a more detailed discussion of the charges deducted
under the Contract, see "Charges and Deductions". For additional
information regarding the investment advisory fees and operating expenses of
the Underlying Portfolios, see the accompanying prospectuses for these
portfolios.
A Premium Load is deducted from the Initial Premium and from each subsequent
Premium paid by a Contract Holder, prior to allocation to the Separate
Account or the Fixed Fund. The Premium Load includes a Distribution Charge
(which consists of a Premium Expense Load and a Commission Charge), a
Premium Tax Charge, which will be made for any applicable state premium
taxes, and the DAC Tax Charge.
The Distribution Charge is equal to a maximum of 30% of Premiums paid during
the first Contract Year up to one Target Premium (and 2% of first year
Premiums thereafter), and declines as a percentage of Premiums paid in
Contract Years 2-10 (to a maximum of 10% of Premiums paid during each
Contract Year up to a Target Premium; and 2% of Premiums thereafter);
Contract Years 11-15 (to a maximum of 8% of Premiums paid during each
Contract Year up to a Target Premium and 2% of Premiums thereafter), and
Contract Years 16 on (a maximum of 4% of Premiums paid during each Contract
Year up to a Target and 2% of Premiums thereafter).
The Premium Tax Charge reflects the state premium taxes imposed under the
Contract. The DAC Tax Charge is equal to 1% of all Premiums paid in all
Contract Years.
A Daily Charge for mortality and expense risks assumed by SELIC under the
Contract is calculated and deducted daily as a percentage of the Insurance
Account Value attributable to each Division of the Separate Account.
Currently, this Daily Charge is equal to 0.35% on an annual basis; it is
guaranteed not to exceed 0.50% on an annual basis.
Monthly Charges, including the Cost of Insurance Charge and the
Administration Charge, are deducted directly from the Insurance Account
Value as of the Contract Date and on each Monthiversary thereafter.
Monthly Charges include an Administration Charge of $4.50 per month
(guaranteed not to exceed $8.00 per month). Monthly Charges also include a
charge for the cost of insurance provided under the Contract. Monthly
Charges also include any charges for additional benefits provided by
Contract rider, and charges for a special class rating, if applicable.
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SELIC will deduct an Underwriting Charge, not to exceed $100, on the Issue
Date for Contracts issued on a medically underwritten basis, and on any
Monthiversary following any medical underwriting in connection with certain
Contract changes. This charge changes if a Joint and Last Survivor Rider is
added to the Contract. See Appendix B. SELIC may reduce or waive the
Underwriting Charge under certain circumstances.
On each Contract Anniversary, (i) the Insurance Account Value attributable
to the Separate Account and Fixed Fund is reduced by Contract Loan interest
due and unpaid for the previous Contract Year; and (ii) the Insurance
Account Value attributable to the Separate Account and Fixed Fund is
increased by the interest credited to the Borrowed Fund during the previous
Contract Year. The net result is that if Contract Loan interest is not paid
when due, then on the Contract Anniversary, the Insurance Account Value
attributable to the Separate Account and Fixed Fund will be reduced by the
difference between the Contract Loan interest due and unpaid for the
previous Contract Year, and the interest credited to the Borrowed Fund
during the previous Contract Year.
No charges are currently made to the Separate Account for federal, state or
local taxes that SELIC incurs which may be attributable to the Separate
Account. However, SELIC may impose such a charge in the future to provide
for any tax liability of the Separate Account.
Investment advisory fees and operating expenses of each Underlying Portfolio
are paid by such portfolio, and are reflected in the Separate Account Value
of a Contract.
At the Contract Holder's request, SELIC will provide an illustrative report
in addition to the reports it customarily provides. Depending upon the
type and complexity of the requested report, SELIC may charge a reasonable
fee not to exceed $50.
Contract Loans
The Contract Holder may obtain a Contract Loan under the Contract on any
Monthiversary. There is a maximum amount that may be borrowed, and interest
will be charged for any amount borrowed in accordance with the Contract Loan
interest rate option selected by the Contract Holder in the Application or
as subsequently changed. (See "Contract Loan Privilege")
Contract Loans are deducted from the amount payable on surrender of the
Contract and are also deducted from any Death Benefit proceeds. Contract
Loan interest accrues daily, and if it is not repaid each year, it is
capitalized and added to the Contract Loan. Depending upon the investment
performance of the Available Divisions and the amounts borrowed, Contract
Loans may cause a Contract to lapse. If the Contract lapses with a Contract
Loan outstanding, adverse tax consequences may result. A Contract Loan may
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also have other Federal income tax consequences. (See "Federal Income Tax
Considerations")
Surrender and Partial Withdrawals
While the Insured is alive, the Contract may be surrendered at any time for
its Net Cash Value upon written request to SELIC's Home Office. To the
extent that the Insurance Account Value is allocated to the Available
Divisions of the Separate Account, SELIC does not guarantee any minimum Net
Cash Value. Partial withdrawals of Net Cash Value are permitted, subject to
certain restrictions. (See "The Contract - Surrender and Partial
Withdrawals")
A surrender or partial withdrawal may have Federal income tax consequences.
(See "Federal Income Tax Considerations")
Termination
The Contract does not automatically terminate for failure to pay subsequent
Premiums. However, the Contract may terminate prior to its Maturity Date if
there is insufficient Net Cash Value to pay Monthly Charges. (See
"Termination")
Illustrations
Illustrations in this prospectus or used in connection with the purchase of
a Contract are based on hypothetical rates of return. These rates are not
guaranteed. They are illustrative only, and should not be deemed to be a
representation of past or potential investment performance. Actual rates of
return may be more or less than those in the illustrations and, therefore,
actual values will be different than those illustrated.
Replacement of Existing Coverage
Before purchasing a Contract, a prospective Contract Holder should consider
whether changing, or adding to, current insurance coverage would be
advantageous. Generally, it is not advisable to purchase another insurance
contract as a replacement for existing coverage. In particular, replacement
should be carefully considered if the decision to replace the coverage is
based solely on a comparison of contract illustrations.
Tax Considerations
SELIC intends for the Contract to satisfy the definition of life insurance
contract under section 7702 of the Internal Revenue Code. Under certain
circumstances, a Contract may be a "modified endowment contract" under federal
tax law, depending upon the amount of payments made in relation to the death
benefit provided under the Contract. SELIC
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will monitor Contracts and will attempt to notify a Contract Holder on a
timely basis if his or her Contract is in jeopardy of becoming a
modified endowment contract. The status under the Internal Revenue Code of
Contracts issued with a Supplemental Term Insurance Rider, or a Joint and Last
Survivor Rider, is less clear. For further discussion of the tax status of a
Contract and the tax consequences of being treated as a life insurance contract
or a modified endowment contract, see "Federal Income Tax Considerations".
Free Look and Conversion Rights
In most states, the Contract may be canceled at any time within ten (10)
days after it is received by the Contract Holder, ten (10) days after SELIC
mails or personally delivers the Notice of Withdrawal Right to the Contract
Holder, or within forty-five (45) days after the date of the Application,
whichever is later. The Contract must be returned to SELIC at its Home
Office along with written notice of cancellation. If the Contract is
canceled, it will be as though the Contract had never been issued. A refund
will be paid if the Contract is canceled. The refund will equal any
Premium(s) paid, minus any partial withdrawals taken and any Contract Loans
together with accrued but unpaid Contract Loan interest.
Once issued and as long as the Contract is in force, a Contract Holder may
during the first 24 months, transfer all of the Insurance Account Value out
of the Separate Account and into the Fixed Fund, and receive fixed and
guaranteed benefits under the Contract. Once this right is exercised no
transfers out of the Fixed Fund will be allowed and all Net Premiums paid
after the election will be allocated to the Fixed Fund. (See "Additional
Provisions of The Contract - Conversion Rights").
INFORMATION ABOUT SELIC
SELIC is a stock life insurance company domiciled in New York. It is a
wholly-owned subsidiary of General American Life Insurance Company ("General
American"), a mutual life insurance company domiciled in Missouri.
SELIC was established in 1983 as a wholly-owned subsidiary of Security
Mutual Life Insurance Company of New York. It was purchased by General
American on December 31, 1993.
General American commenced operations in 1933 as a stock company and was
converted to a mutual company in a process that ended in 1946. General
American is principally engaged in issuing individual and group life and
health insurance contracts and annuity products. It is admitted to do business
in forty-nine states, the District of Columbia, and ten Canadian provinces.
The principal offices of General American are located in St. Louis, Missouri.
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SELIC is admitted to sell life insurance and annuities in forty states and
the District of Columbia. SELIC concentrates on sales of corporate owned
life insurance products in all of these jurisdictions and sales of
individual products to residents of New York.
THE SEPARATE ACCOUNT
Security Equity Life Insurance Company Separate Account 13 (the "Separate
Account") was established by SELIC as a Separate Investment Account on
December 30,1994. The Separate Account will receive and invest the Net
Premiums paid under this Contract and allocated to it. In addition, the
Separate Account may receive and invest Net Premiums for other flexible
premium variable life insurance contracts that might be issued by SELIC.
The Separate Account is currently divided into a number of Divisions. Not
all Divisions are available for allocation of Net Premiums and transfers
under the Contract. Each Available Division invests exclusively in shares
of an Underlying Portfolio listed in Appendix A. Both realized and
unrealized gains or losses and income from the assets of each Division of
the Separate Account are credited to or charged against that Division
without regard to income, gains, or losses from any other Division of the
Separate Account or from any other business SELIC may conduct.
Obligations to Contract Holders and Beneficiaries that arise under the
Contract are obligations of SELIC. SELIC owns the assets of the Separate
Account. Those assets will only be used to support variable life insurance
contracts and for any other purposes permitted by applicable laws and
regulations. The portion of the assets of the Separate Account equal to the
reserves and other contract liabilities with respect to the Separate Account
will not be charged with liabilities that arise from any other business
SELIC may conduct. SELIC may, however, transfer from the Separate Account
to its General Account assets that exceed the reserves and other contract
liabilities in respect of the Separate Account.
The Separate Account has been registered with the Securities and Exchange
Commission ("SEC" or "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"). The Separate Account meets
the definition of a "separate account" under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices of the Separate Account, the Contracts, or SELIC by the
Commission.
There is no assurance that the stated objectives of any Underlying Portfolio
will be achieved.
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<PAGE> 20
More detailed information concerning the investment objectives, techniques
and restrictions pertaining to each Underlying Portfolio, and the expenses,
investment advisory services, and risks attendant to allocating Insurance
Account Value to each Underlying Portfolio, can be found in the current
prospectus with respect to each Underlying Portfolio, which accompanies this
Prospectus, and the current Statement of Additional Information for each
Underlying Portfolio. Such information has been prepared by the Underlying
Portfolio or the investment company of which it is a part, and SELIC is not
responsible for preparing this information. The Underlying Portfolio
prospectuses should be read carefully before any decision is made concerning
the allocation of Premium payments or transfers among the Available
Divisions.
Not all of the investment portfolios described in the accompanying
prospectuses are necessarily available under the Contract. Moreover, SELIC
cannot guarantee that each Underlying Portfolio will always be available for
the Contract. In the unlikely event that an Underlying Portfolio becomes
unavailable, SELIC will attempt to secure the availability of a comparable
Underlying Portfolio. Shares and units of each Underlying Portfolio are
purchased and redeemed at Net Asset Value, without a sales charge.
One or more of the Underlying Portfolios are available for investment by
both variable life insurance and variable annuity separate accounts. It is
conceivable that in the future it may be disadvantageous for both variable
life and variable annuity separate accounts to invest simultaneously in an
Underlying Portfolio that sells its shares to both types of separate
accounts. The Board of Directors or Trustees of such Underlying Portfolios,
the respective investment advisers of each Underlying Portfolio, and SELIC
are required to monitor events to identify any material irreconcilable
conflicts that may possibly arise, and to determine what action, if any,
should be taken in response to those events of conflicts. Material
conflicts could arise from such things as changes in state insurance laws,
changes in federal income tax laws, changes in the investment management of
an Underlying Portfolio, or differences in the voting instructions given by
variable annuity contract owners and variable life insurance contract
owners. In the event of a material irreconcilable conflict, SELIC will take
steps necessary to protect our Contract Holders. This could include
discontinuance of investment in an Underlying Portfolio.
THE CONTRACT
The Contract is a flexible premium variable life insurance contract that
provides insurance on the life of an Insured. A Contract may be sold
together with other related Contracts forming a Case. See Appendix B for
modifications to this Section in the event that a Joint and Last Survivor
Rider and/or a Supplemental Term Insurance Rider is added to the Contract.
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<PAGE> 21
Availability of Insurance Coverage
To be eligible for insurance under the Contract, a prospective Insured must
on the Contract Date:
(1) be at least 20 years of age and no more than 85 years of age;
(2) have elected or consented to be an Insured (if required by SELIC or
the Governing Jurisdiction);
(3) have satisfied any necessary underwriting requirements of SELIC (see
"Charges and Deductions -- Monthly Charges -- Cost of Insurance
Charge").
A Contract can be issued if the Contract Holder:
(1) provides SELIC with the data it requires including, but not limited to
the prospective Insured's name, address, social security number,
sex, date of birth, smoker/nonsmoker status, and citizenship
(SELIC may also require submission of related documents that have
been completed by the prospective Insured);
(2) requests Total Insurance Coverage at least equal to the Minimum
Insurance Coverage for an Insured;
(3) designates the Beneficiary under the Contract; and
(4) pays the initial Minimum Premium for the first Contract Year.
Insurance coverage generally begins on the Issue Date for the Contract.
Temporary life insurance coverage may be provided under the terms of a
temporary insurance agreement. In accordance with SELIC's underwriting
rules, temporary life insurance coverage may not exceed the greater of
$100,000 or two times the Premium paid, and may not be in effect for more
than 90 days. This temporary insurance coverage will be issued on a
conditional receipt basis, which means that any Death Benefit under such
temporary coverage will only be paid if the Insured meets SELIC's usual and
customary underwriting standards for the applied-for coverage under the
Contract (see "Charges and Deductions-- Monthly Charges -- Cost of Insurance
Charge").
As provided for under state insurance law, a Contract Holder, to preserve
insurance age of the Insured, may be permitted to backdate the Contract. In
no case may the Contract Date be more than six months prior to the date that
the Application was completed. If any Contract in a Case is backdated, then
all Contracts in the Case must be backdated to the same date. Monthly
Charges for the backdated period will be deducted as of the Contract Date,
and each Monthiversary thereafter.
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<PAGE> 22
For modifications to this Section for Joint Insureds, see Appendix B --
"Joint and Last Survivor Rider."
Evidence of Insurability
SELIC may require medical evidence of insurability for any Contract that
does not meet SELIC's guaranteed issue or simplified issue standards when
the Contract is issued. (see "Charges and Deductions -- Monthly Charges --
Cost of Insurance Charge"). Medical evidence of insurability may also be
required for any transaction that increases the Net Amount at Risk for the
Contract. Transactions that increase the Net Amount at Risk may include but
are not limited to: payment of subsequent Premiums, change of Death Benefit
Option, change of Face Amount, partial withdrawals, and reinstatement of a
Contract.
For modifications to this section for Joint Insureds, see Appendix B -- Last
Survivor Rider.
Premiums
Premiums are the payments made to SELIC under the Contract by the Contract
Holder to purchase insurance on the life of the Insured and to contribute to
the Insurance Account Value of the Contract. All Premiums are payable to
SELIC at its Home Office. A Premium Load is deducted from any Premium
received by SELIC prior to its allocation to the Separate Account or to the
Fixed Fund. The resulting amount is the Net Premium. The applicable
Premium Load percentage depends upon the Case to which the Contract belongs,
whether the Premium consists of Target Premium or Excess Premium, and the
Contract Year in which the Premium is paid. (See "Charges and Deductions --
Premium Load)
Premiums may consist of Target Premium, Excess Premium or both. The Target
Premium is determined by the Initial Face Amount selected by the Contract
Holder, and will never exceed a "guideline annual premium" as defined in
applicable SEC regulations. SELIC has the right to refund promptly any amount
of Premium paid if necessary to keep the Contract in compliance with state and
federal laws, including federal income tax laws. In particular, if a Contract
Holder pays Premium amounts during the first Contract Year significantly in
excess of the Planned Renewal Premium, SELIC reserves the right to refund
promptly part or all of such excess if applicable state insurance law
restricts the amount of commissions that would otherwise be payable to the
writing agent in connection with part or all of such Premium amounts.
SELIC will not issue the Contract unless it receives a Premium payment at
least equal to the initial Minimum Premium amount. The initial Minimum
Premium under the Contract is equal to twelve times the Monthly Charges due
under the Contract in the first Contract
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<PAGE> 23
Month, plus any applicable Premium Load. SELIC may, in its sole discretion,
require a reduced initial Minimum Premium in connection with the purchase of
Contracts sold by licensed agents of SELIC that are also registered
representatives of Walnut Street Securities, Inc. ("Walnut Street"), the
distributor of the Contracts, or selected broker-dealers or through banks that
have entered into written sales agreements with Walnut Street. A SELIC agent
can provide prospective purchasers with information regarding the availability
of a reduced initial Minimum Premium requirement.
After the Initial Premium has been received and accepted by SELIC, the
Contract Holder may pay subsequent Premiums on any Valuation Day provided
that each subsequent Premium is at least $50 per Contract. All payments
received by SELIC from the Contract Holder will be credited to the Contract
as Premiums, unless the Contract Holder specifies that such payments are
Contract Loan repayments. Subsequent Premiums may cause a Contract that was
not classified as a "modified endowment contract" to become classified as
such a contract. SELIC will take steps to monitor subsequent Premiums, and
will notify a Contract Holder if a subsequent Premium, or a portion thereof,
would cause a Contract to become a modified endowment contract. (See
"Federal Income Tax Considerations -- Modified Endowment Contracts")
Allocation of Net Premiums: Generally, the initial Net Premium will be
credited to the Separate Account and the Insurance Account Value will begin
to vary with investment experience on the Valuation Day next following
receipt of the initial payment at the Home Office. However, in situations
where SELIC receives the initial payment with the application and
underwriting is required, then the payment will be held on deposit in
SELIC's General Account until underwriting is completed and the Contract is
issued (the Issue Date). Any Net Premiums received during the Free Look
period will be allocated to the Money Market Division. At the end of such
period, Separate Account Value will be allocated to or among any of the
Available Divisions and the Fixed Fund, in accordance with the Contract
Holder's allocation instructions set forth in the Application, or as
subsequently changed prior to the end of the Free Look period. No allocation
or transfer instructions received from the Contract Holder in the Application
or during the Free Look period will be acted upon until the Free Look period
has expired. The duration of the Free Look period depends upon the law of a
Contract's Governing Jurisdiction. The Free Look period under a Contract will
expire after the number of days provided for in the applicable Governing
Jurisdiction's Free Look period has elapsed following the date the Contract is
delivered to the Contract Holder, as evidenced by a signed delivery receipt
or certified mail return receipt, or if later, ten (10) days after SELIC mails
or personally delivers the Notice of Withdrawal Right to the Contract Holder,
or 45 days after the Application is signed. Transfer of money to the
Available Divisions specified by the Contract Holder will occur at the
expiration of the Free Look period.
Net Premiums received after the Free Look period expires will be allocated
among the Available Divisions and the Fixed Fund in accordance with the
Contract Holder's
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<PAGE> 24
instructions. Net Premiums that are received prior to the Valuation Time on
any Valuation Day will be allocated as of the date they are received. Net
Premiums received after such time will be allocated on the next Valuation Day.
The maximum number of Available Divisions to which the Contract's Separate
Account Value may be allocated at any one time is five (5); amounts can also
be allocated to the Fixed Fund. If no instructions accompany a Premium, the
resulting Net Premium will be allocated to the Available Divisions and the
Fixed Fund in the same proportions as stated in the most recently recorded
Premium allocation instructions SELIC received from the Contract Holder.
The allocation of subsequent Premiums may be changed at any time upon
SELIC's receipt of written notice from the Contract Holder.
Premiums to Prevent Lapse: If the Contract is in danger of lapsing because
the Net Cash Value is insufficient to pay the Monthly Charges for the
Contract on a Monthiversary, the amount of Premium that must be paid to
prevent lapse will be equal to three (3) times the Monthly Charges then due
plus any applicable Premium Load. (See "Termination -- Termination for
Insufficient Cash Value"). SELIC will send a notice to a Contract Holder
when such Premiums are required to keep the Contract in force.
Premiums to Reinstate a Contract: When a Contract has lapsed due to
insufficient Net Cash Value, the amount of Premium that must be paid to
reinstate insurance coverage will be equal to the Monthly Charges due and
unpaid at the time of lapse, plus three (3) times the Monthly Charges due
at the time of reinstatement, plus any applicable Premium Load. (See
"Termination -- Reinstatement of a Contract Terminated for Insufficient
Value on).
When the Contract has terminated, SELIC will send a notice specifying the
Premiums that are required to be paid to reinstate the Contract.
Contract Values
The Insurance Account Value of the Contract is equal to the total amounts of
the Insurance Account Value in each Available Division of the Separate
Account, the Insurance Account Value in the Fixed Fund, and the Insurance
Account Value in the Borrowed Fund.
The Insurance Account Value allocated to each Available Division is measured
in "Accumulation Units." The value of an Accumulation Unit is determined as
of the Valuation Time on each Valuation Day. The value of any unit will
vary from Valuation Day to Valuation Day to reflect the investment
performance of the Available Division applicable to that Accumulation Unit.
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<PAGE> 25
The value of an Accumulation Unit in each Available Division is arbitrarily
set at $1.00 on the first Valuation Day for that Available Division. The
value of any Accumulation Unit on any subsequent Valuation Day is equal to
its value on the preceding Valuation Day multiplied by that Available
Division's Net Investment Factor for the Valuation Period. The Net
Investment Factor for an Available Division for a Valuation Period equals
the "gross investment rate" for such period plus one and minus the Mortality
and Expense Risk Charge for that Valuation Period.
The "gross investment rate" of an Available Division for any Valuation
Period is equal to the net earnings of that Available Division during the
Valuation Period, divided by the value of the total assets of that Available
Division at the beginning of the Valuation Period. The net earnings of each
Available Division during a Valuation Period are equal to the accrued
investment income and capital gains and losses (realized and unrealized) of
that Available Division, reduced by any amount charged against that
Available Division for premium taxes or other governmental charges paid or
reserved by SELIC during that Valuation Period.
The "gross investment rate" and net earnings of each Available Division will
be determined by SELIC in accordance with generally accepted accounting
principles and applicable laws, rules and regulations.
Transactions which require the crediting and canceling of Accumulation Units
will be processed as of the Valuation Time on the Valuation Day in which the
transaction is effected. Premium payments, and requests for Contract Loans,
withdrawals, transfers, or any other transaction, received in proper form
before the Valuation Time on a Valuation Day will be effected as of the
Valuation Time on the day that the Premium payment, or transaction request,
is received. Premium payments, and transaction requests, received in
proper form after the Valuation Time on a Valuation Day, will be effected as
of the Valuation Time of the following Valuation Day.
The Insurance Account Value in the Money Market Division on the Issue Date
is equal to the Premium paid on that date, less any applicable Premium Load
less:
(1) Cost of Insurance Charges; and
(2) Administration Charges; and
(3) any charges that are deducted from the Insurance Account Value for
benefits provided by Contract riders; and
(4) Underwriting Charges, if any; and
(5) charges for Special Insurance Class Rating, if any.
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<PAGE> 26
The Insurance Account Value in each Available Division as of the Valuation
Time on any subsequent Valuation Day is equal to the Insurance Account Value
in that Available Division on the prior Valuation Day plus:
(1) any new Net Premium allocated to that Available Division; and
(2) any amounts transferred to that Available Division from another
Available Division, the Fixed Fund or the Borrowed Fund.
(3) any increase in value of the Available Division's investments due to
investment results net of Daily Charges.
and less:
(1) any amounts transferred from that Available Division to another
Available Division, the Fixed Fund or the Borrowed Fund.
(2) any decrease in the value of the Available Division's investments due
to investment results net of Daily Charges; and
(3) the Cost of Insurance Charges allocated to that Available Division
(deducted only on a Monthiversary); and
(4) the Administration Charges allocated to that Available Division
(deducted only on a Monthiversary); and
(5) any partial withdrawals taken from such Contract and allocated to that
Available Division; and
(6) any charges allocated to that Available Division that are deducted
from the Insurance Account Value for benefits provided by
Contract riders; and
(7) any Underwriting Charges allocated to that Available Division; and
(8) any charges for Special Insurance Class Rating allocated to that
Available Division (deducted only on a Monthiversary); and
(9) any other charges allocated to that Available Division as stated in
the Contract.
For more information regarding the charges and expenses deducted under the
Contract, see "Charges and Deduction". For more information regarding the
impact that Contract
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<PAGE> 27
Loans can have on Insurance Account Value and Net Cash Value, see "Contract
Loan Privilege".
For description of the Insurance Account Value in the Fixed Fund and the
Borrowed Fund, see "The Fixed Fund"and "Contract Loan Privilege".
Transfers
The Contract provides that all or part of the Insurance Account Value
(except amounts in the Borrowed Fund) may be transferred between or among
Available Divisions and the Fixed Fund on any Valuation Day subject to the
following limitations:
(a) The Insurance Account Value cannot be allocated to more than five (5)
Available Divisions and the Fixed Fund at any one time;
(b) Transfer requests must be in writing and in a form acceptable to
SELIC;
(c) Except as described below, only one (1) transfer is permitted in each
Contract Year;
(d) SELIC reserves the right to limit the amount of any transfer.
Transfers from or among the Available Divisions must be in
amounts of at least $500, or if smaller, the Insurance Account
Value in an Available Division; and
(e) Transfers to the Fixed Fund may be limited. Insurance Account Value
in the Fixed Fund after any transfer to the Fixed Fund may be
no greater than the amount specified in the Contract. (See "The
Fixed Fund -- Allocation of Amounts to the Fixed Fund")
Transfers from the Fixed Fund are also subject to the following limitations:
(a) The transfer must be made in the 30 day period following a Contract
Anniversary; and
(b) The amount transferred may be no larger than 25% of the Insurance
Account Value in the Fixed Fund on the date of the transfer.
Transfers may be requested by dollar amount or percentage. Written
confirmation of each transfer will be sent to the Contract Holder. SELIC
will generally effect transfers and determine all values in connection with
transfers as of the Valuation Time at the end of the Valuation Day on which
a proper transfer request is received.
Notwithstanding the above limitations, which are set forth in the Contract,
SELIC will, as a matter of administrative practice, allow up to twelve (12)
transfers per year between or
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<PAGE> 28
among Available Divisions. Contract Holders will be notified in advance if
this administrative practice is changed or eliminated. For purposes of
calculating the number of transfers requested in any Contract Year, all
transfer requests received on the same Valuation Day will be counted as one
transfer request. Transfers effected in connection with Contract Loans will
not be counted for purposes of the limitations on the amount or frequency of
transfers permitted in each Contract Year.
Contract Loan Privilege
The Contract Holder may request a loan against the Contract. The Contract
must be assigned to the Company as the sole security for the Contract Loan.
A Contract Loan may take place on any Valuation Day. An amount equal to the
amount borrowed will be transferred from the Separate Account and the Fixed
Fund to the Borrowed Fund. The Borrowed Fund is a portion of SELIC's
General Account reserved for amounts held as collateral for Contract Loans.
A Contract Loan from, or secured by, the Contract may have federal income
tax consequences. In particular, if the Contract is a "modified endowment
contract" loans may be currently taxable and subject to a 10% penalty tax.
(See "Federal Income Tax Considerations")
Source of Contract Loan: Insurance Account Value equal to each Contract
Loan will be transferred to the Borrowed Fund, reducing the Insurance
Account Value in the Separate Account and the Fixed Fund. Unless other
specific instructions are received from the Contract Holder, the Contract
Loan will be taken from the Available Divisions of the Separate Account and
the Fixed Fund in proportion to the amount of the Contract Holder's then
current Insurance Account Value in each Available Division of the Separate
Account and Fixed Fund.
The maximum total of Contract Loans for each Contract is equal to the
Insurance Account Value less the sum of the following:
(1) the outstanding Contract Loan amount together with interest accrued
but unpaid;
(2) the Minimum Net Premium for the current Contract Year; and
(3) Contract Loan interest charges until the next Contract Anniversary.
If a Contract Loan is requested that would cause this maximum to be
exceeded, SELIC will not process the request.
Contract Loan Interest: Contract Loan interest accrues daily and is due on
each Contract Anniversary. If it is not paid when due, the Contract Loan
interest will be added to the Contract Loan and, as part of the Contract
Loan, will bear the same interest rate. Any Contract Loan interest
capitalized on a Contract Anniversary will be treated as if it
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<PAGE> 29
was a new Contract Loan and will be transferred from the Available Division of
the Separate Account and Fixed Fund in proportion to the Insurance Account
Value therein.
A fixed Contract Loan interest rate option or a variable Contract Loan
interest rate option may be elected. This option may be changed by the
Contract Holder on any Contract Anniversary. Written notice of the change
must be received at SELIC's Home Office no more than ninety (90) days nor
less than thirty (30) days prior to such Contract Anniversary. The Contract
Loan interest rate options are as follows:
Fixed Contract Loan Interest Rate. If a Fixed Contract Loan Interest Rate
- ---------------------------------
option is selected and a Contract Loan is outstanding, a fixed Contract Loan
interest rate of 6.00% will be assessed annually in arrears and added to the
Contract Loan principal on the Contract Anniversary.
Variable Contract Loan Interest Rate. On each Contract Anniversary, SELIC
- ------------------------------------
will declare the Variable Contract Loan Interest Rate that will apply to
outstanding Contract Loans for the next Contract Year. This rate will equal
the higher of a) or b), where a) is the Monthly Average of the Composite
Yield on Corporate Bonds as published by Moody's Investor Service, Inc. (or,
if it is no longer published, a substantially similar average) for the
calendar month ending two months before the Contract Year begins, and b) is
4.5%. If the rate calculated according to this formula is not at least .50%
higher than the rate in effect for the previous year, SELIC will not
increase the rate. If the maximum limit is at least .50% lower than the rate
in effect for the previous year, SELIC will decrease the rate.
If the Variable Contract Loan Interest Rate option is selected, SELIC will
inform the Contract Holder of the current Variable Contract Loan Interest
Rate at the time a Contract Loan is made. The current Variable Contract
Loan Interest Rate can be changed by SELIC on any Contract Anniversary, but
the rate will never exceed the maximum Contract Loan interest rate permitted
by the law of the Governing Jurisdiction.
Interest on Borrowed Fund: Interest will be credited to amounts held in the
Borrowed Fund as collateral for Contract Loans. This rate of interest
credited on the Borrowed Fund will be at least equal to an annual effective
rate of four percent (4%).
For the Fixed Contract Loan Interest Rate option, the rate of interest
credited on the Borrowed Fund is currently set equal to 5.65%. If a
Variable Contract Loan Interest Rate option is chosen, SELIC currently
anticipates that the rate of interest credited on the Borrowed Fund will
equal the Variable Contract Loan Interest Rate less a "loan interest spread"
of .35%. This "loan interest spread" is guaranteed never to exceed .50%.
The Borrowed Fund crediting rate may not be changed more frequently than
annually. Any change in the Borrowed Fund crediting rate for the Contract
will be effective on a
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<PAGE> 30
Contract Anniversary. The Contract Holder will be notified in advance of any
such change.
Interest credited to the Borrowed Fund will be transferred to the Available
Divisions of the Separate Account and Fixed Fund on each Contract
Anniversary. The amount so transferred will be allocated among the
Available Divisions of the Separate Accounts and Fixed Fund in proportion to
the Insurance Account Value in each Available Division of the Separate
Account and Fixed Fund.
If Contract Loan interest due for the previous Contract Year has not been
paid when due, then on the Contract Anniversary, the Insurance Account Value
attributable to the Separate Account and Fixed Fund will be reduced by the
difference between the Contract Loan interest due and unpaid for the
previous Contract Year, and the interest credited to the Borrowed Fund
during the previous Contract Year.
On any given day the Insurance Account Value in the Borrowed Fund will be
equal to the Insurance Account Value in the Borrowed Fund on the previous
day plus:
(1) Any new amounts transferred to the Borrowed Fund from the Separate
Account and Fixed Fund due to new Contract Loans and/or
capitalized Contract Loan Interest; and
(2) Any interest credited to the Borrowed Fund.
and less
(1) Any amounts transferred from the Borrowed Fund to the Separate Account
and/or Fixed Fund due to Contract Loan repayments or the transfer of
interest credited to the Borrowed Fund on a Contract Anniversary.
Repayment: All funds received by SELIC will be credited to the Contract as
Premiums unless clearly designated as a Contract Loan repayment by the
Contract Holder.
All or part of the Contract Loan plus accrued Contract Loan interest may be
repaid at any time while the Contract is in force.
Any repayment of a Contract Loan will result in the transfer of values equal
to the repayment out of the Borrowed Fund and the application of those
values to the Available Divisions of the Separate Account and Fixed Fund.
Unless other specific instructions are received from the Contract Holder,
these values will be applied to the Separate Account's Available Divisions
and the Fixed Fund in proportion to the amount of the Contract Holder's then
current Insurance Account Value in each Available Division of the Separate
Account and Fixed Fund.
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<PAGE> 31
Surrender and Partial Withdrawal
At any time during the lifetime of the Insured and while the Contract is in
force, the Contract may be surrendered for its Net Cash Value on any
Valuation Date. The Contract Holder must request a surrender in writing and
in a form acceptable to SELIC. On surrender, SELIC will pay to the Contract
Holder in a single sum the Contract's Net Cash Value as of the Valuation Day
during which a proper surrender request is received. A Contract's Net Cash
Value is the Insurance Account Value less any outstanding Contract Loan and
accrued and unpaid Contract Loan interest. If a proper surrender request is
received on a Monthiversary, then Monthly Charges will not be deducted on
that Monthiversary. A surrender may have Federal income tax consequences.
(See "Federal Income Tax Considerations") Once the Contract is surrendered,
SELIC's obligations under the Contract will cease. (See "Termination").
The Contract Holder may also request partial withdrawals of Net Cash Value
from one or more Available Divisions and the Fixed Fund. The withdrawal
must be requested by the Contract Holder in writing on a form acceptable to
SELIC. Unless other specific instructions are received from the Contract
Holder, the withdrawal will be taken from each Available Division and the
Fixed Fund in proportion to the Contract Holder's then current Insurance
Account Value in each Available Division and the Fixed Fund. See "The Fixed
Fund".
Surrender and partial withdrawal proceeds will generally be paid to the
Contract Holder within seven days. See "Additional Provisions of the
Contract -- Availability of Funds" and "The Fixed Fund".
The Contract Holder may withdraw any amount of at least $1,000 per
withdrawal and up to the Contract's maximum withdrawal amount. The maximum
withdrawal amount for the Contract is equal to the Insurance Account Value
less the sum of the following:
(1) the outstanding Contract Loan amount together with the unpaid accrued
Contract Loan interest on the Contract Loan amount;
(2) the Minimum Net Premium for the current Contract Year; and
(3) Contract Loan interest on the Contract Loan amount until the next
Contract Anniversary.
Partial withdrawals may increase the Net Amount at Risk, resulting in higher
Cost of Insurance Charges under the Contract.
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<PAGE> 32
The Death Benefit and Face Amount may be adjusted at the time a partial
withdrawal is taken, based on the amount withdrawn, the Death Benefit Option
then in effect for the Contract, and the Insurance Account Value. If the
Face Amount is reduced, the reduction in Face Amount for Death Benefit
Option 1 or Death Benefit Option 3 will be equal to the amount of the
withdrawal. The Total Insurance Coverage remaining after the partial
withdrawal may not be less than the Minimum Insurance Coverage. A partial
withdrawal request that would reduce the Total Insurance Coverage below this
minimum will not be effected. If the Face Amount reflects previous Face
Amount increases at the time of a partial withdrawal which causes a
reduction in Face Amount, then partial withdrawals will be applied first to
reduce the Initial Face Amount, and then to each Face Amount increase in
order, starting with the first increase.
A partial withdrawal that decreases the Face Amount of the Contract will
result in a recalculation of the Target Premium, and generally will decrease
the Target Premium for future Contract Years.
A partial withdrawal may have Federal income tax consequences. (See
"Federal Income Tax Considerations".)
Death Benefits Under the Contract
If the Insured dies while the Contract is in force, a Death Benefit is
payable to the Beneficiary when SELIC receives due proof of death and any
other requirements are satisfied. The amount of the Death Benefit payable
depends on the Death Benefit Option selected for the Contract by the Contract
Holder and in effect on the date of death of the Insured, and is adjusted for
outstanding Contract Loans and unpaid charges. (See "Payment for Death
Benefits") The amount of the Death Benefit will be determined at the end of
the Valuation Period during which the Insured's death occurred. The Death
Benefit will be paid to the surviving Beneficiary or Beneficiaries specified
in the Application or as subsequently changed. The Death Benefit under each
Death Benefit Option will never be less than the Contract's Face Amount as
long as the Contract remains in force. For modifications to this Section for
Joint Insureds, see Appendix B -- "Joint and Last Survivor Rider."
Death Benefit Options: The Contract Holder may select one of the following
Death Benefit Options:
Option 1: the Face Amount in effect at the date of death
Option 2: the Face Amount plus the Insurance Account Value in effect at
the date of death.
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<PAGE> 33
Option 3: the Face Amount in effect at the date of death, plus the
accumulated Premiums paid under the Contract up to the date
of death. In calculating the Death Benefit under this option,
the Premiums are accumulated from the date such Premiums were
credited to the Insurance Account Value to the date of death,
at a rate equal to the Death Benefit Option Accumulation Rate
shown in the Contract. This rate, which is selected by the
Contract Holder and subject to approval by SELIC, may be as
low as 0%, and does not have a maximum cap. A higher Death
Benefit Option Accumulation Rate will result in higher Cost of
Insurance Charges under a Contract.
To ensure that the Contract will qualify as life insurance under the
Internal Revenue Code, the Total Insurance Coverage will never be less than
the Minimum Death Benefit. The Minimum Death Benefit is equal to the
Insurance Account Value on the date of death multiplied by the appropriate
Minimum Death Benefit Factor as set forth in the Contract. Currently SELIC
calculates the Minimum Death Benefit Factor in accordance with Section
7702(a)(1) of the Internal Revenue Code ("The Cash Value Accumulation
Test"). In the future SELIC may offer Contracts that will use Minimum Death
Benefit Factors and Premium limitations calculated in accordance with
Section 7702(a)(2) of the Internal Revenue Code ("The Guideline Premium
Test"). Once a Contract is issued complying with either "The Cash Value
Accumulation Test" or "The Guideline Premium Test" that test and the Minimum
Death Benefit Factors will be employed throughout the life of the Contract.
A table of representative Minimum Death Benefit Factors follows:
<TABLE>
===========================================================================
MINIMUM DEATH BENEFIT FACTORS
- ---------------------------------------------------------------------------
<CAPTION>
Unisex
Age Unismoke
===========================================================================
<S> <C>
25 5.79
30 4.93
35 4.18
40 3.55
45 3.03
50 2.60
55 2.25
60 1.97
65 1.74
70 1.56
===========================================================================
</TABLE>
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<PAGE> 34
Under Death Benefit Option 1 and Death Benefit Option 3, positive investment
performance (if any) will be reflected in Insurance Account Value, but not
in the Death Benefit, unless the Death Benefit equals the Minimum Death
Benefit. Under Death Benefit Option 2, the amount of Death Benefit will
always vary as the Insurance Account Value varies, but will never be less
than the Face Amount. In general, if Death Benefit Option 2 is selected,
positive investment performance (if any) will be reflected in the Death
Benefit.
Subject to certain limitations, the Contract Holder may change the Death
Benefit Option for the Contract while the Contract is in effect by notifying
SELIC in writing. If SELIC approves the change, it will take effect on the
next Contract Anniversary that is at least thirty (30) days after all the
required information has been provided to SELIC. The Cost of Insurance
Charges for the Contract will be adjusted to provide for the change. No
such change will be effective if the Insured dies before the effective date
of the change.
Changing the Contract's Death Benefit Option may result in either an
increase or decrease in the Face Amount. If the Face Amount increases,
SELIC may require satisfactory evidence of insurability. If the Face Amount
decreases, and the Contract's Face Amount before the change in the Death
Benefit Option reflects previous Face Amount increases, then the change in
Death Benefit Option will result first in a reduction in the Initial Face
Amount, and then to each Face Amount increase in order, starting with the
first increase. Any change in the Death Benefit Option will not be effected
if it would result in Total Insurance Coverage that is less than the Minimum
Insurance Coverage of the Contract. SELIC also reserves the right not to
effect a requested change in Face Amount if the change would result in the
Contract not satisfying the requirements of the Internal Revenue Code of 1986,
as amended.
A change in the Death Benefit Option will not result in an immediate change
in the amount of a Contract's Death Benefit or Insurance Account Value. If
a Contract is changed from Death Benefit Option 1 or Death Benefit Option 3
to Death Benefit Option 2, then the Face Amount will equal the Face Amount
prior to the change less the Insurance Account Value on the effective date
of the change. If a Contract is changed from Option 2 or Option 3 to Option
1, then the Face Amount will equal the Death Benefit on the effective date
of the change. SELIC may require satisfactory evidence of insurability if
the Contract is changed from Option 2 or Option 3 to Option 1. If a
Contract is changed from Option 1 to Option 3, then the Face Amount will
equal the Face Amount prior to the change less the accumulated Premiums on
the effective date of change. If a Contract is changed from Option 2 to
Option 3, then the Face Amount will equal the Death Benefit less the
accumulated Premiums on the effective date of the change.
A change in Death Benefit Option may affect monthly Cost of Insurance
Charges, because the amount of this charge varies with a Contract's Net
Amount at Risk. Assuming the Death Benefit is not equal to the Minimum
Death Benefit, changing from Option 2 or
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<PAGE> 35
Option 3 to Option 1 will generally decrease Net Amount at Risk, and therefore
decrease Cost of Insurance Charges, on Monthiversaries following the effective
date of the change. Changing from Option 1 or Option 3 to Option 2 will
generally result in a Net Amount at Risk that remains level; however, under
Option 2, Cost of Insurance Charges will increase over time, because cost of
insurance rates generally increase with the age of the Insured. Finally a
change from Option 1 or Option 2 to Option 3 will result in a Net Amount at
Risk that will vary based upon the frequency and amount of Premium payments,
as well as the rate at which the Premiums are accumulated. Under Option 3,
more frequent and higher premium payments as well as a higher Death Benefit
Option Accumulation Rate generally will result in a higher Net Amount at
Risk, and therefore higher Cost of Insurance Charges.
Face Amount: The Minimum Face Amount under a Contract is $10,000. The
minimum Total Insurance Coverage is $25,000. The Initial Face Amount and
Supplemental Term Insurance Amount will be set forth in the Application. The
Contract Holder may, subject to approval of SELIC, change the Face Amount.
The Contract Holder must request the change by notifying SELIC in writing,
and SELIC reserves the right to require satisfactory evidence of
insurability, which may include a medical examination. If SELIC approves
the change, it will take effect on the next Contract Anniversary which is at
least 30 days after all the required information has been provided to SELIC.
A partial withdrawal may also reduce the Face Amount under a Contract. (see
"The Contract -- Surrender and Partial Withdrawal") Decreases in Face
Amount cannot reduce the Total Insurance Coverage to less than the Minimum
Insurance Coverage. No such change will be effective if the Insured dies
before the date of such change. SELIC reserves the right not to effect a
requested change in Face Amount if the change would result in the Contract not
satisfying the requirements of the Internal Revenue Code of 1986, as amended.
The Net Cash Value immediately following the increase in Face Amount must be
sufficient to cover Monthly Charges to be deducted on the next Monthiversary.
If Net Cash Value will not be sufficient, an additional Premium will be
necessary before the increase in Face Amount will be effected.
If the Face Amount is decreased, and the Contract's Face Amount before the
change in Death Benefit Option reflects previous Face Amount increases, then
the Face Amount reduction will result first in the reduction in the Initial
Face Amount, and then to each Face Amount increase in order, starting with
the first increase.
A decrease in the Face Amount of the Contract will also result in a
recalculation of the Target Premium, and generally will decrease the Target
Premium for future Contract Years.
Additional insurance coverage may be available under one or more riders to
the Contract, including a Supplemental Term Insurance Rider. (See Appendix
B - "Supplemental Term Insurance Rider".) Under certain circumstances,
SELIC may offer Contracts through
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<PAGE> 36
which insurance coverage is provided primarily through the Supplemental Term
Insurance Rider. Because insurance coverage under such riders may be
purchased through deductions from Available Divisions and/or the Fixed Fund
that are not taken into account in determining Target Premium, there may not
be additional Premium Load associated with this coverage. There may be
circumstances in which it will be to the Contract Holder's economic advantage
to include a significant portion or percentage of coverage under the
Supplemental Term Insurance Rider. These circumstances depend on many
factors, including the Premium levels and amount and duration of coverage, as
well as the age (and, where applicable, sex, smoker status, and/or risk
classification) of the Insured. As discussed above, SELIC reserves the right
to refund promptly certain Premium amounts paid during the first Contract Year
in excess of Planned Renewal Premium amounts. (See "Premiums") In such
cases, SELIC will generally agree to accept such Premium amounts provided that
the Contract Holder elects to convert a portion of the Face Amount, as
determined by SELIC, to coverage under a Supplemental Term Insurance Rider.
Contract Holders should contact their agent for additional information.
A change in Face Amount may have Federal income tax consequences. (See
"Federal Income Tax Considerations").
Payment of Death Benefit: The amount of any Death Benefit payable is
adjusted as follows:
(1) by deducting the amount of any unpaid Monthly Charges against the
Insurance Account Value to the date of death (See "Charges and
Deductions");
(2) by deducting the amount of any Contract Loans outstanding against the
Insurance Account Value on the date of death plus accrued but
unpaid interest on such Contract Loans on the date of death (See
"Contract Loan Privileges"); and
(3) by deducting the amount of any unpaid charges provided by rider.
The Death Benefit will usually be paid in a lump sum within seven (7) days
of the date due proof of the Insured's death is received by SELIC at its
Home Office and any other requirements are satisfied. Payment of any amount
of Death Benefit based upon the Separate Account may be delayed, however,
during any period that:
(1) The New York Stock Exchange (or its successor) is closed, except for
normal weekend or holiday closings, or trading is restricted; or
(2) The SEC determines that a state of emergency exists.
Settlement of any amounts not based upon the Separate Account will be made
not more than six (6) months after due proof of death is received. Interest
on Death Benefits will be
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<PAGE> 37
credited as prescribed by law. Payment of a Death Benefit may be deferred by
a separate written agreement between SELIC and the Contract Holder or
Beneficiary, subject to SELIC's approval. In such cases, the interest that
will be credited will be at least one percent (1%) per annum.
Beneficiary: The Contract Holder may name or change the Beneficiary by
sending written notice to SELIC. A Beneficiary may be revocable or
irrevocable. An irrevocable Beneficiary may not be changed without his or
her consent, and consent is also required prior to the Contract Holder's
exercise of certain other rights. There may be different classes of
Beneficiaries, such as primary and secondary. These classes set the order
of payments. There may be more than one Beneficiary in a class. The
Beneficiary designation in effect on the Issue Date is stated in the
Contract Application and in any related documents which are attached to and
made a part of the Contract.
CHARGES AND DEDUCTIONS
Certain charges will be deducted by SELIC from Premiums and from Insurance
Account Value as compensation for providing the insurance benefits under the
Contract, for administering the Contract, for assuming certain risks, and
for incurring certain expenses in distributing the Contract. A prospective
purchaser may request personalized hypothetical illustrations of the
Contract's Insurance Account Value and Death Benefits. Such hypothetical
illustrations will reflect the effect of the charges and deductions under the
Contract and may assist a prospective purchaser in understanding the operation
of the Contract.
Premium Load
Before crediting a Premium to the Available Divisions and/or the Fixed Fund,
a Premium Load, consisting of a Distribution Charge, a DAC Tax charge and a
Premium Tax Charge, is deducted from that Premium. Premium Load is
expressed as a percentage of Premium; the percentage depends upon whether
the Premium is Target Premium or Excess Premium, on the Contract Year during
which the Premium is paid, and on the Issue Age of the Insured.
Distribution Charge: The Distribution Charge, which is a sales load, is
comprised of a Premium Expense Load and a Commission Charge.
The Premium Expense Load will be deducted from each Premium and will equal a
percentage of the Premium. The percentage will be determined based on the
sum of the Initial Premiums for all Contracts in a Case, in accordance with
the following table:
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<PAGE> 38
<TABLE>
<CAPTION>
Sum of the Initial Premiums
of All Contracts in the Case Premium Expense Load
---------------------------- --------------------
<S> <C>
Less than $250,000 2.00%
$250,000 - $999,999 1.50%
$1,000,000 and more 1.25%
</TABLE>
A Commission Charge will be deducted from Premiums paid in each Contract
Year up to the Target Premium amount. There is no Commission Charge on any
Excess Premium amount paid during a Contract Year. The Commission Charge on
Premiums paid in a Contract Year up to the Target Premium amount is based
upon the Issue Age of the Insured and the Contract Year as follows:
<TABLE>
Commission Charges During Contract Year
---------------------------------------
<CAPTION>
Commission Charge
-------------------------------------------------------------------
For Contract Year Contract Years Contract Years
Issue Ages 1 2-10 11-15
- ---------- - ---- -----
<S> <C> <C> <C>
20 - 51 28.00% 8.00% 6.00%
52 - 59 28.00% 6.33% 4.00%
60 - 67 28.00% 4.66% 4.00%
68 - 80 19.00% 4.00% 4.00%
81 - 85 13.00% 4.00% 4.00%
</TABLE>
For all Issue Ages the Commission Charge will be 2% for Year 16+.
For Single Premium Payments, the maximum Commission Charge will be 6% of
Premium paid. Single Premium Payments are the excess of the Premium
received in the first Contract Year over Planned Renewal Premium. Failure
to pay Planned Renewal Premium will not automatically result in lapse of the
Contract.
The Distribution Charge is intended to compensate SELIC for its expenses in
the distribution of the Contracts, including sales commissions, printing
prospectuses, preparing sales literature and paying for other promotional
activities; to the extent that those expenses are not recovered from the
Distribution Charge, those expenses may be recovered from other sources,
including profit, if any, from the mortality and expense risk charge and
mortality gains. In accordance with applicable SEC regulations,
Distribution Charge amounts will not exceed nine percent of the sum of the
"guideline annual premiums" that would be paid during the period equal to
the lesser of 20 years or the anticipated life expectancy of the Insured
based on the 1980 Commissioners Standard Ordinary Mortality Table, as
defined in such regulations.
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<PAGE> 39
For modifications to this section for Joint Insureds, see Appendix B --
"Joint and Last Survivor Rider." For modifications to this section with the
addition of a Term Rider, see Appendix B -- "Supplemental Term Rider
Insurance."
Premium Tax Charge: SELIC also deducts from each Premium a Premium Tax
Charge approximately equal to the taxes that are based on such Premium
received under the Contract and that are imposed on SELIC by the state in
which the Contract Holder resides or by the state in which the Insured
resides. In general, for Cases with one Contract Holder and with less than
500 Contracts, this charge will be determined as to any Contract in
accordance with the law of the state in which the Contract Holder resides.
For Cases with a greater number of Insureds and one Contract Holder, the
amount of the charge as to any Contract will be determined in accordance
with the law of the state in which the Insured resides. State premium tax
rates currently range from .75% to 5.00%.
DAC Tax Charge: SELIC also deducts from each Premium a charge for federal
income taxes, equal to 1%, which compensates SELIC for an increased federal
tax burden resulting from the receipt of Premiums under Section 848 of the
Internal Revenue Code as enacted by the Omnibus Budget Reconciliation Act of
1990. This charge for federal income taxes is reasonable in relation to
SELIC's increased federal tax burden under Section 848 resulting from the
receipt of Premiums under the Contracts.
Daily Charges
Mortality and Expense Risk Charge: Each Division of the Separate Account is
assessed a Mortality and Expense Risk Charge, which will never exceed an
annual effective rate of 0.50% of the Contract's Separate Account Value
attributable to that Division. Currently, the amount of this charge is an
annual effective rate of 0.35% of the Separate Account Value, which is
equivalent to 0.000957233% of the Separate Account Value attributable to the
Division on a daily basis.
The charge, which is designed to compensate SELIC for the mortality and
expense risks it assumes under the Contract, is deducted on a daily basis
from the Separate Account's assets.
The mortality risk assumed by SELIC under the Contract is that Insureds may,
on average, live for shorter periods of time than estimated and therefore
that the Cost of Insurance Charges specified in the Contract will be
insufficient to meet actual claims. The expense risk assumed by SELIC under
the Contract is the risk that other expenses of issuing and administering
the Contract and operating the Separate Account will be greater than the
charges imposed under the Contract to cover such expenses. If the money
collected from the Mortality and Expense Risk Charge is not needed to cover
these risks, it will be SELIC's gain and will be used for any proper
purpose. Conversely, if the money collected is insufficient to cover these
risks, SELIC will absorb any loss.
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<PAGE> 40
Monthly Charges
As of the Contract Date and on each Monthiversary thereafter, Monthly
Charges will be deducted from each Available Division and the Fixed Fund.
Monthly Charges consist of the Administration Charge, the Cost of Insurance
Charge, charges for additional benefits provided by Contract rider, and
charges for Special Insurance Class Rating, if any. These charges will be
deducted from each Available Division and the Fixed Fund in proportion to
the Insurance Account Value attributable to each Available Division and the
Fixed Fund.
Administration Charge: On each Monthiversary, a charge is deducted to
compensate SELIC for administrative expenses. The current amount of this
charge is $4.50 per month per Contract. This charge may change, but is
guaranteed not to exceed $8.00 per month per Contract. The Administration
Charge is assessed to reimburse SELIC for the expenses associated with the
administration and maintenance of the Contract and the Separate Account. SELIC
does not expect to profit from this charge.
Cost of Insurance Charge: A deduction for SELIC's cost of insurance
protection is made on each Monthiversary and, unless otherwise specified by
the Contract Holder, will be based on unisex and unismoke rates. The cost of
insurance rates generally increase as the Insured's Attained Age increases.
SELIC also offers rates, upon a Contract Holder's request, that vary based
on the sex (except Contracts sold in Montana; See "Unisex Requirements
Under Montana Law") and smoker class of the Insured. However, any variation
by sex and/or smoker class must be applied on a consistent basis for all
Contracts in the applicable Case.
The Cost of Insurance Charge is determined by multiplying the applicable
cost of insurance rate by the Net Amount at Risk each Contract Month. Any
change in the Net Amount at Risk will affect the total Cost of Insurance
Charges deducted from the applicable Insurance Account Value. Since the Net
Amount at Risk may not be constant, the charge could vary monthly.
The guaranteed cost of insurance rates will not be greater than the
guaranteed maximum cost of insurance rates set forth in the Contract. Those
rates, as well as the rates used for Federal income tax purposes, are based
on the 1980 Commissioners Standard Ordinary (CSO) Mortality Tables, Age
Nearest Birthday that correspond to the applicable sex and smoker blend
under the Contract. Current Cost of Insurance Charges may be lower and may
be changed. The current Cost of Insurance Charges for the Contract Year are
shown in the Contract Holder's annual statement.
SELIC may offer insurance coverage up to $1 million on a guaranteed issue or
simplified issue basis under Contracts that meet all the following
requirements:
1) The Case to which the Contract belongs has at least 25 Insureds;
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<PAGE> 41
2) Each Insured under the Contracts in the applicable Case must at the
time of issue be actively at work for a common Employer for a
minimum of 1,000 hours annually;
3) 100% of "eligible persons", defined in a manner acceptable to SELIC,
must be named as an Insured under the applicable Case;
4) The Face Amount, and any Supplemental Term Insurance Amount, for each
Contract in the applicable Case must be determined in all years by
a formula acceptable to SELIC;
5) The Face Amount increases, including any increases in Supplemental
Term Insurance Amount, in any given year for any Contract in the
applicable Case cannot exceed 10% and the cumulative increase in any
Face Amount cannot exceed the smaller of the initial Total Insurance
Coverage or $1,000,000;
6) The Contract Holder, Insured and Beneficiary of each Contract in the
applicable Case must be either an entity domiciled in the United
States or a United States citizen; and
7) The Insured under each Contract in the applicable Case must be between
the ages of 20 and 65.
For Simplified Issue Contracts, SELIC requires that certain medical
information regarding the prospective Insured be provided in the
Application.
SELIC will also offer Contracts on a medically underwritten basis. In these
situations, the rating of an Insured will affect the cost of insurance
rates. SELIC will offer medically underwritten Contracts on a standard and
substandard rating basis. Standard rates will, in general, be less than
substandard rates.
For Cases with applications dated prior to April 29, 1996 and issued on
a guaranteed issue or simplified issue basis the Cost of Insurance Charges
will vary only by the Attained Age of the Insured. For Cases with
applications dated on or after April 29, 1996 and issued on a guaranteed
issue basis the Cost of Insurance Charges will vary only by the Attained Age
of the Insured but for Cases issued on a simplified issue basis the Cost
of Insurance Charges will vary by the Issue Age and the number of completed
Contract Years under the Contract. For all Cases issued on a medically
underwritten basis the Cost of Insurance Charges will vary by the Issue Age
and the number of Completed Contract Years under the Contract. In general
cost of insurance rates under Contracts that are issued on a guaranteed
issue basis will be greater than cost of insurance rates on Contracts issued
on a simplified issue basis, which will be greater than cost of insurance
rates on Contracts that are issued on a standard medically underwritten
basis.
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<PAGE> 42
SELIC may require medical underwriting for any transaction that increases
its Net Amount at Risk. If any medical underwriting has taken place, an
Insured's rate class may affect the guaranteed and current cost of insurance
rate applicable to that Insured, but not the cost of insurance rate
applicable for Federal income tax purposes which for all Contracts will be
equal to 100% of the applicable 1980 CSO table.
Each Insured is placed in a rate class when SELIC issues a Contract, based
on the Case to which the Contract belongs and underwriting information,
including medical underwriting, if any. When an increase in Face Amount is
requested, SELIC reserves the right (i) to accept or reject the request,
with or without obtaining additional underwriting information; and (ii) to
obtain additional underwriting information, including medical underwriting,
before approving the increase to determine whether a different rate class
would apply to the increase. If the Insured's rate class at the time of the
increase has declined since the last change in coverage, and SELIC approves
the change in coverage, then the lower rate class will be applied to the Face
Amount increase only. If the Insured's rate class at the time of the increase
has improved since the last change in coverage, then the improved rate class
will be applied to the Total Insurance Coverage provided under the Policy.
Additional Insurance Benefits and Special Insurance Class Ratings: Subject
to certain requirements, one or more riders may be added to a Contract.
These riders and the charges associated therewith are described in Appendix
B to this Prospectus. (See "Additional Provisions of the Contract -- Entire
Contract"). Deductions will be made on each Monthiversary for applicable
charges for any additional benefits provided by Contract rider.
Deductions will also be made on each Monthiversary for any applicable
Special Insurance Class Rating Charges, which are imposed under the Contract
if a Contract is issued on a substandard basis. These charges are set forth
in the Contract.
Underwriting Charges
An Underwriting Charge of up to $100 will be deducted from the Insurance
Account Value on the Issue Date if the Contract is issued on a medically
underwritten basis. Medically underwritten Contracts, for purposes of
deducting this charge, are all Contracts other than those issued on a
guaranteed issue or simplified issue basis (see "Charges and Deductions --
Monthly Charges -- Cost of Insurance Charges"). SELIC also reserves the
right to deduct an Underwriting Charge of up to $100 from the Contract's
Insurance Account Value on any Monthiversary following a Contract Month in
which medical underwriting has taken place due to an increase in SELIC's Net
Amount at Risk with respect to the Contract. The Underwriting Charge is
assessed to reimburse SELIC for the expenses associated with the
underwriting of the Contract. SELIC does not expect to profit from this
charge.
SELIC may, in its sole discretion, reduce or waive the Underwriting Charge
in connection with the purchase of Contracts sold by licensed agents of
SELIC that are also registered
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<PAGE> 43
representatives of selected broker-dealers or through banks that have entered
into written sales agreements with Walnut Street. Any reduction in or waiver
of the Underwriting Charge is reflected in the Contract.
The Underwriting Charge will be deducted from the Available Divisions and
the Fixed Fund in proportion to Insurance Account Value attributable to each
Division and the Fixed Fund.
For modifications to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
Annual Charges
On each Contract Anniversary, (i) the Insurance Account Value attributable
to the Separate Account and Fixed Fund is reduced by Contract Loan interest
due and unpaid for the previous Contract Year; and (ii) the Insurance
Account Value attributable to the Separate Account and Fixed Fund is
increased by the interest credited to the Borrowed Fund during the previous
Contract Year. The net result is that if Contract Loan interest is not paid
when due, then on the Contract Anniversary, the Insurance Account Value
attributable to the Separate Account and Fixed Fund will be reduced by the
difference between the Contract Loan interest due and unpaid for the
previous Contract Year, and the interest credited to the Borrowed Fund
during the previous Contract Year.
Other Charges
Taxes and Other Governmental Charges: SELIC does not currently make any
charges against the Divisions of the Separate Account for Federal, state or
local taxes attributable to them. However, SELIC may in the future impose
such a charge to provide for any tax liability of the Separate Account.
Fees and Expenses of Underlying Portfolios: The value of an Accumulation
Unit of each Separate Account Division that invests in shares or interests
of an Underlying Portfolio will reflect the expenses incurred by that
Underlying Portfolio. The Underlying Portfolio's expenses will include its
investment management fee and its operating expenses. The management fees
and operating expenses of each Underlying Portfolio are set forth in the
accompanying prospectus for such underlying Portfolio.
Illustrative Report Fee: At the Contract Holder's request, SELIC will
provide an illustrative report in addition to the reports it customarily
provides. Depending upon the type and complexity of the requested report,
SELIC may charge a reasonable fee not to exceed $50.00 per report. (See
"Records and Reports") This fee must be paid by the Contract Holder
separately, and will not be considered a Premium payment.
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<PAGE> 44
TERMINATION
The Contract terminates on the earliest to occur of the following:
(1) the end of the Grace Period following any Monthiversary in which the
Net Cash Value for the Contract is insufficient to pay the Monthly
Charges (See "Termination for Insufficient Net Cash Value", below);
or
(2) the surrender of the Contract by the Contract Holder; or
(3) the Maturity Date of the Contract; or
(4) the fulfillment of all of SELIC's obligations under the Contract.
Maturity Date
No insurance coverage will be effective on or after the Maturity Date, which
is the Contract Anniversary on which the Insured reaches Attained Age 100.
If the Insured is living and the Contract is in force on the Maturity Date,
the Net Cash Value will be paid to the Contract Holder, the Contract will
terminate, and the liability of SELIC under the Contract will cease.
For modifications to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
Termination for Insufficient Net Cash Value
A Contract will not terminate automatically for failure to pay a subsequent
Premium. However, if the Net Cash Value is not sufficient to cover the
Monthly Charges due with respect to a Contract on any Monthiversary, then
the Grace Period begins. This Grace Period begins on the Monthiversary on
which the Monthly Charges are due. The Grace Period ends 61 days from that
Monthiversary or, if later, 61 days after the date SELIC mails a written
notice to the Contract Holder at the last known address shown on SELIC's
records. This notice will state the Premium amount needed to keep the
Contract in force. During the Grace Period, the insurance coverage under
the Contract will continue in effect.
To continue the Contract's insurance coverage in force, the Contract Holder
must make a Premium payment before the Grace Period ends at least equal to
three (3) times the Monthly Charges due when the Grace Period began, plus
Premium Load.
The Contract will terminate without value (and therefore the insurance
coverage will cease) at the end of the Grace Period if such amounts are not
paid.
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Reinstatement of a Contract Terminated for Insufficient Value
A Contract that has terminated for insufficient Net Cash Value may be
reinstated within five (5) years from the date of Contract termination. The
Contract Holder must request the reinstatement in a form acceptable to SELIC
and pay the reinstatement Premium, which must be at least equal to the
Monthly Charges due and unpaid at the time of lapse, plus three (3) times
the Monthly Charges due at the time of reinstatement, plus any applicable
Premium Load. Medical evidence of insurability will be required for
reinstatement, and the Insured must be living on the date the reinstatement
becomes effective.
For Modification to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
THE FIXED FUND
Amounts invested in the Fixed Fund become part of the general assets of
SELIC held in SELIC's General Account. SELIC invests the assets of the
General Account in accordance with applicable state insurance laws. Because
of exemptive and exclusionary provisions, interests in the General Account
have not been registered under the Securities Act of 1933, and the General
Account has not been registered as an investment company under the 1940 Act.
Accordingly, neither the General Account nor any interests therein are
subject to the provisions of these Acts and, as a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosure in this
Prospectus relating to the General Account. The disclosure regarding the
General Account may, however, be subject to certain generally applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
This Prospectus describes a flexible premium variable life insurance
contract. This Prospectus, together with the accompanying prospectuses for
the Underlying Portfolios, is generally intended to serve as a disclosure
document only for the aspects of the Contract relating to the Separate
Account. For complete details regarding the Fixed Fund, see the Contract
itself.
General Description
The General Account consists of all assets owned by SELIC, other than those
in the Separate Account and other separate accounts. Subject to applicable
law, SELIC has sole discretion over the investment of the assets of the
General Account.
The allocation of amounts to the Fixed Fund does not entitle a Contract
Holder to share in the investment experience of the General Account.
Instead, SELIC guarantees that the Insurance Account Value in the Fixed Fund
will accrue interest at a rate of at least 4%, compounded annually,
independent of the actual investment experience of the General Account.
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The Borrowed Fund is also part of the General Account. (See "The Contract
- -- Contract Loan Privilege")
Allocation of Amounts to the Fixed Fund
At Contract issue, SELIC will determine the maximum percentage of the non-
borrowed Insurance Account Value that may allocated, either initially or by
transfer, to the Fixed Fund. This maximum percentage is set forth in the
Contract (the "maximum allocation percentage"). The ability to allocate Net
Premiums or to transfer Insurance Account Value to the Fixed Fund may not be
made available or may be limited in accordance with the terms of the Contract.
The Company may, from time to time, adjust the maximum allocation percentage.
Such adjustments may not be uniform to all Contracts. Subject to this maximum,
a Contract Holder may elect to allocate Net Premiums to the Fixed Fund, the
Separate Account, or both. Subject to this maximum, the Contract Holder may
also transfer the Insurance Account Value from the Available Divisions of the
Separate Account to the Fixed Fund.
Fixed Fund Benefits
If the Contract Holder allocates all Net Premiums only to the Fixed Fund and
makes no transfers, partial withdrawals, or Contract Loans, the entire
investment risk under the Contract will be borne by SELIC.
Fixed Fund Insurance Account Value
Net Premiums allocated to the Fixed Fund are credited to the Insurance
Account Value. SELIC bears the full investment risk for these amounts and
guarantees that interest credited to each Contract Holder's Insurance
Account Value in the Fixed Fund will not be less than a rate of at least 4%
per year, compounded annually. SELIC may, in its sole discretion, credit a
higher rate of interest, although it is not obligated to credit interest in
excess of 4% per year, and might not do so. Any interest credited on the
Contract's Insurance Account Value in the Fixed Fund in excess of the
guaranteed minimum rate of 4% per year will be determined in the sole
discretion of SELIC. The Contract Holder assumes the risk that interest
credited may not exceed the guaranteed minimum rate of 4% per year. If
excess interest is credited, a different rate of interest may be applied to
the value in the Borrowed Fund. The value in the Fixed Fund will be
calculated on each Monthiversary of the Contract.
SELIC guarantees that, on each Valuation Date, the Insurance Account Value
in the Fixed Fund will be the amount of the Net Premiums allocated or
Insurance Account Value transferred to the Fixed Fund, plus interest at the
rate of 4% per year, plus any excess interest which SELIC credits and any
amounts transferred into the Fixed Fund, less the sum of all Contract charges
allocable to the Fixed Fund and any amounts deducted from the Fixed Fund in
connection with partial withdrawals, surrender charges or transfers to the
Separate Account.
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On any given day the Insurance Account Value in the Fixed Fund will be equal
to the Insurance Account Value in the Fixed Fund on the prior Valuation Day
plus:
(1) any new Net Premium allocated to the Fixed Fund; and
(2) any amount transferred to the Fixed Fund from an Available Division or
the Borrowed Fund; and
(3) any interest credited to the Fixed Fund
and less:
(1) any amount transferred from the Fixed Fund to an Available Division or
the Borrowed Fund; and
(2) the Cost of Insurance Charges allocated to the Fixed Fund (deducted
only on a Monthiversary); and
(3) the Administration Charges allocated to the Fixed Fund (deducted only
on a Monthiversary); and
(4) any partial withdrawals taken from such Contract and allocated to the
Fixed Fund; and
(5) any charges allocated to the Fixed Fund that are deducted from the
Insurance Account Value for benefits provided by Contract riders; and
(6) any Underwriting Charges allocated to the Fixed Fund; and
(7) any charges for Special Insurance Class Rating allocated to the Fixed
Fund (deducted only on a Monthiversary); and
(8) any other charges allocated to the Fixed Fund as stated in the
Contract.
For more information regarding the charges and expenses deducted under the
Contract, see "Charges and Deduction". For more information regarding the
impact that Contract Loans can have on Insurance Account Value and Net Cash
Value, see "The Contract -- Contract Loan Privilege".
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Fixed Fund Transfers, Surrenders, Partial Withdrawals and Contract Loans
Prior to the Maturity Date, amounts may be transferred from the Fixed Fund
to the Available Divisions or partially withdrawn from the Fixed Fund.
Transfers from the Fixed Fund are subject to the following restrictions:
(a) The transfer must be made in the 30-day period following a
Contract Anniversary; and
(b) The amount transferred in any Contract Year may be no larger
than 25% of the Insurance Account Value in the Fixed Fund on
the date of the transfer or withdrawal.
Contract Loans and partial withdrawals may also be made from the Contract's
Insurance Account Value in the Fixed Fund, subject to the conditions and
restrictions on Contract Loans and partial withdrawals described above. (See
"The Contract -- Contract Loan Privilege" and "The Contract -- Surrender and
Partial Withdrawal").
Transfers, surrenders, and partial withdrawals payable from the Fixed Fund
and the payment of Contract Loans allocated to the Fixed Fund may be delayed
for up to six months. However, if payment is deferred for 30 days or more,
SELIC will pay interest at the rate of 2.5% per year for the period of the
deferment. Amounts from the Fixed Fund used to pay Premiums on Contracts
with SELIC will not be delayed.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary provides a general description of the Federal income
tax considerations associated with the Contracts and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisers should be consulted for
more complete information. This discussion is based upon SELIC's
understanding of the present Federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("Service"). No representation
is made as to the likelihood of continuation of the present Federal income
tax laws or of the current interpretations by the Service.
1. Tax Status of the Contract: Section 7702 of the Internal Revenue Code
of 1986, as amended (the "Code") sets forth a definition of a life
insurance contract for Federal tax purposes. The Section 7702
definition can be met if a life insurance contract satisfies either
one of two tests set forth in that section. The manner in which
these tests should be applied to certain features of the Contract
is not directly addressed by Section 7702 or proposed regulations
issued under that section. The presence of these Contract
features, the absence of final regulations, and lack of other
pertinent interpretations of
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Section 7702, thus creates some uncertainty about the application of
Section 7702 to the Contract.
Nevertheless, SELIC believes that the Contract generally qualifies as
a life insurance contract for federal tax purposes. Because of
the absence of final regulations or any other pertinent
interpretations, it, however, is unclear whether a Contract with a
joint and last survivor or a term rider added will, in all cases,
meet the statutory life insurance contract definition. If a
Contract were determined not to be a life insurance contract for
purposes of Section 7702, such contract would not provide most of
the tax advantages normally provided by a life insurance contract.
If it is subsequently determined that a Contract does not satisfy
Section 7702, SELIC will take whatever steps it deems are
appropriate and reasonable to cause a Contract to comply with
Section 7702. For these reasons, SELIC reserves the right to
modify the Contract as necessary to attempt to qualify a Contract
as a life insurance contract under Section 7702.
Section 817(h) of the Code requires the investments of the Separate
Accounts to be "adequately diversified" in accordance with
Treasury Regulations for the Contract to qualify as a life
insurance contract under Section 7702 of the Code. Failure to
comply with the diversification requirements may result in not
treating the Contract as life insurance. If the Contract does not
qualify as life insurance you may be subject to immediate taxation
on the incremental increases in Insurance Account Value of the
Contract. Regulations specifying the diversification requirements
have been issued by the Department of Treasury, and SELIC believes
it complies fully with such requirements. In connection with the
issuance of the diversification regulations, the Treasury
Department stated that it anticipates the issuance of regulations
or rulings prescribing the circumstances in which an owner's
control of the investments of a separate account may cause the
contract owner rather than the insurance company, to be treated as
the owner of the assets in the separate account. If a Contract
Holder is considered the owner of the assets of the Separate
Account, income and gains from the Account would be included in the
Holder's gross income.
Though no Regulations on the subject of an owner's control of the
investments of a separate account have been issued since the
Regulations specifying the diversification requirements were
issued, informal guidance is available from certain private letter
rulings issued by the Internal Revenue Service to individual
taxpayers. The ownership rights under the Contract are different
in certain respects from, those described by the Internal Revenue
Service in rulings in which it determined the owners were not
owners of separate account assets. For example, a Contract Holder
has additional flexibility in allocating premium payments and cash
values. These differences could result in the Contract Holder
being treated as the owner of a pro rata share of the assets of the
Separate Accounts. In addition, SELIC does not know what standards will
be set forth
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in any regulations or additional rulings which the Treasury might issue.
SELIC therefore reserves the right to modify the Contract as necessary
to attempt to prevent the Contract Holder from being considered the
owner of a pro rata portion of the assets of the Separate Accounts or to
otherwise qualify the Contract for favorable tax treatment.
The following discussion assumes that each Contract will qualify as a
life insurance contract for Federal income tax purposes.
2. Tax Treatment of Contract Benefits: SELIC believes the death benefit
under the Contract should generally be excludable from the gross
income of the Beneficiaries under Section 101(a)(1) of the Code.
Many changes or transactions involving a Contract may have tax
consequences, depending on the circumstances. Such changes
include but are not limited to the exchange of the Contract, a
change in a Contract's Face Amount, a change of ownership, the
payment of a subsequent premium, a partial withdrawal from a
Contract, a complete surrender of a Contract, an assignment, a
Contract Loan, or a Contract lapse with an outstanding Contract
Loan. In addition, Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of
Contract proceeds depend on the circumstance of each Contract
Holder or Beneficiary. A competent tax adviser should be consulted
for further information.
Generally, the Contract Holder will not be deemed to be in
constructive receipt of the Insurance Account Value including
increments thereof, under the Contract until there is a
distribution. The tax consequences of distributions from, and
loans taken from or secured by, the Contract(s) should generally
be determined on a Contract by Contract basis. (See "Multiple
Contracts," below.)
Such tax consequences further depend on whether the Contract from
which the distribution is made or Contract Loan is taken is
classified as a "modified endowment contract" under Section 7702A.
However, upon a complete surrender or lapse of any Contract, if the
amount received plus the amount of Indebtedness exceeds the total
investment in the Contract, the excess will generally be treated as
ordinary income subject to tax.
3. Modified Endowment Contracts: A Contract may be treated as a modified
endowment contract depending upon the amount of premiums paid in
relation to the death benefit provided in respect of such Contract.
The premium limitation rules for determining whether a Contract is
a modified endowment contract are complex. In general, a Contract
will be a modified endowment contract if the accumulated premiums
paid at any time during the first seven years after the Contract is
established exceeds the sum of the net level premiums which would have
been paid on or before
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such time if the future benefits provided in respect of the
Contract were deemed to be paid-up after the payment of seven level
annual premiums.
In addition, if the benefits or rights associated with a Contract are
"materially changed," it may cause such Contract to be treated as
a modified endowment contract. The material change rules for
determining whether a Contract is a modified endowment contract are
also complex. In general, however, the determination of whether a
Contract will be a modified endowment contract after a material
change generally depends upon the relationship among the death
benefit associated with the Contract at the time of such change,
the Insurance Account Value at the time of the change and the
additional premiums paid in respect of the Contract during the
seven years starting with the date on which the material change
occurs. Moreover, a life insurance contract received in exchange
for a life insurance contract classified as a modified endowment
contract will also be treated as a modified endowment contract.
(a) Distributions from Contracts Classified as Modified Endowment
Contracts: Contracts classified as modified endowment contracts
will be subject to the following tax rules: First, all
distributions, including distributions upon lapse or surrender,
from such a Contract are treated as ordinary income subject to tax
up to the amount equal to the excess (if any) of the Insurance
Account Value of the Contract immediately before the distribution
over the investment in the Contract (described below) at such time.
Second, loans taken from or secured by, the Insurance Account Value
of such a Contract, as well as due but unpaid interest thereon, are
treated as distributions from such Contract and taxed accordingly.
Third, a 10 percent additional income tax is imposed on the portion
of any distribution from, or loan taken from or secured by, such a
Contract that is included in income except where the distribution
or loan is made on or after the taxpayer attains age 59 1/2, is
attributable to the taxpayer's becoming disabled, or is part of a
series of substantially equal periodic payments for the life (or
life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and the taxpayer's Beneficiary.
Contract Holders that are not natural persons are unlikely to meet
these exceptions.
If a Contract becomes a modified endowment Contract after it is
issued, distributions made during the Contract year in which it
becomes a modified endowment Contract, distributions in any
subsequent Contract year and distributions within two years before
the Contract becomes a modified endowment Contract will be subject
to the tax treatment described above. This means that a
distribution from a Contract that is not a modified endowment
Contract could later become taxable as a distribution from a
modified endowment Contract.
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(b) Distributions From Contracts Not Classified as Modified
Endowment Contracts: Distributions from a Contract that is not a
modified endowment contract are generally treated as first
recovering the investment in the Contract (described below) and
then, only after the return of all such investment in the Contract,
as distributing taxable income. An exception to this general rule
may occur in the case of a decrease in the death benefit provided
in respect of a Contract (possibly resulting from a partial
withdrawal) or any other change that reduces benefits associated
with the Contract in the first 15 years after the Contract is
established and that results in a cash distribution to the Contract
Holder in order for the Contract to continue complying with the
Section 7702 definitional limits. Such a cash distribution will be
taxed in whole or in part as ordinary income (to the extent of any
gain in the Contract) under rules prescribed in Section 7702.
Loans from, or secured by, a Contract that is not a modified
endowment contract are generally not treated as distributions.
Instead, such loans are generally treated as indebtedness of the
Contract Holder. However, if the Service or a court were to deem
the loan not 'bona fide', it is possible that the loans from the
Contract may be treated as taxable distributions.
Neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a Contract that is not a
modified endowment contract are subject to the 10 percent
additional income tax. If a Contract which is not a modified
endowment contract subsequently becomes a modified endowment
contract, then any distribution made from the Contract within two
years prior to the date of such change in status may become taxable
and subject to the 10 percent additional income tax.
(c) Classification of Contract: Due to the Contract's flexibility,
classification of a Contract as a modified endowment contract will
depend upon the circumstances of each Contract. SELIC has adopted
administrative steps designed to protect a Contract Holder against
the possibility that a Contract might become a modified endowment
contract. SELIC believes the safeguards are adequate for most
situations, but it cannot provide complete assurance that a
Contract will not be classified as a modified endowment contract.
At the time a Net Premium is credited which (according to SELIC's
calculations) would cause a Contract to become a modified endowment
contract, SELIC will notify the Contract Holder that unless a
refund of the excess Premium is requested by the Contract Holder,
the Contract will be a modified endowment contract. The Contract
Holder will have 30 days after receiving such notification to
request the refund. The excess Premium paid with 4% required annual
interest or gain, whichever is greater, will be returned to the
Contract Holder upon receipt by SELIC of the refund request. The
amount to be
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refunded will be deducted from the Insurance Account Value in the
Available Divisions and in the Fixed Fund in the same proportion
as the payment was allocated.
A Contract Holder should contact a competent tax adviser before
purchasing a Contract to determine the circumstances under which a
Contract would be a modified endowment contract. In addition, a
Contract Holder should contact a competent tax adviser before
paying any additional premiums; making any other change to,
including an exchange of, a Contract; or making a change to the
benefits provided under a Contract to determine whether such
premium or change would cause the Contract (or the new contract in
the case of an exchange) to be treated as a modified endowment
contract.
4. Loan Interest: Generally, interest paid on any loan under a life
insurance contract which is owned by an individual is not
deductible. In addition, interest on any loan under a life insurance
contract owned by a taxpayer and covering the life of any individual
who is an officer of or is financially interested in the business
carried on by that taxpayer, will not be tax deductible to the extent
the aggregate amount of such loans with respect to contracts covering
such individual exceeds $50,000. No amount of contract loan interest
is, however, deductible if the life insurance contract is deemed for
Federal tax purposes to be a single premium life insurance contract.
There are other limitations on the deductibility of loan interest
including that generally no amount of loan interest can be deducted
in respect of amounts paid or accrued on indebtedness incurred or
continued to purchase or carry a life insurance contract pursuant to
a plan of purchase which contemplates the direct or indirect
borrowing of all or part of the increases in Insurance Account Value
of the contract. There are certain exceptions to this rule. A
Contract Holder should consult a competent tax adviser before
deducting any loan interest.
5. Investment in a Contract: Investment in a Contract means (i) the
aggregate amount of any premiums or other consideration paid in
respect of a Contract, minus (ii) the aggregate amount received
under the Contract which is excluded from gross income of the
Contract Holder (except that the amount of any loan from, or
secured by, a Contract that is a modified endowment contract, to
the extent such amount is excluded from gross income, will be
disregarded), plus (iii) the amount of any loan from or secured by
a Contract that is a modified endowment contract to the extent
that such amount is included in the gross income of the Contract
Holder.
6. Multiple Contracts: All modified endowment contracts that are issued
by SELIC (or its affiliates) to the same Contract Holder during
any calendar year are treated as one modified endowment contract
for purposes of determining the amount includible in gross income
under section 72(e) of the Code. In view of this rule, in the
event that a number of Contracts are established at the same time
or during the same calendar year, it is important to determine how
many, if any, of the Contracts will be treated as
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modified endowment contracts. A competent tax adviser should be
consulted for further information.
7. Alternative Minimum Tax: There may also be an indirect tax upon the
inside build-up of the Contract under the corporate alternative
minimum tax.
8. Other Tax Consequences. The Contract may be used in various
arrangements, including nonqualified deferred compensation or
salary continuance plans, split dollar insurance plans, executive
bonus plans, tax exempt and nonexempt welfare benefit plans,
retiree medical benefit plans and others. The tax consequences of
such plans may vary depending on the facts and circumstances of
each individual arrangement. Therefore, if you are contemplating
the use of the Contract in any arrangement the value of which
depends in part on its tax consequences, you should be sure to
consult a qualified tax advisor regarding the tax attributes of the
particular arrangement and the suitability of this product for the
arrangement.
9. Possible Charge for Taxes: SELIC is presently taxed as a life
insurance company and does not incur federal income tax
liability, or state or local tax liability, attributable to
investment income or capital gains of the Separate Account. Based
on these assumptions, no charge is currently being made to the
Separate Account for federal income taxes, or state or local
taxes. However, SELIC may in the future impose such a charge if
(i) the tax treatment of SELIC is ultimately determined to be
other than what SELIC believes it to be, (ii) there are changes
made in the income tax treatment, or state or local tax treatment,
of variable life insurance at the company level, or of the
separate accounts, or (iii) there is a change in SELIC's status.
Any such charge would be designed to cover the taxes attributable to the
investment results of the Separate Accounts.
ADDITIONAL PROVISIONS OF THE CONTRACT
Addition, Deletion, or Substitution of Investments
SELIC reserves the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held
by the Separate Account or that the Separate Account may purchase. SELIC
reserves the right to eliminate the shares of any of the Underlying
Portfolios and to substitute the shares of another registered open-end
investment company if the shares of an Underlying Portfolio are no longer
available for investment or if, in SELIC's judgment, further investment in
any Underlying Portfolio becomes inappropriate in view of the purposes of
the Separate Account. SELIC will not substitute any shares attributable to
a Contract Holder's interest in a Division of a Separate Account without
notice to the Contract Holder and prior approval of the SEC, to the extent
required by the 1940 Act or other applicable law. Nothing contained in this
Prospectus shall prevent the Separate
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Account from purchasing other securities for other series or classes of
contracts, or from permitting a conversion between series or classes of
contracts on the basis of requests made by Contract Holders.
The participation agreements pursuant to which Underlying Portfolios sell
shares to the Separate Account can be terminated by the Underlying Portfolio
or by SELIC under a variety of circumstances, with or without cause.
SELIC also reserves the right to establish additional Divisions of the
Separate Account, each of which would invest in a new investment company,
with a specified investment objective. New Divisions may be established
when, in the sole discretion of SELIC, marketing needs or investment
conditions warrant, and any new Division will be made available to existing
Contract Holders on a basis to be determined by SELIC. SELIC may also
eliminate or combine one or more Divisions, substitute one Division for
another Division, or transfer assets between Divisions, if, in its sole
discretion, marketing, tax, or investment conditions warrant; such changes
will not occur without notice to the Contract Holder and prior approval of
the SEC, to the extent required by the 1940 Act or other applicable law.
In the event of a substitution or change, SELIC may, if it considers it
necessary, make changes in the Contract by appropriate endorsement. SELIC
will notify Contract Holders of any such changes.
If deemed by SELIC to be in the best interests of persons having voting
rights under the Contracts, and to the extent any necessary SEC approvals or
Contract Holder votes are obtained, the Separate Account may be: (a)
operated as a management company under the 1940 Act; (b) de-registered under
that Act in the event such registration is no longer required; or (c) combined
with other separate accounts of SELIC. To the extent permitted by applicable
law, SELIC may also transfer the assets of the Separate Account associated
with the Contract to another separate account.
Also, subject to the approval of the New York Superintendent of Insurance,
SELIC has the right to change the investment policy of any Separate Account
Division. If required, the process for obtaining approval of a material
change from the New York Superintendent of Insurance will be filed with the
insurance supervisory official of the Governing Jurisdiction. SELIC will
notify the Contract Holder if any material change of investment policy is
approved.
Incontestability
SELIC must bring any legal action to contest the validity of any insurance
coverage under the Contract within two years from the applicable Issue Date
of the Contract, or from the effective date of any change in coverage
requiring medical evidence of insurability, as applicable.
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Conversion Rights
Once the Contract is issued and as long as the Contract is in force, a
Contract Holder may during the first 24 months, transfer all of the
Insurance Account Value into the Separate Account and receive fixed and
guaranteed benefits under the Contract. Once this right is exercised, no
transfers out of the Fixed Fund will be allowed and all Net Premiums paid
after the election will be allocated to the Fixed Fund. This request must
be in writing and must specifically indicate that the transfer is being made
pursuant to the Conversion Right. This transfer will not be subject to any
transfer limitations or charges. At the time of such transfer, there will
not be any effect on this Contract's Death Benefit, Contract Loans, Face
Amount, Net Amount at Risk, Issue Age or insurance class. All benefits
after this conversion will be based upon the Fixed Fund.
Misstatement of Age or Sex
If the age or sex of the Insured has been misstated in the Application and
the misstatement is discovered after the Insured's death, the amount of
death benefit payable by SELIC will be that which the most recent mortality
charges would have purchased for the correct age and sex. If the Insured is
still living at the time of discovery, future amounts payable will be
adjusted based upon the correct facts.
Suicide
Subject to the insurance laws of the Governing Jurisdiction, if the Insured
commits suicide, while sane or insane, within two years from the date
coverage becomes effective with respect to such person under the Contract,
only a limited Death Benefit will be payable. In such case, the amount of
the Death Benefit will be equal to the amount of the Net Premiums paid, less
any partial withdrawals, and less any Contract Loans and any Contract Loan
interest accrued but unpaid.
If, after the expiration of the two year period described above, the Insured
commits suicide within two years from the date of receipt of any subsequent
Premium that increases the amount of the Death Benefit, the amount of the
Death benefit attributable to such increase will be limited to a refund of
the Cost of Insurance Charges made for such increase.
Availability of Funds
Cash payments from the Contract for partial withdrawals, Contract Loans, and
surrenders will usually be made within seven days after a written request is
received at the Home Office of SELIC. Transfers between or among Separate
Account Divisions will usually be effected on the date the transfer request
is received in good order. Payment or transfers may be delayed, however,
during any period that:
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(1) The New York Stock Exchange (or its successor) is closed for trading; or
(2) The SEC determines that a state of emergency exists.
Payment of the portion of any amount payable from the Fixed Fund for
Contract Loans, partial withdrawals or surrender, and transfers to the
Separate Account Divisions may be delayed for not more than 6 months. If
payment is deferred for 30 days or more, SELIC will pay interest on such
amounts at the rate of 2.5% per year for the period of deferment.
Entire Contract
The Contract is issued in consideration of the Application and the Initial
Premium. The Contract and Application, a copy of which is attached to the
Contract, together with any Contract Schedules, any riders, and any other
related documents constitute the entire Contract. Any waiver or change of
any provision in the Contract must be in writing and signed by an officer of
SELIC. Additional insurance benefits may be made available under the
Contract by rider. Any such riders selected by the Contract Holder and
agreed to by SELIC will be attached to and made a part of the Contract.
The failure of SELIC to enforce any provision of the Contract does not
constitute and cannot be construed as a waiver of such provision or of the
right to enforce it at a later time, nor does the waiver of any provision by
SELIC on one or more occasions constitute nor can it be construed as a waiver
for all occasions, and SELIC cannot be stopped from enforcing any provision of
the Contract except as may be otherwise agreed to in writing by an officer of
SELIC.
Representations in Application
SELIC deems all statements in the Application to be representations and not
warranties, and SELIC will not use any statement, in the absence of fraud,
to void the Contract or to defend a claim for the insurance benefits under
the Contract unless it is contained in the Application and a copy of the
Application is attached to the Contract on the Issue Date, or unless it is
contained in a related document and signed either by the Contract Holder or
by the proposed Insured, and a copy of such completed document is provided
to the Contract Holder on the Issue Date or on the effective date of any
change requiring evidence of insurability.
Contract Application and Contract Schedules
If any information contained in the Contract, Application, Contract
Schedules, or any other related documents for the Contract is inaccurate or
untrue on the date the Contract is issued, the Contract Holder is required
under the Contract to promptly notify SELIC and provide corrected
information.
-56-
<PAGE> 58
Right to Amend Contract
If any provision in the Contract is in conflict with the laws of the
Governing Jurisdiction, the provision will be deemed to be amended to
conform with such laws. SELIC may amend the Contract from time to time as
may be required to meet the definition of "life insurance" under the
Internal Revenue Code of 1986, as amended, or its regulations or published
rulings.
Computation of Contract Values
A detailed statement of the method used to compute the Contract's benefits
and values is filed with the insurance regulatory authority of the Governing
Jurisdiction. These benefits and values are not less than those required by
the laws of the Governing Jurisdiction.
Claims of Creditors
The proceeds of the Contract will be free from creditors' claims to the
extent allowed by law.
Notice
Any written notice required by the Contract to be given by SELIC to the
Contract Holder will be effective five (5) days after it is mailed by first
class mail or fifteen (15) days after it is mailed by third class mail (or
when received, if sent by any other means) to the Contract Holder at the
Contract Holder's current address as noted on the records of SELIC.
Any written notice required by the Contract to be given by the Contract
Holder to SELIC will be effective when received in a form acceptable to
SELIC at its Home Office. To be acceptable, a notice must be in written
form, in the English language (except where applicable law requires
otherwise), must include all pertinent information, and must be signed by
the Contract Holder or an individual authorized to act for the Contract
Holder and so designated on the records of SELIC.
Assignments
Neither the Contract nor any of the rights of the Contract Holder or
Beneficiary under it may be assigned or transferred without the written
permission of SELIC.
-57-
<PAGE> 59
Construction
In the event of a conflict between the Contract provisions and the
information contained in any Contract Schedule, the provisions of the
Contract will be controlling.
Severability
In the event any provision of the Contract is declared illegal or otherwise
unenforceable, it will be severed from the Contract and the remainder of the
Contract will be valid and enforceable.
State Variations
Certain Contract features, including the "Free Look" provision, are subject
to state variations. The Contract Holder should read his or her Contract
carefully to determine whether any variations apply in the state in which
the Contract is issued.
UNISEX REQUIREMENTS UNDER MONTANA LAW
The state of Montana generally prohibits the use of actuarial tables that
distinguish between men and women in determining premiums and policy
benefits for policies issued on the lives of its residents. Therefore, all
Contracts offered by this Prospectus and issued for delivery in Montana will
have premiums and benefits which are based on actuarial tables that do not
differentiate on the basis of sex.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account Divisions will be
maintained by SELIC. Each year within 30 days after the Contract
Anniversary, SELIC will mail a report to the Contract Holder. The report
will show the Insurance Account Value at the beginning of the previous
Contract Year and all Premiums paid since that time. It will also show the
additions to, and deductions from, the Insurance Account Value during the
Contract Year, and the Insurance Account Value, Death Benefit, Net Cash
Value, any outstanding Contract Loan amount and accrued Contract Loan
interest as of the current Contract Anniversary. The report will also
include any additional information required by applicable law or regulation.
SELIC also will mail the Contract Holder any other reports or documents
required by applicable law or regulation.
In addition to the periodic reports, the Contract Holder may request an
illustrative report showing projected Contract values. There may be a
charge for providing an illustrative report. (See "Charges and Deductions")
-58-
<PAGE> 60
SALE OF THE CONTRACT
The Contract will be sold by individuals who, in addition to being licensed
as life insurance agents for SELIC, are also registered representatives of
Walnut Street Securities, Inc. ("Walnut Street"), the distributors of the
Contract, or of broker-dealers or through banks who have entered into
written sales agreements with Walnut Street. Walnut Street was incorporated
under the laws of Missouri in 1984 and is a wholly-owned subsidiary of
General American Holding Company, which, in turn, is a wholly-owned
subsidiary of General American Life Insurance Company. Walnut Street is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc. No director or officer of Walnut Street owns any interest in the
Separate Account.
SELIC will pay writing agent compensation equal to the Commission Charge in
connection with the Contract Holder's purchase of the Contract plus a
maximum of 22% of Target Premium and a maximum of 5% of any Excess Premium.
VOTING RIGHTS
To the extent required by law, the Company will vote shares of the
Underlying Portfolios held in the Separate Account at regular or special
shareholder meetings of the Underlying Portfolios in accordance with
instructions received from persons having voting interests in the
corresponding Divisions of the Separate Account. If, however, the 1940 Act
or any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result the Company determines that it is
permitted to vote shares of the Underlying Portfolios in its own right, it may
elect to do so.
The number of votes that a Contract Holder has the right to instruct will be
calculated separately for each Division. Voting rights reflect the dollar
value of the total number of units of each Division of the Separate Account
credited to the Contract Holder at the record date rather than the number of
units alone. Fractional shares will be counted. The number of votes of an
Underlying Portfolio that the Contract Holder has the right to instruct will
be determined as of the date established by that Underlying Portfolio for
determining eligibility to vote at the meetings of the Underlying Portfolio.
Voting instructions will be solicited by written communications prior to
such meeting in accordance with procedures established by the Underlying
Portfolio.
The Company will vote shares as to which no timely instructions are received
in proportion to the voting instructions which are received with respect to
the contracts participating in that Underlying Portfolio. The Company will
also vote shares it owns that are not attributable to contracts in the same
proportion.
-59-
<PAGE> 61
Each person having a voting interest in a Division will receive proxy
material, reports, and other materials relating to the appropriate
Underlying Portfolio.
Disregard of Voting Instructions: The Company may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification, or investment objective of an Underlying Portfolio, or
one or more of its Series, or to approve or disapprove an investment
advisory contract for an Underlying Portfolio. In addition, the Company
itself may disregard voting instructions in favor of changes proposed by a
Contract Holder in the investment advisory agreement or the investment
adviser of an Underlying Portfolio if the Company reasonably disapproves of
such changes. A proposed change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory
authorities, or the Company determines that the change would have an adverse
effect on its General Account in that the proposed investment advisory
contract for an Underlying Portfolio may result in overly speculative or
unsound investments. In the event the Company does disregard voting
instructions, a summary of that action and the reasons for such action will
be included in the next annual report to Contract Holders.
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized under the laws of New
York, is subject to regulation by the New York Department of Insurance. An
annual statement is filed with the Superintendent of Insurance on or before
March 1st of each year covering the operations and reporting on the financial
condition of the Company as of December 31 of the preceding year.
Periodically, the Superintendent of Insurance examines the liabilities and
reserves of the Company and the Separate Account and certifies their adequacy,
and a full examination of the Company's operations is conducted by the
National Association of Insurance Commissioners at least once every three
years.
In addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the insurance departments of other states apply the laws of the
state of domicile in determining permissible investments.
-60-
<PAGE> 62
MANAGEMENT OF THE COMPANY
<TABLE>
BOARD OF DIRECTORS AND PRINCIPAL OFFICERS
<CAPTION>
Name Principal Occupation(s) During Past Five Years
<S> <C>
Willard N. Archie SELIC Director; Vice Chairman, Mitchell, Titus &
Vice Chairman Company (CPA management consulting firm). Prior
Mitchell, Titus & Company to January 1996, Managing partner, Mitchell, Titus &
One Battery Park Plaza Company.
New York, NY 10004-1461
Carson E. Beadle, SELIC Director; Managing Director, William M.
Managing Director Mercer Inc. (actuarial, employee benefits,
William M. Mercer, Inc. compensation and human resources management
1166 Avenue of the Americas consulting firm).
New York, NY 10036
James R. Elsesser SELIC Director; Vice President and Chief Financial
Vice President & CFO Officer, Ralston Purina Company (pet food, batteries,
Ralston Purina Company and bread business).
Checkerboard Square
St. Louis, MO 63164
Stanley Goldstein SELIC Director; Partner, Goldstein, Golub, Kessler &
Goldstein, Golub, Kessler & Co. Company (accounting services).
1185 Sixth Avenue
New York, NY 10036
David D. Holbrook SELIC Director; Chairman, Marsh & McLennan,
Chairman Inc. (insurance and reinsurance brokers, consulting and
Marsh & McLennan, Inc. investment management).
1166 Avenue of the Americas
New York, NY 10036
Richard A. Liddy SELIC Director; Chairman of the Board; President and
Chairman, President and CEO Chief Executive Officer, General American Life
General American Life Insurance Co. Insurance Co. (life insurance). Prior to May 1992,
700 Market Street President and Chief Operations Officer.
St. Louis, MO 63101
-61-
<PAGE> 63
Timothy C. Nicholson SELIC Director; President, GenMark, Inc.
President & CEO (distribution company). Prior to January, 1995, Senior
GenMark, Inc. Vice President, General American Life Ins. Co.
670 Mason Ridge Center Dr., Suite 300
St. Louis, MO 63141-8557
Leonard M. Rubenstein, SELIC Director; Executive Vice President -
Executive Vice President - Investments Investments, General American Life Insurance Co. (life
General American Life Insurance Co. insurance).
700 Market Street
St. Louis, MO 63101
William C. Thater SELIC Director and President; Prior to June 1993,
President Vice President - Individual Life, General American
Security Equity Life Insurance Co. Life Insurance Co. (life insurance). Prior to September
84 Business Park Drive, Suite #303 1991, Adv. Sales Vice President, General American
Armonk, NY 10504 Life Ins. Co. Prior to January 1990, Vice President,
Marsh & McLennan (insurance and reinsurance
brokers, consulting and investment management).
H. Edwin Trusheim SELIC Director; Retired Chairman, General American
General American Life Insurance Co. Life Insurance Co. (life insurance). Prior to May
700 Market Street 1993, Chairman & CEO, General American Life Ins.
St. Louis, MO 63101 Co.
Virginia V. Weldon, M.D. SELIC Director; Senior Vice President, Monsanto
Senior Vice President Company (chemicals diversified industry,
Monsanto Company pharmaceuticals, life science products, and food
800 North Lindbergh Blvd. ingredients business).
St. Louis, MO 63167
Ted C. Wetterau SELIC Director; Chairman and Chief Executive
Chairman and CEO Officer, Wetterau & Associates, Inc. (retail and
Wetterau Associates wholesale grocery, manufacturing business).
1401 S. Brentwood, Suite 760
St. Louis, MO 63144
Ben H. Wolzenski, SELIC Director; Executive Vice President, General
Executive Vice President - Individual American Life Insurance Co. (life insurance). Prior to
General American Life Insurance Co. October 1991, Vice President - Individual Life
13045 Tesson Ferry Road Products, General American Life Ins. Co.
St. Louis, MO 63128
-62-
<PAGE> 64
A. Greig Woodring SELIC Director; CEO & President, Reinsurance
CEO & President Group of America Inc. (reinsurance). Prior
Reinsurance Group of America, Inc. Executive Vice President - Reinsurance, General
660 Mason Ridge Center Dr., Suite 300 American Life Ins. Co.
St. Louis, MO 63141
Fabio Pieroni SELIC Vice President, Treasurer & Controller; Prior
Vice President, Treasurer & Controller to June 1993, 2nd Vice President of Finance and
Security Equity Life Insurance Co. Administration, First UNUM Life Insurance Company.
</TABLE>
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<PAGE> 65
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
has been provided by Sutherland, Asbill & Brennan.
LEGAL PROCEEDINGS
Neither SELIC nor the Separate Account is involved in any material legal
proceedings.
EXPERTS
The audited financial statements of Security Equity Life Insurance Company
and the Separate Account have been included in this Prospectus in reliance
on the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and on the authority of said firm as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Ralph A.
Gorter of Security Equity Life Insurance Company, whose opinion is filed as
an exhibit to the registration statement for the Contracts.
ADDITIONAL 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. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, SELIC and the Contracts.
Statements contained in this Prospectus as to the contents of the Contract
and other legal instruments are summaries. For a complete statement of the
terms thereof, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of SELIC which are included in this Prospectus
should be distinguished from the financial statements of the Separate
Account, and should be considered only as bearing on the ability of SELIC to
meet its obligations under the Contract. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account. Financial information is not provided for thirteen of the sixteen
available Divisions of the Separate Account because no operating history
exist for those Divisions as of December 31, 1995.
-64-
<PAGE> 66
Independent Auditors' Report
----------------------------
The Board of Directors
Security Equity Life Insurance Company
and Policyholders of Security Equity
Life Insurance Company Separate Account 13:
We have audited the accompanying statements of net assets and liabilities,
including the schedule of investments, of the General American Money Market
Fund, Wells Fargo Nikko Asset Allocation Fund, and Fidelity Growth Fund
Divisions of Security Equity Life Insurance Company Separate Account 13 as
of December 31, 1995, and related statements of operations and changes in
net assets for the period September 1, 1995 (inception) to December 31,
1995. These financial statements are the responsibility of Security Equity
Life Insurance Company Separate Account 13's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned at December 31,
1995 by correspondence with General American Capital Company, Wells Fargo
Nikko Investment Adviser, and Fidelity Investments. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the General American
Money Market Fund, Wells Fargo Nikko Asset Allocation Fund, and Fidelity
Growth Fund Divisions of Security Equity Life Insurance Company Separate
Account 13 as of December 31, 1995, and the results of their operations and
changes in their net assets for the period September 1, 1995 (inception) to
December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 22, 1996
-65-
<PAGE> 67
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Statements of Net Assets and Liabilities
December 31, 1995
<CAPTION>
Wells
General Fargo
American Nikko
Money Asset Fidelity
Market Allocation Growth
Fund Fund Fund
Division Division Division
-------- ---------- --------
<S> <C> <C> <C>
Investments, at market value $ 8,894,796 4,137 3,963
Receivable from general account 37 - -
Payable to general account (48,277) (42) (41)
--------- ----- -----
Total net assets $ 8,846,556 4,095 3,922
========= ===== =====
Total net assets represented by -
Variable Universal Life cash value
invested in Separate Account $ 8,846,556 4,095 3,922
========= ===== =====
Total units held in Separate Account 8,266,085 3,253 2,774
========= ===== =====
Accumulation unit value $ 1.07 1.26 1.41
========= ===== =====
Cost of investments $ 8,877,464 4,401 4,104
========= ===== =====
See accompanying notes to financial statements.
</TABLE>
-66-
<PAGE> 68
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Statements of Operations
Period from September 1 (inception)
to December 31, 1995
<CAPTION>
Wells
General Fargo
American Nikko
Money Asset Fidelity
Market Allocation Growth
Fund Fund Fund
Division Division Division
-------- ---------- --------
<S> <C> <C> <C>
Dividend income $ - 270 -
------ --- ---
Net realized gain on investments:
Proceeds from sales 8,244 - -
Cost of investments sold 8,217 - -
------ --- ---
Net realized gain on investments 27 - -
------ --- ---
Net unrealized gain (loss) on investments:
Unrealized gain (loss) on investments,
beginning of period - - -
Unrealized gain (loss) on investments,
end of period 17,332 (264) (141)
------ --- ---
Net unrealized gain (loss)
on investments 17,332 (264) (141)
------ --- ---
Net gain (loss) on investments 17,359 6 (141)
Mortality and expense charges 910 1 1
------ --- ---
Increase (decrease) in net
assets resulting from
operations $ 16,449 5 (142)
====== === ===
See accompanying notes to financial statements.
</TABLE>
-67-
<PAGE> 69
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Statements of Changes in Net Assets
Period from September 1 (inception)
to December 31, 1995
<CAPTION>
Wells
General Fargo
American Nikko
Money Asset Fidelity
Market Allocation Growth
Fund Fund Fund
Division Division Division
-------- ---------- --------
<S> <C> <C> <C>
Decrease in net assets resulting
from operations:
Dividend income $ - 270 -
Net realized gain on investments 27 - -
Net unrealized gain (loss)
on investments 17,332 (264) (141)
--------- ----- -----
Net gain (loss) on investments 17,359 6 (141)
Mortality and expense charges 910 1 1
--------- ----- -----
Increase (decrease) in net
assets resulting from
operations 16,449 5 (142)
--------- ----- -----
Capital transactions:
Deposits in Separate Account 9,362,425 - -
Transfers to/from Divisions (8,244) 4,131 4,104
Policy charges (524,074) (41) (40)
--------- ----- -----
Net deposits into Separate
Account 8,830,107 4,090 4,064
--------- ----- -----
Increase in net assets 8,846,556 4,095 3,922
Net assets, beginning of period - - -
--------- ----- -----
Net assets, end of period $ 8,846,556 4,095 3,922
========= ===== =====
See accompanying notes to financial statements.
</TABLE>
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<PAGE> 70
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
December 31, 1995
(1) Organization
------------
Security Equity Life Insurance Company Separate Account 13 (the
Separate Account) commenced operations on November 15, 1994. The
Separate Account is registered under the Investment Company Act of
1940 (1940 Act) as a unit investment trust. The Separate Account
receives purchase payments from individual flexible variable life
contracts issued by Security Equity Life Insurance Company
(Security Equity).
The Separate Account is divided into a number of Divisions. Each
Division invests in shares of an underlying portfolio available
to policyholders as directed by the policyholders. The portfolios
available for investment through the Separate Account are the
General American Money Market Fund, Fidelity Growth Fund, Fidelity
Investment Grade Bond Fund, Fidelity Asset Manager Fund, Fidelity
Index 500 Fund, Bankers Trust Emerging Market Fund, Bankers Trust
Liquid Asset Fund, Bankers Trust Limited Maturity Bond Fund, Wells
Fargo Nikko Asset Allocation Fund, and Wells Fargo Nikko U.S.
Government Allocation Fund. At December 31, 1995, only
investments in the General American Money Market, Wells Fargo
Nikko Asset Allocation, and Fidelity Growth Funds were held in the
Separate Account for policyholders.
(2) Significant Accounting Policies
-------------------------------
The following is a summary of significant accounting policies followed
by the Separate Account in the preparation of its financial
statements. The policies are in conformity with generally
accepted accounting principles.
(a) Investments
-----------
The Separate Account's investments are valued daily, based on
the net asset value of the shares held. The first-in, first-out
method is used in determining the cost of shares sold on
withdrawals by the Separate Account. Share transactions are
recorded on the trade date, which is the same as the settlement
date.
(b) Federal Income Taxes
--------------------
Security Equity is taxed under federal law as a life insurance
company. The Separate Account is part of Security Equity's
total operations and is not taxed separately. Under current
federal income tax law, no taxes are payable on investment
income or realized capital gains from sales of investments of
the Separate Account. Therefore, no federal income tax expense
has been provided.
(c) Dividend Reinvestment
---------------------
Dividends are recorded on the ex-dividend date and immediately
reinvested on the pay date.
(d) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
(Continued)
-69-
<PAGE> 71
2
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
(3) Policy Charges
--------------
Charges are deducted from premiums and paid to Security Equity for
providing the insurance benefits set forth in the contracts and
any additional benefits by rider, administering the policies,
reimbursement of expenses incurred in distributing the policies,
and assuming certain risks in connection with the policy.
The premium payment, less the premium load charge, equals the net
premium. The premium load is deducted from the initial premium and
from each subsequent premium paid by a policyholder, prior to
allocation to the Separate Account. The premium load includes a
distribution charge, a premium tax charge, and the DAC tax charge.
Distribution Charge: The distribution charge is composed of a premium
-------------------
expense load and a commission charge. The amount of the distribution
charge will depend on the amount of initial premium and the sales
commissions paid.
Premium Expense Load: The premium expense load will be deducted
--------------------
from each premium and will equal a percentage of the premium.
The percentage will be determined based on the sum of the
initial premiums for all policies in a case, in accordance
with the following table:
<TABLE>
<CAPTION>
Sum of the initial premiums
of all contracts in the case Premium expense load
<S> <C>
Less than $250,000 2.00%
$250,000-$999,999 1.50
$1,000,000 and more 1.25
====
</TABLE>
Commission Charge: A commission charge may be deducted from a
-----------------
premium. The commission charge deducted from a premium will be
equal to the full amount of commissions payable by Security
Equity on the target premium.
Premium Tax Charge: Various states and subdivisions impose a tax on
------------------
premiums received by insurance companies. Premium taxes vary from
state to state. The percentage deducted from each premium varies
based on the governing jurisdiction of the contract.
DAC Tax Charge: The DAC tax charge is equal to 1% of all premiums
--------------
paid in all contract years.
Charges are deducted monthly from the cash value of each policy to
compensate Security Equity for certain administrative costs, the cost
of insurance, mortality and expense risk charge, and optional rider
benefit charges.
Administrative Costs: Security Equity has responsibility for the
--------------------
administration of the policies and the Separate Account. As
reimbursement for administrative expenses related to the
maintenance of each policy and the Separate Account, Security
Equity assesses a monthly administrative charge against each
policy. This monthly charge is $4.50 per policy. This cost
may change, but is guaranteed not to exceed $8.00 per month per
policy.
Cost of Insurance: The cost of insurance is deducted on each
-----------------
monthly anniversary for the following policy month. Because
the cost of insurance depends upon a number of variables, the
cost varies for each policy month. The cost of insurance is
determined by multiplying the applicable cost of insurance rate
by the net amount at risk each policy month.
Mortality and Expense Risk Charge: Each Division of the Separate
---------------------------------
Account is assessed a mortality and expense risk charge
which will never exceed an annual effective rate of .50% of
the policy's Separate Account value attributable to that
Division. Currently, the amount of this charge is an annual
effective rate of .35% of the Separate Account value, which
is equivalent to .000957233% of the Separate Account value
attributable to the
(Continued)
-70-
<PAGE> 72
3
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
Division on a daily basis. The mortality
risk assumed by Security Equity under the contract is that
insureds may, on average, live for shorter periods of time
than estimated. The expense risk assumed by Security Equity
under the contract is the risk that the cost of issuing and
administering the contract may be more than estimated.
Optional Rider Benefit Charges: This monthly deduction includes
------------------------------
charges for any additional benefits provided by rider.
(4) Purchases and Sales of Shares
-----------------------------
During the period ended December 31, 1995, purchases and proceeds from
the sales pertaining to the Separate Account were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
General American Money Market Fund $ 8,885,708 8,244
Wells Fargo Nikko Asset Allocation Fund 4,401 -
Fidelity Growth Fund 4,104 -
========= =====
</TABLE>
There were no purchases or sales for the Fidelity Investment Grade
Bond Fund, Fidelity Asset Manager Fund, Fidelity Index 500
Fund, Bankers Trust Emerging Market Fund, Bankers Trust Liquid
Asset Fund, Bankers Trust Limited Maturity Bond Fund, or Wells
Fargo Nikko U.S. Government Allocation Fund.
(Continued)
-71-
<PAGE> 73
4
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
(5) Unit Activity
-------------
For the period ended December 31, 1995, transactions in accumulation
units were as follows:
<TABLE>
<CAPTION>
Units, Transfers Units,
beginning between end of
of period Deposits Divisions of period
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
General American
Money Market Fund $ - 8,273,816 (7,731) 8,266,085
Wells Fargo Nikko
Asset Allocation
Fund - - 3,253 3,253
Fidelity Growth Fund - - 2,774 2,774
=========== ========= ===== =========
</TABLE>
There was no accumulation of units for the Fidelity Investment Grade
Bond Fund, Fidelity Asset Manager Fund, Fidelity Index 500
Fund, Bankers Trust Emerging Market Fund, Bankers Trust Liquid
Asset Fund, Bankers Trust Limited Maturity Bond Fund, or Wells
Fargo Nikko U.S. Government Allocation Fund.
-72-
<PAGE> 74
Schedule
--------
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Schedule of Investments
December 31, 1995
<TABLE>
<CAPTION>
Number of Market
shares value
------ -----
<S> <C> <C>
General American Money Market Fund 544,259 $ 8,894,796
Wells Fargo Nikko Asset Allocation Fund 367 4,137
Fidelity Growth Fund 136 3,963
======= =========
</TABLE>
There were no investments in the Fidelity Investment Grade Bond Fund,
Fidelity Asset Manager Fund, Fidelity Index 500 Fund, Bankers Trust Emerging
Market Fund, Bankers Trust Liquid Asset Fund, Bankers Trust Limited Maturity
Bond Fund, or Wells Fargo Nikko U.S. Government Allocation Fund.
-73-
<PAGE> 75
Independent Auditors' Report
The Board of Directors
Security Equity Life Insurance Company:
We have audited the accompanying balance sheets of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations, stockholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 22, 1996
-74-
<PAGE> 76
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Balance Sheets
December 31, 1995 and 1994
<CAPTION>
====================================================================================================
Assets 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, at fair value $ 63,256,127 56,646,779
Policy loans 4,524,903 3,631,396
Cash and cash equivalents 1,977,082 10,932,100
- ----------------------------------------------------------------------------------------------------
Total cash and invested assets 69,758,112 71,210,275
Reinsurance benefits recoverable:
Future policy benefits 7,221,329 8,322,263
Policy and contract claims 1,704,918 4,448,887
Accrued investment income 1,279,216 1,242,963
Other assets 1,250,035 425,375
Goodwill 1,428,369 1,507,725
Deferred policy acquisition costs 1,471,754 -
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 2,251,570 5,574,273
Separate account assets 61,273,212 35,407,408
- ----------------------------------------------------------------------------------------------------
Total assets $150,079,515 130,552,169
====================================================================================================
Liabilities and Stockholder's Equity
- ----------------------------------------------------------------------------------------------------
Reserve for future policy benefits 55,520,856 56,866,579
Policy and contract claims 2,176,837 5,057,817
Other policyholders' funds 25,064 22,639
Advance premiums 1,057,064 664,000
Other liabilities and accrued expenses 2,290,147 2,099,414
Payable to affiliates 51,785 68,926
Due to separate account - 8,795,904
Separate account liabilities 61,273,212 35,407,408
- ----------------------------------------------------------------------------------------------------
Total liabilities 122,394,965 108,982,687
- ----------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized,
issued, and outstanding 2,500,000 2,500,000
Additional paid-in capital 27,447,892 27,447,892
Net unrealized gain (loss) on investments, net of taxes 1,990,132 (4,061,215)
Retained deficit (4,253,474) (4,317,195)
- ----------------------------------------------------------------------------------------------------
Total stockholder's equity 27,684,550 21,569,482
- ----------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $150,079,515 130,552,169
====================================================================================================
See accompanying notes to financial statements.
</TABLE>
-75-
<PAGE> 77
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Statements of Operations
Years ended December 31, 1995 and 1994
<CAPTION>
====================================================================================================
1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Premiums and contract charges $ 6,379,803 9,025,429
Net investment income 4,699,713 4,095,545
Commissions and expense allowances on reinsurance ceded - 843,891
Realized investment losses (179,830) (515,975)
- ----------------------------------------------------------------------------------------------------
Total revenues 10,899,958 13,448,890
- ----------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits 3,234,062 2,539,611
Policy surrenders, net 1,016,535 1,786,502
Change in reserve for future policy benefits (2,791,166) 1,296,603
Interest credited 2,391,220 2,349,814
Commissions, net of capitalized costs 1,283,902 3,930,807
General and administrative expenses 4,966,525 5,531,872
Amortization of goodwill 79,356 79,354
Accretion of value of business acquired, net (28,000) (50,000)
Other expenses 619,517 1,131,898
- ----------------------------------------------------------------------------------------------------
Total benefits and expenses 10,771,951 18,596,461
- ----------------------------------------------------------------------------------------------------
Income (loss) from operations before
federal income tax expense (benefit) 128,007 (5,147,571)
Federal income tax expense (benefit) - deferred 64,286 (830,376)
- ----------------------------------------------------------------------------------------------------
Net income (loss) $ 63,721 (4,317,195)
====================================================================================================
See accompanying notes to financial statements.
</TABLE>
-76-
<PAGE> 78
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Statements of Stockholder's Equity
Years ended December 31, 1995 and 1994
<CAPTION>
================================================================================================================================
Net
unrealized
Additional gain (loss) on Total
Common paid-in investments, Retained stockholder's
stock capital net of taxes deficit equity
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $2,500,000 17,447,892 - - 19,947,892
Net loss - - - (4,317,195) (4,317,195)
Contribution of capital from Parent - 10,000,000 - - 10,000,000
Change in unrealized gain (loss) on
investments - - (4,061,215) - (4,061,215)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 2,500,000 27,447,892 (4,061,215) (4,317,195) 21,569,482
Net income - - - 63,721 63,721
Change in net unrealized gain (loss) on
investments - - 6,051,347 - 6,051,347
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $2,500,000 27,447,892 1,990,132 (4,253,474) 27,684,550
================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
-77-
<PAGE> 79
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Statements of Cash Flows
Years ended December 31, 1995 and 1994
<CAPTION>
================================================================================================================
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 63,721 (4,317,195)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Change in:
Reinsurance benefits ceded 3,844,903 (1,354,981)
Accrued investment income (36,253) (279,331)
Other assets (824,660) (164,367)
Deferred policy acquisition costs (1,471,754) -
Policy liabilities (1,345,723) 2,392,502
Policy and contract claims (2,880,980) 2,268,697
Other policyholders' funds 2,425 534
Unearned premiums 393,064 664,000
Other liabilities and accrued expenses 190,733 1,295,393
Payable to affiliates (17,141) (224,158)
Amortization of bond discounts 221,543 536,812
Deferred tax expense (benefit) 64,286 (830,376)
Net loss on sale of investments 179,830 515,975
Amortization of goodwill 79,356 79,354
Change in value of business acquired (28,000) (50,000)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (1,564,650) 532,859
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (17,056,300) (26,813,376)
Sale or maturity of investments 19,355,372 16,780,012
Increase in policy loans, net (893,507) (747,167)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,405,565 (10,780,531)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Contribution of capital from Parent - 10,000,000
Policyholder account balances:
Deposits on interest-sensitive life contracts 18,382,186 35,046,849
Transfers to separate account for interest-sensitive life contracts (27,178,119) (26,250,945)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (8,795,933) 18,795,904
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (8,955,018) 8,548,232
Cash and cash equivalents at beginning of year 10,932,100 2,383,868
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,977,082 10,932,100
================================================================================================================
See accompanying notes to financial statements.
</TABLE>
-78-
<PAGE> 80
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1995 and 1994
================================================================================
(1) Summary of Significant Accounting Policies
Security Equity Life Insurance Company (SELIC or the Company) is a
wholly owned subsidiary of General American Life Insurance Company
(General American or the Parent). On December 31, 1993, Security
Mutual Life Insurance Company of New York (Security Mutual) sold 100%
of the Company's stock to General American, as approved by the State
of New York Department of Insurance.
In 1986, the Company commenced direct writing of universal life and
term business, and in 1987 began marketing a single premium whole
life policy. In 1984, the Company began assuming single premium
deferred annuity (SPDA) and other insurance business through
reinsurance agreements with Security Mutual. The SPDA and ordinary
life insurance blocks of business were recaptured by Security Mutual
in 1992.
SELIC is licensed in 39 states and the District of Columbia. Insurance
operations have generally been limited to the sale of individual
life insurance products (term and universal life) made through the
general agency system, including career agents and brokers.
With the sale of SELIC by Security Mutual to General American, SELIC's
activities have been redirected to serving the insurance needs of
publicly held corporations and New York state residents.
Additionally, SELIC focuses on accessing numerous and alternative
distribution channels in addition to a general agency system. SELIC
markets Corporate Owned Life Insurance (COLI) primarily through
specially designed variable products. Products for the New York
marketplace continue to be more traditional in nature.
The acquisition of Security Equity by General American was accounted
for as a purchase transaction, and accordingly, the purchase price
was allocated to the assets and liabilities acquired based upon the
fair market value of such assets and liabilities at the date of
acquisition. These allocations have been reflected, or "pushed
down," in the financial statements of the Company. The total
purchase price of $19,947,892 was allocated among the fair value of
tangible net assets of $15,997,813, value of business acquired of
$2,363,000, and goodwill of $1,587,079 at the date of acquisition.
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles. The preparation of
financial statements requires the use of estimates by management
which affect the amounts reflected in the financial statements.
Actual results could differ from those estimates.
The significant accounting policies of the Company are as follows:
(a) Recognition of Policy Revenue and Related Expenses
Policy revenue recognition varies depending upon the type of
insurance product. For traditional life products with fixed and
guaranteed premiums and benefits, such as whole life and term
insurance policies, premiums are recognized when due. Benefits and
other expenses of these
(Continued)
-79-
<PAGE> 81
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
products are associated with earned premiums and other sources of
earnings so as to result in recognition of profits over the life of
the contracts. This association is accomplished by means of the
provision for liabilities for future benefits and the deferral and
amortization of policy acquisition costs. Premiums collected on
universal life-type policies are reported as deposits to the
policyholder account balance and not as income to SELIC. Income to
SELIC on these policies consists of the assessments for mortality
costs, surrenders, and expenses.
(b) Investment Securities
Effective with the acquisition of the Company by General American,
the Company adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
SFAS No. 115 requires debt and equity securities to be classified
into categories of available-for-sale, trading securities, or
held-to-maturity depending on an entity's ability and intent to hold
the security to maturity. SFAS No. 115 expands the use of fair
value accounting for investments in debt and equity securities, and
allows debt securities to be classified as "held-to-maturity" and
reported in the financial statements at amortized cost only if the
reporting entity has the positive intent and ability to hold the
securities to maturity. Furthermore, SFAS No. 115 clarifies that
securities that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, or other
similar factors must be classified as "available-for-sale" and
carried at fair value.
At December 31, 1995 and 1994, all long-term securities are carried
at market value with the unrealized gain (loss), net of tax impact,
being reflected as a separate component of stockholder's equity as
the Company considers all long-term securities as available-for-
sale. Short-term investments are carried at cost which approximates
market value. Policy loans are valued at aggregate unpaid balances.
The fair value of policy loans is assumed to equal the carrying
value because the loans have no fixed maturity date and, therefore,
it is not practicable to determine a fair value.
Realized gains or losses on the sale of securities are determined on
the basis of specific identification and include the impact of any
related amortization of premium or accretion of discount which is
generally computed consistent with the interest method.
(c) Value of Business Acquired
Value of business acquired (VOBA) represents the present value of
future profits resulting from the acquisition of insurance policies
in a purchase transaction. VOBA is amortized in proportion to the
estimated premiums or gross profits, depending on the type of
contract, with accretion of interest on the unamortized discounted
balance. In 1995 and 1994, amortization of VOBA was $112,000 and
$89,000, and the accretion of interest on the unamortized balance
was $140,000 and $139,000, respectively. The carrying value of VOBA
is periodically evaluated to ascertain recoverability from future
operations. Impairment would be recognized in current operations
when determined.
(Continued)
-80-
<PAGE> 82
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(d) Goodwill
Goodwill, representing the excess of purchase price over the fair
value of assets acquired, is amortized on a straight-line basis over
20 years. The carrying value of goodwill is periodically evaluated
to ascertain recoverability from future operations. Impairment
recognized in current operations when determined.
(e) Reserve for Future Policy Benefits
Liabilities for future benefits on life policies are established in
amounts adequate to meet the estimated future obligations on
policies in force. Liabilities for future policy benefits on
certain life insurance policies are computed using the net level
premium method and are based upon assumptions as to future
investment yield, mortality, and withdrawals. Mortality and
withdrawal assumptions for all policies have been based on various
actuarial tables which are consistent with the Company's own
experience. Liabilities for future benefits on certain
long-duration life insurance contracts are carried at accumulated
policyholder values. The liability also includes provisions for the
unearned portion of certain policy charges.
(f) Federal Income Taxes
The Company is taxed as a life insurance company under the Deficit
Reduction Act of 1984. The Company establishes deferred taxes
under the asset and liability method of SFAS No. 109, Accounting for
Income Taxes, and deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
The Company filed its federal income tax return on a consolidated
basis with Security Mutual prior to 1994. The Company will file its
federal income tax return as a separate entity for 1995, consistent
with 1994.
(g) Reinsurance
Reinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on a basis
consistent with terms of the risk transfer reinsurance contracts.
Premiums ceded to other companies have been reported as a reduction
of premium income. Amounts applicable to reinsurance ceded for
future policy benefits and claim liabilities have been reported as
assets for these items, and commissions and expense allowances
received in connection with reinsurance ceded have been accounted
for in income as earned over the anticipated reinsurance contract
life. Reinsurance does not relieve the Company from its primary
responsibility to meet claim obligations.
(Continued)
-81-
<PAGE> 83
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(h) Deferred Policy Acquisition Costs
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, have been
deferred to the extent that such costs are deemed recoverable from
future premiums. Such costs may include commissions, as well as
certain costs of policy issuance and underwriting. In 1995, the
Company deferred $1.5 million in acquisition costs related to
interest sensitive products and recognized amortization of $75,000
based on the estimated gross profits of the underlying business.
The Company did not defer any acquisition costs in 1994 or have any
deferred acquisition costs at December 31, 1994. This was a result
of the nature of the policies written through December 31, 1994 for
which management determined that deferrable acquisition costs were
insignificant.
(i) Separate Account Business
The assets and liabilities of the separate account represent
segregated funds administered and invested by the Company for
purposes of funding variable life insurance contracts for the
exclusive benefit of variable life insurance contract holders. The
Company receives administrative fees from the separate account and
retains varying amounts of withdrawal charges to cover expenses in
the event of early withdrawals by contract holders. The assets and
liabilities of the separate account are carried at market value.
(j) Fair Market Disclosures
Fair value disclosures are required under SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. Such fair
value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Although fair
value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could significantly
affect the estimates and such estimates should be used with care.
The following assumptions were used to estimate the fair market
value of each class of financial instrument for which it was
practicable to estimate fair value:
Invested assets - Fixed maturities are valued using quoted market
---------------
prices, if available. If quoted market prices are not available,
fair value is estimated using quoted market prices of similar
securities. The carrying value of policy loans approximates fair
value.
Policyholder account balances - The fair value of policyholder
-----------------------------
account balances is equal to the discounted estimated future cash
flows using discounted cash flow calculations, based on interest
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
The carrying value approximates fair value at December 31, 1995 and
1994, respectively.
Cash and short-term investments - The carrying amount is a
-------------------------------
reasonable estimate of fair value.
(Continued)
-82-
<PAGE> 84
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(k) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
represent demand deposits and highly liquid short-term
investments, which include U.S. Treasury bills, commercial paper,
and repurchase agreements with original or remaining maturities of
90 days or less when purchased.
(l) Reclassification
Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
(2) Investments
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
================================================================================
1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 4,458,159 3,840,763
Short-term investments 43,781 133,755
Policy loans and other 294,298 216,942
--------------------------------------------------------------------------------
4,796,238 4,191,460
Investment expenses 96,525 95,915
--------------------------------------------------------------------------------
Net investment income $ 4,699,713 4,095,545
================================================================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1995 and 1994 are shown below. Market value is based upon market prices
obtained from independent pricing services which approximate fair value.
<TABLE>
<CAPTION>
============================================================================================================================
1995
----------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,299,846 287,844 (273,583) 9,314,107
Corporate securities 40,799,139 3,013,425 (388,584) 43,423,980
Mortgage-backed securities 10,095,402 432,140 (9,502) 10,518,040
----------------------------------------------------------------------------------------------------------------------------
$60,194,387 3,733,409 (671,669) 63,256,127
============================================================================================================================
(Continued)
</TABLE>
-83-
<PAGE> 85
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statement
<CAPTION>
==================================================================================================================================
1994
----------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,139,278 - (586,288) 8,552,990
Corporate securities 44,318,248 15,896 (4,736,372) 39,597,772
Mortgage-backed securities 9,437,276 332 (941,591) 8,496,017
----------------------------------------------------------------------------------------------------------------------------
$62,894,802 16,228 (6,264,251) 56,646,779
============================================================================================================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1995, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
===========================================================================================================================
Estimated
Amortized market
cost value
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,371,569 1,367,612
Due after one year through five years 3,353,833 4,098,436
Due after five years through ten years 11,595,734 8,359,789
Due after ten years 29,190,691 34,593,969
Mortgage-backed securities 14,682,560 14,836,323
---------------------------------------------------------------------------------------------------------------------------
$60,194,387 63,256,127
===========================================================================================================================
</TABLE>
Proceeds from the sale, call, and maturity of investments in bonds
during 1995 and 1994 were $19,355,372 and $16,780,012, respectively.
Gross gains of $428,522 and $119,699 and gross losses of $608,352 and
$635,674 were realized on those sales in 1995 and 1994, respectively.
The Company has bonds on deposit with various state insurance
departments with an amortized cost of approximately $2,421,000 and
$1,313,000 at December 31, 1995 and 1994, respectively.
(3) Reinsurance
The Company reinsures certain risks with other insurance companies as
the Company sets a maximum retention amount (currently $125,000) to help
reduce the loss on any single policy.
(Continued)
-84-
<PAGE> 86
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
Premiums and related reinsurance amounts for the years ended December
31, 1995 and 1994 as they relate to transactions with affiliates are
summarized as follows:
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded $1,956,568 2,391,067
Policy benefits ceded 305,947 2,340,522
Commissions and expenses ceded - 169,453
========================================================================================
</TABLE>
Premiums and related reinsurance amounts for the years ended
December 31, 1995 and 1994 as they relate to transactions with
nonaffiliates are summarized as follows:
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance transactions with nonaffiliates:
Reinsurance premiums ceded $5,489,407 6,299,344
Policy benefits ceded 2,682,132 3,050,824
Commissions and expenses ceded - 674,438
========================================================================================
</TABLE>
The Company remains contingently liable with respect to any reinsurance
ceded and would become actually liable if the assuming company was unable
to meet its obligations under the reinsurance treaty.
(4) Federal Income Taxes
A reconciliation of the Company's "expected" federal income tax expense
(benefit), computed by applying the federal U.S. corporate tax rate
of 35% to income (loss) from operations before federal income tax
expense (benefit), is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense (benefit) $45 (1,802)
Amortization of intangibles, net 18 10
Other, net 1 962
----------------------------------------------------------------------------------------
Federal income tax expense (benefit) $64 (830)
========================================================================================
</TABLE>
(Continued)
-85-
<PAGE> 87
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1995
and 1994 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Investments $ - 2,187
Policy acquisition costs 1,157 1,116
Reserves 2,072 2,661
Capital loss carryforward 243 -
Net operating loss carryforward 323 70
Other, net 410 262
----------------------------------------------------------------------------------------
Total gross deferred tax assets 4,205 6,296
Less valuation allowance - -
----------------------------------------------------------------------------------------
Net deferred tax assets 4,205 6,296
----------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 1,097 -
Other, net 856 722
----------------------------------------------------------------------------------------
Total gross deferred tax liabilities 1,953 722
----------------------------------------------------------------------------------------
Net deferred tax asset $2,252 5,574
========================================================================================
</TABLE>
On December 31, 1994, General American purchased 100% of the Company.
Pursuant to the acquisition, the election was made under Internal
Revenue Code Section 338(h)(10) to treat the purchase of stock as a
purchase of assets for tax purposes. As a result, a revaluation of
the tax bases of the Company's assets and liabilities was made in
connection with the acquisition.
The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary.
In assessing the realization of deferred tax assets, the Company
considers whether it is more likely than not that the deferred tax
assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
deductible. Although the Company has a limited history of earnings,
its Parent does have a long history of earnings. Pursuant to
Internal Revenue Service regulations, the Company cannot file a
consolidated tax return with its Parent until five years following
the acquisition. However, after five years, the Company will be able
to file a consolidated tax return with its Parent, and realization of
the gross tax asset will not be dependent solely on the Company's
ability to generate its own taxable income. General American has a
proven history of earnings and it appears more likely than not that
the Company's gross deferred tax asset will ultimately be fully
realized.
The Company filed its federal income tax return on a consolidated basis
with Security Mutual prior to 1994. In connection with the
Company's transfer of stock ownership, Security Mutual agreed to
assume all unpaid tax liability incurred prior to the date of sale.
(Continued)
-86-
<PAGE> 88
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(5) Related-Party Transactions
In 1995 and 1994, the Company purchased certain administrative services
from General American. Charges for services performed are based
upon personnel and other costs involved in providing such services.
The net expenses incurred for these services were $463,200 and
$407,000 for 1995 and 1994, respectively.
Effective January 1, 1994, the Company entered into an administrative
service agreement with Security Mutual with respect to the provision
of routine services for policies issued through December 31, 1993.
The net expense incurred for these services was $1,842,320 and
$1,980,812 for 1995 and 1994, respectively.
(6) Pension, Incentive, and Health and Life Insurance Benefit Plans
Associates of SELIC participate in a noncontributory multi-employer
defined benefit pension plan jointly sponsored by SELIC and
General American. The benefits are based on years of service and
compensation level. No pension expense was recognized in 1995 or
1994 due to overfunding of the plan.
In addition, SELIC has adopted in 1995 an associate bonus plan
applicable to full-time exempt associates. Bonuses are based on an
economic value-added model prepared annually by the Company. Total
bonuses accrued to Company employees for 1995 were $59,500. In
1994, the Company accrued bonuses of $150,000 under a nonrelated
associate bonus plan.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions. SFAS
No. 106 requires the Company to accrue the estimated cost of retiree
benefit payments during the years the employee provides services.
SFAS No. 106 allows recognition of the cumulative effect of the
liability in the year of the adoption or the amortization of the
transition obligation over a period of up to 20 years. The Company
has elected to recognize the initial post-retirement benefit
obligation of approximately $16,427 over a period of 20 years. The
unrecognized initial post-retirement benefit obligation was
approximately $14,784 and $15,606 at December 31, 1995 and 1994,
respectively. Net periodic post-retirement benefit cost for the
years ended December 31, 1995 and 1994 were approximately $6,711 and
$6,232, respectively. This includes expected costs of benefits for
newly eligible or vested employees, interest costs, gains and losses
from differences between actuarial and actual experience, and
amortization of the initial post-retirement benefit obligation. The
accumulated post-retirement benefit obligation was approximately
$17,089 and $16,427 at December 31, 1995 and 1994, respectively.
The discount rate used in determining the accumulated post-retirement
benefit obligation was 8.25%. The health care cost trend rates were 10%
for the Indemnity Plan, 9% for the HMO Plan, and 10% for the Dental Plan.
These rates were graded to 6% over the next 14 years. A one percentage
point increase in the assumed health care cost 3 trend rates would
increase the December 31, 1995 accumulated post-retirement obligation by
11%, and the estimated service cost and interest cost components of the
net periodic post-retirement benefit cost for 1995 by 14%.
(7) Statutory Financial Information
The Company is subject to financial statement filing requirements of
the State of New York Department of Insurance, its state of domicile, as
well as the states in which it transacts business. Such financial
statements, generally referred to as statutory financial statements, are
prepared on a basis of accounting
(Continued)
-87-
<PAGE> 89
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
which varies in some respects from generally accepted accounting
principles (GAAP). Statutory accounting principles include: (1)
charging of policy acquisition costs to income as incurred; (2)
establishment of a liability for future policy benefits computed using
required valuation standards which may vary in methodology utilized; (3)
nonprovision of deferred federal income taxes resulting from temporary
differences between financial reporting and tax bases of assets and
liabilities; (4) recognition of statutory liabilities for asset
impairments and yield stabilization on fixed maturity dispositions prior
to maturity with asset valuation reserves based on statutorily
determined formulae and interest stabilization reserves designed to
level yields over their original purchase maturities; (5) deferred
premiums provided for statutory mean reserves; (6) annuity contract
deposits represent funds deposited by policyholders and are
included in premiums or contract charges; and (7) non-recognition of
certain assets as nonadmitted through a direct charge to surplus.
A reconciliation of stockholder's equity of the Company at December 31,
1995 and 1994, as determined using statutory accounting practices,
to that reflected in the accompanying financial statements is as
follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of stockholder's equity:
Statutory surplus as reported to regulatory authorities $15,125,968 17,264,148
Asset valuation reserve 583,391 568,742
Interest maintenance reserve 1,227,492 1,049,290
Unrealized gain (loss) on investments 1,990,132 (4,061,215)
Goodwill 1,428,369 1,507,725
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 3,349,179 3,387,465
Differences between statutory and GAAP insurance reserves
and other, net 1,539,019 (559,673)
-----------------------------------------------------------------------------------------------------------
Stockholder's equity as reported herein $27,684,550 21,569,482
===========================================================================================================
</TABLE>
A reconciliation of net gain (loss) of the Company at December 31, 1995
and 1994, as determined using statutory accounting practices, to
that reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net loss:
Net loss as reported to regulatory authorities $ (1,465,539) (3,779,205)
Premium and annuity considerations (18,336,148) (34,935,560)
Insurance reserves 19,119,961 35,752,650
Interest maintenance reserve, net (72,752) (118,754)
Investment income and capital gains and losses (491,428) (1,131,731)
Deferred policy acquisition costs 1,471,754 -
Goodwill amortization (79,356) (79,354)
Value of business acquired accretion, net 28,000 50,000
Other, net (110,771) (75,241)
-----------------------------------------------------------------------------------------------------------
Net gain (loss) as reported herein $ 63,721 (4,317,195)
===========================================================================================================
</TABLE>
(Continued)
-88-
<PAGE> 90
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(8) Dividend Restrictions
Dividend payments by the Company are restricted by state insurance laws
as to the amount that may be paid as well as the prior notice and
approval of the State of New York Department of Insurance. The
Company did not pay a dividend in 1995, 1994, or 1993.
(9) Risk-Based Capital
The insurance departments of various states, including the Company's
domiciliary state of New York, impose risk-based capital (RBC)
requirements on insurance enterprises. The RBC calculation serves
as a benchmark for the regulation of life insurance companies by
state insurance regulators. The requirements apply various weighted
factors to financial balances or activity levels based on their
perceived degree of risk.
The RBC guidelines define specific capital levels where action by the
Company or regulatory authorities is required based on the ratio of
a company's actual total adjusted capital (sum of capital and
surplus and asset valuation reserve) to control levels determined
by the RBC formula. At December 31, 1995, the Company's actual
total adjusted capital was in excess of minimum levels which would
require action by the Company or regulatory authorities under the
RBC formula.
(10) Commitments and contingencies
The Company leases certain of its facilities under noncancellable
leases which expire in August 1998. The future minimum lease
obligations under the terms of the leases are summarized as follows:
<TABLE>
<CAPTION>
==========================================================================
<S> <C>
Year ended December 31:
1996 $ 81,300
1997 84,600
1998 58,600
--------------------------------------------------------------------------
$224,500
==========================================================================
Rent expense totaled $83,900 and $50,700 in 1995 and 1994, respectively.
</TABLE>
-89-
<PAGE> 91
APPENDIX A -- UNDERLYING PORTFOLIOS
Each Available Division of the Separate Account invests in shares or units
of an Underlying Portfolio managed by either General American Capital
Company, Bankers Trust Company, Wells Fargo Bank, Fidelity Management &
Research Company, or Evergreen Asset Management Corp. Each Underlying
Portfolio has investment objectives which are different from those of other
Underlying Portfolios. Each Underlying Portfolio operates as a separate
investment vehicle, and the income or losses of one Underlying Portfolio has
no effect on the investment performance of any other Underlying Portfolio.
The investment objectives, strategies and managers of each Underlying
Portfolio are summarized below.
These descriptions must be read in conjunction with the accompanying
prospectuses for each Underlying Portfolio. The prospectus for each
Underlying Portfolio includes information regarding the investment advisory
fee and operating expenses of the Underlying Portfolio, which are reflected
in the value of the Accumulation Units of the Division of the Separate
Account that invests in such Underlying Portfolio.
Money Market Portfolio
The Fund: The Money Market Portfolio is one portfolio of General American
Capital Company (the "Capital Company"), an open-end management investment
company organized as a Maryland corporation registered with the Securities
and Exchange Commission under the Investment Company Act of 1940.
Objective: The highest level of current income which is consistent with
preservation of capital and maintenance of liquidity.
Strategy: Investing primarily in high-quality, short-term money market
instruments.
Investment Adviser: Conning Asset Management Company, formerly
known as General American Investment Management Company, is the investment
adviser. Conning Asset Management Company is an affiliate of SELIC.
The investment adviser is registered with the Securities and Exchange
Commission under the Investment Advisers Act of 1940.
Emerging Markets Portfolio
The Fund: The Emerging Markets Portfolio is one portfolio of The GCG Trust
(the "Trust"), an open-end management investment company organized as a
Massachusetts
A-1
<PAGE> 92
business trust and registered with the Securities and Exchange Commission under
the Investment Company Act of 1940.
Objective: Long-term growth of capital.
Strategy: Investing primarily in equity securities of companies that are
considered to be in emerging market countries.
Investment Adviser: The investment adviser to the portfolio is Bankers
Trust Company. SELIC has been advised that Bankers Trust Company is a
commercial bank, exempt from registration under Section 202(a)(2) of the
Investment Advisers Act of 1940.
Limited Maturity Bond Portfolio
The Fund: The Limited Maturity Bond Portfolio is one portfolio of The GCG
Trust (the "Trust"), an open-end management investment company organized as
a Massachusetts business trust and registered with the Securities and
Exchange Commission under the Investment Company Act of 1940.
Objective: The highest current income consistent with low risk to principal
and liquidity.
Strategy: Investing primarily in a diversified portfolio of limited
maturity debt securities.
Investment Adviser: The investment adviser to the portfolio is Bankers
Trust Company. SELIC has been advised that Bankers Trust Company is a
commercial bank, exempt from registration under Section 202(a)(2) of the
Investment Advisers Act of 1940.
Liquid Asset Portfolio
The Fund: The Liquid Asset Portfolio is one portfolio of The GCG Trust (the
"Trust"), an open-end management investment company organized as an
Massachusetts business trust and registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
Objective: A high level of current income consistent with preservation of
capital and liquidity.
Strategy: Investing in obligations of the U.S. Government and its agencies
and instrumentalities, bank obligations, commercial paper and short-term
corporate debt securities. All issues maturing in less than one year.
A-2
<PAGE> 93
Investment Adviser: The investment adviser to the portfolio is Bankers
Trust Company. SELIC has been advised that Bankers Trust Company is a
commercial bank, exempt from registration under Section 202(a)(2) of the
Investment Advisers Act of 1940.
Asset Allocation Portfolio
The Fund: Asset Allocation Fund is one portfolio of Life & Annuity Trust,
an open-end management company organized as a Delaware Business Trust and
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940.
Objective: To achieve over the long term a high level of total return,
including net realized and unrealized capital gains and net investment
income, consistent with reasonable risk.
Strategy: Acting upon the premises that certain asset classes are, from
time to time, undervalued or overvalued by the market relative to each other
and represent relatively better long-term risk adjusted investment values
and that timely low cost shifts among common stocks, U.S. Treasury bonds,
and money market instruments can produce superior investment returns than
investment in only one such class, the Fund will allocate and reallocate its
investments among common stocks, U.S. Treasury bonds, and money market
instruments.
Investment Adviser: The Portfolio is advised by Wells Fargo Bank, N.A., and
BZW Barclays Global Advisors ("BGFA") (prior to January 1, 1996 known as
Wells Fargo Nikko Investment Advisors ("WFNIA")) serves as sub-adviser for
the Portfolio. BGFA is a registered investment adviser under the Investment
Advisers Act of 1940. BZW Barclays Global Investors, N.A. (BGI) (prior to
January 1, 1996 known as Wells Fargo Institutional Trust Company, N.A.) an
affiliate of the Portfolio's adviser and sub-adviser, serves as the
custodian for the Portfolio.
U.S. Government Allocation Fund
The Fund: U.S. Government Allocation Fund is one portfolio of Life &
Annuity Trust, an open-end management investment company, organized as a
Delaware business trust and registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
Objective: To achieve over the long term a high level of total return,
including net realized and unrealized capital gains and net investment
income, consistent with reasonable risk.
A-3
<PAGE> 94
Strategy: Using an investment model which is presently used as a basis for
managing several large employee benefit trust funds and other institutional
accounts, the Portfolio will allocate and reallocate its investments among
the following three maturity classes of U.S. Treasury debt securities:
Long-term U.S. Treasury bonds, intermediate-term U.S. Treasury notes, and
short-term money market instruments. The Portfolio will use the model to
recognize overvalued or undervalued maturities of debt securities relative
to each other and will use low transaction costs. At least 65% of the
Portfolio's investments will be obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
Investment Adviser: The Portfolio is advised by Wells Fargo Bank, N.A., and
BZW Barclays Global Advisors ("BGFA") (prior to January 1, 1996 known as
Wells Fargo Nikko Investment Advisors ("WFNIA")) serves as sub-adviser for
the Portfolio. BGFA is a registered investment adviser under the Investment
Advisers Act of 1940. BZW Barclays Global Investors, N.A. (BGI) (prior to
January 1, 1996 known as Wells Fargo Institutional Trust Company, N.A.) an
affiliate of the Portfolio's adviser and sub-adviser, serves as the
custodian for the Portfolio.
Growth Portfolio
The Fund: Growth Portfolio is one portfolio of Variable Insurance Products
Fund, an open-end management investment company organized as a Massachusetts
business trust and registered with the Securities and Exchange Commission,
under the Investment Company Act of 1940.
Objective: To achieve capital appreciation.
Strategy: Normally purchases common stocks, although its investments are
not restricted to any one type of security.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Investment Grade Bond Portfolio
The Fund: Investment Grade Bond Portfolio is one portfolio of Variable
Insurance Products Fund II, an open-end management investment company
organized as a Massachusetts business trust and registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
A-4
<PAGE> 95
Objective: Seeks as high a level of current income as is consistent with
the preservation of capital.
Strategy: Invests in abroad range of investment-grade, fixed-income
securities. The Portfolio will maintain a dollar-weighted average portfolio
maturity of ten years or less.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Asset Manager Portfolio
The Fund: Asset Manager Portfolio is one portfolio of Variable Insurance
Products Fund II, an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
Objective: Seeks high total return with reduced risk over the long-term.
Strategy: Allocates assets among domestic and foreign stocks, bonds and
short-term fixed-income instruments.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Index 500 Portfolio
The Fund: Index 500 Portfolio is one portfolio of Variable Insurance
Products Fund II, an open-end, diversified investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
Objective: Seeks to provide investment results that correspond to the total
return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States.
Strategy: Attempts to duplicate the composition and total return of the
Standard & Poor's 500 Composite Stock Price Index while keeping transaction
costs and other expenses low.
A-5
<PAGE> 96
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Equity-Income Portfolio
The Fund: The Equity-Income Portfolio is one portfolio of Variable
Insurance Products Fund, an open-end management investment company organized
as a Massachusetts business trust and registered with the Securities and
Exchange Commission, under the Investment Company Act of 1940.
Objective: To seek reasonable income. The Fund also considers the
potential for capital appreciation.
Strategy: Invests mainly in income-producing equity securities.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Overseas Portfolio
The Fund: The Overseas Portfolio is one portfolio of Variable Insurance
Products Fund, an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
Objective: Seeks long-term growth of capital.
Strategy: Invests mainly in equity securities outside of the United States.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
High Income Portfolio
The Fund: The High Income Portfolio is one portfolio of Variable Insurance
Products Fund, an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
A-6
<PAGE> 97
Objective: To seek high current income.
Strategy: Invests mainly in high-yielding debt securities, with an emphasis
on lower-quality securities.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Evergreen VA Portfolio
The Fund: The Evergreen VA Portfolio is one portfolio of the Evergreen
Variable Trust (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust and registered with the
Securities and Exchange Commission, under the Investment Company Act of
1940.
Objective: Seeks to achieve capital appreciation.
Strategy: Invests in the securities of little known or relatively small
companies undergoing changes which the Adviser believes will have favorable
consequences. Income will not be a factor in the selection of portfolio
investments.
Investment Adviser: The Portfolio is advised by Evergreen Asset Management
Corp. (Evergreen Asset) and Lieber & Company serves as sub-adviser. Both
Evergreen Asset and Lieber & Company are registered investment advisers
under the Investment Advisers Act of 1940.
Evergreen VA Growth and Income Portfolio
The Fund: The Evergreen VA Growth and Income Portfolio is one portfolio of
the Evergreen Variable Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust and
registered with the Securities and Exchange Commission, under the Investment
Company Act of 1940.
Objective: Seeks to achieve a return composed of capital appreciation in
the value of its shares and current income.
Strategy: The Fund will attempt to meet its objectives by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings, or potential earnings
growth.
A-7
<PAGE> 98
Investment Adviser: The Portfolio is advised by Evergreen Asset Management
Corp. (Evergreen Asset) and Lieber & Company serves as sub-adviser. Both
Evergreen Asset and Lieber & Company are registered investment advisers
under the Investment Advisers Act of 1940.
Evergreen VA Foundation Portfolio
The Fund: The Evergreen VA Foundation Portfolio is one portfolio of the
Evergreen Variable Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust and registered with the
Securities and Exchange Commission, under the Investment Company Act of
1940.
Objective: Seeks, in order of priority, reasonable income, conservation of
capital and capital appreciation.
Strategy: Invests principally in income-producing common and preferred
stocks, securities convertibles into or exchangeable for common stocks and
fixed income securities.
Investment Adviser: The Portfolio is advised by Evergreen Asset Management
Corp. (Evergreen Asset) and Lieber & Company serves as sub-adviser. Both
Evergreen Asset and Lieber & Company are registered investment advisers
under the Investment Advisers Act of 1940.
A-8
<PAGE> 99
APPENDIX B -- CONTRACT RIDERS
Joint and Last Survivor Rider
- -----------------------------
The Joint and Last Survivor Rider modifies the Contract to provide insurance
coverage on the lives of two Insureds. The rider will be subject to all
terms in the Contract, and the addition of the rider will not change any
mechanics of the Contract, except as modified in the Contract and
highlighted below. Some of the discussions in the Prospectus applicable to
the Contract apply differently to a Contract to which a Joint and Last
Survivor Rider has been added. Set out below are the modifications to
designated sections of the Prospectus in the event that a Joint and Last
Survivor Rider is added to the Contract. Except as noted below, the
discussions in the Prospectus referencing a single Insured can be read as
though the single Insured was two Insureds under a Contract with a Joint and
Last Survivor Rider.
Definitions
- -----------
The following definitions apply to a Contract with a Joint and Last Survivor
Rider:
First Insured: The first person of the two Insureds to die.
Insured: A person whose life is insured under the terms of the Contract.
There are two Insureds under the Contract. Both Insureds are shown in the
Contract.
Joint and Last Survivor Rider: A rider added attached to the Contract
described in this Prospectus, which will amend the Contract to pay a Death
Benefit after the death of two Insureds.
Last Insured: The last person of the two Insureds to die.
The following are the major differences between a Contract with a Joint and
Last Survivor Rider added, and a Contract without this rider.
1. All conditions of eligibility of a prospective Insured will be
applied to both Insureds in order for a Contract with a
Joint and Last Survivor Rider to be issued. (See "The
Contract -- Availability of Insurance Coverage")
2. Death Benefits will be paid on a Temporary Insurance Coverage
basis only if both Insureds meet SELIC's usual and customary
underwriting standards for the applied for coverage (See "The
Contract -- Availability of Insurance Coverage")
B-1
<PAGE> 100
3. All Contracts that are issued with a Joint and Last Survivor Rider
attached will require medical evidence of insurability. (See "The
Contract -- Evidence of Insurability")
4. All Contracts that are issued with a Joint and Last Survivor
Rider attached will pay a Death Benefit only on the death of
the Last Insured. No Death Benefit will be paid on the death
of the First Insured. (See "The Contract -- Death Benefits
Under the Contract").
5. No change in Death Benefit Option or Face Amount will be
effective if the Last Insured dies before the change is
effective. (See "The Contract -- Death Benefit Options" and
"The Contract -- Death Benefits under the Contract")
6. In general, a Contract with a Joint and Last Survivor Rider will
have a lower Target Premium than a Contract issued on a
single Insured with the same Total Insurance Coverage. This
will result in lower Commission Charges for a Contract with
the same Total Insurance Coverage. (See "Charges and
Deductions -- Premium Load")
7. A deduction for SELIC's cost of insurance protection is made on
each Monthiversary and in general will be based upon the sex
and smoker status of the two Insureds. The Joint and Last
Survivor cost of insurance rates will be blended rates based
upon the Issue Ages of the Insureds, the number of completed
Contract Years, as well as the sex and smoker status of the
Insureds. The cost of insurance rates may also vary by any
special insurance class charges.
The guaranteed cost of insurance rates will not be greater than
the guaranteed maximum cost of insurance rates set forth in
the Contract. These rates, as well as the rates used to
calculate the Minimum Death Benefit and limitations on
Premiums payable under the Contract, are based on the 1980
Commissioners Standard Ordinary Tables, Age Nearest Birthday,
that correspond to the applicable ages, sex and smoker status
of the Insureds. Current cost of insurance rates may be
lower.
Since a benefit is paid only in the event that both Insureds
have died, Cost of Insurance Charges for Contracts with a
Joint and Last Survivor Rider attached will generally be
lower than the charges for a comparable single life Contract.
(See "The Contract -- Charges and Deductions -- Cost of
Insurance Charges")
B-2
<PAGE> 101
8. The calculation of the Minimum Death Benefit and any limitations
on Premiums will reflect the fact that no Death Benefit will
be paid until the death of the Last Insured. Assuming the
same amount of requested Insurance Coverage, any limitations
on Premiums payable under the Contract will be lower than
those based upon a single life, while the Minimum Death
Benefits will be higher than those based upon a single life.
(See "The Contract -- Death Benefits Under the Contract").
9. The Underwriting Charge for Contracts issued with a Joint and
Last Survivor Rider attached will be equal to the sum of a
flat fee and a charge per $1,000 of Total Insurance Coverage,
subject to a maximum charge. This charge is determined
separately for each Insured. The charges for each Insured
are added together to obtain the total charge for the
Contact. This charge is deducted on each Monthiversary for
the first twelve (12) Contract Months. The flat fee, charge
per $1,000, and maximum charge are shown in the table below.
<TABLE>
<CAPTION>
Per $1,000 of Maximum Total
Flat Fee Total Insurance Underwriting Charge
Issue Age Per Month Coverage Per Month Per Insured Per Month
<S> <C> <C> <C>
20 - 45 $4.17 $.00833 $37.50
46 - 60 $4.17 $.01250 $54.17
61 - 85 $4.17 $.01667 $54.17
</TABLE>
If there is a Contract change after issue which requires medical
underwriting, SELIC will deduct on the Monthiversary following the
underwriting an amount per Insured equal to $100, plus the per
thousand charge above multiplied by twelve (12), multiplied by the
increase in the Net Amount at Risk to which the underwriting
relates, subject to the maximum charge shown above. (See "Charges
and Deductions -- Underwriting Charges")
SELIC may, in its sole discretion, reduce or waive the
Underwriting Charge in connection with the purchase of
Contracts sold by licensed agents of SELIC that are also
registered representatives of selected broker-dealers or
through banks that have entered into written sales agreements
with Walnut Street. Any reduction in or waiver of the
Underwriting Charge will be reflected in the Contract.
10. The Maturity Date of Contracts issued with a Joint and Last
Survivor Rider attached will be when the younger of the two
Insureds reaches the attained age of 100. (See
"Termination -- Maturity Date")
B-3
<PAGE> 102
11. For a Contract issued with a Joint and Last Survivor Rider
attached to be reinstated, both Insureds must be alive on the
date of reinstatement. (See "Termination -- Reinstatement of
a Contract Terminated for Insufficient Value")
12. A limited Death Benefit will be paid on a Contract issued with a
Joint and Last Survivor Rider if either Insured commits
suicide within two years from the date coverage becomes
effective or within two years from the date of receipt of a
Subsequent Premium payment which increases the Death Benefit.
(See "The Contract -- Additional Provisions of the Contract --
Suicide.")
Supplemental Term Insurance Rider
- ---------------------------------
A Contract Holder may elect to add a Supplemental Term Insurance Rider to
the Contract at the time of the Application. The Supplemental Term
Insurance Rider increases the Total Insurance Amount under the Contract.
The addition of this Rider will allow SELIC to deduct additional monthly
charges from the Insurance Account Value of the Contract.
This rider may be added a single life Contract, or a Contract to which a
Joint and Last Insured Rider has been attached.
Set out below are additional definitions and other modifications applicable
when a Supplemental Term Rider is added to a Contract.
Definitions
- -----------
The following definitions apply to a Contract with a Supplemental Term
Insurance Rider:
Date of Death Upon Which Death Benefit becomes Payable: The date of death of
the Insured, for a single life Contract, or the Last Insured for a Contract
to which a Joint and Last Survivor Rider has been added.
Rider Death Benefit: Is the amount of Supplemental Term Insurance Coverage
under the Rider.
Supplemental Term Insurance Benefit
The Supplemental Term Insurance Rider provides term insurance coverage (the
Rider Death Benefit) that is in addition to insurance coverage provided
under the Contract. SELIC will pay the Rider Death Benefit to the beneficiary
if the Date of Death Upon Which Death Benefit becomes Payable occurs while the
rider is in force. SELIC must receive proof that such death
B-4
<PAGE> 103
occurred before the Rider Expiry Date in the Contract, or the termination of
the coverage provided by the Supplemental Term Insurance Rider, if earlier, as
specified in the Rider and the Contract.
The Contract Holder may, subject to the approval of the Company, change the
Supplemental Term Insurance Amount. The Contract Holder must request any
change not specified in the Contract by notifying SELIC in writing.
Evidence of Insurability will be required for any change that increases the
Supplemental Term Insurance Amount. If SELIC approves the change, it will
take effect on the next Monthiversary which is at least thirty (30) days
after all the required information has been provided to SELIC. The Contract
will be amended to reflect any such change in the Supplemental Term
Insurance Amount. No change will be effective if the Date Upon Which Death
Benefit Becomes Payable is before the date of the change.
Monthly Charges For Supplemental Term Insurance Amounts - Cost of Insurance
Charges
Charges for the Supplemental Term Insurance Rider, which consist of monthly
Cost of Insurance Charges for the Rider Death Benefit, are deducted from the
Insurance Account Value on each Monthiversary. The charges are determined
by multiplying the Rider Net Amount At Risk by the current monthly Cost of
Insurance Rate for the Rider.
The Rider Net Amount at Risk on any Monthiversary is equal to:
(a) the Supplemental Term Insurance Amount discounted to such
Monthiversary at the rate specified in the Basis of
Computation Specified in the Contract; less
(b) the excess, if any, of the Insurance Account Value on such
Monthiversary over the Death Benefit for the Contract
discounted to such Monthiversary at the rate specified in the
Basis of Computations Specified in the Contract.
The cost of insurance rates for the Supplemental Term Insurance Rider will
be equal to the current cost of insurance rates for the Face Amount under
Contract. On each Monthiversary on which the Supplemental Term Insurance
Rider is in force, the Cost of Insurance for the Supplemental Term Insurance
Rider will be added to the Monthly Charges deducted from the Insurance Account
Value.
Termination of the Supplemental Term Insurance Rider
The Supplemental Term Insurance Rider may be terminated as of any
Monthiversary following a written request to the Company. The Supplemental
Term Insurance Rider will terminate automatically when any of the following
events occur:
B-5
<PAGE> 104
(a) the lapse of the Contract,
(b) the surrender of the Contract,
(c) the Maturity Date of the Contract,
(d) the Date of Death Upon Which Death Benefits become Payable, or
(e) the Rider Expiry Date.
Reinstatement of Supplemental Term Insurance Rider
If the Supplemental Term Insurance Rider terminates, it may be reinstated
within five years of the earlier of the Contact termination or rider
termination provided that:
(a) if the Contract has terminated, it is also being reinstated,
(b) satisfactory evidence of insurability is provided to SELIC, and
(c) any charges due under the rider are paid as of the date of the
Reinstatement.
The charges due will be equal to the amount of the charges for the rider due
and unpaid at the time that the rider terminated, plus three (3) times the
charges for the rider due at the time of Reinstatement.
In order for the rider to be reinstated, the same number of Insureds under
the Contract must be alive as were alive when the rider terminated.
Additional Provisions of the Rider - Incontestability
In order for SELIC to contest the validity of any coverage provided by the
Supplemental Term Insurance Rider, legal action must be commenced within two
years from the rider effective date or from the effective date of any change
in rider coverage requiring evidence of insurability, including
Reinstatement of Coverage.
B-6
<PAGE> 105
Additional Provisions of the Rider - Suicide
If the Supplemental Term Insurance Rider is attached to a single life
Contract and the Insured dies by suicide, while sane or insane, within two
years from the Rider Effective Date, the death benefit payable will be
limited to the sum of the Cost of Insurance Charges for the Rider.
If this rider is attached to a Contract, to which a Joint and Last Survivor
Rider has been added, and either Insured dies by suicide, while sane or
insane, within two years from the Rider Effective Date, the death benefit
payable will be limited to the sum of the Cost of Insurance Charges for the
Rider.
The following are major modifications to a Contract when a Supplemental Term
Insurance Rider is added:
1. Coverage provided by the Supplemental Term Insurance Rider is
not taken into account in determining the amount of Target
Premium: accordingly there may be no additional Premium
Load associated with this coverage. (See "The Contracts --
Premiums")
2. In the event that a partial withdrawal results in a decrease in
the Face Amount, which would cause the Face Amount to be
less than the Minimum Face Amount of a Contract, the
Supplemental Term Insurance Amount will be decreased by the
amount of the excess of the withdrawal over the decreased
Face Amount. (See "The Contract -- Surrender and Partial
Withdrawal")
3. The Supplemental Term Insurance Amount will be included in Total
Insurance Coverage in determining whether the Minimum Death
Benefit applies, and is not included in Death Benefit
proceeds when the Death Benefit payable under the Contract is
equal to the Minimum Death Benefit.
B-7
<PAGE> 106
APPENDIX C -- ILLUSTRATIONS OF DEATH BENEFITS
AND NET INSURANCE ACCOUNT VALUE
The following illustrations show hypothetically how the Insurance Account
Value and Death Benefit of a Contract change with the investment experience
of the Available Divisions of the Separate Account. The illustrations show
how the Insurance Account Value and Death Benefit of a Contract issued to an
Insured of a given Issue Age and at a given Premium would vary over time if
the investment return on the assets held in each Available Division of the
Separate Account were an assumed uniform, gross, after-tax annual rate of
0%, 6% or 12%. The hypothetical rates of return are illustrative only and
should not be deemed a representation of past or future investment
performance. The illustrations on pages C---- through C---- illustrate a
Contract issued to a Male, Issue Age 45 in a nonsmoker rate class assuming
Medical Underwriting. The values would be different from those shown if the
gross annual investment rates of return averaged 0%, 6% or 12% over a period
of years, but fluctuated above and below those averages for individual
Contract Years. The actual values will depend upon various factors,
including age, sex, smoking status, and underwriting status of the Insured.
The Insurance Account Value column under the "Guaranteed" heading shows the
accumulated value of the Net Premiums paid at the assumed rate of return,
reflecting deduction of the maximum mortality and expense risk charge, the
maximum monthly administrative charges, and monthly charges for the cost of
insurance based on the maximum values allowed under the 1980 Commissioners
Standard Ordinary Mortality Table. The Insurance Account Value column under
the "Current" heading shows the accumulated value of the Net Premiums at the
assumed rate of return, reflecting deduction of the current mortality and
expense risk charge, the current monthly administrative charges, and monthly
charges for the cost of insurance at their current level, which is less than
or equal to that allowed by the 1980 Commissioners Standard Ordinary
Mortality Table. The illustrations of Death Benefits reflect the above
assumptions. The Death Benefits also vary between illustrations depending
upon whether Death Benefit Option 1, Option 2, or Option 3 is illustrated.
The amounts shown for the Insurance Account Value and Death Benefit reflect
the fact that the investment rate of return is lower than the gross after-tax
return on the assets held in a Division due to the advisory fee (.60% of
aggregate average daily net assets is assumed) and operating expenses of the
Underlying Portfolio (which are assumed to be .20%). After deduction for
these amounts and the mortality and expense basis the illustrated gross
annual investment rates of return of 0%, 6% and 12% correspond to approximate
net annual rates of -1.15%, 4.85%, and 10.85%, respectively, on a current
basis, and -1.30%, 4.70%, and 10.70%, respectively, on a guaranteed basis.
The average advisory fee and fund expense reflects any voluntary expense
reimbursement arrangements between the various underlying funds and their
investment advisors. The investment advisors could terminate these
arrangements at any time. If any of these arrangements are terminated, the
above net annual rates of return would be reduced. The actual investment
advisory fee applicable to each Division is shown in the respective
prospectuses for
C-1
<PAGE> 107
each Underlying Portfolio. These Prospectuses for the Funds should also be
consulted for details about the nature and extent of expenses for each
Underlying Portfolio.
The hypothetical values shown in the illustrations do not reflect any
charges for federal income taxes against the Separate Account, since
Security Equity Life Insurance Company is not currently making any such
charges. However, such charges may be made in the future and, in that
event, the gross annual investment rate of return of the Available Divisions
would have to exceed 0%, 6% and 12% by an amount sufficient to cover the
charges in order to produce the Death Benefit and Insurance Account Value
illustration. (See "Federal Tax Matters").
The illustrations illustrate the Contract values that would result based
upon the investment rates of return if Premiums are paid as indicated, if
all Net Premiums are allocated evenly among Available Divisions, and if no
Contract Loans have been made. The illustrations are also based on the
assumptions that the Contract Holder has not requested an increase or
decrease in the Face Amount, that no partial withdrawals have been made,
that no transfer charges were incurred, and that no optional riders have
been requested.
Upon request, Security Equity Life Insurance Company will provide a
comparable illustration based upon the proposed Insured's Issue Age, sex and
rate class, the Face Amount and Premium pattern requested, and any available
riders requested.
C-2
<PAGE> 108
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $1,948
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(-1.15% Net)<F*> (-1.30% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 2,045 1,948 1,071 1,071 100,000 768 768 100,000
- ------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 2,583 2,583 100,000 1,988 1,988 100,000
- ------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 4,046 4,046 100,000 3,168 3,168 100,000
- ------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 5,470 5,470 100,000 4,308 4,308 100,000
- ------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 6,860 6,860 100,000 5,405 5,405 100,000
- ------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 8,218 8,218 100,000 6,458 6,458 100,000
- ------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 9,544 9,544 100,000 7,463 7,463 100,000
- ------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 10,841 10,841 100,000 8,413 8,413 100,000
- ------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 12,113 12,113 100,000 9,305 9,305 100,000
- ------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 13,343 13,343 100,000 10,132 10,132 100,000
- ------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 14,593 14,593 100,000 10,929 10,929 100,000
- ------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 15,804 15,804 100,000 11,650 11,650 100,000
- ------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 16,977 16,977 100,000 12,293 12,293 100,000
- ------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 18,098 18,098 100,000 12,853 12,853 100,000
- ------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 19,164 19,164 100,000 13,320 13,320 100,000
- ------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 20,240 20,240 100,000 13,765 13,765 100,000
- ------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 21,249 21,249 100,000 14,097 14,097 100,000
- ------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 22,194 22,194 100,000 14,304 14,304 100,000
- ------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 23,075 23,075 100,000 14,366 14,366 100,000
- ------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 23,895 23,895 100,000 14,264 14,264 100,000
- ------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 26,802 26,802 100,000 10,616 10,616 100,000
- ------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 26,950 26,950 100,000 <F***> <F***> <F***>
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly administrative
charges, and cost of insurance rates for the exact combination of premiums and benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly administrative
charges, and cost of insurance rates for the exact combination of premiums and benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the Contract in force.
</TABLE>
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Contract
Holder, and the investment results for the Underlying Portfolios. The
Insurance Account Value, Net Cash Value and Death Benefit for a Contract
would be different from those shown if the actual rates of return averaged
the rate shown over a period of years, but also fluctuated above or below that
average for individual Contract Years. No representation can be made by
SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical
rate of return can be achieved for any one year, or sustained over any
period of time.
Illustrated values shown above are as of the end of the Contract Years
indicated and assume any additional premiums shown are received on the
Contract Anniversaries.
C-3
<PAGE> 109
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $1,948
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(4.85% Net)<F*> (4.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 2,045 1,948 1,139 1,139 100,000 827 827 100,000
- ------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 2,816 2,816 100,000 2,183 2,183 100,000
- ------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 4,541 4,541 100,000 3,579 3,579 100,000
- ------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 6,328 6,328 100,000 5,017 5,017 100,000
- ------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 8,185 8,185 100,000 6,494 6,494 100,000
- ------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 10,115 10,115 100,000 8,014 8,014 100,000
- ------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 12,126 12,126 100,000 9,571 9,571 100,000
- ------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 14,220 14,220 100,000 11,164 11,164 100,000
- ------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 16,409 16,409 100,000 12,791 12,791 100,000
- ------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 18,681 18,681 100,000 14,446 14,446 100,000
- ------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 21,102 21,102 100,000 16,170 16,170 100,000
- ------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 23,623 23,623 100,000 17,920 17,920 100,000
- ------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 26,248 26,248 100,000 19,698 19,698 100,000
- ------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 28,972 28,972 100,000 21,500 21,500 100,000
- ------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 31,799 31,799 100,000 23,324 23,324 100,000
- ------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 34,808 34,808 100,000 25,248 25,248 100,000
- ------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 37,931 37,931 100,000 27,189 27,189 100,000
- ------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 41,179 41,179 100,000 29,141 29,141 100,000
- ------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 44,564 44,564 100,000 31,095 31,095 100,000
- ------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 48,100 48,100 100,000 33,042 33,042 100,000
- ------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 68,298 68,298 107,911 42,508 42,508 100,000
- ------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 92,466 92,466 132,226 50,586 50,586 100,000
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly administrative
charges, and cost of insurance rates for the exact combination of premiums and benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly administrative
charges, and cost of insurance rates for the exact combination of premiums and benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the Contract in force.
</TABLE>
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Contract
Holder, and the investment results for the Underlying Portfolios. The
Insurance Account Value, Net Cash Value and Death Benefit for a Contract
would be different from those shown if the actual rates of return averaged
the rate shown over a period of years, but also fluctuated above or below that
average for individual Contract Years. No representation can be made by
SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical
rate of return can be achieved for any one year, or sustained over any
period of time.
Illustrated values shown above are as of the end of the Contract Years
indicated and assume any additional premiums shown are received on the
Contract Anniversaries.
C-4
<PAGE> 110
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $1,948
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(10.85% Net)<F*> (10.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 2,045 1,948 1,208 1,208 100,000 886 886 100,000
- ------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 3,057 3,057 100,000 2,386 2,386 100,000
- ------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 5,074 5,074 100,000 4,023 4,023 100,000
- ------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 7,288 7,288 100,000 5,811 5,811 100,000
- ------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 9,725 9,725 100,000 7,765 7,765 100,000
- ------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 12,412 12,412 100,000 9,902 9,902 100,000
- ------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 15,379 15,379 100,000 12,239 12,239 100,000
- ------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 18,657 18,657 100,000 14,793 14,793 100,000
- ------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 22,288 22,288 100,000 17,586 17,586 100,000
- ------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 26,295 26,295 100,000 20,642 20,642 100,000
- ------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 30,785 30,785 100,000 24,034 24,034 100,000
- ------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 35,755 35,755 100,000 27,754 27,754 100,000
- ------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 41,260 41,260 100,000 31,845 31,845 100,000
- ------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 47,355 47,355 100,000 36,352 36,352 100,000
- ------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 54,086 54,086 110,335 41,326 41,326 100,000
- ------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 61,564 61,564 122,513 46,914 46,914 100,000
- ------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 69,782 69,782 134,679 53,107 53,107 102,497
- ------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 78,809 78,809 148,161 59,875 59,875 112,564
- ------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 88,728 88,728 162,372 67,222 67,222 123,016
- ------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 99,263 99,263 178,324 75,178 75,178 134,568
- ------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 172,247 172,247 272,150 125,897 125,897 198,918
- ------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 286,898 286,898 410,265 199,437 199,437 285,195
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly administrative
charges, and cost of insurance rates for the exact combination of premiums and benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly administrative
charges, and cost of insurance rates for the exact combination of premiums and benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the Contract in force.
</TABLE>
The hypothetical investment rate of return shown above is illustrative only,
and should not be deemed a representation of past or future results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocation made by the Contract
Holder, and the investment results for the Underlying Portfolios. The
Insurance Account Value, Net Cash Value and Death Benefit for a Contract
would be different from those shown if the actual rates of return averaged
the rate shown over a period of years, but also fluctuated above or below that
average for individual Contract Years. No representation can be made by
SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical
rate of return can be achieved for any one year, or sustained over any
period of time.
Illustrated values shown above are as of the end of the Contract Years
indicated and assume any additional premiums shown are received on the
Contract Anniversaries.
C-5
<PAGE> 111
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $5,612
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(-1.15% Net)<F*> (-1.30% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,893 5,612 3,497 3,497 103,497 3,188 3,188 103,188
- ------------------------------------------------------------------------------------------------------------
2 47 12,080 5,612 8,129 8,129 108,129 7,514 7,514 107,514
- ------------------------------------------------------------------------------------------------------------
3 48 18,576 5,612 12,674 12,674 112,674 11,756 11,756 111,756
- ------------------------------------------------------------------------------------------------------------
4 49 25,398 5,612 17,141 17,141 117,141 15,911 15,911 115,911
- ------------------------------------------------------------------------------------------------------------
5 50 32,560 5,612 21,535 21,535 121,535 19,978 19,978 119,978
- ------------------------------------------------------------------------------------------------------------
6 51 40,081 5,612 25,858 25,858 125,858 23,956 23,956 123,956
- ------------------------------------------------------------------------------------------------------------
7 52 47,978 5,612 30,111 30,111 130,111 27,837 27,837 127,837
- ------------------------------------------------------------------------------------------------------------
8 53 56,269 5,612 34,296 34,296 134,296 31,618 31,618 131,618
- ------------------------------------------------------------------------------------------------------------
9 54 64,975 5,612 38,418 38,418 138,418 35,293 35,293 135,293
- ------------------------------------------------------------------------------------------------------------
10 55 74,116 5,612 42,457 42,457 142,457 38,855 38,855 138,855
- ------------------------------------------------------------------------------------------------------------
11 56 83,715 5,612 46,551 46,551 146,551 42,409 42,409 142,409
- ------------------------------------------------------------------------------------------------------------
12 57 93,793 5,612 50,565 50,565 150,565 45,836 45,836 145,836
- ------------------------------------------------------------------------------------------------------------
13 58 104,376 5,612 54,498 54,498 154,498 49,133 49,133 149,133
- ------------------------------------------------------------------------------------------------------------
14 59 115,487 5,612 58,334 58,334 158,334 52,294 52,294 152,294
- ------------------------------------------------------------------------------------------------------------
15 60 127,154 5,612 62,068 62,068 162,068 55,309 55,309 155,309
- ------------------------------------------------------------------------------------------------------------
16 61 139,404 5,612 65,905 65,905 165,905 58,390 58,390 158,390
- ------------------------------------------------------------------------------------------------------------
17 62 152,267 5,612 69,621 69,621 169,621 61,302 61,302 161,302
- ------------------------------------------------------------------------------------------------------------
18 63 165,773 5,612 73,218 73,218 173,218 64,027 64,027 164,027
- ------------------------------------------------------------------------------------------------------------
19 64 179,954 5,612 76,697 76,697 176,697 66,548 66,548 166,548
- ------------------------------------------------------------------------------------------------------------
20 65 194,844 5,612 80,059 80,059 180,059 68,844 68,844 168,844
- ------------------------------------------------------------------------------------------------------------
25 70 281,237 5,612 94,743 94,743 194,743 76,396 76,396 176,396
- ------------------------------------------------------------------------------------------------------------
30 75 391,498 5,612 104,876 104,876 204,876 74,876 74,876 174,876
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any
additional premiums shown are received on the Contract Anniversaries.
</TABLE>
C-6
<PAGE> 112
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $5,612
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(4.85% Net)<F*> (4.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,893 5,612 3,713 3,713 103,713 3,394 3,394 103,394
- ------------------------------------------------------------------------------------------------------------
2 47 12,080 5,612 8,853 8,853 108,853 8,199 8,199 108,199
- ------------------------------------------------------------------------------------------------------------
3 48 18,576 5,612 14,207 14,207 114,207 13,201 13,201 113,201
- ------------------------------------------------------------------------------------------------------------
4 49 25,398 5,612 19,795 19,795 119,795 18,407 18,407 118,407
- ------------------------------------------------------------------------------------------------------------
5 50 32,560 5,612 25,632 25,632 125,632 23,821 23,821 123,821
- ------------------------------------------------------------------------------------------------------------
6 51 40,081 5,612 31,731 31,731 131,731 29,451 29,451 129,451
- ------------------------------------------------------------------------------------------------------------
7 52 47,978 5,612 38,104 38,104 138,104 35,301 35,301 135,301
- ------------------------------------------------------------------------------------------------------------
8 53 56,269 5,612 44,767 44,767 144,767 41,374 41,374 141,374
- ------------------------------------------------------------------------------------------------------------
9 54 64,975 5,612 51,737 51,737 151,737 47,674 47,674 147,674
- ------------------------------------------------------------------------------------------------------------
10 55 74,116 5,612 59,009 59,009 159,009 54,203 54,203 154,203
- ------------------------------------------------------------------------------------------------------------
11 56 83,715 5,612 66,741 66,741 166,741 61,081 61,081 161,081
- ------------------------------------------------------------------------------------------------------------
12 57 93,793 5,612 74,815 74,815 174,815 68,199 68,199 168,199
- ------------------------------------------------------------------------------------------------------------
13 58 104,376 5,612 83,244 83,244 183,244 75,564 75,564 175,564
- ------------------------------------------------------------------------------------------------------------
14 59 115,487 5,612 92,028 92,028 193,259 83,179 83,179 183,179
- ------------------------------------------------------------------------------------------------------------
15 60 127,154 5,612 101,165 101,165 206,377 91,045 91,045 191,045
- ------------------------------------------------------------------------------------------------------------
16 61 139,404 5,612 110,875 110,875 220,640 99,395 99,395 199,395
- ------------------------------------------------------------------------------------------------------------
17 62 152,267 5,612 120,953 120,953 233,439 108,004 108,004 208,447
- ------------------------------------------------------------------------------------------------------------
18 63 165,773 5,612 131,410 131,410 247,051 116,847 116,847 219,673
- ------------------------------------------------------------------------------------------------------------
19 64 179,954 5,612 142,266 142,266 260,347 125,901 125,901 230,399
- ------------------------------------------------------------------------------------------------------------
20 65 194,844 5,612 153,530 153,530 274,818 135,134 135,134 241,890
- ------------------------------------------------------------------------------------------------------------
25 70 281,237 5,612 216,318 216,318 341,782 184,037 184,037 290,779
- ------------------------------------------------------------------------------------------------------------
30 75 391,498 5,612 290,597 290,597 415,554 236,033 236,033 337,527
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-7
<PAGE> 113
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $5,612
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(10.85% Net)<F*> (10.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,893 5,612 3,928 3,928 103,928 3,600 3,600 103,600
- ------------------------------------------------------------------------------------------------------------
2 47 12,080 5,612 9,603 9,603 109,603 8,910 8,910 108,910
- ------------------------------------------------------------------------------------------------------------
3 48 18,576 5,612 15,857 15,857 115,857 14,757 14,757 114,757
- ------------------------------------------------------------------------------------------------------------
4 49 25,398 5,612 22,762 22,762 122,762 21,197 21,197 121,197
- ------------------------------------------------------------------------------------------------------------
5 50 32,560 5,612 30,394 30,394 130,394 28,290 28,290 128,290
- ------------------------------------------------------------------------------------------------------------
6 51 40,081 5,612 38,832 38,832 138,832 36,103 36,103 136,103
- ------------------------------------------------------------------------------------------------------------
7 52 47,978 5,612 48,164 48,164 148,164 44,705 44,705 144,705
- ------------------------------------------------------------------------------------------------------------
8 53 56,269 5,612 58,488 58,488 158,488 54,173 54,173 154,173
- ------------------------------------------------------------------------------------------------------------
9 54 64,975 5,612 69,916 69,916 170,595 64,595 64,595 164,595
- ------------------------------------------------------------------------------------------------------------
10 55 74,116 5,612 82,528 82,528 194,765 76,059 76,059 179,499
- ------------------------------------------------------------------------------------------------------------
11 56 83,715 5,612 96,582 96,582 221,173 88,727 88,727 203,184
- ------------------------------------------------------------------------------------------------------------
12 57 93,793 5,612 112,077 112,077 249,932 102,555 102,555 228,697
- ------------------------------------------------------------------------------------------------------------
13 58 104,376 5,612 129,159 129,159 278,984 117,655 117,655 254,134
- ------------------------------------------------------------------------------------------------------------
14 59 115,487 5,612 147,962 147,962 310,720 134,126 134,126 281,665
- ------------------------------------------------------------------------------------------------------------
15 60 127,154 5,612 168,649 168,649 344,044 152,081 152,081 310,245
- ------------------------------------------------------------------------------------------------------------
16 61 139,404 5,612 191,614 191,614 381,312 171,865 171,865 342,012
- ------------------------------------------------------------------------------------------------------------
17 62 152,267 5,612 216,849 216,849 418,518 193,406 193,406 373,274
- ------------------------------------------------------------------------------------------------------------
18 63 165,773 5,612 244,569 244,569 459,789 216,812 216,812 407,607
- ------------------------------------------------------------------------------------------------------------
19 64 179,954 5,612 275,027 275,027 503,299 242,218 242,218 443,258
- ------------------------------------------------------------------------------------------------------------
20 65 194,844 5,612 308,480 308,480 552,179 269,719 269,719 482,797
- ------------------------------------------------------------------------------------------------------------
25 70 281,237 5,612 531,465 531,465 839,714 444,937 444,937 703,001
- ------------------------------------------------------------------------------------------------------------
30 75 391,498 5,612 883,468 883,468 1,263,359 698,764 698,764 999,233
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-8
<PAGE> 114
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $1,948
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(-1.15% Net)<F*> (-1.30% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 2,045 1,948 1,070 1,070 101,948 762 762 101,948
- ------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 2,578 2,578 103,896 1,968 1,968 103,896
- ------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 4,033 4,033 105,844 3,125 3,125 105,844
- ------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 5,445 5,445 107,792 4,233 4,233 107,792
- ------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 6,817 6,817 109,740 5,287 5,287 109,740
- ------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 8,152 8,152 111,688 6,284 6,284 111,688
- ------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 9,449 9,449 113,636 7,217 7,217 113,636
- ------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 10,708 10,708 115,584 8,078 8,078 115,584
- ------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 11,936 11,936 117,532 8,860 8,860 117,532
- ------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 13,111 13,111 119,480 9,553 9,553 119,480
- ------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 14,298 14,298 121,428 10,185 10,185 121,428
- ------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 15,434 15,434 123,376 10,708 10,708 123,376
- ------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 16,515 16,515 125,324 11,115 11,115 125,324
- ------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 17,524 17,524 127,272 11,394 11,394 127,272
- ------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 18,454 18,454 129,220 11,529 11,529 129,220
- ------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 19,360 19,360 131,168 11,579 11,579 131,168
- ------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 20,164 20,164 133,116 11,447 11,447 133,116
- ------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 20,863 20,863 135,064 11,104 11,104 135,064
- ------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 21,458 21,458 137,012 10,516 10,516 137,012
- ------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 21,945 21,945 138,960 9,645 9,645 138,960
- ------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 22,158 22,158 148,700 <F***> <F***> <F***>
- ------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 16,631 16,631 158,440 <F***> <F***> <F***>
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-9
<PAGE> 115
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $1,948
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(4.85% Net)<F*> (4.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 2,045 1,948 1,138 1,138 101,948 820 820 101,948
- ------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 2,810 2,810 103,896 2,162 2,162 103,896
- ------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 4,527 4,527 105,844 3,534 3,534 105,844
- ------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 6,301 6,301 107,792 4,935 4,935 107,792
- ------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 8,138 8,138 109,740 6,363 6,363 109,740
- ------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 10,041 10,041 111,688 7,817 7,817 111,688
- ------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 12,017 12,017 113,636 9,289 9,289 113,636
- ------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 14,067 14,067 115,584 10,773 10,773 115,584
- ------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 16,202 16,202 117,532 12,263 12,263 117,532
- ------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 18,404 18,404 119,480 13,748 13,748 119,480
- ------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 20,744 20,744 121,428 15,260 15,260 121,428
- ------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 23,165 23,165 123,376 16,752 16,752 123,376
- ------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 25,669 25,669 125,324 18,215 18,215 125,324
- ------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 28,243 28,243 127,272 19,638 19,638 127,272
- ------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 30,886 30,886 129,220 21,006 21,006 129,220
- ------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 33,666 33,666 131,168 22,382 22,382 131,168
- ------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 36,509 36,509 133,116 23,668 23,668 133,116
- ------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 39,419 39,419 135,064 24,837 24,837 135,064
- ------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 42,403 42,403 137,012 25,852 25,852 137,012
- ------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 45,465 45,465 138,960 26,676 26,676 138,960
- ------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 61,776 61,776 148,700 26,318 26,318 148,700
- ------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 79,362 79,362 158,440 10,145 10,145 158,440
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-10
<PAGE> 116
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $1,948
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(10.85% Net)<F*> (10.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 2,045 1,948 1,207 1,207 101,948 879 879 101,948
- ------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 3,051 3,051 103,896 2,364 2,364 103,896
- ------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 5,059 5,059 105,844 3,974 3,974 105,844
- ------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 7,258 7,258 107,792 5,723 5,723 107,792
- ------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 9,673 9,673 109,740 7,619 7,619 109,740
- ------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 12,329 12,329 111,688 9,680 9,680 111,688
- ------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 15,255 15,255 113,636 11,914 11,914 113,636
- ------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 18,479 18,479 115,584 14,334 14,334 115,584
- ------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 22,042 22,042 117,532 16,956 16,956 117,532
- ------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 25,961 25,961 119,480 19,793 19,793 119,480
- ------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 30,345 30,345 121,428 22,908 22,908 121,428
- ------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 35,182 35,182 123,376 26,283 26,283 123,376
- ------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 40,522 40,522 125,324 29,945 29,945 125,324
- ------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 46,411 46,411 127,272 33,924 33,924 127,272
- ------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 52,909 52,909 129,220 38,251 38,251 129,220
- ------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 60,163 60,163 131,168 43,046 43,046 131,168
- ------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 68,183 68,183 133,116 48,276 48,276 133,116
- ------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 77,042 77,042 144,840 53,986 53,986 135,064
- ------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 86,783 86,783 158,812 60,230 60,230 137,012
- ------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 97,481 97,481 174,491 67,072 67,072 138,960
- ------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 168,797 168,797 266,700 112,714 112,714 178,088
- ------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 281,389 281,389 402,386 179,705 179,705 256,979
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-11
<PAGE> 117
Prospectus
Flexible Premium Variable Life Insurance Contract
Issued by Security Equity Life Insurance Company
Security Equity's Separate Account 13
Prospectus dated August 12, 1996
Security Equity Life Insurance Company
84 Business Park Drive
Suite 303
Armonk, NY 10504
<PAGE> 118
Flexible Premium Variable Life Insurance Contract
Issued by
Security Equity Life Insurance Company
84 Business Park Drive
Suite 303
Armonk, NY 10504
Tel:(914) 273-1290
This Prospectus describes the Individual Flexible Premium Variable Life
Insurance Contract (the "Contract") offered by Security Equity Life
Insurance Company ("SELIC" or the "Company"). The Contract is designed to
provide lifetime insurance protection to age 100 and at the same time
provide maximum flexibility to vary premium payments and change the level of
death benefits payable under the Contract. This flexibility allows a
Contract Holder to provide for changing insurance needs under a single
insurance Contract. A Contract Holder also has the opportunity to allocate
Net Premiums among several investment portfolios with different investment
objectives.
The Contract provides for: (1) a Net Cash Value that can be obtained by
surrendering the Contract; (2) Contract loans; and (3) a Death Benefit
payable at the Insured's death. Contract Holders may also attach a rider
that amends the Contract to instead provide insurance coverage on the lives
of two Insureds, with proceeds payable upon the death of the last surviving
Insured. As long as a Contract remains in force, the Death Benefit will not
be less than the current Face Amount of the Contract. A Contract will remain
in force so long as its Net Cash Value is sufficient to pay certain monthly
charges imposed in connection with the Contract.
During the "Free Look" period, Net Premiums are allocated to the Money
Market Division of specified in Appendix A. After the end of the "Free
Look" period, Net Premiums may be allocated to one or more of the Available
Divisions of the Separate Account or to the Fixed Fund. If Net Premiums are
allocated to the Separate Account, the duration of the Contract and the
amount of the Insurance Account Value will vary to reflect the investment
performance of the Available Divisions selected by the Contract Holder, and
depending on the Death Benefit option elected, the amount of the Death
Benefit above the minimum may also vary with that investment performance.
The Contract Holder bears the entire investment risk for all amounts
allocated to the Separate Account; there is no minimum guaranteed Insurance
Account Value.
Each Available Division of the Separate Account 13 will invest in one of the
Underlying Portfolios shown in Appendix A. The accompanying Prospectuses
for these portfolios describe the investment objectives and policies, and
the risks of the portfolios. This Prospectus generally describes only the
portion of the Contracts involving the Available Divisions of the Separate
Account. For a brief summary of the Fixed Fund, see "The Fixed Fund".
It may not be advantageous to purchase a Contract as a replacement for
another type of life insurance or as a means to obtain additional insurance
protection if the purchaser already owns
<PAGE> 119
another Flexible Premium Variable Life Insurance Contract. Within certain
limits, a Contract Holder may return the Contract, or convert it to a Contract
that provides benefits that do not vary with the investment results of
Available Divisions by exercising the Conversion Right.
This Prospectus must be accompanied or preceded by the current prospectuses
for the Underlying Portfolios listed in Appendix A.
THE CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK OR DEPOSITORY INSTITUTION, AND THE CONTRACT IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE
BOARD OR ANY OTHER AGENCY, AND INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Contracts are not available in all states.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
Please read this Prospectus carefully and retain it for future reference.
The date of this Prospectus is August 12, 1996.
- 2 -
<PAGE> 120
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Definitions 6
Summary of Contract 10
Explanation of a Case 10
Purpose of the Contract 11
The Contract Holder and Beneficiary 11
Availability of the Contract 12
Joint Insureds 12
Contract Values 12
The Separate Account 12
Death Benefit 13
Premiums 13
Charges and Deductions 14
Contract Loans 15
Surrender and Partial Withdrawals 16
Termination 16
Illustrations 16
Replacement of Existing Coverage 16
Tax Considerations 16
Free Look and Conversion Rights 17
Information About SELIC 17
The Separate Account 18
The Contract 19
Availability of Insurance Coverage 20
Evidence of Insurability 21
Premiums 21
Contract Values 23
Transfers 26
Contract Loan Privilege 27
Surrender and Partial Withdrawals 30
Death Benefits Under the Contract 31
-3-
<PAGE> 121
Charges and Deductions 36
Premium Load 36
Daily Charges 38
Monthly Charges 39
Underwriting Charges 41
Annual Charges 42
Other Charges 42
Termination 43
Maturity Date 43
Termination for Insufficient Net Cash Value 43
Reinstatement of a Contract Terminated for Insufficient Value 44
The Fixed Fund 44
General Description 44
Allocation of Amounts to the Fixed Fund 45
Fixed Fund Benefits 45
Fixed Fund Insurance Account Value 45
Fixed Fund Transfers, Surrenders, Partial Withdrawals and
Contract Loans 47
Federal Income Tax Considerations 47
Additional Provisions of the Contract 53
Addition, Deletion, or Substitution of Investments 53
Incontestability 54
Conversion Rights 55
Misstatement of Age or Sex 55
Suicide 55
Availability of Funds 55
Entire Contract 56
Representations in Application 56
Contract Application and Contract Schedules 56
Right to Amend Contract 57
Computation of Contract Values 57
Claims of Creditors 57
Notice 57
Assignments 57
Construction 58
Severability 58
State Variations 58
-4-
<PAGE> 122
Unisex Requirements Under Montana Law 58
Records and Reports 58
Sale of the Contract 58
Voting Rights 59
State Regulation of the Company 60
Management of the Company 61-63
Legal Matters 64
Legal Proceedings 64
Experts 64
Additional Information 64
Financial Statements 64-89
Appendix A - Underlying Portfolios A1-A6
Appendix B - Contract Riders B1-B7
Appendix C - Illustrations of Death Benefits and
Insurance Account Value C1-C11
</TABLE>
-5-
<PAGE> 123
DEFINITIONS
See Appendix B for modifications to Definitions in the event that riders are
added to the Contract.
Attained Age: The Insured's Issue Age under the Contract plus the number of
completed Contract Years.
Application: The application form that must be completed by any purchaser
of the Contract, before the Contract can be issued.
Available Division: A Division of the Separate Account to which Net
Premiums may be allocated or Separate Account Value or Fixed Fund Insurance
Account Value may be transferred under the Contracts. Each Available
Division invests exclusively in the shares of a corresponding Underlying
Portfolio listed in Appendix A.
Beneficiary: The person(s), entity or entities named on SELIC's records to
receive the insurance proceeds payable under the Contract after the Insured
dies.
Borrowed Fund: An account established in SELIC's General Account for any
amounts transferred from the Available Divisions and the Fixed Fund and held
as collateral for Contract Loans. (See "Contract Loan Privilege").
Case: A grouping of one or more Contracts connected by a non-arbitrary
factor, presented to SELIC as a group. (An example of such a factor is a
common employer for the Insureds under each Contract in the grouping.) (See
"Explanation of a Case").
Contract: The Flexible Premium Variable Life Insurance Contract offered by
SELIC that is described in this Prospectus.
Contract Anniversary: An anniversary of the Contract Date. It marks the
start of a new Contract Year.
Contract Date: The date used to begin calculating Monthly Charges and
Annual Charges under the Contract. The Contract Date is shown in the
Contract.
Contract Holder: The owner of the Contract, as shown in the records of
SELIC. All of the rights and benefits of the Contract belong to the
Contract Holder, unless otherwise stated in the Contract.
Contract Loan: An amount borrowed by the Contract Holder from the Insurance
Account Value of the Contract.
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Contract Month: Each one month period commencing on the Contract Date and
on each Monthiversary thereafter.
Contract Year: Each successive twelve month period starting on the Contract
Date and on each Contract Anniversary thereafter.
Death Benefit: The benefit payable to the Beneficiary when the Insured
dies.
Death Benefit Option Accumulation Rate: The rate at which Premiums are
accumulated for purposes of calculating Death Benefit Option 3.
Division: A sub-account of the Separate Account. Only Available Divisions
(described in this Prospectus) are available for investment under the
Contracts.
Employer: A corporation, partnership, sole proprietorship, association,
trust, and other similar or related entity. Affiliated Employers are
considered one Employer.
Excess Premium: Any amount of Premium paid in a Contract Year over and
above the Target Premium.
Face Amount: The amount of insurance under the contract, excluding any
Supplemental Term Insurance Amount. The Initial Face Amount on the Issue
Date is shown in the Contract. Thereafter, it may change in accordance with
the terms of the Contract.
Fixed Fund: The portion of the Insurance Account Value allocated to the
Company's General Account (excluding the Borrowed Fund).
Governing Jurisdiction: The state or jurisdiction in which the Contract is
delivered and whose laws govern its terms. The Governing Jurisdiction is
set forth in the Contract.
Home Office: The principal administrative office of SELIC, which is located
at 84 Business Park Drive, Suite 303, Armonk, NY 10504.
Initial Net Premium: The Initial Premium paid under the Contract less the
applicable Premium Load.
Initial Premium: The first Premium paid under the Contract.
Insurance Account Value: The total amount that a Contract provides for
investment at any time. It is equal to the total of the amounts credited to
the Contract Holder in the Separate Account, the Fixed Fund, and the
Borrowed Fund.
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Insured: The person whose life is insured under the terms of the Contract.
The Insured is shown in the Contract.
Issue Age: The Insured's age at his/her nearest birthday as of the Contract
Date.
Issue Date: The day the Initial Premium is received and accepted by SELIC.
This is also the date that insurance coverage becomes effective. All
Contract values based on the Separate Account are determined beginning on
the Issue Date. The Issue Date is shown in the Contract.
Maturity Date: The date on which the Contract will mature. The Maturity
Date is shown in the Contract.
Maximum Loan Amount: The maximum amount of Insurance Account Value that can
be borrowed by the Contract Holder under the Contract.
Minimum Insurance Coverage: The minimum amount of Total Insurance Coverage,
which includes any Supplemental Term Insurance Amount, under the Contract.
It is currently $25,000.
Minimum Premium: The Minimum Premium is equal to the Minimum Net Premium
plus any applicable Premium Load.
Minimum Net Premium: The Minimum Net Premium at any time is equal to twelve
(12) times the Monthly Charges for the first month in the then current
Contract Year.
Monthiversary: The first day of each Contract Month. It is the day as of
which Monthly Charges are deducted from the Insurance Account Value. The
Monthiversary and the Contract Date coincide, except in months in which the
Monthiversary falls on a day which is not a Valuation Day. In such months,
the Monthiversary is deemed to fall on the next Valuation Day. If any
Monthiversary would fall on the 29th, 30th or 31st of a month that does not
have that number of days, then the Monthiversary is deemed to be the last
day of that month.
Monthly Charges: The Contract charges that are deducted monthly from
Insurance Account Value. Monthly Charges include the Administration Charge,
the Cost of Insurance Charge, any Monthly Charges for benefits provided by
Contract rider, and any charges for special insurance class rating. (See
"Charges and Deductions").
Net Amount At Risk: The Net Amount at Risk for the Insured is calculated on
any Monthiversary by subtracting the Insurance Account Value from the Death
Benefit, discounted one month at a 4% assumed annual effective interest
rate.
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Net Cash Value: The Contract's Insurance Account Value minus any Contract
Loan balance and interest accrued thereon and unpaid.
Net Premium: The amount of a Premium less applicable Premium Load.
Planned Renewal Premium: An amount of Premium, specified in the
Application, which the Contract Holder anticipates will be paid in each
Contract Year after the first.
Premium: Premiums are the payments made to SELIC under the Contract by the
Contract Holder to purchase insurance on the life of the Insured and to
contribute to the Insurance Account Value of the Contract. Each Premium
amount may consist of Target Premium, Excess Premium, or both.
Premium Load: An amount deducted from each Premium prior to allocation of
the Premium to the Separate Account and/or the Fixed Fund. Premium Load
includes the Distribution Charge (comprised of a Premium Expense Load and a
Commission Charge), a Premium Tax Charge and a DAC Tax Charge.
SELIC: Security Equity Life Insurance Company, the issuer of the Contract.
Separate Account: A separate investment account established by the Board of
Directors of SELIC to support the benefits payable under the Contract. Each
Available Division of the Separate Account invests in a single corresponding
Underlying Portfolio.
Separate Account Value: The portion of the Contract's Insurance Account
Value invested in the Separate Account. It will be equal to the Contract's
Insurance Account Value, less the total of amounts in the Borrowed Fund and
amounts in the Fixed Fund.
Supplemental Term Insurance Amount: The amount of insurance is provided by
the Supplemental Term Insurance Rider, if any. This amount is shown in the
Contract. The Supplemental Term Insurance Rider is described in Appendix B.
Target Premium: An amount of Premium used to determine Premium Loads under
the Contract. The annual Target Premium is based upon the Face Amount and
is shown in the Contract. For Contracts with a Face Amount equal to the
Minimum Face Amount, the Target Premium will be zero (0).
Total Insurance Coverage: Total amount of insurance, including coverage
provided by any Supplemental Term Insurance Rider under the Contract.
Underlying Portfolio: An investment portfolio, managed by one or more
investment managers, the shares or units of which comprise the investment of
an Available Division of the Separate Account.
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Valuation Day: A day that is a regular business day of SELIC and that the
New York Stock Exchange (or its successor) is open for trading. Each
Valuation Day ends at the Valuation Time.
Valuation Time: The close of trading on the New York Stock Exchange (or any
successor exchange), which is generally 4 p.m. Eastern Time.
Valuation Period: The period of time between Valuation Days. A Valuation
Period begins immediately after the Valuation Time on the previous Valuation
Day and ends as of the Valuation Time on the next succeeding Valuation Day.
SUMMARY OF THE CONTRACT
This summary provides a brief overview of the more significant aspects of
the Contract and should be read in conjunction with the detailed information
appearing elsewhere in this Prospectus. Further detail is provided in the
Contract, the Application, and the prospectuses for the Underlying
Portfolios. See Appendix B for modifications to this section in the event
that riders are added to the Contract.
Explanation of a Case
Every Contract issued by SELIC will be part of a Case. A Case is a grouping
of one or more Contracts linked together by a non-arbitrary factor such as a
common Employer of each Insured under the Contracts. SELIC in its sole
discretion will determine what constitutes a Case. A Case may have one
Contract Holder (i.e., a single entity owns all the Contracts in the Case)
----
or as many Contract Holders as there are Contracts in the Case. The Premium
Load, Minimum Initial Premiums, and underwriting standards for an individual
Contract are determined based on the characteristics of the Case to which
the Contract belongs (see "The Contract -- Charges and Deductions").
A Contract is the agreement between SELIC and the Contract Holder to provide
benefits on the life of an Insured. Every Contract will belong to a Case.
Each Contract will be treated as an individual Contract, yet will also be
linked to the Case it belongs for purposes of determining certain Contract
features and charges.
Purpose of the Contract
The Contract offers a means to obtain insurance protection relating to the
life of a person in whom the Contract Holder has an insurable interest. A
Death Benefit is payable to the applicable Beneficiary upon the death of the
Insured so long as the Contract remains in force. The accumulated values
and benefits under the Contract may be used by Contract
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Holders for any valid purpose. Unlike traditional life insurance, which
provides a guaranteed Insurance Account Value, a Contract's Insurance Account
Value will vary to reflect investment results of the Available Divisions and
interest credited to the Fixed Fund.
Life insurance is not a short-term investment. Prospective Contract Holders
should evaluate the need for insurance and the Contract's long-term
investment potential and risks before purchasing a Contract.
The Contract Holder and Beneficiary
The Contract Holder is the individual or entity set forth in the
Application, unless subsequently changed on the records of SELIC. The
Contract Holder retains all rights and responsibilities of ownership
pertaining to its interest in the Contract, including but not limited to,
investment allocation, payment of Premiums, borrowing, taking partial
withdrawals, and surrendering the Contract.
The Beneficiary is also named in the Application. The Contract Holder has
the right to change a revocable Beneficiary with prior written notice to
SELIC. The Beneficiary will receive all insurance benefits payable upon the
death of the Insured. Unless the Insured is named as Contract Holder, or
--------------------------------------------------
the Contract Holder assigns the right to designate the Beneficiary to the
- -------------------------------------------------------------------------
Insured, or unless otherwise agreed, the Insured has no direct or indirect
- --------------------------------------------------------------------------
interest in the Contract.
- -------------------------
The Contract is a long-term investment designed to provide a Death Benefit,
and should only be purchased for purposes consistent with these features.
The Death Benefit and Net Cash Value under Contracts in a Case may be used
to provide proceeds for various planning purposes. However, the Contracts
are not liquid investments: partial withdrawals may be currently taxable;
and Contract Loans and partial withdrawals may significantly affect current
and future Death Benefit proceeds and Net Cash Value, and cause Contracts to
lapse. In addition, if the performance of the Available Divisions to which
Insurance Account Value is allocated is not sufficient to provide proceeds
for the specific planning purpose contemplated, or if insufficient premiums
are paid or Contract values maintained, then Contracts may not achieve the
purpose for which they were purchased, or may lapse. Because the Contracts
are designed to provide benefits on a long-term basis, before purchasing
Contracts for a specialized purpose, a purchaser should consider whether the
long-term nature of the Contract, and the potential impact of any contemplated
Contract Loans and partial withdrawals, are consistent with the purpose for
which the Contracts are being considered. Using the Contracts for a
specialized purpose may have tax consequences. (See generally "Federal Income
Tax Considerations," and in particular, "Other Tax Consequences.")
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Availability of the Contract
The Contract is offered only to individuals, corporations, partnerships,
sole proprietorships, associations, trusts, and other similar or related
entities, which satisfy certain suitability standards. The Contract may be
purchased to acquire insurance on the life of a person in whom the Contract
Holder has an appropriate insurable interest. Failure to establish an
insurable interest may result in adverse financial and tax consequences to
the Contract Holder.
Joint Insureds
A rider may be added to the Contract to provide coverage on the lives of two
Insureds, with the Death Benefit payable on the death of the last surviving
Insured. Most of the discussions in this Prospectus referencing a single
Insured may also be read as though the single Insured were the two Insureds
under a joint Contract. Certain discussions in the Prospectus are modified
if a Joint and Last Survivor Rider is added to the Contract. (See Appendix
B -- "Joint and Last Survivor Rider").
Contract Values
Net Premiums are allocated to one or more Available Divisions and/or the
Fixed Fund. To the extent Net Premiums are allocated to the Available
Divisions, the Insurance Account Value will, and the Death Benefit may, vary
with the investment performance of the chosen Available Divisions. To the
extent Net Premiums are allocated to the Fixed Fund, the Insurance Account
Value will accrue interest at a guaranteed minimum rate (see "The Fixed
Fund"). To the extent that Net Premiums are allocated to the Available
Divisions of the Separate Account, the Contract Holder bears the entire
investment risk associated with the investments of the selected Available
Divisions, and there is no guaranteed minimum Insurance Account Value.
The Separate Account
Several Divisions of the Separate Account are available for allocation of
Net Premiums paid under the Contract, subject to certain limitations set
forth in the Contract. (See "The Contract -- Premiums"). A description of
each Available Division --a Division of the Separate Account currently
available under the Contract for allocation of Net Premiums and transfers --
is set forth in this Prospectus.
Each Available Division of the Separate Account invests its assets in shares
or units of an Underlying Portfolio managed by one or more investment
managers. Each Available Division, and the Underlying Portfolio in which it
invests, are described at Appendix A. Each Underlying Portfolio has a
different investment objective, and is described more fully in the
prospectus for the Underlying Portfolio which accompanies this Prospectus.
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In the future, Available Divisions may be added, and existing Available
Divisions may be deleted. The Contract Holder will be notified in writing
of any such change. (See "The Separate Account").
Death Benefit
Death Benefit proceeds are payable to the named Beneficiary when the Insured
under the Contract dies. The Death Benefit payable under the Contract will
depend upon the Death Benefit Option in effect for the Contract. So long as
the Contract remains in force, the minimum death benefit under each Death
Benefit Option will be at least equal to the current Face Amount of the
Contract. (See "The Contract -- Death Benefits Under the Contract").
Premiums
A Contract Holder will have considerable flexibility under a Contract as to
both the timing and amount of Premiums. SELIC will not issue a Contract
unless it receives a Premium payment at least equal to the initial Minimum
Premium amount, which is equal to twelve (12) times the Monthly Charges due
under that Contract in the first Contract Month, plus any applicable Premium
Load. SELIC may, in its sole discretion, require a reduced initial Minimum
Premium in connection with the purchase of certain Contracts. Each
subsequent Premium must be at least $50 per Contract. Subsequent Premiums
may be paid at any time and in any frequency, subject to certain
restrictions (See "The Contract--Premiums"). If the Initial Premium and
subsequent Premiums prove to be too low, insurance coverage under the
Contract may cease.
The initial Net Premium will be allocated during the Free Look period to the
Money Market Division specified in Appendix A. After the Free Look period,
Separate Account Value will be allocated among the Available Divisions of
the Separate Account and the Fixed Fund according to the Contract Holder's
instructions as specified in the Application or as subsequently changed
prior to the end of the Free Look period.
Insurance Account Value may be transferred among the Available Divisions of
the Separate Account and the Fixed Fund by written request, subject to
certain restrictions.
Amounts may be transferred by dollar amounts or by percentages. (See "The
Contract -- Transfers").
Charges and Deductions
Certain charges are deducted from Premiums and from Insurance Account Value
under the Contract. For a more detailed discussion of the charges deducted
under the Contract, see "Charges and Deductions". For additional
information regarding the investment
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advisory fees and operating expenses of the Underlying Portfolios, see the
accompanying prospectuses for these portfolios.
A Premium Load is deducted from the Initial Premium and from each subsequent
Premium paid by a Contract Holder, prior to allocation to the Separate
Account or the Fixed Fund. The Premium Load includes a Distribution Charge
(which consists of a Premium Expense Load and a Commission Charge), a
Premium Tax Charge, which will be made for any applicable state premium
taxes, and the DAC Tax Charge.
The Distribution Charge is equal to a maximum of 30% of Premiums paid during
the first Contract Year up to one Target Premium (and 2% of first year
Premiums thereafter), and declines as a percentage of Premiums paid in
Contract Years 2-10 (to a maximum of 10% of Premiums paid during each
Contract Year up to a Target Premium; and 2% of Premiums thereafter);
Contract Years 11-15 (to a maximum of 8% of Premiums paid during each
Contract Year up to a Target Premium and 2% of Premiums thereafter), and
Contract Years 16 on (a maximum of 4% of Premiums paid during each Contract
Year up to a Target and 2% of Premiums thereafter).
The Premium Tax Charge reflects the state premium taxes imposed under the
Contract. The DAC Tax Charge is equal to 1% of all Premiums paid in all
Contract Years.
A Daily Charge for mortality and expense risks assumed by SELIC under the
Contract is calculated and deducted daily as a percentage of the Insurance
Account Value attributable to each Division of the Separate Account.
Currently, this Daily Charge is equal to 0.35% on an annual basis; it is
guaranteed not to exceed 0.50% on an annual basis.
Monthly Charges, including the Cost of Insurance Charge and the
Administration Charge, are deducted directly from the Insurance Account
Value as of the Contract Date and on each Monthiversary thereafter.
Monthly Charges include an Administration Charge of $4.50 per month
(guaranteed not to exceed $8.00 per month). Monthly Charges also include a
charge for the cost of insurance provided under the Contract. Monthly
Charges also include any charges for additional benefits provided by
Contract rider, and charges for a special class rating, if applicable.
SELIC will deduct an Underwriting Charge, not to exceed $100, on the Issue
Date for Contracts issued on a medically underwritten basis, and on any
Monthiversary following any medical underwriting in connection with certain
Contract changes. This charge changes if a Joint and Last Survivor Rider is
added to the Contract. See Appendix B. SELIC may reduce or waive the
Underwriting Charge under certain circumstances.
On each Contract Anniversary, (i) the Insurance Account Value attributable
to the Separate Account and Fixed Fund is reduced by Contract Loan interest
due and unpaid for the previous Contract Year; and (ii) the Insurance
Account Value attributable to the
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Separate Account and Fixed Fund is increased by the interest credited to the
Borrowed Fund during the previous Contract Year. The net result is that if
Contract Loan interest is not paid when due, then on the Contract Anniversary,
the Insurance Account Value attributable to the Separate Account and Fixed
Fund will be reduced by the difference between the Contract Loan interest due
and unpaid for the previous Contract Year, and the interest credited to the
Borrowed Fund during the previous Contract Year.
No charges are currently made to the Separate Account for federal, state or
local taxes that SELIC incurs which may be attributable to the Separate
Account. However, SELIC may impose such a charge in the future to provide
for any tax liability of the Separate Account.
Investment advisory fees and operating expenses of each Underlying Portfolio
are paid by such portfolio, and are reflected in the Separate Account Value
of a Contract.
At the Contract Holder's request, SELIC will provide an illustrative report
in addition to the reports it customarily provides. Depending upon the
type and complexity of the requested report, SELIC may charge a reasonable
fee not to exceed $50.
Contract Loans
The Contract Holder may obtain a Contract Loan under the Contract on any
Monthiversary. There is a maximum amount that may be borrowed, and interest
will be charged for any amount borrowed in accordance with the Contract Loan
interest rate option selected by the Contract Holder in the Application or
as subsequently changed. (See "Contract Loan Privilege").
Contract Loans are deducted from the amount payable on surrender of the
Contract and are also deducted from any Death Benefit proceeds. Contract
Loan interest accrues daily, and if it is not repaid each year, it is
capitalized and added to the Contract Loan. Depending upon the investment
performance of the Available Divisions and the amounts borrowed, Contract
Loans may cause a Contract to lapse. If the Contract lapses with a Contract
Loan outstanding, adverse tax consequences may result. A Contract Loan may
also have other Federal income tax consequences. (See "Federal Income Tax
Considerations").
Surrender and Partial Withdrawals
While the Insured is alive, the Contract may be surrendered at any time for
its Net Cash Value upon written request to SELIC's Home Office. To the
extent that the Insurance Account Value is allocated to the Available
Divisions of the Separate Account, SELIC does not guarantee any minimum Net
Cash Value. Partial withdrawals of Net Cash Value
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are permitted, subject to certain restrictions. (See "The Contract -
Surrender and Partial Withdrawals").
A surrender or partial withdrawal may have Federal income tax consequences.
(See "Federal Income Tax Considerations").
Termination
The Contract does not automatically terminate for failure to pay subsequent
Premiums. However, the Contract may terminate prior to its Maturity Date if
there is insufficient Net Cash Value to pay Monthly Charges. (See
"Termination").
Illustrations
Illustrations in this prospectus or used in connection with the purchase of
a Contract are based on hypothetical rates of return. These rates are not
guaranteed. They are illustrative only, and should not be deemed to be a
representation of past or potential investment performance. Actual rates of
return may be more or less than those in the illustrations and, therefore,
actual values will be different than those illustrated.
Replacement of Existing Coverage
Before purchasing a Contract, a prospective Contract Holder should consider
whether changing, or adding to, current insurance coverage would be
advantageous. Generally, it is not advisable to purchase another insurance
contract as a replacement for existing coverage. In particular, replacement
should be carefully considered if the decision to replace the coverage is
based solely on a comparison of contract illustrations.
Tax Considerations
SELIC intends for the Contract to satisfy the definition of life insurance
contract under section 7702 of the Internal Revenue Code. Under certain
circumstances, a Contract may be a "modified endowment contract" under
federal tax law, depending upon the amount of payments made in relation to
the death benefit provided under the Contract. SELIC will monitor Contracts
and will attempt to notify a Contract Holder on a timely basis if his or her
Contract is in jeopardy of becoming a modified endowment contract. The status
under the Internal Revenue Code of Contracts issued with a Supplemental Term
Insurance Rider, or a Joint and Last Survivor Rider, is less clear. For
further discussion of the tax status of a Contract and the tax consequences of
being treated as a life insurance contract or a modified endowment contract,
see "Federal Income Tax Considerations".
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Free Look and Conversion Rights
In most states, the Contract may be canceled at any time within ten (10)
days after it is received by the Contract Holder, ten (10) days after SELIC
mails or personally delivers the Notice of Withdrawal Right to the Contract
Holder, or within forty-five (45) days after the date of the Application,
whichever is later. The Contract must be returned to SELIC at its Home
Office along with written notice of cancellation. If the Contract is
canceled, it will be as though the Contract had never been issued. A refund
will be paid if the Contract is canceled. The refund will equal any
Premium(s) paid, minus any partial withdrawals taken and any Contract Loans
together with accrued but unpaid Contract Loan interest.
Once issued and as long as the Contract is in force, a Contract Holder may
during the first 24 months transfer all of the Insurance Account Value out
of the Separate Account and into the Fixed Fund, and receive fixed and
guaranteed benefits under the Contract. Once this right is exercised, no
transfers out of the Fixed Fund will be allowed and all Net Premiums paid
after the election will be allocated to the Fixed Fund. (See "Additional
Provisions of The Contract - Conversion Rights").
INFORMATION ABOUT SELIC
SELIC is a stock life insurance company domiciled in New York. It is a
wholly-owned subsidiary of General American Life Insurance Company ("General
American"), a mutual life insurance company domiciled in Missouri.
SELIC was established in 1983 as a wholly-owned subsidiary of Security
Mutual Life Insurance Company of New York. It was purchased by General
American on December 31, 1993.
General American commenced operations in 1933 as a stock company and was
converted to a mutual company in a process that ended in 1946. General
American is principally engaged in issuing individual and group life and
health insurance contracts and annuity products. It is admitted to do
business in forty-nine states, the District of Columbia, and ten Canadian
provinces. The principal offices of General American are located in St. Louis,
Missouri.
SELIC is admitted to sell life insurance and annuities in forty states and
the District of Columbia. SELIC concentrates on sales of corporate owned
life insurance products in all of these jurisdictions and sales of
individual products to residents of New York.
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THE SEPARATE ACCOUNT
Security Equity Life Insurance Company Separate Account 13 (the "Separate
Account") was established by SELIC as a Separate Investment Account on
December 30,1994. The Separate Account will receive and invest the Net
Premiums paid under this Contract and allocated to it. In addition, the
Separate Account may receive and invest Net Premiums for other flexible
premium variable life insurance contracts that might be issued by SELIC.
The Separate Account is currently divided into a number of Divisions. Not
all Divisions are available for allocation of Net Premiums and transfers
under the Contract. Each Available Division invests exclusively in shares
of an Underlying Portfolio listed in Appendix A. Both realized and
unrealized gains or losses and income from the assets of each Division of
the Separate Account are credited to or charged against that Division
without regard to income, gains, or losses from any other Division of the
Separate Account or from any other business SELIC may conduct.
Obligations to Contract Holders and Beneficiaries that arise under the
Contract are obligations of SELIC. SELIC owns the assets of the Separate
Account. Those assets will only be used to support variable life insurance
contracts and for any other purposes permitted by applicable laws and
regulations. The portion of the assets of the Separate Account equal to the
reserves and other contract liabilities with respect to the Separate Account
will not be charged with liabilities that arise from any other business
SELIC may conduct. SELIC may, however, transfer from the Separate Account
to its General Account assets that exceed the reserves and other contract
liabilities in respect of the Separate Account.
The Separate Account has been registered with the Securities and Exchange
Commission ("SEC" or "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"). The Separate Account meets
the definition of a "separate account" under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices of the Separate Account, the Contracts, or SELIC by the
Commission.
There is no assurance that the stated objectives of any Underlying Portfolio
will be achieved.
More detailed information concerning the investment objectives, techniques
and restrictions pertaining to each Underlying Portfolio, and the expenses,
investment advisory services, and risks attendant to allocating Insurance
Account Value to each Underlying Portfolio, can be found in the current
prospectus with respect to each Underlying Portfolio, which accompanies this
Prospectus, and the current Statement of Additional Information for each
Underlying Portfolio. Such information has been prepared by the Underlying
Portfolio or the investment company of which it is a part,
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and SELIC is not responsible for preparing this information. The Underlying
Portfolio prospectuses should be read carefully before any decision is made
concerning the allocation of Premium payments or transfers among the Available
Divisions.
Not all of the investment portfolios described in the accompanying
prospectuses are necessarily available under the Contract. Moreover, SELIC
cannot guarantee that each Underlying Portfolio will always be available for
the Contract. In the unlikely event that an Underlying Portfolio becomes
unavailable, SELIC will attempt to secure the availability of a comparable
Underlying Portfolio. Shares and units of each Underlying Portfolio are
purchased and redeemed at Net Asset Value, without a sales charge.
One or more of the Underlying Portfolios are available for investment by
both variable life insurance and variable annuity separate accounts. It is
conceivable that in the future it may be disadvantageous for both variable
life and variable annuity separate accounts to invest simultaneously in an
Underlying Portfolio that sells its shares to both types of separate
accounts. The Board of Directors or Trustees of such Underlying Portfolios,
the respective investment advisers of each Underlying Portfolio, and SELIC
are required to monitor events to identify any material irreconcilable
conflicts that may possibly arise, and to determine what action, if any,
should be taken in response to those events of conflicts. Material
conflicts could arise from such things as changes in state insurance laws,
changes in federal income tax laws, changes in the investment management of
an Underlying Portfolio, or differences in the voting instructions given by
variable annuity contract owners and variable life insurance contract
owners. In the event of a material irreconcilable conflict, SELIC will take
steps necessary to protect our Contract Holders. This could include
discontinuance of investment in an Underlying Portfolio.
THE CONTRACT
The Contract is a flexible premium variable life insurance contract that
provides insurance on the life of an Insured. A Contract may be sold
together with other related Contracts forming a Case. See Appendix B for
modifications to this Section in the event that a Joint and Last Survivor
Rider and/or a Supplemental Term Insurance Rider is added to the Contract.
Availability of Insurance Coverage
To be eligible for insurance under the Contract, a prospective Insured must
on the Contract Date:
(1) be at least 20 years of age and no more than 85 years of age;
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(2) have elected or consented to be an Insured (if required by SELIC or
the Governing Jurisdiction);
(3) have satisfied any necessary underwriting requirements of SELIC (see
"Charges and Deductions -- Monthly Charges -- Cost of Insurance Charge").
A Contract can be issued if the Contract Holder:
(1) provides SELIC with the data it requires including, but not limited to
the prospective Insured's name, address, social security number,
sex, date of birth, smoker/nonsmoker status, and citizenship (SELIC
may also require submission of related documents that have been
completed by the prospective Insured);
(2) requests Total Insurance Coverage at least equal to the Minimum
Insurance Coverage for an Insured;
(3) designates the Beneficiary under the Contract; and
(4) pays the initial Minimum Premium for the first Contract Year.
Insurance coverage generally begins on the Issue Date for the Contract.
Temporary life insurance coverage may be provided under the terms of a
temporary insurance agreement. In accordance with SELIC's underwriting
rules, temporary life insurance coverage may not exceed the greater of
$100,000 or two times the Premium paid, and may not be in effect for more
than 90 days. This temporary insurance coverage will be issued on a
conditional receipt basis, which means that any Death Benefit under such
temporary coverage will only be paid if the Insured meets SELIC's usual and
customary underwriting standards for the applied-for coverage under the
Contract (see "Charges and Deductions-- Monthly Charges -- Cost of Insurance
Charge").
As provided for under state insurance law, a Contract Holder, to preserve
insurance age of the Insured, may be permitted to backdate the Contract. In
no case may the Contract Date be more than six months prior to the date that
the Application was completed. If any Contract in a Case is backdated, then
all Contracts in the Case must be backdated to the same date. Monthly Charges
for the backdated period will be deducted as of the Contract Date, and each
Monthiversary thereafter.
For modifications to this Section for Joint Insureds, see Appendix B --
"Joint and Last Survivor Rider."
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<PAGE> 138
Evidence of Insurability
SELIC may require medical evidence of insurability for any Contract that
does not meet SELIC's guaranteed issue or simplified issue standards when
the Contract is issued. (see "Charges and Deductions -- Monthly Charges --
Cost of Insurance Charge"). Medical evidence of insurability may also be
required for any transaction that increases the Net Amount at Risk for the
Contract. Transactions that increase the Net Amount at Risk may include but
are not limited to: payment of subsequent Premiums, change of Death Benefit
Option, change of Face Amount, partial withdrawals, and reinstatement of a
Contract.
For modifications to this section for Joint Insureds, see Appendix B -- Last
Survivor Rider.
Premiums
Premiums are the payments made to SELIC under the Contract by the Contract
Holder to purchase insurance on the life of the Insured and to contribute to
the Insurance Account Value of the Contract. All Premiums are payable to
SELIC at its Home Office. A Premium Load is deducted from any Premium
received by SELIC prior to its allocation to the Separate Account or to the
Fixed Fund. The resulting amount is the Net Premium. The applicable
Premium Load percentage depends upon the Case to which the Contract belongs,
whether the Premium consists of Target Premium or Excess Premium, and the
Contract Year in which the Premium is paid. (See "Charges and Deductions --
Premium Load).
Premiums may consist of Target Premium, Excess Premium or both. The Target
Premium is determined by the Initial Face Amount selected by the Contract
Holder, and will never exceed a "guideline annual premium" as defined in
applicable SEC regulations. SELIC has the right to refund promptly any
amount of Premium paid if necessary to keep the Contract in compliance with
state and federal laws, including federal income tax laws. In particular,
if a Contract Holder pays Premium amounts during the first Contract Year
significantly in excess of the Planned Renewal Premium, SELIC reserves the
right to refund promptly part or all of such excess if applicable state
insurance law restricts the amount of commissions that would otherwise be
payable to the writing agent in connection with part or all of such Premium
amounts.
SELIC will not issue the Contract unless it receives a Premium payment at
least equal to the initial Minimum Premium amount. The initial Minimum
Premium under the Contract is equal to twelve times the Monthly Charges due
under the Contract in the first Contract Month, plus any applicable Premium
Load. SELIC may, in its sole discretion, require a reduced initial Minimum
Premium in connection with the purchase of Contracts sold by licensed agents
of SELIC that are also registered representatives of Walnut Street
Securities, Inc. ("Walnut Street"), the distributor of the Contracts, or
selected broker-
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<PAGE> 139
dealers or through banks that have entered into written sales agreements with
Walnut Street. A SELIC agent can provide prospective purchasers with
information regarding the availability of a reduced initial Minimum Premium
requirement.
After the Initial Premium has been received and accepted by SELIC, the
Contract Holder may pay subsequent Premiums on any Valuation Day provided
that each subsequent Premium is at least $50 per Contract. All payments
received by SELIC from the Contract Holder will be credited to the Contract
as Premiums, unless the Contract Holder specifies that such payments are
Contract Loan repayments. Subsequent Premiums may cause a Contract that was
not classified as a "modified endowment contract" to become classified as
such a contract. SELIC will take steps to monitor subsequent Premiums, and
will notify a Contract Holder if a subsequent Premium, or a portion thereof,
would cause a Contract to become a modified endowment contract. (See
"Federal Income Tax Considerations -- Modified Endowment Contracts").
Allocation of Net Premiums: Generally, the initial Net Premium will be
credited to the Separate Account and the Insurance Account Value will begin
to vary with investment experience on the Valuation Day next following
receipt of the initial payment at the Home Office. However, in situations
where SELIC receives the initial payment with the application and
underwriting is required, then the payment will be held on deposit in
SELIC's General Account until underwriting is completed and the Contract is
issued (the Issue Date). Any Net Premiums received during the Free Look
period will be allocated to the Money Market Division. At the end of such
period, Separate Account Value will be allocated to or among any of the
Available Divisions and the Fixed Fund, in accordance with the Contract
Holder's allocation instructions set forth in the Application, or as
subsequently changed prior to the end of the Free Look period. No
allocation or transfer instructions received from the Contract Holder in the
Application or during the Free Look period will be acted upon until the Free
Look period has expired. The duration of the Free Look period depends upon
the law of a Contract's Governing Jurisdiction. The Free Look period under
a Contract will expire after the number of days provided for in the
applicable Governing Jurisdiction's Free Look period has elapsed following
the date the Contract is delivered to the Contract Holder, as evidenced by a
signed delivery receipt or certified mail return receipt, or if later, ten
(10) days after SELIC mails or personally delivers the Notice of Withdrawal
Right to the Contract Holder, or 45 days after the Application is signed.
Transfer of money to the Available Divisions specified by the Contract Holder
will occur at the expiration of the Free Look period.
Net Premiums received after the Free Look period expires will be allocated
among the Available Divisions and the Fixed Fund in accordance with the
Contract Holder's instructions. Net Premiums that are received prior to the
Valuation Time on any Valuation Day will be allocated as of the date they
are received. Net Premiums received after such time will be allocated on
the next Valuation Day.
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<PAGE> 140
The maximum number of Available Divisions to which the Contract's Separate
Account Value may be allocated at any one time is five (5); amounts can also
be allocated to the Fixed Fund. If no instructions accompany a Premium, the
resulting Net Premium will be allocated to the Available Divisions and the
Fixed Fund in the same proportions as stated in the most recently recorded
Premium allocation instructions SELIC received from the Contract Holder.
The allocation of subsequent Premiums may be changed at any time upon
SELIC's receipt of written notice from the Contract Holder.
Premiums to Prevent Lapse: If the Contract is in danger of lapsing because
the Net Cash Value is insufficient to pay the Monthly Charges for the
Contract on a Monthiversary, the amount of Premium that must be paid to
prevent lapse will be equal to three (3) times the Monthly Charges then due
plus any applicable Premium Load. (See "Termination -- Termination for
Insufficient Cash Value"). SELIC will send a notice to a Contract Holder
when such Premiums are required to keep the Contract in force.
Premiums to Reinstate a Contract: When a Contract has lapsed due to
insufficient Net Cash Value, the amount of Premium that must be paid to
reinstate insurance coverage will be equal to the Monthly Charges due and
unpaid at the time of lapse, plus three (3) times the Monthly Charges due
at the time of reinstatement, plus any applicable Premium Load. (See
"Termination -- Reinstatement of a Contract Terminated for Insufficient
Value"). When the Contract has terminated, SELIC will send a notice
specifying the Premiums that are required to be paid to reinstate the
Contract.
Contract Values
The Insurance Account Value of the Contract is equal to the total amounts of
the Insurance Account Value in each Available Division of the Separate
Account, the Insurance Account Value in the Fixed Fund, and the Insurance
Account Value in the Borrowed Fund.
The Insurance Account Value allocated to each Available Division is measured
in "Accumulation Units." The value of an Accumulation Unit is determined as
of the Valuation Time on each Valuation Day. The value of any unit will
vary from Valuation Day to Valuation Day to reflect the investment
performance of the Available Division applicable to that Accumulation Unit.
The value of an Accumulation Unit in each Available Division is arbitrarily
set at $1.00 on the first Valuation Day for that Available Division. The
value of any Accumulation Unit on any subsequent Valuation Day is equal to
its value on the preceding Valuation Day multiplied by that Available
Division's Net Investment Factor for the Valuation Period. The Net
Investment Factor for an Available Division for a Valuation Period equals
the
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<PAGE> 141
"gross investment rate" for such period plus one and minus the Mortality
and Expense Risk Charge for that Valuation Period.
The "gross investment rate" of an Available Division for any Valuation
Period is equal to the net earnings of that Available Division during the
Valuation Period, divided by the value of the total assets of that Available
Division at the beginning of the Valuation Period. The net earnings of each
Available Division during a Valuation Period are equal to the accrued
investment income and capital gains and losses (realized and unrealized) of
that Available Division, reduced by any amount charged against that
Available Division for premium taxes or other governmental charges paid or
reserved by SELIC during that Valuation Period.
The "gross investment rate" and net earnings of each Available Division will
be determined by SELIC in accordance with generally accepted accounting
principles and applicable laws, rules and regulations.
Transactions which require the crediting and canceling of Accumulation Units
will be processed as of the Valuation Time on the Valuation Day in which the
transaction is effected. Premium payments, and requests for Contract Loans,
withdrawals, transfers, or any other transaction, received in proper form
before the Valuation Time on a Valuation Day will be effected as of the
Valuation Time on the day that the Premium payment, or transaction request,
is received. Premium payments, and transaction requests, received in proper
form after the Valuation Time on a Valuation Day, will be effected as of the
Valuation Time of the following Valuation Day.
The Insurance Account Value in the Money Market Division on the Issue Date
is equal to the Premium paid on that date, less any applicable Premium Load
less:
(1) Cost of Insurance Charges; and
(2) Administration Charges; and
(3) any charges that are deducted from the Insurance Account Value for
benefits provided by Contract riders; and
(4) Underwriting Charges, if any; and
(5) charges for Special Insurance Class Rating, if any.
The Insurance Account Value in each Available Division as of the Valuation
Time on any subsequent Valuation Day is equal to the Insurance Account Value
in that Available Division on the prior Valuation Day plus:
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<PAGE> 142
(1) any new Net Premium allocated to that Available Division; and
(2) any amounts transferred to that Available Division from another
Available Division, the Fixed Fund or the Borrowed Fund.
(3) any increase in value of the Available Division's investments due to
investment results (net of Daily Charges);
and less:
(1) any amounts transferred from that Available Division to another
Available Division, the Fixed Fund or the Borrowed Fund.
(2) any decrease in the value of the Available Division's investments due
to investment results net of Daily Charges; and
(3) the Cost of Insurance Charges allocated to that Available Division
(deducted only on a Monthiversary); and
(4) the Administration Charges allocated to that Available Division
(deducted only on a Monthiversary); and
(5) any partial withdrawals taken from such Contract and allocated to that
Available Division; and
(6) any charges allocated to that Available Division that are deducted
from the Insurance Account Value for benefits provided by Contract
riders; and
(7) any Underwriting Charges allocated to that Available Division; and
(8) any charges for Special Insurance Class Rating allocated to that
Available Division (deducted only on a Monthiversary); and
(9) any other charges allocated to that Available Division as stated in
the Contract.
For more information regarding the charges and expenses deducted under the
Contract, see "Charges and Deductions". For more information regarding the
impact that Contract Loans can have on Insurance Account Value and Net Cash
Value, see "Contract Loan Privilege".
For description of the Insurance Account Value in the Fixed Fund and the
Borrowed Fund, see "The Fixed Fund" and "Contract Loan Privilege".
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<PAGE> 143
Transfers
The Contract provides that all or part of the Insurance Account Value
(except amounts in the Borrowed Fund) may be transferred between or among
Available Divisions and the Fixed Fund on any Valuation Day subject to the
following limitations:
(a) The Insurance Account Value cannot be allocated to more than five (5)
Available Divisions and the Fixed Fund at any one time;
(b) Transfer requests must be in writing and in a form acceptable to
SELIC;
(c) Except as described below, only one (1) transfer is permitted in each
Contract Year;
(d) SELIC reserves the right to limit the amount of any transfer.
Transfers from or among the Available Divisions must be in amounts
of at least $500, or if smaller, the Insurance Account Value in an
Available Division; and
(e) Transfers to the Fixed Fund may be limited. Insurance Account Value
in the Fixed Fund after any transfer to the Fixed Fund may be no
greater than the amount specified in the Contract. (See "The Fixed
Fund -- Allocation of Amounts to the Fixed Fund").
Transfers from the Fixed Fund are also subject to the following limitations:
(a) The transfer must be made in the 30 day period following a Contract
Anniversary; and
(b) The amount transferred may be no larger than 25% of the Insurance
Account Value in the Fixed Fund on the date of the transfer.
Transfers may be requested by dollar amount or percentage. Written
confirmation of each transfer will be sent to the Contract Holder. SELIC
will generally effect transfers and determine all values in connection with
transfers as of the Valuation Time at the end of the Valuation Day on which
a proper transfer request is received.
Notwithstanding the above limitations, which are set forth in the Contract,
SELIC will, as a matter of administrative practice, allow up to twelve (12)
transfers per year between or among Available Divisions. Contract Holders
will be notified in advance if this administrative practice is changed or
eliminated. For purposes of calculating the number of transfers requested
in any Contract Year, all transfer requests received on the same Valuation
Day will be counted as one transfer request. Transfers effected in
connection with Contract Loans will not be counted for purposes of the
limitations on the amount or frequency of transfers permitted in each
Contract Year.
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<PAGE> 144
Contract Loan Privilege
The Contract Holder may request a loan against the Contract. The Contract
must be assigned to the Company as the sole security for the Contract Loan.
A Contract Loan may take place on any Valuation Day. An amount equal to the
amount borrowed will be transferred from the Separate Account and the Fixed
Fund to the Borrowed Fund. The Borrowed Fund is a portion of SELIC's
General Account reserved for amounts held as collateral for Contract Loans.
A Contract Loan from, or secured by, the Contract may have federal income
tax consequences. In particular, if the Contract is a "modified endowment
contract" loans may be currently taxable and subject to a 10% penalty tax.
(See "Federal Income Tax Considerations").
Source of Contract Loan: Insurance Account Value equal to each Contract
Loan will be transferred to the Borrowed Fund, reducing the Insurance
Account Value in the Separate Account and the Fixed Fund. Unless other
specific instructions are received from the Contract Holder, the Contract
Loan will be taken from the Available Divisions of the Separate Account and
the Fixed Fund in proportion to the amount of the Contract Holder's then
current Insurance Account Value in each Available Division of the Separate
Account and Fixed Fund.
The maximum total of Contract Loans for each Contract is equal to the
Insurance Account Value less the sum of the following:
(1) the outstanding Contract Loan amount together with interest accrued
but unpaid;
(2) the Minimum Net Premium for the current Contract Year; and
(3) Contract Loan interest charges until the next Contract Anniversary.
If a Contract Loan is requested that would cause this maximum to be
exceeded, SELIC will not process the request.
Contract Loan Interest: Contract Loan interest accrues daily and is due on
each Contract Anniversary. If it is not paid when due, the Contract Loan
interest will be added to the Contract Loan and, as part of the Contract
Loan, will bear the same interest rate. Any Contract Loan interest
capitalized on a Contract Anniversary will be treated as if it was a new
Contract Loan and will be transferred from the Available Division of the
Separate Account and Fixed Fund in proportion to the Insurance Account Value
therein.
A fixed Contract Loan interest rate option or a variable Contract Loan
interest rate option may be elected. This option may be changed by the
Contract Holder on any Contract Anniversary. Written notice of the change
must be received at SELIC's Home Office no
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<PAGE> 145
more than ninety (90) days nor less than thirty (30) days prior to such
Contract Anniversary. The Contract Loan interest rate options are as follows:
Fixed Contract Loan Interest Rate. If a Fixed Contract Loan Interest Rate
- ---------------------------------
option is selected and a Contract Loan is outstanding, a fixed Contract Loan
interest rate of 6.00% will be assessed annually in arrears and added to the
Contract Loan principal on the Contract Anniversary.
Variable Contract Loan Interest Rate. On each Contract Anniversary, SELIC
- ------------------------------------
will declare the Variable Contract Loan Interest Rate that will apply to
outstanding Contract Loans for the next Contract Year. This rate will equal
the higher of a) or b), where a) is the Monthly Average of the Composite
Yield on Corporate Bonds as published by Moody's Investor Service, Inc. (or,
if it is no longer published, a substantially similar average) for the
calendar month ending two months before the Contract Year begins, and b) is
4.5%. If the rate calculated according to this formula is not at least .50%
higher than the rate in effect for the previous year, SELIC will not
increase the rate. If the maximum limit is at least .50% lower than the
rate in effect for the previous year, SELIC will decrease the rate.
If the Variable Contract Loan Interest Rate option is selected, SELIC will
inform the Contract Holder of the current Variable Contract Loan Interest
Rate at the time a Contract Loan is made. The current Variable Contract
Loan Interest Rate can be changed by SELIC on any Contract Anniversary, but
the rate will never exceed the maximum Contract Loan interest rate permitted
by the law of the Governing Jurisdiction.
Interest on Borrowed Fund: Interest will be credited to amounts held in the
Borrowed Fund as collateral for Contract Loans. This rate of interest
credited on the Borrowed Fund will be at least equal to an annual effective
rate of four percent (4%).
For the Fixed Contract Loan Interest Rate option, the rate of interest
credited on the Borrowed Fund is currently set equal to 5.65%. If a
Variable Contract Loan Interest Rate option is chosen, SELIC currently
anticipates that the rate of interest credited on the Borrowed Fund will
equal the Variable Contract Loan Interest Rate less a "loan interest spread"
of .35%. This "loan interest spread" is guaranteed never to exceed .50%.
The Borrowed Fund crediting rate may not be changed more frequently than
annually. Any change in the Borrowed Fund crediting rate for the Contract
will be effective on a Contract Anniversary. The Contract Holder will be
notified in advance of any such change.
Interest credited to the Borrowed Fund will be transferred to the Available
Divisions of the Separate Account and Fixed Fund on each Contract
Anniversary. The amount so transferred will be allocated among the
Available Divisions of the Separate Accounts and
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<PAGE> 146
Fixed Fund in proportion to the Insurance Account Value in each Available
Division of the Separate Account and Fixed Fund.
If Contract Loan interest due for the previous Contract Year has not been
paid when due, then on the Contract Anniversary, the Insurance Account Value
attributable to the Separate Account and Fixed Fund will be reduced by the
difference between the Contract Loan interest due and unpaid for the
previous Contract Year, and the interest credited to the Borrowed Fund
during the previous Contract Year.
On any given day the Insurance Account Value in the Borrowed Fund will be
equal to the Insurance Account Value in the Borrowed Fund on the previous
day plus:
(1) Any new amounts transferred to the Borrowed Fund from the Separate
Account and Fixed Fund due to new Contract Loans and/or capitalized
Contract Loan Interest; and
(2) Any interest credited to the Borrowed Fund.
and less
(1) Any amounts transferred from the Borrowed Fund to the Separate Account
and/or Fixed Fund due to Contract Loan repayments or the transfer
of interest credited to the Borrowed Fund on a Contract
Anniversary.
Repayment: All funds received by SELIC will be credited to the Contract as
Premiums unless clearly designated as a Contract Loan repayment by the
Contract Holder.
All or part of the Contract Loan plus accrued Contract Loan interest may be
repaid at any time while the Contract is in force.
Any repayment of a Contract Loan will result in the transfer of values equal
to the repayment out of the Borrowed Fund and the application of those
values to the Available Divisions of the Separate Account and Fixed Fund.
Unless other specific instructions are received from the Contract Holder,
these values will be applied to the Separate Account's Available Divisions
and the Fixed Fund in proportion to the amount of the Contract Holder's then
current Insurance Account Value in each Available Division of the Separate
Account and Fixed Fund.
Surrender and Partial Withdrawal
At any time during the lifetime of the Insured and while the Contract is in
force, the Contract may be surrendered for its Net Cash Value on any
Valuation Date. The Contract Holder must request a surrender in writing and
in a form acceptable to SELIC. On
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<PAGE> 147
surrender, SELIC will pay to the Contract Holder in a single sum the
Contract's Net Cash Value as of the Valuation Day during which a proper
surrender request is received. A Contract's Net Cash Value is the Insurance
Account Value less any outstanding Contract Loan and accrued and unpaid
Contract Loan interest. If a proper surrender request is received on a
Monthiversary, then Monthly Charges will not be deducted on that
Monthiversary. A surrender may have Federal income tax consequences.
(See "Federal Income Tax Considerations"). Once the Contract is
surrendered, SELIC's obligations under the Contract will cease. (See
"Termination").
The Contract Holder may also request partial withdrawals of Net Cash Value
from one or more Available Divisions and the Fixed Fund. The withdrawal
must be requested by the Contract Holder in writing on a form acceptable to
SELIC. Unless other specific instructions are received from the Contract
Holder, the withdrawal will be taken from each Available Division and the
Fixed Fund in proportion to the Contract Holder's then current Insurance
Account Value in each Available Division and the Fixed Fund. See "The Fixed
Fund".
Surrender and partial withdrawal proceeds will generally be paid to the
Contract Holder within seven days. See "Additional Provisions of the
Contract -- Availability of Funds" and "The Fixed Fund".
The Contract Holder may withdraw any amount of at least $1,000 per
withdrawal and up to the Contract's maximum withdrawal amount. The maximum
withdrawal amount for the Contract is equal to the Insurance Account Value
less the sum of the following:
(1) the outstanding Contract Loan amount together with the unpaid accrued
Contract Loan interest on the Contract Loan amount;
(2) the Minimum Net Premium for the current Contract Year; and
(3) Contract Loan interest on the Contract Loan amount until the next
Contract Anniversary.
Partial withdrawals may increase the Net Amount at Risk, resulting in higher
Cost of Insurance Charges under the Contract.
The Death Benefit and Face Amount may be adjusted at the time a partial
withdrawal is taken, based on the amount withdrawn, the Death Benefit Option
then in effect for the Contract, and the Insurance Account Value. If the
Face Amount is reduced, the reduction in Face Amount for Death Benefit
Option 1 or Death Benefit Option 3 will be equal to the amount of the
withdrawal. The Total Insurance Coverage remaining after the partial
withdrawal may not be less than the Minimum Insurance Coverage. A partial
withdrawal request that would reduce the Total Insurance Coverage below this
minimum will not be
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<PAGE> 148
effected. If the Face Amount reflects previous Face Amount increases at the
time of a partial withdrawal which causes a reduction in Face Amount, then
partial withdrawals will be applied first to reduce the Initial Face Amount,
and then to each Face Amount increase in order, starting with the first
increase.
A partial withdrawal that decreases the Face Amount of the Contract will
result in a recalculation of the Target Premium, and generally will decrease
the Target Premium for future Contract Years.
A partial withdrawal may have Federal income tax consequences. (See
"Federal Income Tax Considerations").
Death Benefits Under the Contract
If the Insured dies while the Contract is in force, a Death Benefit is
payable to the Beneficiary when SELIC receives due proof of death and any
other requirements are satisfied. The amount of the Death Benefit payable
depends on the Death Benefit Option selected for the Contract by the
Contract Holder and in effect on the date of death of the Insured, and is
adjusted for outstanding Contract Loans and unpaid charges. (See "Payment
for Death Benefits"). The amount of the Death Benefit will be determined at
the end of the Valuation Period during which the Insured's death occurred.
The Death Benefit will be paid to the surviving Beneficiary or Beneficiaries
specified in the Application or as subsequently changed. The Death Benefit
under each Death Benefit Option will never be less than the Contract's Face
Amount as long as the Contract remains in force. For modifications to this
Section for Joint Insureds, see Appendix B -- "Joint and Last Survivor Rider."
Death Benefit Options: The Contract Holder may select one of the following
Death Benefit Options:
Option 1: the Face Amount in effect at the date of death
Option 2: the Face Amount plus the Insurance Account Value in effect at
the date of death.
Option 3: the Face Amount in effect at the date of death, plus the
accumulated Premiums paid under the Contract up to the date of
death. In calculating the Death Benefit under this option, the
Premiums are accumulated from the date such Premiums were
credited to the Insurance Account Value to the date of death,
at a rate equal to the Death Benefit Option Accumulation Rate
shown in the Contract. This rate, which is selected by the
Contract Holder and subject to approval by SELIC, may be as low
as 0%, and does not have a maximum cap.
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<PAGE> 149
A higher Death Benefit Option Accumulation Rate will result in
higher Cost of Insurance Charges under a Contract.
To ensure that the Contract will qualify as life insurance under the
Internal Revenue Code, the Total Insurance Coverage will never be less than
the Minimum Death Benefit. The Minimum Death Benefit is equal to the
Insurance Account Value on the date of death multiplied by the appropriate
Minimum Death Benefit Factor as set forth in the Contract. Currently SELIC
calculates the Minimum Death Benefit Factor in accordance with Section
7702(a)(1) of the Internal Revenue Code ("The Cash Value Accumulation
Test"). In the future SELIC may offer Contracts that will use Minimum Death
Benefit Factors and Premium limitations calculated in accordance with
Section 7702(a)(2) of the Internal Revenue Code ("The Guideline Premium
Test"). Once a Contract is issued complying with either "The Cash Value
Accumulation Test" or "The Guideline Premium Test" that test and the Minimum
Death Benefit Factors will be employed throughout the life of the Contract.
A table of representative Minimum Death Benefit Factors follows:
<TABLE>
==================================
MINIMUM DEATH BENEFIT FACTORS
- ----------------------------------
<CAPTION>
Unisex
Age Unismoke
- ----------------------------------
<S> <C>
25 5.79
- ----------------------------------
30 4.93
- ----------------------------------
35 4.18
- ----------------------------------
40 3.55
- ----------------------------------
45 3.03
- ----------------------------------
50 2.60
- ----------------------------------
55 2.25
- ----------------------------------
60 1.97
- ----------------------------------
65 1.74
- ----------------------------------
70 1.56
==================================
</TABLE>
Under Death Benefit Option 1 and Death Benefit Option 3, positive investment
performance (if any) will be reflected in Insurance Account Value, but not
in the Death Benefit, unless the Death Benefit equals the Minimum Death
Benefit. Under Death Benefit Option 2, the amount of Death Benefit will
always vary as the Insurance Account Value varies, but will never be less
than the Face Amount. In general, if Death Benefit Option 2 is selected,
positive investment performance (if any) will be reflected in the Death
Benefit.
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<PAGE> 150
Subject to certain limitations, the Contract Holder may change the Death
Benefit Option for the Contract while the Contract is in effect by notifying
SELIC in writing. If SELIC approves the change, it will take effect on the
next Contract Anniversary that is at least thirty (30) days after all the
required information has been provided to SELIC. The Cost of Insurance
Charges for the Contract will be adjusted to provide for the change. No
such change will be effective if the Insured dies before the effective date
of the change.
Changing the Contract's Death Benefit Option may result in either an
increase or decrease in the Face Amount. If the Face Amount increases,
SELIC may require satisfactory evidence of insurability. If the Face Amount
decreases, and the Contract's Face Amount before the change in the Death
Benefit Option reflects previous Face Amount increases, then the change in
Death Benefit Option will result first in a reduction in the Initial Face
Amount, and then to each Face Amount increase in order, starting with the
first increase. Any change in the Death Benefit Option will not be effected
if it would result in Total Insurance Coverage that is less than the Minimum
Insurance Coverage of the Contract. SELIC also reserves the right not to
effect a requested change in Face Amount if the change would result in the
Contract not satisfying the requirements of the Internal Revenue Code of 1986,
as amended.
A change in the Death Benefit Option will not result in an immediate change
in the amount of a Contract's Death Benefit or Insurance Account Value. If
a Contract is changed from Death Benefit Option 1 or Death Benefit Option 3
to Death Benefit Option 2, then the Face Amount will equal the Face Amount
prior to the change less the Insurance Account Value on the effective date
of the change. If a Contract is changed from Option 2 or Option 3 to Option
1, then the Face Amount will equal the Death Benefit on the effective date
of the change. SELIC may require satisfactory evidence of insurability if
the Contract is changed from Option 2 or Option 3 to Option 1. If a
Contract is changed from Option 1 to Option 3, then the Face Amount will
equal the Face Amount prior to the change less the accumulated Premiums on
the effective date of change. If a Contract is changed from Option 2 to
Option 3, then the Face Amount will equal the Death Benefit less the
accumulated Premiums on the effective date of the change.
A change in Death Benefit Option may affect monthly Cost of Insurance
Charges, because the amount of this charge varies with a Contract's Net
Amount at Risk. Assuming the Death Benefit is not equal to the Minimum
Death Benefit, changing from Option 2 or Option 3 to Option 1 will generally
decrease Net Amount at Risk, and therefore decrease Cost of Insurance
Charges, on Monthiversaries following the effective date of the change.
Changing from Option 1 or Option 3 to Option 2 will generally result in a
Net Amount at Risk that remains level; however, under Option 2, Cost of
Insurance Charges will increase over time, because cost of insurance rates
generally increase with the age of the Insured. Finally a change from
Option 1 or Option 2 to Option 3 will result in a Net Amount at Risk that
will vary based upon the frequency and amount of Premium payments, as well
as the rate at which the Premiums are accumulated. Under Option 3, more
frequent and
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<PAGE> 151
higher premium payments as well as a higher Death Benefit Option Accumulation
Rate generally will result in a higher Net Amount at Risk, and therefore
higher Cost of Insurance Charges.
Face Amount: The Minimum Face Amount under a Contract is $10,000. The
minimum Total Insurance Coverage is $25,000. The Initial Face Amount and
Supplemental Term Insurance Amount will be set forth in the Application. The
Contract Holder may, subject to approval of SELIC, change the Face Amount.
The Contract Holder must request the change by notifying SELIC in writing,
and SELIC reserves the right to require satisfactory evidence of
insurability, which may include a medical examination. If SELIC approves
the change, it will take effect on the next Contract Anniversary which is at
least 30 days after all the required information has been provided to SELIC.
A partial withdrawal may also reduce the Face Amount under a Contract. (see
"The Contract -- Surrender and Partial Withdrawal"). Decreases in Face
Amount cannot reduce the Total Insurance Coverage to less than the Minimum
Insurance Coverage. No such change will be effective if the Insured dies
before the date of such change. SELIC reserves the right not to effect a
requested change in Face Amount if the change would result in the Contract not
satisfying the requirements of the Internal Revenue Code of 1986, as amended.
The Net Cash Value immediately following the increase in Face Amount must be
sufficient to cover Monthly Charges to be deducted on the next Monthiversary.
If Net Cash Value will not be sufficient, an additional Premium will be
necessary before the increase in Face Amount will be effected.
If the Face Amount is decreased, and the Contract's Face Amount before the
change in Death Benefit Option reflects previous Face Amount increases, then
the Face Amount reduction will result first in the reduction in the Initial
Face Amount, and then to each Face Amount increase in order, starting with
the first increase.
A decrease in the Face Amount of the Contract will also result in a
recalculation of the Target Premium, and generally will decrease the Target
Premium for future Contract Years.
Additional insurance coverage may be available under one or more riders to
the Contract, including a Supplemental Term Insurance Rider. (See Appendix
B - "Supplemental Term Insurance Rider"). Under certain circumstances,
SELIC may offer Contracts through which insurance coverage is provided
primarily through the Supplemental Term Insurance Rider. Because insurance
coverage under such riders may be purchased through deductions from
Available Divisions and/or the Fixed Fund that are not taken into account in
determining Target Premium, there may not be additional Premium Load
associated with this coverage. There may be circumstances in which it will
be to the Contract Holder's economic advantage to include a significant
portion or percentage of coverage under the Supplemental Term Insurance
Rider. These circumstances depend on many factors, including the Premium
levels and amount and duration of coverage, as well as the
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age (and, where applicable, sex, smoker status, and/or risk classification) of
the Insured. As discussed above, SELIC reserves the right to refund promptly
certain Premium amounts paid during the first Contract Year in excess of
Planned Renewal Premium amounts. (See "Premiums"). In such cases, SELIC will
generally agree to accept such Premium amounts provided that the Contract
Holder elects to convert a portion of the Face Amount, as determined by
SELIC, to coverage under a Supplemental Term Insurance Rider. Contract
Holders should contact their agent for additional information.
A change in Face Amount may have Federal income tax consequences. (See
"Federal Income Tax Considerations").
Payment of Death Benefit: The amount of any Death Benefit payable is
adjusted as follows:
(1) by deducting the amount of any unpaid Monthly Charges against the
Insurance Account Value to the date of death (See "Charges and
Deductions");
(2) by deducting the amount of any Contract Loans outstanding against the
Insurance Account Value on the date of death plus accrued but unpaid
interest on such Contract Loans on the date of death (See "Contract
Loan Privileges"); and
(3) by deducting the amount of any unpaid charges provided by rider.
The Death Benefit will usually be paid in a lump sum within seven (7) days
of the date due proof of the Insured's death is received by SELIC at its
Home Office and any other requirements are satisfied. Payment of any amount
of Death Benefit based upon the Separate Account may be delayed, however,
during any period that:
(1) The New York Stock Exchange (or its successor) is closed, except for
normal weekend or holiday closings, or trading is restricted; or
(2) The SEC determines that a state of emergency exists.
Settlement of any amounts not based upon the Separate Account will be made
not more than six (6) months after due proof of death is received. Interest
on Death Benefits will be credited as prescribed by law. Payment of a Death
Benefit may be deferred by a separate written agreement between SELIC and
the Contract Holder or Beneficiary, subject to SELIC's approval. In such
cases, the interest that will be credited will be at least one percent (1%)
per annum.
Beneficiary: The Contract Holder may name or change the Beneficiary by
sending written notice to SELIC. A Beneficiary may be revocable or
irrevocable. An irrevocable Beneficiary may not be changed without his or
her consent, and consent is also required
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prior to the Contract Holder's exercise of certain other rights. There may be
different classes of Beneficiaries, such as primary and secondary. These
classes set the order of payments. There may be more than one Beneficiary in
a class. The Beneficiary designation in effect on the Issue Date is stated in
the Contract Application and in any related documents which are attached to
and made a part of the Contract.
CHARGES AND DEDUCTIONS
Certain charges will be deducted by SELIC from Premiums and from Insurance
Account Value as compensation for providing the insurance benefits under the
Contract, for administering the Contract, for assuming certain risks, and
for incurring certain expenses in distributing the Contract. A prospective
purchaser may request personalized hypothetical illustrations of the
Contract's Insurance Account Value and Death Benefits. Such hypothetical
illustrations will reflect the effect of the charges and deductions under the
Contract and may assist a prospective purchaser in understanding the operation
of the Contract.
Premium Load
Before crediting a Premium to the Available Divisions and/or the Fixed Fund,
a Premium Load, consisting of a Distribution Charge, a DAC Tax charge and a
Premium Tax Charge, is deducted from that Premium. Premium Load is
expressed as a percentage of Premium; the percentage depends upon whether
the Premium is Target Premium or Excess Premium, on the Contract Year during
which the Premium is paid, and on the Issue Age of the Insured.
Distribution Charge: The Distribution Charge, which is a sales load, is
comprised of a Premium Expense Load and a Commission Charge.
The Premium Expense Load will be deducted from each Premium and will equal a
percentage of the Premium. The percentage will be determined based on the
sum of the Initial Premiums for all Contracts in a Case, in accordance with
the following table:
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<PAGE> 154
<TABLE>
<CAPTION>
Sum of the Initial Premiums
of All Contracts in the Case Premium Expense Load
---------------------------- --------------------
<S> <C>
Less than $250,000 2.00%
$250,000 - $999,999 1.50%
$1,000,000 and more 1.25%
</TABLE>
A Commission Charge will be deducted from Premiums paid in each Contract
Year up to the Target Premium amount. There is no Commission Charge on any
Excess Premium amount paid during a Contract Year. The Commission Charge on
Premiums paid in a Contract Year up to the Target Premium amount is based
upon the Issue Age of the Insured and the Contract Year as follows:
<TABLE>
Commission Charges During Contract Year
---------------------------------------
<CAPTION>
Commission Charge
--------------------------------------------------------------
For Contract Year Contract Years Contract Years
Issue Ages 1 2-10 11-15
- ---------- - ---- -----
<S> <C> <C> <C>
20 - 51 28.00% 8.00% 6.00%
52 - 59 28.00% 6.33% 4.00%
60 - 67 28.00% 4.66% 4.00%
68 - 80 19.00% 4.00% 4.00%
81 - 85 13.00% 4.00% 4.00%
</TABLE>
For all Issue Ages the Commission Charge will be 2% for Year 16+.
For Single Premium Payments, the maximum Commission Charge will be 6% of
Premium paid. Single Premium Payments are the excess of the Premium
received in the first Contract Year over Planned Renewal Premium. Failure
to pay Planned Renewal Premium will not automatically result in lapse of the
Contract.
The Distribution Charge is intended to compensate SELIC for its expenses in
the distribution of the Contracts, including sales commissions, printing
prospectuses, preparing sales literature and paying for other promotional
activities; to the extent that those expenses are not recovered from the
Distribution Charge, those expenses may be recovered from other sources,
including profit, if any, from the mortality and expense risk charge and
mortality gains. In accordance with applicable SEC regulations,
Distribution Charge amounts will not exceed nine percent of the sum of the
"guideline annual premiums" that would be paid during the period equal to
the lesser of 20 years or the anticipated life expectancy of the Insured
based on the 1980 Commissioners Standard Ordinary Mortality Table, as
defined in such regulations.
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<PAGE> 155
For modifications to this section for Joint Insureds, see Appendix B --
"Joint and Last Survivor Rider." For modifications to this section with the
addition of a Term Rider, see Appendix B -- Supplemental Term Rider
Insurance.
Premium Tax Charge: SELIC also deducts from each Premium a Premium Tax
Charge approximately equal to the taxes that are based on such Premium
received under the Contract and that are imposed on SELIC by the state in
which the Contract Holder resides or by the state in which the Insured
resides. In general, for Cases with one Contract Holder and with less than
500 Contracts, this charge will be determined as to any Contract in
accordance with the law of the state in which the Contract Holder resides.
For Cases with a greater number of Insureds and one Contract Holder, the
amount of the charge as to any Contract will be determined in accordance
with the law of the state in which the Insured resides. State premium tax
rates currently range from .75% to 5.00%.
DAC Tax Charge: SELIC also deducts from each Premium a charge for federal
income taxes, equal to 1%, which compensates SELIC for an increased federal
tax burden resulting from the receipt of Premiums under Section 848 of the
Internal Revenue Code as enacted by the Omnibus Budget Reconciliation Act of
1990. This charge for federal income taxes is reasonable in relation to
SELIC's increased federal tax burden under Section 848 resulting from the
receipt of Premiums under the Contracts.
Daily Charges
Mortality and Expense Risk Charge: Each Division of the Separate Account is
assessed a Mortality and Expense Risk Charge, which will never exceed an
annual effective rate of 0.50% of the Contract's Separate Account Value
attributable to that Division. Currently, the amount of this charge is an
annual effective rate of 0.35% of the Separate Account Value, which is
equivalent to 0.000957233% of the Separate Account Value attributable to the
Division on a daily basis.
The charge, which is designed to compensate SELIC for the mortality and
expense risks it assumes under the Contract, is deducted on a daily basis
from the Separate Account's assets.
The mortality risk assumed by SELIC under the Contract is that Insureds may,
on average, live for shorter periods of time than estimated and therefore
that the Cost of Insurance Charges specified in the Contract will be
insufficient to meet actual claims. The expense risk assumed by SELIC under
the Contract is the risk that other expenses of issuing and administering
the Contract and operating the Separate Account will be greater than the
charges imposed under the Contract to cover such expenses. If the money
collected from the Mortality and Expense Risk Charge is not needed to cover
these risks, it will be SELIC's gain and will be used for any proper
purpose. Conversely, if the money collected is insufficient to cover these
risks, SELIC will absorb any loss.
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<PAGE> 156
Monthly Charges
As of the Contract Date and on each Monthiversary thereafter, Monthly
Charges will be deducted from each Available Division and the Fixed Fund.
Monthly Charges consist of the Administration Charge, the Cost of Insurance
Charge, charges for additional benefits provided by Contract rider, and
charges for Special Insurance Class Rating, if any. These charges will be
deducted from each Available Division and the Fixed Fund in proportion to
the Insurance Account Value attributable to each Available Division and the
Fixed Fund.
Administration Charge: On each Monthiversary, a charge is deducted to
compensate SELIC for administrative expenses. The current amount of this
charge is $4.50 per month per Contract. This charge may change, but is
guaranteed not to exceed $8.00 per month per Contract. The Administration
Charge is assessed to reimburse SELIC for the expenses associated with the
administration and maintenance of the Contract and the Separate Account. SELIC
does not expect to profit from this charge.
Cost of Insurance Charge: A deduction for SELIC's cost of insurance
protection is made on each Monthiversary and, unless otherwise specified by
the Contract Holder, will be based on unisex and unismoke rates. The cost of
insurance rates generally increase as the Insured's Attained Age increases.
SELIC also offers rates, upon a Contract Holder's request, that vary based
on the sex (except Contracts sold in Montana; See "Unisex Requirements Under
Montana Law") and smoker class of the Insured. However, any variation by sex
and/or smoker class must be applied on a consistent basis for all Contracts
in the applicable Case.
The Cost of Insurance Charge is determined by multiplying the applicable
cost of insurance rate by the Net Amount at Risk each Contract Month. Any
change in the Net Amount at Risk will affect the total Cost of Insurance
Charges deducted from the applicable Insurance Account Value. Since the Net
Amount at Risk may not be constant, the charge could vary monthly.
The guaranteed cost of insurance rates will not be greater than the
guaranteed maximum cost of insurance rates set forth in the Contract. Those
rates, as well as the rates used for Federal income tax purposes, are based
on the 1980 Commissioners Standard Ordinary (CSO) Mortality Tables, Age
Nearest Birthday that correspond to the applicable sex and smoker blend
under the Contract. Current Cost of Insurance Charges may be lower and may
be changed. The current Cost of Insurance Charges for the Contract Year are
shown in the Contract Holder's annual statement.
SELIC may offer insurance coverage up to $1 million on a guaranteed issue or
simplified issue basis under Contracts that meet all the following
requirements:
1) The Case to which the Contract belongs has at least 25 Insureds;
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<PAGE> 157
2) Each Insured under the Contracts in the applicable Case must at the
time of issue be actively at work for a common Employer for a
minimum of 1,000 hours annually;
3) 100% of "eligible persons", defined in a manner acceptable to SELIC,
must be named as an Insured under the applicable Case;
4) The Face Amount, and any Supplemental Term Insurance Amount, for each
Contract in the applicable Case must be determined in all years by
a formula acceptable to SELIC;
5) The Face Amount increases, including any increases in Supplemental
Term Insurance Amount, in any given year for any Contract in the
applicable Case cannot exceed 10% and the cumulative increase in any
Face Amount cannot exceed the smaller of the initial Total Insurance
Coverage or $1,000,000;
6) The Contract Holder, Insured and Beneficiary of each Contract in the
applicable Case must be either an entity domiciled in the United
States or a United States citizen; and
7) The Insured under each Contract in the applicable Case must be between
the ages of 20 and 65.
For Simplified Issue Contracts, SELIC requires that certain medical
information regarding the prospective Insured be provided in the
Application.
SELIC will also offer Contracts on a medically underwritten basis. In these
situations, the rating of an Insured will affect the cost of insurance
rates. SELIC will offer medically underwritten Contracts on a standard and
substandard rating basis. Standard rates will, in general, be less than
substandard rates.
For Cases with applications dated prior to April 29, 1996 and issued on
a guaranteed issue or simplified issue basis the Cost of Insurance Charges
will vary only by the Attained Age of the Insured. For Cases with
applications dated on or after April 29, 1996 and issued on a guaranteed
issue basis the Cost of Insurance Charges will vary only by the Attained Age
of the Insured but for Cases issued on a simplified issue basis the Cost
of Insurance Charges will vary by the Issue Age and the number of completed
Contract Years under the Contract. For all Cases issued on a medically
underwritten basis the Cost of Insurance Charges will vary by the Issue Age
and the number of Completed Contract Years under the Contract. In general
cost of insurance rates under Contracts that are issued on a guaranteed
issue basis will be greater than cost of insurance rates on Contracts issued
on a Simplified Issue basis, which will be greater than cost of insurance
rates on Contracts that are issued on a standard medically underwritten
basis.
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<PAGE> 158
SELIC may require medical underwriting for any transaction that increases
its Net Amount at Risk. If any medical underwriting has taken place, an
Insured's rate class may affect the guaranteed and current cost of insurance
rate applicable to that Insured, but not the cost of insurance rate
applicable for Federal income tax purposes which for all Contracts will be
equal to 100% of the applicable 1980 CSO table.
Each Insured is placed in a rate class when SELIC issues a Contract, based
on the Case to which the Contract belongs and underwriting information,
including medical underwriting, if any. When an increase in Face Amount is
requested, SELIC reserves the right (i) to accept or reject the request,
with or without obtaining additional underwriting information; and (ii) to
obtain additional underwriting information, including medical underwriting,
before approving the increase to determine whether a different rate class
would apply to the increase. If the Insured's rate class at the time of the
increase has declined since the last change in coverage, and SELIC approves
the change in coverage, then the lower rate class will be applied to the Face
Amount increase only. If the Insured's rate class at the time of the increase
has improved since the last change in coverage, then the improved rate class
will be applied to the Total Insurance Coverage provided under the Policy.
Additional Insurance Benefits and Special Insurance Class Ratings: Subject
to certain requirements, one or more riders may be added to a Contract.
These riders and the charges associated therewith are described in Appendix
B to this Prospectus. (See "Additional Provisions of the Contract -- Entire
Contract"). Deductions will be made on each Monthiversary for applicable
charges for any additional benefits provided by Contract rider.
Deductions will also be made on each Monthiversary for any applicable
Special Insurance Class Rating Charges, which are imposed under the Contract
if a Contract is issued on a substandard basis. These charges are set forth
in the Contract.
Underwriting Charges
An Underwriting Charge of up to $100 will be deducted from the Insurance
Account Value on the Issue Date if the Contract is issued on a medically
underwritten basis. Medically underwritten Contracts, for purposes of
deducting this charge, are all Contracts other than those issued on a
guaranteed issue or simplified issue basis (see "Charges and Deductions --
Monthly Charges -- Cost of Insurance Charges"). SELIC also reserves the
right to deduct an Underwriting Charge of up to $100 from the Contract's
Insurance Account Value on any Monthiversary following a Contract Month in
which medical underwriting has taken place due to an increase in SELIC's Net
Amount at Risk with respect to the Contract. The Underwriting Charge is
assessed to reimburse SELIC for the expenses associated with the
underwriting of the Contract. SELIC does not expect to profit from this
charge.
SELIC may, in its sole discretion, reduce or waive the Underwriting Charge
in connection with the purchase of Contracts sold by licensed agents of
SELIC that are also registered
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<PAGE> 159
representatives of selected broker-dealers or through banks that have entered
into written sales agreements with Walnut Street. Any reduction in or waiver
of the Underwriting Charge is reflected in the Contract.
The Underwriting Charge will be deducted from the Available Divisions and
the Fixed Fund in proportion to Insurance Account Value attributable to each
Division and the Fixed Fund.
For modifications to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
Annual Charges
On each Contract Anniversary, (i) the Insurance Account Value attributable
to the Separate Account and Fixed Fund is reduced by Contract Loan interest
due and unpaid for the previous Contract Year; and (ii) the Insurance
Account Value attributable to the Separate Account and Fixed Fund is
increased by the interest credited to the Borrowed Fund during the previous
Contract Year. The net result is that if Contract Loan interest is not paid
when due, then on the Contract Anniversary, the Insurance Account Value
attributable to the Separate Account and Fixed Fund will be reduced by the
difference between the Contract Loan interest due and unpaid for the
previous Contract Year, and the interest credited to the Borrowed Fund
during the previous Contract Year.
Other Charges
Taxes and Other Governmental Charges: SELIC does not currently make any
charges against the Divisions of the Separate Account for Federal, state or
local taxes attributable to them. However, SELIC may in the future impose
such a charge to provide for any tax liability of the Separate Account.
Fees and Expenses of Underlying Portfolios: The value of an Accumulation
Unit of each Separate Account Division that invests in shares or interests
of an Underlying Portfolio will reflect the expenses incurred by that
Underlying Portfolio. The Underlying Portfolio's expenses will include its
investment management fee and its operating expenses. The management fees
and operating expenses of each Underlying Portfolio are set forth in the
accompanying prospectus for such underlying Portfolio.
Illustrative Report Fee: At the Contract Holder's request, SELIC will
provide an illustrative report in addition to the reports it customarily
provides. Depending upon the type and complexity of the requested report,
SELIC may charge a reasonable fee not to exceed $50.00 per report. (See
"Records and Reports"). This fee must be paid by the Contract Holder
separately and will not be considered a Premium payment.
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<PAGE> 160
TERMINATION
The Contract terminates on the earliest to occur of the following:
(1) the end of the Grace Period following any Monthiversary in which the
Net Cash Value for the Contract is insufficient to pay the Monthly
Charges (See "Termination for Insufficient Net Cash Value", below);
or
(2) the surrender of the Contract by the Contract Holder; or
(3) the Maturity Date of the Contract; or
(4) the fulfillment of all of SELIC's obligations under the Contract.
Maturity Date
No insurance coverage will be effective on or after the Maturity Date, which
is the Contract Anniversary on which the Insured reaches Attained Age 100.
If the Insured is living and the Contract is in force on the Maturity Date,
the Net Cash Value will be paid to the Contract Holder, the Contract will
terminate, and the liability of SELIC under the Contract will cease.
For modifications to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
Termination for Insufficient Net Cash Value
A Contract will not terminate automatically for failure to pay a subsequent
Premium. However, if the Net Cash Value is not sufficient to cover the
Monthly Charges due with respect to a Contract on any Monthiversary, then
the Grace Period begins. This Grace Period begins on the Monthiversary on
which the Monthly Charges are due. The Grace Period ends 61 days from that
Monthiversary or, if later, 61 days after the date SELIC mails a written
notice to the Contract Holder at the last known address shown on SELIC's
records. This notice will state the Premium amount needed to keep the
Contract in force. During the Grace Period, the insurance coverage under
the Contract will continue in effect.
To continue the Contract's insurance coverage in force, the Contract Holder
must make a Premium payment before the Grace Period ends at least equal to
three (3) times the Monthly Charges due when the Grace Period began, plus
Premium Load.
The Contract will terminate without value (and therefore the insurance
coverage will cease) at the end of the Grace Period if such amounts are not
paid.
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<PAGE> 161
Reinstatement of a Contract Terminated for Insufficient Value
A Contract that has terminated for insufficient Net Cash Value may be
reinstated within five (5) years from the date of Contract termination. The
Contract Holder must request the reinstatement in a form acceptable to SELIC
and pay the reinstatement Premium, which must be at least equal to the
Monthly Charges due and unpaid at the time of lapse, plus three (3) times
the Monthly Charges due at the time of reinstatement, plus any applicable
Premium Load. Medical evidence of insurability will be required for
reinstatement, and the Insured must be living on the date the reinstatement
becomes effective.
For Modification to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
THE FIXED FUND
Amounts invested in the Fixed Fund become part of the general assets of
SELIC held in SELIC's General Account. SELIC invests the assets of the
General Account in accordance with applicable state insurance laws. Because
of exemptive and exclusionary provisions, interests in the General Account
have not been registered under the Securities Act of 1933, and the General
Account has not been registered as an investment company under the 1940 Act.
Accordingly, neither the General Account nor any interests therein are
subject to the provisions of these Acts and, as a result, the staff of the
Securities and Exchange Commission has not reviewed the disclosure in this
Prospectus relating to the General Account. The disclosure regarding the
General Account may, however, be subject to certain generally applicable
provisions of the Federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
This Prospectus describes a flexible premium variable life insurance
contract. This Prospectus. together with the accompanying prospectuses for
the Underlying Portfolios, is generally intended to serve as a disclosure
document only for the aspects of the Contract relating to the Separate
Account. For complete details regarding the Fixed Fund, see the Contract
itself.
General Description
The General Account consists of all assets owned by SELIC, other than those
in the Separate Account and other separate accounts. Subject to applicable
law, SELIC has sole discretion over the investment of the assets of the
General Account.
The allocation of amounts to the Fixed Fund does not entitle a Contract
Holder to share in the investment experience of the General Account.
Instead, SELIC guarantees that the Insurance Account Value in the Fixed Fund
will accrue interest at a rate of at least 4%, compounded annually,
independent of the actual investment experience of the General Account.
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<PAGE> 162
The Borrowed Fund is also part of the General Account. (See "The Contract
- -- Contract Loan Privilege").
Allocation of Amounts to the Fixed Fund
At Contract issue, SELIC will determine the maximum percentage of the non-
borrowed Insurance Account Value that may allocated, either initially or by
transfer, to the Fixed Fund. This maximum percentage is set forth in the
Contract (the "maximum allocation percentage"). The ability to allocate Net
Premiums or to transfer Insurance Account Value to the Fixed Fund may not be
made available or may be limited in accordance with the terms of the
Contract. The Company may, from time to time, adjust the maximum allocation
percentage. Such adjustments may not be uniform to all Contracts. Subject
to this maximum, a Contract Holder may elect to allocate Net Premiums to the
Fixed Fund, the Separate Account, or both. Subject to this maximum, the
Contract Holder may also transfer the Insurance Account Value from the
Available Divisions of the Separate Account to the Fixed Fund.
Fixed Fund Benefits
If the Contract Holder allocates all Net Premiums only to the Fixed Fund and
makes no transfers, partial withdrawals, or Contract Loans, the entire
investment risk under the Contract will be borne by SELIC.
Fixed Fund Insurance Account Value
Net Premiums allocated to the Fixed Fund are credited to the Insurance
Account Value. SELIC bears the full investment risk for these amounts and
guarantees that interest credited to each Contract Holder's Insurance
Account Value in the Fixed Fund will not be less than a rate of at least 4%
per year, compounded annually. SELIC may, in its sole discretion, credit a
higher rate of interest, although it is not obligated to credit interest in
excess of 4% per year, and might not do so. Any interest credited on the
Contract's Insurance Account Value in the Fixed Fund in excess of the
guaranteed minimum rate of 4% per year will be determined in the sole
discretion of SELIC. The Contract Holder assumes the risk that interest
credited may not exceed the guaranteed minimum rate of 4% per year. If
excess interest is credited, a different rate of interest may be applied to
the value in the Borrowed Fund. The value in the Fixed Fund will be
calculated on each Monthiversary of the Contract.
SELIC guarantees that, on each Valuation Date, the Insurance Account Value
in the Fixed Fund will be the amount of the Net Premiums allocated or
Insurance Account Value transferred to the Fixed Fund, plus interest at the
rate of 4% per year, plus any excess interest which SELIC credits and any
amounts transferred into the Fixed Fund, less the sum of all Contract charges
allocable to the Fixed Fund and any amounts deducted from the Fixed Fund in
connection with partial withdrawals, surrender charges or transfers to the
Separate Account.
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<PAGE> 163
On any given day the Insurance Account Value in the Fixed Fund will be equal
to the Insurance Account Value in the Fixed Fund on the prior Valuation Day
plus:
(1) any new Net Premium allocated to the Fixed Fund; and
(2) any amount transferred to the Fixed Fund from an Available Division or
the Borrowed Fund; and
(3) any interest credited to the Fixed Fund
and less:
(1) any amount transferred from the Fixed Fund to an Available Division or
the Borrowed Fund; and
(2) the Cost of Insurance Charges allocated to the Fixed Fund (deducted
only on a Monthiversary); and
(3) the Administration Charges allocated to the Fixed Fund (deducted only
on a Monthiversary); and
(4) any partial withdrawals taken from such Contract and allocated to the
Fixed Fund; and
(5) any charges allocated to the Fixed Fund that are deducted from the
Insurance Account Value for benefits provided by Contract riders; and
(6) any Underwriting Charges allocated to the Fixed Fund; and
(7) any charges for Special Insurance Class Rating allocated to the Fixed
Fund (deducted only on a Monthiversary); and
(8) any other charges allocated to the Fixed Fund as stated in the
Contract.
For more information regarding the charges and expenses deducted under the
Contract, see "Charges and Deductions". For more information regarding the
impact that Contract Loans can have on Insurance Account Value and Net Cash
Value, see "The Contract -- Contract Loan Privilege".
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<PAGE> 164
Fixed Fund Transfers, Surrenders, Partial Withdrawals and Contract Loans
Prior to the Maturity Date, amounts may be transferred from the Fixed Fund
to the Available Divisions or partially withdrawn from the Fixed Fund.
Transfers from the Fixed Fund are subject to the following restrictions:
(a) The transfer must be made in the 30-day period following a
Contract Anniversary; and
(b) The amount transferred in any Contract Year may be no larger
than 25% of the Insurance Account Value in the Fixed Fund on the
date of the transfer or withdrawal.
Contract Loans and partial withdrawals may also be made from the Contract's
Insurance Account Value in the Fixed Fund, subject to the conditions and
restrictions on Contract Loans and partial withdrawals described above. (See
"The Contract -- Contract Loan Privilege" and "The Contract -- Surrender and
Partial Withdrawal").
Transfers, surrenders, and partial withdrawals payable from the Fixed Fund
and the payment of Contract Loans allocated to the Fixed Fund may be delayed
for up to six months. However, if payment is deferred for 30 days or more,
SELIC will pay interest at the rate of 2.5% per year for the period of the
deferment. Amounts from the Fixed Fund used to pay Premiums on Contracts
with SELIC will not be delayed.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary provides a general description of the Federal income
tax considerations associated with the Contracts and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisers should be consulted for
more complete information. This discussion is based upon SELIC's
understanding of the present Federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("Service"). No representation
is made as to the likelihood of continuation of the present Federal income
tax laws or of the current interpretations by the Service.
1. Tax Status of the Contract: Section 7702 of the Internal
Revenue Code of 1986, as amended (the "Code") sets forth a
definition of a life insurance contract for Federal tax
purposes. The Section 7702 definition can be met if a life
insurance contract satisfies either one of two tests set forth
in that section. The manner in which these tests should be
applied to certain features of the Contract is not directly
addressed by Section 7702 or proposed regulations issued under
that section. The presence of these Contract features, the
absence of final regulations, and lack of other pertinent
interpretations of
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Section 7702, thus creates some uncertainty about the
application of Section 7702 to the Contract.
Nevertheless, SELIC believes that the Contract generally qualifies as
a life insurance contract for federal tax purposes. Because of the
absence of final regulations or any other pertinent interpretations,
it, however, is unclear whether a Contract with a joint and last
survivor or a term rider added will, in all cases, meet the statutory
life insurance contract definition. If a Contract were determined
not to be a life insurance contract for purposes of Section 7702,
such contract would not provide most of the tax advantages normally
provided by a life insurance contract.
If it is subsequently determined that a Contract does not satisfy
Section 7702, SELIC will take whatever steps it deems are
appropriate and reasonable to cause a Contract to comply with Section
7702. For these reasons, SELIC reserves the right to modify the
Contract as necessary to attempt to qualify a Contract as a life
insurance contract under Section 7702.
Section 817(h) of the Code requires the investments of the Separate
Accounts to be "adequately diversified" in accordance with Treasury
Regulations for the Contract to qualify as a life insurance contract
under Section 7702 of the Code. Failure to comply with the
diversification requirements may result in not treating the Contract
as life insurance. If the Contract does not qualify as life
insurance you may be subject to immediate taxation on the incremental
increases in Insurance Account Value of the Contract. Regulations
specifying the diversification requirements have been issued by the
Department of Treasury, and SELIC believes it complies fully with
such requirements. In connection with the issuance of the
diversification regulations, the Treasury Department stated that it
anticipates the issuance of regulations or rulings prescribing the
circumstances in which an owner's control of the investments of a
separate account may cause the contract owner rather than the
insurance company, to be treated as the owner of the assets in the
separate account. If a Contract Holder is considered the owner of the
assets of the Separate Account, income and gains from the Account
would be included in the Holder's gross income.
Though no Regulations on the subject of an owner's control of the
investments of a separate account have been issued since the
Regulations specifying the diversification requirements were
issued, informal guidance is available from certain private letter
rulings issued by the Internal Revenue Service to individual
taxpayers. The ownership rights under the Contract are different
in certain respects from, those described by the Internal Revenue
Service in rulings in which it determined the owners were not
owners of separate account assets. For example, a Contract Holder
has additional flexibility in allocating premium payments and cash
values. These differences could result in the Contract Holder being
treated as the owner of a pro rata share of the assets of the Separate
Accounts. In addition, SELIC does not know what standards will be set
forth
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in any regulations or additional rulings which the Treasury might issue.
SELIC therefore reserves the right to modify the Contract as necessary
to attempt to prevent the Contract Holder from being considered the
owner of a pro rata portion of the assets of the Separate Accounts or
to otherwise qualify the Contract for favorable tax treatment.
The following discussion assumes that each Contract will qualify as a
life insurance contract for Federal income tax purposes.
2. Tax Treatment of Contract Benefits: SELIC believes the death
benefit under the Contract should generally be excludable from the
gross income of the Beneficiaries under Section 101(a)(1) of the
Code.
Many changes or transactions involving a Contract may have tax
consequences, depending on the circumstances. Such changes
include but are not limited to the exchange of the Contract, a
change in a Contract's Face Amount, a change of ownership, the
payment of a subsequent premium, a partial withdrawal from a
Contract, a complete surrender of a Contract, an assignment, a
Contract Loan, or a Contract lapse with an outstanding Contract
Loan. In addition, Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of
Contract proceeds depend on the circumstance of each Contract
Holder or Beneficiary. A competent tax adviser should be consulted
for further information.
Generally, the Contract Holder will not be deemed to be in
constructive receipt of the Insurance Account Value including
increments thereof, under the Contract until there is a
distribution. The tax consequences of distributions from, and
loans taken from or secured by, the Contract(s) should generally
be determined on a Contract by Contract basis. (See "Multiple
Contracts," below).
Such tax consequences further depend on whether the Contract from
which the distribution is made or Contract Loan is taken is
classified as a "modified endowment contract" under Section 7702A.
However, upon a complete surrender or lapse of any Contract, if the
amount received plus the amount of Indebtedness exceeds the total
investment in the Contract, the excess will generally be treated as
ordinary income subject to tax.
3. Modified Endowment Contracts: A Contract may be treated as a
modified endowment contract depending upon the amount of premiums
paid in relation to the death benefit provided in respect of such
Contract. The premium limitation rules for determining whether a
Contract is a modified endowment contract are complex. In general,
a Contract will be a modified endowment contract if the
accumulated premiums paid at any time during the first seven years
after the
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Contract is established exceeds the sum of the net level premiums
which would have been paid on or before such time if the future
benefits provided in respect of the Contract were deemed to be
paid-up after the payment of seven level annual premiums.
In addition, if the benefits or rights associated with a Contract are
"materially changed," it may cause such Contract to be treated as a
modified endowment contract. The material change rules for
determining whether a Contract is a modified endowment contract are
also complex. In general, however, the determination of whether a
Contract will be a modified endowment contract after a material
change generally depends upon the relationship among the death
benefit associated with the Contract at the time of such change, the
Insurance Account Value at the time of the change and the additional
premiums paid in respect of the Contract during the seven years
starting with the date on which the material change occurs.
Moreover, a life insurance contract received in exchange for a life
insurance contract classified as a modified endowment contract will
also be treated as a modified endowment contract.
(a) Distributions from Contracts Classified as Modified Endowment
Contracts: Contracts classified as modified endowment
contracts will be subject to the following tax rules: First,
all distributions, including distributions upon lapse or
surrender, from such a Contract are treated as ordinary income
subject to tax up to the amount equal to the excess (if any) of
the Insurance Account Value of the Contract immediately before
the distribution over the investment in the Contract (described
below) at such time. Second, loans taken from or secured by,
the Insurance Account Value of such a Contract, as well as due
but unpaid interest thereon, are treated as distributions from
such Contract and taxed accordingly. Third, a 10 percent
additional income tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a
Contract that is included in income except where the
distribution or loan is made on or after the taxpayer attains
age 59 1/2, is attributable to the taxpayer's becoming
disabled, or is part of a series of substantially equal
periodic payments for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and the taxpayer's Beneficiary. Contract Holders that
are not natural persons are unlikely to meet these exceptions.
If a Contract becomes a modified endowment Contract after it is
issued, distributions made during the Contract year in which it
becomes a modified endowment Contract, distributions in any
subsequent Contract year and distributions within two years before
the Contract becomes a modified endowment Contract will be subject
to the tax treatment described above.
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This means that a distribution from a Contract that is not a
modified endowment Contract could later become taxable as a
distribution from a modified endowment Contract.
(b) Distributions From Contracts Not Classified as Modified
Endowment Contracts: Distributions from a Contract that is not
a modified endowment contract are generally treated as first
recovering the investment in the Contract (described below) and
then, only after the return of all such investment in the
Contract, as distributing taxable income. An exception to this
general rule may occur in the case of a decrease in the death
benefit provided in respect of a Contract (possibly resulting
from a partial withdrawal) or any other change that reduces
benefits associated with the Contract in the first 15 years
after the Contract is established and that results in a cash
distribution to the Contract Holder in order for the Contract
to continue complying with the Section 7702 definitional
limits. Such a cash distribution will be taxed in whole or in
part as ordinary income (to the extent of any gain in the
Contract) under rules prescribed in Section 7702.
Loans from, or secured by, a Contract that is not a modified
endowment contract are generally not treated as distributions.
Instead, such loans are generally treated as indebtedness of
the Contract Holder. However, if the Service or a court were
to deem the loan not 'bona fide', it is possible that the
loans from the Contract may be treated as taxable
distributions.
Neither distributions (including distributions upon surrender or
lapse) nor loans from, or secured by, a Contract that is not a
modified endowment contract are subject to the 10 percent
additional income tax. If a Contract which is not a modified
endowment contract subsequently becomes a modified endowment
contract, then any distribution made from the Contract within two
years prior to the date of such change in status may become taxable
and subject to the 10 percent additional income tax.
(c) Classification of Contract: Due to the Contract's flexibility,
classification of a Contract as a modified endowment contract
will depend upon the circumstances of each Contract. SELIC
has adopted administrative steps designed to protect a
Contract Holder against the possibility that a Contract might
become a modified endowment contract. SELIC believes the
safeguards are adequate for most situations, but it cannot
provide complete assurance that a Contract will not be
classified as a modified endowment contract. At the time a
Net Premium is credited which (according to SELIC's
calculations) would cause a Contract to become a modified
endowment contract, SELIC will notify the Contract Holder that
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unless a refund of the excess Premium is requested by the
Contract Holder, the Contract will be a modified endowment
contract. The Contract Holder will have 30 days after
receiving such notification to request the refund. The excess
Premium paid with 4% required annual interest or gain,
whichever is greater, will be returned to the Contract Holder
upon receipt by SELIC of the refund request. The amount to be
refunded will be deducted from the Insurance Account Value in
the Available Divisions and in the Fixed Fund in the same
proportion as the payment was allocated.
A Contract Holder should contact a competent tax adviser before
purchasing a Contract to determine the circumstances under which a
Contract would be a modified endowment contract. In addition, a Contract
Holder should contact a competent tax adviser before paying any additional
premiums; making any other change to, including an exchange of, a
Contract; or making a change to the benefits provided under a Contract to
determine whether such premium or change would cause the Contract (or the
new contract in the case of an exchange) to be treated as a modified
endowment contract.
4. Loan Interest: Generally, interest paid on any loan under a
life insurance contract which is owned by an individual is not
deductible. In addition, interest on any loan under a life
insurance contract owned by a taxpayer and covering the life of
any individual who is an officer of or is financially
interested in the business carried on by that taxpayer, will
not be tax deductible to the extent the aggregate amount of
such loans with respect to contracts covering such individual
exceeds $50,000. No amount of contract loan interest is,
however, deductible if the life insurance contract is deemed
for Federal tax purposes to be a single premium life insurance
contract. There are other limitations on the deductibility of
loan interest including that generally no amount of loan
interest can be deducted in respect of amounts paid or accrued
on indebtedness incurred or continued to purchase or carry a
life insurance contract pursuant to a plan of purchase which
contemplates the direct or indirect borrowing of all or part of
the increases in Insurance Account Value of the contract.
There are certain exceptions to this rule. A Contract Holder
should consult a competent tax adviser before deducting any loan
interest.
5. Investment in a Contract: Investment in a Contract means (i)
the aggregate amount of any premiums or other consideration
paid in respect of a Contract, minus (ii) the aggregate amount
received under the Contract which is excluded from gross income
of the Contract Holder (except that the amount of any loan
from, or secured by, a Contract that is a modified endowment
contract, to the extent such amount is excluded from gross
income, will be disregarded), plus (iii) the amount of any loan
from or secured by a Contract that is a modified endowment
contract to the extent that such amount is included in the
gross income of the Contract Holder.
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6. Multiple Contracts: All modified endowment contracts that are
issued by SELIC (or its affiliates) to the same Contract
Holder during any calendar year are treated as one modified
endowment contract for purposes of determining the amount
includible in gross income under section 72(e) of the Code. In
view of this rule, in the event that a number of Contracts are
established at the same time or during the same calendar year,
it is important to determine how many, if any, of the Contracts
will be treated as modified endowment contracts. A competent
tax adviser should be consulted for further information.
7. Alternative Minimum Tax: There may also be an indirect tax upon
the inside build-up of the Contract under the corporate alternative
minimum tax.
8. Other Tax Consequences. The Contract may be used in various
arrangements, including nonqualified deferred compensation
or salary continuance plans, split dollar insurance plans,
executive bonus plans, tax exempt and nonexempt welfare
benefit plans, retiree medical benefit plans and others. The
tax consequences of such plans may vary depending on the
facts and circumstances of each individual arrangement.
Therefore, if you are contemplating the use of the Contract
in any arrangement the value of which depends in part on its
tax consequences, you should be sure to consult a qualified
tax advisor regarding the tax attributes of the particular
arrangement and the suitability of this product for the
arrangement.
9. Possible Charge for Taxes: SELIC is presently taxed as a life
insurance company and does not incur federal income tax
liability, or state or local tax liability, attributable to
investment income or capital gains of the Separate Account.
Based on these assumptions, no charge is currently being made
to the Separate Account for federal income taxes, or state or
local taxes. However, SELIC may in the future impose such a
charge if (i) the tax treatment of SELIC is ultimately
determined to be other than what SELIC believes it to be, (ii)
there are changes made in the income tax treatment, or state or
local tax treatment, of variable life insurance at the company
level, or of the separate accounts, or (iii) there is a change in
SELIC's status. Any such charge would be designed to cover the
taxes attributable to the investment results of the Separate
Accounts.
ADDITIONAL PROVISIONS OF THE CONTRACT
Addition, Deletion, or Substitution of Investments
SELIC reserves the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held
by the Separate Account or that the
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Separate Account may purchase. SELIC reserves the right to eliminate the
shares of any of the Underlying Portfolios and to substitute the shares of
another registered open-end investment company if the shares of an Underlying
Portfolio are no longer available for investment or if, in SELIC's judgment,
further investment in any Underlying Portfolio becomes inappropriate in view
of the purposes of the Separate Account. SELIC will not substitute any shares
attributable to a Contract Holder's interest in a Division of a Separate
Account without notice to the Contract Holder and prior approval of the SEC,
to the extent required by the 1940 Act or other applicable law. Nothing
contained in this Prospectus shall prevent the Separate Account from
purchasing other securities for other series or classes of contracts, or from
permitting a conversion between series or classes of contracts on the basis of
requests made by Contract Holders.
The participation agreements pursuant to which Underlying Portfolios sell
shares to the Separate Account can be terminated by the Underlying Portfolio
or by SELIC under a variety of circumstances, with or without cause.
SELIC also reserves the right to establish additional Divisions of the
Separate Account, each of which would invest in a new investment company,
with a specified investment objective. New Divisions may be established
when, in the sole discretion of SELIC, marketing needs or investment
conditions warrant, and any new Division will be made available to existing
Contract Holders on a basis to be determined by SELIC. SELIC may also
eliminate or combine one or more Divisions, substitute one Division for
another Division, or transfer assets between Divisions, if, in its sole
discretion, marketing, tax, or investment conditions warrant; such changes
will not occur without notice to the Contract Holder and prior approval of
the SEC, to the extent required by the 1940 Act or other applicable law.
In the event of a substitution or change, SELIC may, if it considers it
necessary, make changes in the Contract by appropriate endorsement. SELIC
will notify Contract Holders of any such changes.
If deemed by SELIC to be in the best interests of persons having voting
rights under the Contracts, and to the extent any necessary SEC approvals or
Contract Holder votes are obtained, the Separate Account may be: (a)
operated as a management company under the 1940 Act; (b) de-registered under
that Act in the event such registration is no longer required; or (c)
combined with other separate accounts of SELIC. To the extent permitted by
applicable law, SELIC may also transfer the assets of the Separate Account
associated with the Contract to another separate account.
Also, subject to the approval of the New York Superintendent of Insurance,
SELIC has the right to change the investment policy of any Separate Account
Division. If required, the process for obtaining approval of a material
change from the New York Superintendent of Insurance will be filed with the
insurance supervisory official of the Governing Jurisdiction. SELIC will
notify the Contract Holder if any material change of investment policy is
approved.
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Incontestability
SELIC must bring any legal action to contest the validity of any insurance
coverage under the Contract within two years from the applicable Issue Date
of the Contract, or from the effective date of any change in coverage
requiring medical evidence of insurability, as applicable.
Conversion Rights
Once the Contract is issued and as long as the Contract is in force, a
Contract Holder may during the first 24 months transfer all of the Insurance
Account Value into the Separate Account and receive fixed and guaranteed
benefits under the Contract. Once this right is exercised, no transfers out
of the Fixed Fund will be allowed and all Net Premiums paid after the
election will be allocated to the Fixed Fund. This request must be in
writing and must specifically indicate that the transfer is being made
pursuant to the Conversion Right. This transfer will not be subject to any
transfer limitations or charges. At the time of such transfer, there will
not be any effect on this Contract's Death Benefit, Contract Loans, Face
Amount, Net Amount at Risk, Issue Age or insurance class. All benefits
after this conversion will be based upon the Fixed Fund.
Misstatement of Age or Sex
If the age or sex of the Insured has been misstated in the Application and
the misstatement is discovered after the Insured's death, the amount of
death benefit payable by SELIC will be that which the most recent mortality
charges would have purchased for the correct age and sex. If the Insured is
still living at the time of discovery, future amounts payable will be
adjusted based upon the correct facts.
Suicide
Subject to the insurance laws of the Governing Jurisdiction, if the Insured
commits suicide, while sane or insane, within two years from the date
coverage becomes effective with respect to such person under the Contract,
only a limited Death Benefit will be payable. In such case, the amount of
the Death Benefit will be equal to the amount of the Net Premiums paid, less
any partial withdrawals, and less any Contract Loans and any Contract Loan
interest accrued but unpaid.
If, after the expiration of the two year period described above, the Insured
commits suicide within two years from the date of receipt of any subsequent
Premium that increases the amount of the Death Benefit, the amount of the
Death benefit attributable to such increase will be limited to a refund of
the Cost of Insurance Charges made for such increase.
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Availability of Funds
Cash payments from the Contract for partial withdrawals, Contract Loans, and
surrenders will usually be made within seven days after a written request is
received at the Home Office of SELIC. Transfers between or among Separate
Account Divisions will usually be effected on the date the transfer request
is received in good order. Payment or transfers may be delayed, however,
during any period that:
(1) The New York Stock Exchange (or its successor) is closed for trading; or
(2) The SEC determines that a state of emergency exists.
Payment of the portion of any amount payable from the Fixed Fund for
Contract Loans, partial withdrawals or surrender, and transfers to the
Separate Account Divisions may be delayed for not more than 6 months. If
payment is deferred for 30 days or more, SELIC will pay interest on such
amounts at the rate of 2.5% per year for the period of deferment.
Entire Contract
The Contract is issued in consideration of the Application and the Initial
Premium. The Contract and Application, a copy of which is attached to the
Contract, together with any Contract Schedules, any riders, and any other
related documents constitute the entire Contract. Any waiver or change of
any provision in the Contract must be in writing and signed by an officer of
SELIC. Additional insurance benefits may be made available under the
Contract by rider. Any such riders selected by the Contract Holder and
agreed to by SELIC will be attached to and made a part of the Contract.
The failure of SELIC to enforce any provision of the Contract does not
constitute and cannot be construed as a waiver of such provision or of the
right to enforce it at a later time, nor does the waiver of any provision by
SELIC on one or more occasions constitute nor can it be construed as a waiver
for all occasions, and SELIC cannot be stopped from enforcing any provision of
the Contract except as may be otherwise agreed to in writing by an officer of
SELIC.
Representations in Application
SELIC deems all statements in the Application to be representations and not
warranties, and SELIC will not use any statement, in the absence of fraud,
to void the Contract or to defend a claim for the insurance benefits under
the Contract unless it is contained in the Application and a copy of the
Application is attached to the Contract on the Issue Date, or unless it is
contained in a related document and signed either by the Contract Holder or
by the proposed Insured,
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and a copy of such completed document is provided to the Contract Holder on
the Issue Date or on the effective date of any change requiring evidence of
insurability.
Contract Application and Contract Schedules
If any information contained in the Contract, Application, Contract
Schedules, or any other related documents for the Contract is inaccurate or
untrue on the date the Contract is issued, the Contract Holder is required
under the Contract to promptly notify SELIC and provide corrected
information.
Right to Amend Contract
If any provision in the Contract is in conflict with the laws of the
Governing Jurisdiction, the provision will be deemed to be amended to
conform with such laws. SELIC may amend the Contract from time to time as
may be required to meet the definition of "life insurance" under the
Internal Revenue Code of 1986, as amended, or its regulations or published
rulings.
Computation of Contract Values
A detailed statement of the method used to compute the Contract's benefits
and values is filed with the insurance regulatory authority of the Governing
Jurisdiction. These benefits and values are not less than those required by
the laws of the Governing Jurisdiction.
Claims of Creditors
The proceeds of the Contract will be free from creditors' claims to the
extent allowed by law.
Notice
Any written notice required by the Contract to be given by SELIC to the
Contract Holder will be effective five (5) days after it is mailed by first
class mail or fifteen (15) days after it is mailed by third class mail (or
when received, if sent by any other means) to the Contract Holder at the
Contract Holder's current address as noted on the records of SELIC.
Any written notice required by the Contract to be given by the Contract
Holder to SELIC will be effective when received in a form acceptable to
SELIC at its Home Office. To be acceptable, a notice must be in written
form, in the English language (except where applicable law requires
otherwise), must include all pertinent information, and must be signed by
the Contract Holder or an individual authorized to act for the Contract
Holder and so designated on the records of SELIC.
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Assignments
Neither the Contract nor any of the rights of the Contract Holder or
Beneficiary under it may be assigned or transferred without the written
permission of SELIC.
Construction
In the event of a conflict between the Contract provisions and the
information contained in any Contract Schedule, the provisions of the
Contract will be controlling.
Severability
In the event any provision of the Contract is declared illegal or otherwise
unenforceable, it will be severed from the Contract and the remainder of the
Contract will be valid and enforceable.
State Variations
Certain Contract features, including the "Free Look" provision, are subject
to state variations. The Contract Holder should read his or her Contract
carefully to determine whether any variations apply in the state in which
the Contract is issued.
UNISEX REQUIREMENTS UNDER MONTANA LAW
The state of Montana generally prohibits the use of actuarial tables that
distinguish between men and women in determining premiums and policy
benefits for policies issued on the lives of its residents. Therefore, all
Contracts offered by this Prospectus and issued for delivery in Montana will
have premiums and benefits which are based on actuarial tables that do not
differentiate on the basis of sex.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account Divisions will be
maintained by SELIC. Each year within 30 days after the Contract
Anniversary, SELIC will mail a report to the Contract Holder. The report
will show the Insurance Account Value at the beginning of the previous
Contract Year and all Premiums paid since that time. It will also show the
additions to, and deductions from, the Insurance Account Value during the
Contract Year, and the Insurance Account Value, Death Benefit, Net Cash
Value, any outstanding Contract Loan amount and accrued Contract Loan
interest as of the current Contract Anniversary. The report will also
include any additional information required by applicable law or regulation.
SELIC also will mail the Contract Holder any other reports or documents
required by applicable law or regulation.
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In addition to the periodic reports, the Contract Holder may request an
illustrative report showing projected Contract values. There may be a
charge for providing an illustrative report. (See "Charges and Deductions").
SALE OF THE CONTRACT
The Contract will be sold by individuals who, in addition to being licensed
as life insurance agents for SELIC, are also registered representatives of
Walnut Street Securities, Inc. ("Walnut Street"), the distributors of the
Contract, or of broker-dealers or through banks who have entered into
written sales agreements with Walnut Street. Walnut Street was incorporated
under the laws of Missouri in 1984 and is a wholly-owned subsidiary of
General American Holding Company, which, in turn, is a wholly-owned
subsidiary of General American Life Insurance Company. Walnut Street is
registered with the SEC as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of the National Association of Securities Dealers,
Inc. No director or officer of Walnut Street owns any interest in the
Separate Account.
SELIC will pay writing agent compensation equal to the Commission Charge in
connection with the Contract Holder's purchase of the Contract, plus a
maximum of 14% of any Excess Premiums paid in any Contract Year on Contracts
issued without any riders attached.
VOTING RIGHTS
To the extent required by law, the Company will vote shares of the
Underlying Portfolios held in the Separate Account at regular or special
shareholder meetings of the Underlying Portfolios in accordance with
instructions received from persons having voting interests in the
corresponding Divisions of the Separate Account. If, however, the 1940 Act
or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result the Company determines
that it is permitted to vote shares of the Underlying Portfolios in its own
right, it may elect to do so.
The number of votes that a Contract Holder has the right to instruct will be
calculated separately for each Division. Voting rights reflect the dollar
value of the total number of units of each Division of the Separate Account
credited to the Contract Holder at the record date rather than the number of
units alone. Fractional shares will be counted. The number of votes of an
Underlying Portfolio that the Contract Holder has the right to instruct will
be determined as of the date established by that Underlying Portfolio for
determining eligibility to vote at the meetings of the Underlying Portfolio.
Voting instructions will be solicited by written communications prior to
such meeting in accordance with procedures established by the Underlying
Portfolio.
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The Company will vote shares as to which no timely instructions are received
in proportion to the voting instructions which are received with respect to
the contracts participating in that Underlying Portfolio. The Company will
also vote shares it owns that are not attributable to contracts in the same
proportion.
Each person having a voting interest in a Division will receive proxy
material, reports, and other materials relating to the appropriate
Underlying Portfolio.
Disregard of Voting Instructions: The Company may, when required by state
insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification, or investment objective of an Underlying Portfolio, or
one or more of its Series, or to approve or disapprove an investment
advisory contract for an Underlying Portfolio. In addition, the Company
itself may disregard voting instructions in favor of changes proposed by a
Contract Holder in the investment advisory agreement or the investment
adviser of an Underlying Portfolio if the Company reasonably disapproves of
such changes. A proposed change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory
authorities, or the Company determines that the change would have an adverse
effect on its General Account in that the proposed investment advisory
contract for an Underlying Portfolio may result in overly speculative or
unsound investments. In the event the Company does disregard voting
instructions, a summary of that action and the reasons for such action will
be included in the next annual report to Contract Holders.
STATE REGULATION OF THE COMPANY
The Company, a stock life insurance company organized under the laws of New
York, is subject to regulation by the New York Department of Insurance. An
annual statement is filed with the Superintendent of Insurance on or before
March 1st of each year covering the operations and reporting on the financial
condition of the Company as of December 31 of the preceding year.
Periodically, the Superintendent of Insurance examines the liabilities and
reserves of the Company and the Separate Account and certifies their adequacy,
and a full examination of the Company's operations is conducted by the
National Association of Insurance Commissioners at least once every three
years.
In addition, the Company is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the insurance departments of other states apply the laws of the
state of domicile in determining permissible investments.
- 60 -
<PAGE> 178
<TABLE>
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS AND PRINCIPAL OFFICERS
<CAPTION>
Principal Occupation(s) During Past Five
----------------------------------------
Name Years
- ---- -----
<S> <C>
Willard N. Archie SELIC Director; Vice Chairman, Mitchell, Titus
Vice Chairman & Company (CPA management consulting
Mitchell, Titus & Company, LLP firm). Prior to January, 1996, Managing
One Battery Park Plaza Partner, Mitchell, Titus & Company.
New York, NY 10004-1461
Carson E. Beadle, SELIC Director; Managing Director, William
Managing Director M. Mercer Inc. (actuarial, employee benefits,
William M. Mercer, Inc. compensation and human resources management
1166 Avenue of the Americas consulting firm).
New York, NY 10036
James R. Elsesser SELIC Director; Vice President and Chief
Vice President & CFO Financial Officer, Ralston Purina Company (pet
Ralston Purina Company food, batteries, and bread business).
Checkerboard Square
St. Louis, MO 63164
Stanley Goldstein SELIC Director; Partner, Goldstein, Golub,
Goldstein, Golub, Kessler & Co. Kessler & Company (accounting services).
1185 Sixth Avenue
New York, NY 10036
David D. Holbrook SELIC Director; Chairman, Marsh &
Chairman McLennan, Inc. (insurance and reinsurance
Marsh & McLennan, Inc. brokers, consulting and investment
1166 Avenue of the Americas management).
New York, NY 10036
Richard A. Liddy SELIC Director; Chairman of the Board;
Chairman, President and CEO President and Chief Executive Officer, General
General American Life Insurance Co. American Life Insurance Co. (life insurance).
700 Market Street Prior to May 1992, President and Chief
St. Louis, MO 63101 Operations Officer.
- 61 -
<PAGE> 179
Timothy C. Nicholson SELIC Director; President, GenMark, Inc.
President & CEO (distribution company). Prior to January, 1995,
GenMark, Inc. Senior Vice President, General American Life
670 Mason Ridge Center Dr., Suite 300 Ins. Co.
St. Louis, MO 63141-8557
Leonard M. Rubenstein, SELIC Director; Executive Vice President -
Executive Vice President - Investments Investments, General American Life Insurance
General American Life Insurance Co. Co. (life insurance).
700 Market Street
St. Louis, MO 63101
William C. Thater SELIC Director and President; Prior to June
President 1993, Vice President - Individual Life, General
Security Equity Life Insurance Co. American Life Insurance Co. (life insurance).
84 Business Park Drive, Suite #303 Prior to September 1991, Adv. Sales Vice
Armonk, NY 10504 President, General American Life Ins. Co.
Prior to January 1990, Vice President, Marsh &
McLennan (insurance and reinsurance brokers,
consulting and investment management).
H. Edwin Trusheim SELIC Director; Retired Chairman, General
General American Life Insurance Co. American Life Insurance Co. (life insurance).
700 Market Street Prior to May 1993, Chairman & CEO, General
St. Louis, MO 63101 American Life Ins. Co.
Virginia V. Weldon, M.D. SELIC Director; Senior Vice President,
Senior Vice President Monsanto Company (chemicals diversified
Monsanto Company industry, pharmaceuticals, life science products,
800 North Lindbergh Blvd. and food ingredients business).
St. Louis, MO 63167
Ted C. Wetterau SELIC Director; Chairman and Chief Executive
Chairman and CEO Officer, Wetterau & Associates, Inc. (retail and
Wetterau Associates wholesale grocery, manufacturing business).
1401 S. Brentwood, Suite 760
St. Louis, MO 63144
- 62 -
<PAGE> 180
Ben H. Wolzenski, SELIC Director; Executive Vice President,
Executive Vice President - Individual General American Life Insurance Co. (life
General American Life Insurance Co. insurance). Prior to October 1991, Vice
13045 Tesson Ferry Road President - Individual Life Products, General
St. Louis, MO 63128 American Life Ins. Co.
A. Greig Woodring SELIC Director; CEO & President, Reinsurance
CEO & President Group of American, Inc. (reinsurance). Prior
Reinsurance Group of America, Inc. Executive Vice President - Reinsurance, General
660 Mason Ridge Center Dr., Suite 300 American Life Ins. Co.
St. Louis, MO 63141
Fabio Pieroni SELIC Vice President, Treasurer & Controller;
Vice President, Treasurer & Controller Prior to June 1993, 2nd Vice President of
Security Equity Life Insurance Co. Finance and Administration, First UNUM Life
Insurance Company.
</TABLE>
- 63 -
<PAGE> 181
LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
has been provided by Sutherland, Asbill & Brennan.
LEGAL PROCEEDINGS
Neither SELIC nor the Separate Account is involved in any material legal
proceedings.
EXPERTS
The audited financial statements of Security Equity Life Insurance Company
and the Separate Account have been included in the Prospectus in reliance on
the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and on the authority of said firm as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Ralph A.
Gorter of Security Equity Life Insurance Company, whose opinion is filed as
an exhibit to the registration statement for the Contracts.
ADDITIONAL 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. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, SELIC and the Contracts.
Statements contained in this Prospectus as to the contents of the Contract
and other legal instruments are summaries. For a complete statement of the
terms thereof, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of SELIC which are included in this Prospectus
should be distinguished from the financial statements of the Separate
Account, and should be considered only as bearing on the ability of SELIC to
meet its obligations under the Policy. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account. Financial information is not provided for nine of the eleven
available Divisions of the Separate Account because no operating history
exists for those Divisions as of December 31, 1995.
- 64 -
<PAGE> 182
Independent Auditors' Report
----------------------------
The Board of Directors
Security Equity Life Insurance Company
and Policyholders of Security Equity
Life Insurance Company Separate Account 13:
We have audited the accompanying statements of net assets and liabilities,
including the schedule of investments, of the General American Money Market
Fund and Fidelity Growth Fund Divisions of Security Equity Life Insurance
Company Separate Account 13 as of December 31, 1995, and related statements
of operations and changes in net assets for the period September 1, 1995
(inception) to December 31, 1995. These financial statements are the
responsibility of Security Equity Life Insurance Company Separate Account
13's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned at December 31,
1995 by correspondence with General American Capital Company and Fidelity
Investments. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the General American
Money Market Fund and Fidelity Growth Fund Divisions of Security Equity Life
Insurance Company Separate Account 13 as of December 31, 1995, and the
results of their operations and changes in their net assets for the period
September 1, 1995 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 22, 1996
- 65 -
<PAGE> 183
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Statements of Net Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
General
American
Money Fidelity
Market Growth
Fund Fund
Division Division
-------- --------
<S> <C> <C>
Investments, at market value $ 8,894,796 3,963
Receivable from general account 37 -
Payable to general account (48,277) (41)
--------- -----
Total net assets $ 8,846,556 3,922
========= =====
Total net assets represented by -
Variable Universal Life cash value
invested in Separate Account $ 8,846,556 3,922
========= =====
Total units held in Separate Account 8,266,085 2,774
========= =====
Accumulation unit value $ 1.07 1.41
========= =====
Cost of investments $ 8,877,464 4,104
========= =====
See accompanying notes to financial statements.
</TABLE>
- 66 -
<PAGE> 184
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Statements of Operations
Period from September 1 (inception)
to December 31, 1995
<TABLE>
<CAPTION>
General
American
Money Fidelity
Market Growth
Fund Fund
Division Division
-------- --------
<S> <C> <C>
Dividend income $ - -
------ ---
Net realized gain on investments:
Proceeds from sales 8,244 -
Cost of investments sold 8,217 -
------ ---
Net realized gain on investments 27 -
------ ---
Net unrealized gain (loss) on investments:
Unrealized gain (loss) on investments,
beginning of period - -
Unrealized gain (loss) on investments,
end of period 17,332 (141)
------ ---
Net unrealized gain (loss)
on investments 17,332 (141)
------ ---
Net gain (loss) on investments 17,359 (141)
Mortality and expense charges 910 1
------ ---
Increase (decrease) in net
assets resulting from
operations $ 16,449 (142)
====== ===
See accompanying notes to financial statements.
</TABLE>
- 67 -
<PAGE> 185
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Statements of Changes in Net Assets
Period from September 1 (inception)
to December 31, 1995
<TABLE>
<CAPTION>
General
American
Money Fidelity
Market Growth
Fund Fund
Division Division
-------- --------
<S> <C> <C>
Decrease in net assets resulting
from operations:
Dividend income $ - -
Net realized gain on investments 27 -
Net unrealized gain (loss)
on investments 17,332 (141)
--------- ------
Net gain (loss) on investments 17,359 (141)
Mortality and expense charges 910 1
--------- ------
Increase (decrease) in net
assets resulting from
operations 16,449 (142)
--------- ------
Capital transactions:
Deposits in Separate Account 9,362,425 -
Transfers to/from Divisions (8,244) 4,104
Policy charges (524,074) (40)
--------- ------
Net deposits into Separate
Account 8,830,107 4,064
--------- ------
Increase in net assets 8,846,556 3,922
Net assets, beginning of period - -
--------- ------
Net assets, end of period $ 8,846,556 3,922
========= ======
See accompanying notes to financial statements.
</TABLE>
- 68 -
<PAGE> 186
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
December 31, 1995
(1) Organization
------------
Security Equity Life Insurance Company Separate Account 13 (the
Separate Account) commenced operations on November 15, 1994.
The Separate Account is registered under the Investment Company
Act of 1940 (1940 Act) as a unit investment trust. The Separate
Account receives purchase payments from individual flexible
variable life contracts issued by Security Equity Life
Insurance Company (Security Equity).
The Separate Account is divided into a number of Divisions. Each
Division invests in shares of an underlying portfolio
available to policyholders as directed by the policyholders.
The portfolios available for investment through the Separate
Account are the General American Money Market Fund, Fidelity
Growth Fund, Fidelity Investment Grade Bond Fund, Fidelity
Asset Manager Fund, and Fidelity Index 500 Fund. At December
31, 1995, only investments in the General American Money Market
and Fidelity Growth Funds were held in the Separate Account for
policyholders.
(2) Significant Accounting Policies
-------------------------------
The following is a summary of significant accounting policies followed
by the Separate Account in the preparation of its financial
statements. The policies are in conformity with generally
accepted accounting principles.
(a) Investments
-----------
The Separate Account's investments are valued daily, based on
the net asset value of the shares held. The first-in,
first-out method is used in determining the cost of shares
sold on withdrawals by the Separate Account. Share
transactions are recorded on the trade date, which is the
same as the settlement date.
(b) Federal Income Taxes
--------------------
Security Equity is taxed under federal law as a life insurance
company. The Separate Account is part of Security
Equity's total operations and is not taxed separately.
Under current federal income tax law, no taxes are payable
on investment income or realized capital gains from sales
of investments of the Separate Account. Therefore, no
federal income tax expense has been provided.
(c) Dividend Reinvestment
---------------------
Dividends are recorded on the ex-dividend date and immediately
reinvested on the pay date.
(d) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted principles requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of increase and
decrease in net assets from operations during the period.
Actual results could differ from those estimates.
(Continued)
- 69 -
<PAGE> 187
2
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
(3) Policy Charges
--------------
Charges are deducted from premiums and paid to Security Equity for
providing the insurance benefits set forth in the contracts and
any additional benefits by rider, administering the policies,
reimbursement of expenses incurred in distributing the policies,
and assuming certain risks in connection with the policy.
The premium payment, less the premium load charge, equals the net
premium. The premium load is deducted from the initial premium
and from each subsequent premium paid by a policyholder, prior
to allocation to the Separate Account. The premium load
includes a distribution charge, a premium tax charge, and the
DAC tax charge.
Distribution Charge: The distribution charge is composed of a premium
-------------------
expense load and a commission charge. The amount of the
distribution charge will depend on the amount of initial premium
and the sales commissions paid.
Premium Expense Load: The premium expense load will be deducted
--------------------
from each premium and will equal a percentage of the
premium. The percentage will be determined based on the sum
of the initial premiums for all policies in a case, in
accordance with the following table:
<TABLE>
<CAPTION>
Sum of the initial premiums
of all contracts in the case Premium expense load
---------------------------- --------------------
<S> <C>
Less than $250,000 2.00%
$250,000-$999,999 1.50
$1,000,000 and more 1.25
====
</TABLE>
Commission Charge: A commission charge may be deducted from a
-----------------
premium. The commission charge deducted from a premium will be
equal to the full amount of commissions payable by Security
Equity on the target premium.
Premium Tax Charge: Various states and subdivisions impose a tax on
------------------
premiums received by insurance companies. Premium taxes vary from
state to state. The percentage deducted from each premium varies
based on the governing jurisdiction of the contract.
DAC Tax Charge: The DAC tax charge is equal to 1% of all premiums
--------------
paid in all contract years.
Charges are deducted monthly from the cash value of each policy to
compensate Security Equity for certain administrative costs, the cost
of insurance, mortality and expense risk charge, and optional rider
benefit charges.
Administrative Costs: Security Equity has responsibility for
--------------------
the administration of the policies and the Separate
Account. As reimbursement for administrative expenses
related to the maintenance of each policy and the Separate
Account, Security Equity assesses a monthly administrative
charge against each policy. This monthly charge is $4.50 per
policy. This cost may change, but is guaranteed not to exceed
$8.00 per month per policy.
Cost of Insurance: The cost of insurance is deducted on each
-----------------
monthly anniversary for the following policy month.
Because the cost of insurance depends upon a number of
variables, the cost varies for each policy month. The cost
of insurance is determined by multiplying the applicable
cost of insurance rate by the net amount at risk each policy
month.
(Continued)
- 70 -
<PAGE> 188
3
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
Mortality and Expense Risk Charge: Each Division of the
---------------------------------
Separate Account is assessed a mortality and expense risk
charge which will never exceed an annual effective rate of
.50% of the policy's Separate Account value attributable to
that Division. Currently, the amount of this charge is an
annual effective rate of .35% of the Separate Account value,
which is equivalent to .000957233% of the Separate Account
value attributable to the Division on a daily basis. The
mortality risk assumed by Security Equity under the contract
is that insureds may, on average, live for shorter periods
of time than estimated. The expense risk assumed by
Security Equity under the contract is the risk that the cost
of issuing and administering the contract may be more than
estimated.
Optional Rider Benefit Charges: This monthly deduction includes
------------------------------
charges for any additional benefits provided by rider.
(4) Purchases and Sales of Shares
-----------------------------
During the period ended December 31, 1995, purchases and proceeds from
the sales pertaining to the Separate Account were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
General American Money Market Fund $ 8,885,708 8,244
Fidelity Growth Fund 4,104 -
========= =====
</TABLE>
There were no purchases or sales for the Fidelity Investment Grade
Bond Fund, Fidelity Asset Manager Fund, or Fidelity Index
500 Fund.
(5) Unit Activity
-------------
For the period ended December 31, 1995, transactions in accumulation
units were as follows:
<TABLE>
<CAPTION>
Units, Transfers Units,
beginning between end of
of period Deposits Divisions of period
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
General American
Money Market Fund $ - 8,273,816 (7,731) 8,266,085
Fidelity Growth Fund - - 2,774 2,774
=========== ========= ===== =========
</TABLE>
There was no accumulation of units for the Fidelity Investment Grade
Bond Fund, Fidelity Asset Manager Fund, or Fidelity Index
500 Fund.
- 71 -
<PAGE> 189
Schedule
--------
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Schedule of Investments
December 31, 1995
<TABLE>
<CAPTION>
Number of Market
shares value
------ -----
<S> <C> <C>
General American Money Market Fund 544,259 $ 8,894,796
Fidelity Growth Fund 136 3,963
======= =========
</TABLE>
There were no investments in the Fidelity Investment Grade Bond Fund,
Fidelity Asset Manager Fund, or Fidelity Index 500 Fund.
- 72 -
<PAGE> 190
Independent Auditors' Report
The Board of Directors
Security Equity Life Insurance Company:
We have audited the accompanying balance sheets of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations, stockholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 22, 1996
- 73 -
<PAGE> 191
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Balance Sheets
December 31, 1995 and 1994
<CAPTION>
====================================================================================================
Assets 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, at fair value $ 63,256,127 56,646,779
Policy loans 4,524,903 3,631,396
Cash and cash equivalents 1,977,082 10,932,100
- ----------------------------------------------------------------------------------------------------
Total cash and invested assets 69,758,112 71,210,275
Reinsurance benefits recoverable:
Future policy benefits 7,221,329 8,322,263
Policy and contract claims 1,704,918 4,448,887
Accrued investment income 1,279,216 1,242,963
Other assets 1,250,035 425,375
Goodwill 1,428,369 1,507,725
Deferred policy acquisition costs 1,471,754 -
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 2,251,570 5,574,273
Separate account assets 61,273,212 35,407,408
- ----------------------------------------------------------------------------------------------------
Total assets $150,079,515 130,552,169
====================================================================================================
Liabilities and Stockholder's Equity
- ----------------------------------------------------------------------------------------------------
Reserve for future policy benefits 55,520,856 56,866,579
Policy and contract claims 2,176,837 5,057,817
Other policyholders' funds 25,064 22,639
Advance premiums 1,057,064 664,000
Other liabilities and accrued expenses 2,290,147 2,099,414
Payable to affiliates 51,785 68,926
Due to separate account - 8,795,904
Separate account liabilities 61,273,212 35,407,408
- ----------------------------------------------------------------------------------------------------
Total liabilities 122,394,965 108,982,687
Commitments and contingencies
Stockholder's equity:
Common stock, par value $25; 100,000 shares authorized,
issued, and outstanding 2,500,000 2,500,000
Additional paid-in capital 27,447,892 27,447,892
Net unrealized gain (loss) on investments, net of taxes 1,990,132 (4,061,215)
Retained deficit (4,253,474) (4,317,195)
- ----------------------------------------------------------------------------------------------------
Total stockholder's equity 27,684,550 21,569,482
- ----------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $150,079,515 130,552,169
====================================================================================================
See accompanying notes to financial statements.
</TABLE>
- 74 -
<PAGE> 192
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Statements of Operations
Years ended December 31, 1995 and 1994
<CAPTION>
====================================================================================================
1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Premiums and contract charges $ 6,379,803 9,025,429
Net investment income 4,699,713 4,095,545
Commissions and expense allowances on reinsurance ceded - 843,891
Realized investment losses (179,830) (515,975)
- ----------------------------------------------------------------------------------------------------
Total revenues 10,899,958 13,448,890
- ----------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits 3,234,062 2,539,611
Policy surrenders, net 1,016,535 1,786,502
Change in reserve for future policy benefits (2,791,166) 1,296,603
Interest credited 2,391,220 2,349,814
Commissions, net of capitalized costs 1,283,902 3,930,807
General and administrative expenses 4,966,525 5,531,872
Amortization of goodwill 79,356 79,354
Accretion of value of business acquired, net (28,000) (50,000)
Other expenses 619,517 1,131,898
- ----------------------------------------------------------------------------------------------------
Total benefits and expenses 10,771,951 18,596,461
- ----------------------------------------------------------------------------------------------------
Income (loss) from operations before
federal income tax expense (benefit) 128,007 (5,147,571)
Federal income tax expense (benefit) - deferred 64,286 (830,376)
- ----------------------------------------------------------------------------------------------------
Net income (loss) $ 63,721 (4,317,195)
====================================================================================================
See accompanying notes to financial statements.
</TABLE>
- 75 -
<PAGE> 193
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Statements of Stockholder's Equity
Years ended December 31, 1995 and 1994
<CAPTION>
================================================================================================================================
Net
unrealized
Additional gain (loss) on Total
Common paid-in investments, Retained stockholder's
stock capital net of taxes deficit equity
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $2,500,000 17,447,892 - - 19,947,892
Net loss - - - (4,317,195) (4,317,195)
Contribution of capital from Parent - 10,000,000 - - 10,000,000
Change in unrealized gain (loss) on
investments - - (4,061,215) - (4,061,215)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 2,500,000 27,447,892 (4,061,215) (4,317,195) 21,569,482
Net income - - - 63,721 63,721
Change in net unrealized gain (loss) on
investments - - 6,051,347 - 6,051,347
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $2,500,000 27,447,892 1,990,132 (4,253,474) 27,684,550
================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
- 76 -
<PAGE> 194
SECURITY EQUITY LIFE INSURANCE COMPANY
<TABLE>
Statements of Cash Flows
Years ended December 31, 1995 and 1994
<CAPTION>
================================================================================================================
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 63,721 (4,317,195)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Change in:
Reinsurance benefits ceded 3,844,903 (1,354,981)
Accrued investment income (36,253) (279,331)
Other assets (824,660) (164,367)
Deferred policy acquisition costs (1,471,754) -
Policy liabilities (1,345,723) 2,392,502
Policy and contract claims (2,880,980) 2,268,697
Other policyholders' funds 2,425 534
Unearned premiums 393,064 664,000
Other liabilities and accrued expenses 190,733 1,295,393
Payable to affiliates (17,141) (224,158)
Amortization of bond discounts 221,543 536,812
Deferred tax expense (benefit) 64,286 (830,376)
Net loss on sale of investments 179,830 515,975
Amortization of goodwill 79,356 79,354
Change in value of business acquired (28,000) (50,000)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (1,564,650) 532,859
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (17,056,300) (26,813,376)
Sale or maturity of investments 19,355,372 16,780,012
Increase in policy loans, net (893,507) (747,167)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,405,565 (10,780,531)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Contribution of capital from Parent - 10,000,000
Policyholder account balances:
Deposits on interest-sensitive life contracts 18,382,186 35,046,849
Transfers to separate account for interest-sensitive life contracts (27,178,119) (26,250,945)
- ----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (8,795,933) 18,795,904
- ----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (8,955,018) 8,548,232
Cash and cash equivalents at beginning of year 10,932,100 2,383,868
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,977,082 10,932,100
================================================================================================================
See accompanying notes to financial statements.
</TABLE>
- 77 -
<PAGE> 195
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1995 and 1994
================================================================================
(1) Summary of Significant Accounting Policies
Security Equity Life Insurance Company (SELIC or the Company) is a
wholly owned subsidiary of General American Life Insurance Company
(General American or the Parent). On December 31, 1993, Security
Mutual Life Insurance Company of New York (Security Mutual) sold 100%
of the Company's stock to General American, as approved by the State
of New York Department of Insurance.
In 1986, the Company commenced direct writing of universal life and
term business, and in 1987 began marketing a single premium whole
life policy. In 1984, the Company began assuming single premium
deferred annuity (SPDA) and other insurance business through
reinsurance agreements with Security Mutual. The SPDA and ordinary
life insurance blocks of business were recaptured by Security Mutual
in 1992.
SELIC is licensed in 39 states and the District of Columbia. Insurance
operations have generally been limited to the sale of individual
life insurance products (term and universal life) made through the
general agency system, including career agents and brokers.
With the sale of SELIC by Security Mutual to General American, SELIC's
activities have been redirected to serving the insurance needs of
publicly held corporations and New York state residents.
Additionally, SELIC focuses on accessing numerous and alternative
distribution channels in addition to a general agency system. SELIC
markets Corporate Owned Life Insurance (COLI) primarily through
specially designed variable products. Products for the New York
marketplace continue to be more traditional in nature.
The acquisition of Security Equity by General American was accounted
for as a purchase transaction, and accordingly, the purchase price
was allocated to the assets and liabilities acquired based upon the
fair market value of such assets and liabilities at the date of
acquisition. These allocations have been reflected, or "pushed
down," in the financial statements of the Company. The total
purchase price of $19,947,892 was allocated among the fair value of
tangible net assets of $15,997,813, value of business acquired of
$2,363,000, and goodwill of $1,587,079 at the date of acquisition.
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles. The preparation of
financial statements requires the use of estimates by management
which affect the amounts reflected in the financial statements.
Actual results could differ from those estimates.
The significant accounting policies of the Company are as follows:
(a) Recognition of Policy Revenue and Related Expenses
Policy revenue recognition varies depending upon the type of
insurance product. For traditional life products with fixed and
guaranteed premiums and benefits, such as whole life and term
insurance policies, premiums are recognized when due. Benefits and
other expenses of these
(Continued)
- 78 -
<PAGE> 196
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
products are associated with earned premiums and other sources of
earnings so as to result in recognition of profits over the life of
the contracts. This association is accomplished by means of the
provision for liabilities for future benefits and the deferral and
amortization of policy acquisition costs. Premiums collected on
universal life-type policies are reported as deposits to the
policyholder account balance and not as income to SELIC. Income to
SELIC on these policies consists of the assessments for mortality
costs, surrenders, and expenses.
(b) Investment Securities
Effective with the acquisition of the Company by General American,
the Company adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
SFAS No. 115 requires debt and equity securities to be classified
into categories of available-for-sale, trading securities, or
held-to-maturity depending on an entity's ability and intent to hold
the security to maturity. SFAS No. 115 expands the use of fair
value accounting for investments in debt and equity securities, and
allows debt securities to be classified as "held-to-maturity" and
reported in the financial statements at amortized cost only if the
reporting entity has the positive intent and ability to hold the
securities to maturity. Furthermore, SFAS No. 115 clarifies that
securities that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, or other
similar factors must be classified as "available-for-sale" and
carried at fair value.
At December 31, 1995 and 1994, all long-term securities are carried
at market value with the unrealized gain (loss), net of tax impact,
being reflected as a separate component of stockholder's equity as
the Company considers all long-term securities as available-for-
sale. Short-term investments are carried at cost which approximates
market value. Policy loans are valued at aggregate unpaid balances.
The fair value of policy loans is assumed to equal the carrying
value because the loans have no fixed maturity date and, therefore,
it is not practicable to determine a fair value.
Realized gains or losses on the sale of securities are determined on
the basis of specific identification and include the impact of any
related amortization of premium or accretion of discount which is
generally computed consistent with the interest method.
(c) Value of Business Acquired
Value of business acquired (VOBA) represents the present value of
future profits resulting from the acquisition of insurance policies
in a purchase transaction. VOBA is amortized in proportion to the
estimated premiums or gross profits, depending on the type of
contract, with accretion of interest on the unamortized discounted
balance. In 1995 and 1994, amortization of VOBA was $112,000 and
$89,000, and the accretion of interest on the unamortized balance
was $140,000 and $139,000, respectively. The carrying value of VOBA
is periodically evaluated to ascertain recoverability from future
operations. Impairment would be recognized in current operations
when determined.
(Continued)
- 79 -
<PAGE> 197
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(d) Goodwill
Goodwill, representing the excess of purchase price over the fair
value of assets acquired, is amortized on a straight-line basis over
20 years. The carrying value of goodwill is periodically evaluated
to ascertain recoverability from future operations. Impairment
recognized in current operations when determined.
(e) Reserve for Future Policy Benefits
Liabilities for future benefits on life policies are established in
amounts adequate to meet the estimated future obligations on
policies in force. Liabilities for future policy benefits on
certain life insurance policies are computed using the net level
premium method and are based upon assumptions as to future
investment yield, mortality, and withdrawals. Mortality and
withdrawal assumptions for all policies have been based on various
actuarial tables which are consistent with the Company's own
experience. Liabilities for future benefits on certain
long-duration life insurance contracts are carried at accumulated
policyholder values. The liability also includes provisions for the
unearned portion of certain policy charges.
(f) Federal Income Taxes
The Company is taxed as a life insurance company under the Deficit
Reduction Act of 1984. The Company establishes deferred taxes
under the asset and liability method of SFAS No. 109, Accounting for
Income Taxes, and deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
The Company filed its federal income tax return on a consolidated
basis with Security Mutual prior to 1994. The Company will file its
federal income tax return as a separate entity for 1995, consistent
with 1994.
(g) Reinsurance
Reinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on a basis
consistent with terms of the risk transfer reinsurance contracts.
Premiums ceded to other companies have been reported as a reduction
of premium income. Amounts applicable to reinsurance ceded for
future policy benefits and claim liabilities have been reported as
assets for these items, and commissions and expense allowances
received in connection with reinsurance ceded have been accounted
for in income as earned over the anticipated reinsurance contract
life. Reinsurance does not relieve the Company from its primary
responsibility to meet claim obligations.
(Continued)
- 80 -
<PAGE> 198
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(h) Deferred Policy Acquisition Costs
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, have been
deferred to the extent that such costs are deemed recoverable from
future premiums. Such costs may include commissions, as well as
certain costs of policy issuance and underwriting. In 1995, the
Company deferred $1.5 million in acquisition costs related to
interest sensitive products and recognized amortization of $75,000
based on the estimated gross profits of the underlying business.
The Company did not defer any acquisition costs in 1994 or have any
deferred acquisition costs at December 31, 1994. This was a result
of the nature of the policies written through December 31, 1994 for
which management determined that deferrable acquisition costs were
insignificant.
(i) Separate Account Business
The assets and liabilities of the separate account represent
segregated funds administered and invested by the Company for
purposes of funding variable life insurance contracts for the
exclusive benefit of variable life insurance contract holders. The
Company receives administrative fees from the separate account and
retains varying amounts of withdrawal charges to cover expenses in
the event of early withdrawals by contract holders. The assets and
liabilities of the separate account are carried at market value.
(j) Fair Market Disclosures
Fair value disclosures are required under SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. Such fair
value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Although fair
value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could significantly
affect the estimates and such estimates should be used with care.
The following assumptions were used to estimate the fair market
value of each class of financial instrument for which it was
practicable to estimate fair value:
Invested assets - Fixed maturities are valued using quoted market
---------------
prices, if available. If quoted market prices are not available,
fair value is estimated using quoted market prices of similar
securities. The carrying value of policy loans approximates fair
value.
Policyholder account balances - The fair value of policyholder
-----------------------------
account balances is equal to the discounted estimated future cash
flows using discounted cash flow calculations, based on interest
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
The carrying value approximates fair value at December 31, 1995 and
1994, respectively.
Cash and short-term investments - The carrying amount is a
-------------------------------
reasonable estimate of fair value.
(Continued)
- 81 -
<PAGE> 199
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(k) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
represent demand deposits and highly liquid short-term
investments, which include U.S. Treasury bills, commercial paper,
and repurchase agreements with original or remaining maturities of
90 days or less when purchased.
(l) Reclassification
Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
(2) Investments
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
================================================================================
1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 4,458,159 3,840,763
Short-term investments 43,781 133,755
Policy loans and other 294,298 216,942
--------------------------------------------------------------------------------
4,796,238 4,191,460
Investment expenses 96,525 95,915
--------------------------------------------------------------------------------
Net investment income $ 4,699,713 4,095,545
================================================================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1995 and 1994 are shown below. Market value is based upon market prices
obtained from independent pricing services which approximate fair value.
<TABLE>
<CAPTION>
============================================================================================================================
1995
----------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,299,846 287,844 (273,583) 9,314,107
Corporate securities 40,799,139 3,013,425 (388,584) 43,423,980
Mortgage-backed securities 10,095,402 432,140 (9,502) 10,518,040
----------------------------------------------------------------------------------------------------------------------------
$60,194,387 3,733,409 (671,669) 63,256,127
============================================================================================================================
(Continued)
</TABLE>
- 82 -
<PAGE> 200
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statement
<CAPTION>
==================================================================================================================================
1994
----------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,139,278 - (586,288) 8,552,990
Corporate securities 44,318,248 15,896 (4,736,372) 39,597,772
Mortgage-backed securities 9,437,276 332 (941,591) 8,496,017
----------------------------------------------------------------------------------------------------------------------------
$62,894,802 16,228 (6,264,251) 56,646,779
============================================================================================================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1995, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
===========================================================================================================================
Estimated
Amortized market
cost value
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 1,371,569 1,367,612
Due after one year through five years 3,353,833 4,098,436
Due after five years through ten years 11,595,734 8,359,789
Due after ten years 29,190,691 34,593,969
Mortgage-backed securities 14,682,560 14,836,323
---------------------------------------------------------------------------------------------------------------------------
$60,194,387 63,256,127
===========================================================================================================================
</TABLE>
Proceeds from the sale, call, and maturity of investments in bonds
during 1995 and 1994 were $19,355,372 and $16,780,012, respectively.
Gross gains of $428,522 and $119,699 and gross losses of $608,352 and
$635,674 were realized on those sales in 1995 and 1994, respectively.
The Company has bonds on deposit with various state insurance
departments with an amortized cost of approximately $2,421,000 and
$1,313,000 at December 31, 1995 and 1994, respectively.
(3) Reinsurance
The Company reinsures certain risks with other insurance companies as
the Company sets a maximum retention amount (currently $125,000) to help
reduce the loss on any single policy.
(Continued)
- 83 -
<PAGE> 201
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
Premiums and related reinsurance amounts for the years ended December
31, 1995 and 1994 as they relate to transactions with affiliates are
summarized as follows:
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded $1,956,568 2,391,067
Policy benefits ceded 305,947 2,340,522
Commissions and expenses ceded - 169,453
========================================================================================
</TABLE>
Premiums and related reinsurance amounts for the years ended
December 31, 1995 and 1994 as they relate to transactions with
nonaffiliates are summarized as follows:
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Reinsurance transactions with nonaffiliates:
Reinsurance premiums ceded $5,489,407 6,299,344
Policy benefits ceded 2,682,132 3,050,824
Commissions and expenses ceded - 674,438
========================================================================================
</TABLE>
The Company remains contingently liable with respect to any reinsurance
ceded and would become actually liable if the assuming company was unable
to meet its obligations under the reinsurance treaty.
(4) Federal Income Taxes
A reconciliation of the Company's "expected" federal income tax expense
(benefit), computed by applying the federal U.S. corporate tax rate
of 35% to income (loss) from operations before federal income tax
expense (benefit), is as follows (in thousands of dollars):
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Computed "expected" tax expense (benefit) $45 (1,802)
Amortization of intangibles, net 18 10
Other, net 1 962
----------------------------------------------------------------------------------------
Federal income tax expense (benefit) $64 (830)
========================================================================================
</TABLE>
(Continued)
- 84 -
<PAGE> 202
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
===============================================================================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1995
and 1994 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
========================================================================================
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Investments $ - 2,187
Policy acquisition costs 1,157 1,116
Reserves 2,072 2,661
Capital loss carryforward 243 -
Net operating loss carryforward 323 70
Other, net 410 262
----------------------------------------------------------------------------------------
Total gross deferred tax assets 4,205 6,296
Less valuation allowance - -
----------------------------------------------------------------------------------------
Net deferred tax assets 4,205 6,296
----------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 1,097 -
Other, net 856 722
----------------------------------------------------------------------------------------
Total gross deferred tax liabilities 1,953 722
----------------------------------------------------------------------------------------
Net deferred tax asset $2,252 5,574
========================================================================================
</TABLE>
On December 31, 1994, General American purchased 100% of the Company.
Pursuant to the acquisition, the election was made under Internal
Revenue Code Section 338(h)(10) to treat the purchase of stock as a
purchase of assets for tax purposes. As a result, a revaluation of
the tax bases of the Company's assets and liabilities was made in
connection with the acquisition.
The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary.
In assessing the realization of deferred tax assets, the Company
considers whether it is more likely than not that the deferred tax
assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
deductible. Although the Company has a limited history of earnings,
its Parent does have a long history of earnings. Pursuant to
Internal Revenue Service regulations, the Company cannot file a
consolidated tax return with its Parent until five years following
the acquisition. However, after five years, the Company will be able
to file a consolidated tax return with its Parent, and realization of
the gross tax asset will not be dependent solely on the Company's
ability to generate its own taxable income. General American has a
proven history of earnings and it appears more likely than not that
the Company's gross deferred tax asset will ultimately be fully
realized.
The Company filed its federal income tax return on a consolidated basis
with Security Mutual prior to 1994. In connection with the
Company's transfer of stock ownership, Security Mutual agreed to
assume all unpaid tax liability incurred prior to the date of sale.
(Continued)
- 85 -
<PAGE> 203
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(5) Related-Party Transactions
In 1995 and 1994, the Company purchased certain administrative services
from General American. Charges for services performed are based
upon personnel and other costs involved in providing such services.
The net expenses incurred for these services were $463,200 and
$407,000 for 1995 and 1994, respectively.
Effective January 1, 1994, the Company entered into an administrative
service agreement with Security Mutual with respect to the provision
of routine services for policies issued through December 31, 1993.
The net expense incurred for these services was $1,842,320 and
$1,980,812 for 1995 and 1994, respectively.
(6) Pension, Incentive, and Health and Life Insurance Benefit Plans
Associates of SELIC participate in a noncontributory multi-employer
defined benefit pension plan jointly sponsored by SELIC and
General American. The benefits are based on years of service and
compensation level. No pension expense was recognized in 1995 or
1994 due to overfunding of the plan.
In addition, SELIC has adopted in 1995 an associate bonus plan
applicable to full-time exempt associates. Bonuses are based on an
economic value-added model prepared annually by the Company. Total
bonuses accrued to Company employees for 1995 were $59,500. In
1994, the Company accrued bonuses of $150,000 under a nonrelated
associate bonus plan.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions. SFAS
No. 106 requires the Company to accrue the estimated cost of retiree
benefit payments during the years the employee provides services.
SFAS No. 106 allows recognition of the cumulative effect of the
liability in the year of the adoption or the amortization of the
transition obligation over a period of up to 20 years. The Company
has elected to recognize the initial post-retirement benefit
obligation of approximately $16,427 over a period of 20 years. The
unrecognized initial post-retirement benefit obligation was
approximately $14,784 and $15,606 at December 31, 1995 and 1994,
respectively. Net periodic post-retirement benefit cost for the
years ended December 31, 1995 and 1994 were approximately $6,711 and
$6,232, respectively. This includes expected costs of benefits for
newly eligible or vested employees, interest costs, gains and losses
from differences between actuarial and actual experience, and
amortization of the initial post-retirement benefit obligation. The
accumulated post-retirement benefit obligation was approximately
$17,089 and $16,427 at December 31, 1995 and 1994, respectively.
The discount rate used in determining the accumulated post-retirement
benefit obligation was 8.25%. The health care cost trend rates were 10%
for the Indemnity Plan, 9% for the HMO Plan, and 10% for the Dental Plan.
These rates were graded to 6% over the next 14 years. A one percentage
point increase in the assumed health care cost 3 trend rates would
increase the December 31, 1995 accumulated post-retirement obligation by
11%, and the estimated service cost and interest cost components of the
net periodic post-retirement benefit cost for 1995 by 14%.
(7) Statutory Financial Information
The Company is subject to financial statement filing requirements of
the State of New York Department of Insurance, its state of domicile, as
well as the states in which it transacts business. Such financial
statements, generally referred to as statutory financial statements, are
prepared on a basis of accounting
(Continued)
- 86 -
<PAGE> 204
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
which varies in some respects from generally accepted accounting
principles (GAAP). Statutory accounting principles include: (1)
charging of policy acquisition costs to income as incurred; (2)
establishment of a liability for future policy benefits computed using
required valuation standards which may vary in methodology utilized; (3)
nonprovision of deferred federal income taxes resulting from temporary
differences between financial reporting and tax bases of assets and
liabilities; (4) recognition of statutory liabilities for asset
impairments and yield stabilization on fixed maturity dispositions prior
to maturity with asset valuation reserves based on statutorily determined
formulae and interest stabilization reserves designed to level yields
over their original purchase maturities; (5) deferred premiums provided
for statutory mean reserves; (6) annuity contract deposits represent
funds deposited by policyholders and are included in premiums or contract
charges; and (7) non-recognition of certain assets as nonadmitted through
a direct charge to surplus.
A reconciliation of stockholder's equity of the Company at December 31,
1995 and 1994, as determined using statutory accounting practices,
to that reflected in the accompanying financial statements is as
follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of stockholder's equity:
Statutory surplus as reported to regulatory authorities $15,125,968 17,264,148
Asset valuation reserve 583,391 568,742
Interest maintenance reserve 1,227,492 1,049,290
Unrealized gain (loss) on investments 1,990,132 (4,061,215)
Goodwill 1,428,369 1,507,725
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 3,349,179 3,387,465
Differences between statutory and GAAP insurance reserves
and other, net 1,539,019 (559,673)
-----------------------------------------------------------------------------------------------------------
Stockholder's equity as reported herein $27,684,550 21,569,482
===========================================================================================================
</TABLE>
A reconciliation of net gain (loss) of the Company at December 31, 1995
and 1994, as determined using statutory accounting practices, to
that reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net loss:
Net loss as reported to regulatory authorities $ (1,465,539) (3,779,205)
Premium and annuity considerations (18,336,148) (34,935,560)
Insurance reserves 19,119,961 35,752,650
Interest maintenance reserve, net (72,752) (118,754)
Investment income and capital gains and losses (491,428) (1,131,731)
Deferred policy acquisition costs 1,471,754 -
Goodwill amortization (79,356) (79,354)
Value of business acquired accretion, net 28,000 50,000
Other, net (110,771) (75,241)
-----------------------------------------------------------------------------------------------------------
Net gain (loss) as reported herein $ 63,721 (4,317,195)
===========================================================================================================
</TABLE>
(Continued)
- 87 -
<PAGE> 205
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(8) Dividend Restrictions
Dividend payments by the Company are restricted by state insurance laws
as to the amount that may be paid as well as the prior notice and
approval of the State of New York Department of Insurance. The
Company did not pay a dividend in 1995, 1994, or 1993.
(9) Risk-Based Capital
The insurance departments of various states, including the Company's
domiciliary state of New York, impose risk-based capital (RBC)
requirements on insurance enterprises. The RBC calculation serves
as a benchmark for the regulation of life insurance companies by
state insurance regulators. The requirements apply various weighted
factors to financial balances or activity levels based on their
perceived degree of risk.
The RBC guidelines define specific capital levels where action by the
Company or regulatory authorities is required based on the ratio of
a company's actual total adjusted capital (sum of capital and
surplus and asset valuation reserve) to control levels determined
by the RBC formula. At December 31, 1995, the Company's actual
total adjusted capital was in excess of minimum levels which would
require action by the Company or regulatory authorities under the
RBC formula.
(10) Commitments and contingencies
The Company leases certain of its facilities under noncancellable
leases which expire in August 1998. The future minimum lease
obligations under the terms of the leases are summarized as follows:
<TABLE>
<CAPTION>
==========================================================================
<S> <C>
Year ended December 31:
1996 $ 81,300
1997 84,600
1998 58,600
--------------------------------------------------------------------------
$224,500
==========================================================================
Rent expense totaled $83,900 and $50,700 in 1995 and 1994, respectively.
</TABLE>
- 88 -
<PAGE> 206
APPENDIX A -- UNDERLYING PORTFOLIOS
Each Available Division of the Separate Account invests in shares or units
of an Underlying Portfolio managed by either General American Capital
Company, Fidelity Management & Research Company, or Evergreen Asset
Management Corp. Each Underlying Portfolio has investment objectives which
are different from those of other Underlying Portfolios. Each Underlying
Portfolio operates as a separate investment vehicle, and the income or
losses of one Underlying Portfolio has no effect on the investment
performance of any other Underlying Portfolio.
The investment objectives, strategies and managers of each Underlying
Portfolio are summarized below.
These descriptions must be read in conjunction with the accompanying
prospectuses for each Underlying Portfolio. The prospectus for each
Underlying Portfolio includes information regarding the investment advisory
fee and operating expenses of the Underlying Portfolio, which are reflected
in the value of the Accumulation Units of the Division of the Separate
Account that invests in such Underlying Portfolio.
Money Market Portfolio
The Fund: The Money Market Portfolio is one portfolio of General American
Capital Company (the "Capital Company"), an open-end management investment
company organized as a Maryland corporation registered with the Securities
and Exchange Commission under the Investment Company Act of 1940.
Objective: The highest level of current income which is consistent with
preservation of capital and maintenance of liquidity.
Strategy: Investing primarily in high-quality, short-term money market
instruments.
Investment Adviser: Conning Asset Management Company, formerly
known as General American Investment Management Company,
is the investment adviser. Conning Asset Management Company
is an affiliate of SELIC. The investment adviser is registered with the
Securities and Exchange Commission under the Investment Advisers Act of 1940.
A-1
<PAGE> 207
Growth Portfolio
The Fund: Growth Portfolio is one portfolio of Variable Insurance Products
Fund, an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
Objective: To achieve capital appreciation.
Strategy: Normally purchases common stocks, although its investments are
not restricted to any one type of security.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Investment Grade Bond Portfolio
The Fund: Investment Grade Bond Portfolio is one portfolio of Variable
Insurance Products Fund II, an open-end management investment company
organized as a Massachusetts business trust and registered with the
Securities and Exchange Commission under the Investment Company Act of 1940.
Objective: Seeks as high a level of current income as is consistent with
the preservation of capital.
Strategy: Invests in abroad range of investment-grade, fixed-income
securities. The Portfolio will maintain a dollar-weighted average portfolio
maturity of ten years or less.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Asset Manager Portfolio
The Fund: Asset Manager Portfolio is one portfolio of Variable Insurance
Products Fund II, an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
A-2
<PAGE> 208
Objective: Seeks high total return with reduced risk over the long-term.
Strategy: Allocates assets among domestic and foreign stocks, bonds and
short-term fixed-income instruments.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Index 500 Portfolio
The Fund: Index 500 Portfolio is one portfolio of Variable Insurance
Products Fund II, an open-end, diversified investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
Objective: Seeks to provide investment results that correspond to the total
return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States.
Strategy: Attempts to duplicate the composition and total return of the
Standard & Poor's 500 Composite Stock Price Index while keeping transaction
costs and other expenses low.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Equity-Income Portfolio
The Fund: The Equity-Income Portfolio is one portfolio of Variable
Insurance Products Fund, an open-end management investment company organized
as a Massachusetts business trust and registered with the Securities and
Exchange Commission, under the Investment Company Act of 1940.
Objective: To seek reasonable income. The Fund also considers the
potential for capital appreciation.
Strategy: Invests mainly in income-producing equity securities.
A-3
<PAGE> 209
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Overseas Portfolio
The Fund: The Overseas Portfolio is one portfolio of Variable Insurance
Products Fund, an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
Objective: Seeks long-term growth of capital.
Strategy: Invests mainly in equity securities outside of the United States.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
High Income Portfolio
The Fund: The High Income Portfolio is one portfolio of Variable Insurance
Products Fund, an open-end management investment company organized as a
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
Objective: To seek high current income.
Strategy: Invests mainly in high-yielding debt securities, with an emphasis
on lower-quality securities.
Investment Adviser: The Portfolio is advised by Fidelity Management &
Research Company (FMR). FMR is a registered investment adviser under the
Investment Advisers Act of 1940.
Evergreen VA Portfolio
The Fund: The Evergreen VA Portfolio is one portfolio of the Evergreen
Variable Trust (the "Trust"), an open-end management investment company
organized as a
A-4
<PAGE> 210
Massachusetts business trust and registered with the Securities and Exchange
Commission, under the Investment Company Act of 1940.
Objective: Seeks to achieve capital appreciation.
Strategy: Invests in the securities of little known or relatively small
companies undergoing changes which the Adviser believes will have favorable
consequences. Income will not be a factor in the selection of portfolio
investments.
Investment Adviser: The Portfolio is advised by Evergreen Asset Management
Corp. (Evergreen Asset) and Lieber & Company serves as sub-adviser. Both
Evergreen Asset and Lieber & Company are registered investment advisers
under the Investment Advisers Act of 1940.
Evergreen VA Growth and Income Portfolio
The Fund: The Evergreen VA Growth and Income Portfolio is one portfolio of
the Evergreen Variable Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust and
registered with the Securities and Exchange Commission, under the Investment
Company Act of 1940.
Objective: Seeks to achieve a return composed of capital appreciation in
the value of its shares and current income.
Strategy: The Fund will attempt to meet its objectives by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings, or potential earnings
growth.
Investment Adviser: The Portfolio is advised by Evergreen Asset Management
Corp. (Evergreen Asset) and Lieber & Company serves as sub-adviser. Both
Evergreen Asset and Lieber & Company are registered investment advisers
under the Investment Advisers Act of 1940.
Evergreen VA Foundation Portfolio
The Fund: The Evergreen VA Foundation Portfolio is one portfolio of the
Evergreen Variable Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust and registered with the
Securities and Exchange Commission, under the Investment Company Act of
1940.
A-5
<PAGE> 211
Objective: Seeks, in order of priority, reasonable income, conservation of
capital and capital appreciation.
Strategy: Invests principally in income-producing common and preferred
stocks, securities convertibles into or exchangeable for common stocks and
fixed income securities.
Investment Adviser: The Portfolio is advised by Evergreen Asset Management
Corp. (Evergreen Asset) and Lieber & Company serves as sub-adviser. Both
Evergreen Asset and Lieber & Company are registered investment advisers
under the Investment Advisers Act of 1940.
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<PAGE> 212
APPENDIX B -- CONTRACT RIDERS
Joint and Last Survivor Rider
=============================
The Joint and Last Survivor modifies the Contract to provide insurance
coverage on the lives of two Insureds. The rider will be subject to all
terms in the Contract, and the addition of the rider will not change any
mechanics of the Contract, except as modified in the Contract and
highlighted below. Some of the discussions in the Prospectus applicable to
the Contract apply differently to a Contract to which a Joint and Last
Survivor Rider has been added. Set out below are the modifications to
designated sections of the Prospectus in the event that a Joint and Last
Survivor Rider is added to the Contract. Except as noted below, the
discussions in the Prospectus referencing a single Insured can be read as
though the single Insured was two Insureds under a Contract with a Joint and
Last Survivor Rider.
Definitions
- -----------
The following definitions apply to a Contract with a Joint and Last Survivor
Rider:
First Insured: The first person of the two Insureds to die.
Insured: A person whose life is insured under the terms of the Contract.
There are two Insureds under the Contract. Both Insureds are shown in the
Contract.
Joint and Last Survivor Rider: A rider added attached to the Contract
described in this Prospectus, which will amend the Contract to pay a Death
Benefit after the death of two Insureds.
Last Insured: The last person of the two Insureds to die.
The following are the major differences between a Contract with a Joint and
Last Survivor rider added and one without.
1. All conditions of eligibility of a prospective Insured will be applied
to both Insureds in order for a Contract with a Joint and
Last Survivor Rider to be issued. (See "The Contract --
Availability of Insurance Coverage").
2. Death Benefits will be paid on a Temporary Insurance Coverage basis
only if both Insureds meet SELIC's usual and customary
underwriting standards for the applied for coverage (See "The
Contract -- Availability of Insurance Coverage").
B-1
<PAGE> 213
3. All Contracts that are issued with a Joint and Last Survivor Rider
attached will require medical evidence of insurability. (See
"The Contract -- Evidence of Insurability").
4. All Contracts that are issued with a Joint and Last Survivor Rider
attached will pay a Death Benefit only on the death of the
Last Insured. No Death Benefit will be paid on the death of
the First Insured. (See "The Contract -- Death Benefits Under
the Contract").
5. No change in Death Benefit Option or Face Amount will be effective if
the Last Insured dies before the change is effective. (See
"The Contract -- Death Benefit Options" on page 30 and "The
Contract -- Death Benefits Under the Contract").
6. In general, a Contract with a Joint and Last Survivor Rider will have
a lower Target Premium than a Contract issued on a single
Insured with the same Total Insurance Coverage. This will
result in lower Commission Charges for a Contract with the same
Total Insurance Coverage. (See "Charges and Deductions --
Premium Load").
7. A deduction for SELIC's cost of insurance protection is made on each
Monthiversary and in general will be based upon the sex and
smoker status of the two Insureds. The Joint and Last Survivor
cost of insurance rates will be blended rates based upon the
Issue Ages of the Insureds, the number of completed Contract
Years, as well as the sex and smoker status of the Insureds.
The cost of insurance rates may also vary by any special
insurance class charges.
The guaranteed cost of insurance rates will not be greater than the
guaranteed maximum cost of insurance rates set forth in the
Contract. These rates, as well as the rates used to calculate the
Minimum Death Benefit and limitations on Premiums payable under
the Contract, are based on the 1980 Commissioners Standard
Ordinary Tables, Age Nearest Birthday, that correspond to the
applicable ages, sex and smoker status of the Insureds. Current
cost of insurance rates may be lower.
Since a benefit is paid only in the event that both Insureds have
died, Cost of Insurance Charges for Contracts with a Joint and Last
Survivor Rider attached will generally be lower than the charges for
a comparable single life Contract. (See "The Contract -- Charges
and Deductions -- Cost of Insurance Charges").
8. The calculation of the Minimum Death Benefit and any limitations on
Premiums will reflect the fact that no Death Benefit will be paid
until the death of the Last Insured. Assuming the same amount of
requested Insurance Coverage, any limitations on Premiums payable
under the Contract will be lower than those
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based upon a single life, while the Minimum Death Benefits will be
higher than those based upon a single life. (See "The Contract -- Death
Benefits Under the Contract").
9. The Underwriting Charge for Contracts issued with a Joint and Last
Survivor Rider attached will be equal to the sum of a flat fee and
a charge per $1,000 of Total Insurance Coverage, subject to a
maximum charge. This charge is determined separately for each
Insured. The charges for each Insured are added together to obtain
the total charge for the Contract. This charge is deducted on each
Monthiversary for the first twelve (12) Contract Months. The flat
fee, charge per $1,000, and maximum charge are shown in the table
below.
<TABLE>
<CAPTION>
Per $1,000 of Total Maximum Total
Flat Fee Insurance Coverage Underwriting Charge
Issue Age Per Month Per Month Per Insured Per Month
<S> <C> <C> <C>
20 - 45 $4.17 $.00833 $37.50
46 - 60 $4.17 $.01250 $54.17
61 - 85 $4.17 $.01667 $54.17
</TABLE>
If there is a Contract change after issue which requires medical
underwriting, SELIC will deduct on the Monthiversary following the
underwriting an amount per Insured equal to $100, plus the per
thousand charge above multiplied by twelve (12), multiplied by the
increase in the Net Amount at Risk to which the underwriting relates,
subject to the maximum charge shown above. (See "Charges and
Deductions -- Underwriting Charges").
SELIC may, in its sole discretion, reduce or waive the Underwriting
Charge in connection with the purchase of Contracts sold by
licensed agents of SELIC that are also registered representatives
of selected broker-dealers or banks that have entered into written
sales agreements with Walnut Street Securities, Inc., the
distributor of the Contracts. Any reduction in or waiver of the
Underwriting Charge will be reflected in the Contract.
10. The Maturity Date of Contracts issued with a Joint and Last Survivor
Rider attached will be when the younger of the two Insureds
reaches the attained age of 100. (See "Termination -- Maturity
Date").
11. For a Contract issued with a Joint and Last Survivor Rider attached to
be reinstated, both Insureds must be alive on the date of
reinstatement. (See "Termination -- Reinstatement of a Contract
Terminated for Insufficient Value").
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<PAGE> 215
12 Death Benefit will be paid on a Contract issued with a Joint and Last
Survivor Rider if either Insured commits suicide within two years
from the date coverage becomes effective or within two years from
the date of receipt of a Subsequent Premium payment which increases
the Death Benefit. (See "The Contract -- Additional Provisions of
the Contract -- Suicide").
Supplemental Term Insurance Rider
=================================
A Contract Holder may elect to add a Supplemental Term Insurance Rider to
the Contract at the time of the Application. The Supplemental Term
Insurance Rider increases the Total Insurance Amount under the Contract.
The addition of this Rider will allow SELIC to deduct additional monthly
charges from the Insurance Account Value of the Contract.
This rider may be added a single life Contract, or a Contract to which a
Joint and Last Insured Rider has been attached.
Set out below are additional definitions and other modifications applicable
when a Supplemental Term Rider is added to a Contract.
Definitions
- -----------
The following definitions apply to a Contract with a Supplemental Term
Insurance Rider:
Date of Death Upon Which Death Benefit becomes Payable: The date of death
of the Insured, for a single life Contract, or the Last Insured for a
Contract to which a Joint and Last Survivor Rider has been added.
Rider Death Benefit: Is the amount of Supplemental Term Insurance Coverage
under the Rider.
Supplemental Term Insurance Benefit
The Supplemental Term Insurance Rider provides term insurance coverage (the
Rider Death Benefit) that is in addition to insurance coverage provided
under the Contract. SELIC will pay the Rider Death Benefit to the
beneficiary if the Date of Death Upon Which Death Benefit becomes Payable
occurs while the rider is in force. SELIC must receive proof that such death
occurred before the Rider Expiry Date in the Contract, or the termination of
the coverage provided by the Supplemental Term Insurance Rider, if earlier, as
specified in the Rider and the Contract.
B-4
<PAGE> 216
The Contract Holder may, subject to the approval of the Company, change the
Supplemental Term Insurance Amount. The Contract Holder must request any
change not specified in the Contract by notifying SELIC in writing.
Evidence of Insurability will be required for any change that increases the
Supplemental Term Insurance Amount. If SELIC approves the change, it will
take effect on the next Monthiversary which is at least thirty (30) days
after all the required information has been provided to SELIC. The Contract
will be amended to reflect any such change in the Supplemental Term
Insurance Amount. No change will be effective if the Date Upon Which Death
Benefit Becomes Payable is before the date of the change.
Monthly Charges For Supplemental Term Insurance Amounts - Cost of Insurance
Charges
Charges for the Supplemental Term Insurance Rider, which consist of monthly
Cost of Insurance Charges for the Rider Death Benefit, are deducted from the
Insurance Account Value on each Monthiversary. The charges are determined
by multiplying the Rider Net Amount At Risk by the current monthly Cost of
Insurance Rate for the Rider.
The Rider Net Amount at Risk on any Monthiversary is equal to:
(a) the Supplemental Term Insurance Amount discounted to such
Monthiversary at the rate specified in the Basis of
Computation Specified in the Contract; less
(b) the excess, if any, of the Insurance Account Value on such
Monthiversary over the Death Benefit for the Contract discounted
to such Monthiversary at the rate specified in the Basis of
Computations Specified in the Contract.
The cost of insurance rates for the Supplemental Term Insurance Rider will
be equal to the current cost of insurance rates for the Face Amount under
Contract. On each Monthiversary on which the Supplemental Term Insurance
Rider is in force, the Cost of Insurance for the Supplemental Term Insurance
Rider will be added to the Monthly Charges deducted from the Insurance
Account Value.
Termination of the Supplemental Term Insurance Rider
The Supplemental Term Insurance Rider may be terminated as of any
Monthiversary following a written request to the Company. The Supplemental
Term Insurance Rider will terminate automatically when any of the following
events occur:
(a) the lapse of the Contract,
(b) the surrender of the Contract,
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<PAGE> 217
(c) the Maturity Date of the Contract,
(d) the Date of Death Upon Which Death Benefits become Payable, or
(e) the Rider Expiry Date.
Reinstatement of Supplemental Term Insurance Rider
If the Supplemental Term Insurance Rider terminates, it may be reinstated
within five years of the earlier of the Contact termination or rider
termination provided that:
(a) if the Contract has terminated, it is also being reinstated,
(b) satisfactory evidence of insurability is provided to SELIC, and
(c) any charges due under the rider are paid as of the date of the
Reinstatement.
The charges due will be equal to the amount of the charges for the rider due
and unpaid at the time that the rider terminated, plus three (3) times the
charges for the rider due at the time of Reinstatement.
In order for the rider to be reinstated, the same number of Insureds under
the Contract must be alive as were alive when the rider terminated.
Additional Provisions of the Rider - Incontestability
In order for SELIC to contest the validity of any coverage provided by the
Supplemental Term Insurance Rider, legal action must be commenced within two
years from the rider effective date or from the effective date of any change
in rider coverage requiring evidence of insurability, including Reinstatement
of Coverage.
Additional Provisions of the Rider - Suicide
If the Supplemental Term Insurance Rider is attached to a single life
Contract and the Insured dies by suicide, while sane or insane, within two
years from the Rider Effective Date, the death benefit payable will be
limited to the sum of the Cost of Insurance Charges for the Rider.
If this rider is attached to a Contract, to which a Joint and Last Survivor
Rider has been added, and either Insured dies by suicide, while sane or
insane, within two years from the Rider Effective Date, the death benefit
payable will be limited to the sum of the Cost of Insurance Charges for the
Rider.
B-6
<PAGE> 218
The following are major modifications to a Contract when a Supplemental Term
Insurance Rider is added:
1. Coverage provided by the Supplemental Term Insurance Rider is not
taken into account in determining the amount of Target Premium:
accordingly there may be no additional Premium Load associated with
this coverage. (See "The Contracts -- Premiums").
2. In the event that a partial withdrawal results in a decrease in the
Face Amount, which would cause the Face Amount to be less than the
Minimum Face Amount of a Contract, the Supplemental Term Insurance
Amount will be decreased by the amount of the excess of the
withdrawal over the decreased Face Amount. (See "The Contract --
Surrender and Partial Withdrawal").
3. The Supplemental Term Insurance Amount will be included in Total
Insurance Coverage in determining whether the Minimum Death
Benefit applies, and is not included in Death Benefit proceeds when
the Death Benefit payable under the Contract is equal to the
Minimum Death Benefit.
B-7
<PAGE> 219
APPENDIX C -- ILLUSTRATIONS OF DEATH BENEFITS
AND NET INSURANCE ACCOUNT VALUE
The following illustrations illustrate hypothetically how the Insurance
Account Value and Death Benefit of a Contract change with the investment
experience of the Available Division of the Separate Account. The
illustrations show how the Insurance Account Value and Death Benefit of a
Contract issued to an Insured of a given Issue Age and at a given Premium
would vary over time if the investment return on the assets held in each
Available Division of the Separate Account were an assumed uniform, gross,
after-tax annual rate of 0%, 6% or 12%. The hypothetical rates of return
are illustrative only and should not be deemed a representation of past or
future investment performance. The illustrations illustrate a Contract
issued to a Male, Issue Age 45 in a nonsmoker rate class assuming guaranteed
issue. The values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6% or 12% over a period of years,
but fluctuated above and below those averages for individual Contract Years.
The actual values will depend upon various factors, including age, sex,
smoking status, and underwriting status of the Insured.
The Insurance Account Value column under the "Guaranteed" heading shows the
accumulated value of the Net Premiums paid at the assumed rate of return,
reflecting deduction of the maximum mortality and expense risk charge, the
maximum monthly administrative charges, and monthly charges for the cost of
insurance based on the maximum values allowed under the 1980 Commissioners
Standard Ordinary Mortality Table. The Insurance Account Value column under
the "Current" heading shows the accumulated value of the Net Premiums at the
assumed rate of return, reflecting deduction of the current mortality and
expense risk charge, the current monthly administrative charges, and monthly
charges for the cost of insurance at their current level, which is less than
or equal to that allowed by the 1980 Commissioners Standard Ordinary
Mortality Table. The illustrations of Death Benefits reflect the above
assumptions. The Death Benefits also vary between illustrations depending
upon whether Death Benefit Option 1, Option 2, or Option 3 is illustrated.
The amounts shown for the Insurance Account Value and Death Benefit reflect
the fact that the investment rate of return is lower than the gross after-tax
return on the assets held in a Division due to the advisory fee (.60%
of aggregate average daily net assets is assumed) and operating expenses of
the Underlying Portfolio (which are assumed to be .20%). After deduction
for these amounts and the mortality and expense basis the illustrated gross
annual investment rates of return of 0%, 6% and 12% correspond to
approximate net annual rates of -1.15%, 4.85%, and 10.85%, respectively,
on a current basis, and -1.30%, 4.70%, and 10.70%, respectively, on a
guaranteed basis. The average advisory fee and fund expense reflects any
voluntary expense reimbursement arrangements between the various underlying
funds and their investment advisors. The investment advisors could
terminate these arrangements at any time. If any of these arrangements are
terminated, the above net annual rates of
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return would be reduced. The actual investment advisory fee applicable to each
Division is shown in the respective prospectuses for each Underlying Portfolio.
These Prospectuses for the Funds should also be consulted for details about
the nature and extent of expenses for each Underlying Portfolio.
The hypothetical values shown in the illustrations do not reflect any
charges for federal income taxes against the Separate Account, since
Security Equity Life Insurance Company is not currently making any such
charges. However, such charges may be made in the future and, in that
event, the gross annual investment rate of return of the Available Divisions
would have to exceed 0%, 6% and 12% by an amount sufficient to cover the
charges in order to produce the Death Benefit and Insurance Account Value
illustration. (See "Federal Tax Matters").
The illustrations illustrate the Contract values that would result based
upon the investment rates of return if Premiums are paid as indicated, if
all Net Premiums are allocated evenly among Available Divisions, and if no
Contract Loans have been made. The illustrations are also based on the
assumptions that the Contract Holder has not requested an increase or
decrease in the Face Amount, that no partial withdrawals have been made,
that no transfer charges were incurred, and that no optional riders have
been requested.
Upon request, Security Equity Life Insurance Company will provide a
comparable illustration based upon the proposed Insured's Issue Age, sex and
rate class, the Face Amount and Premium pattern requested, and any available
riders requested.
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<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(-1.15% Net)<F*> (-1.30% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,201 4,201 100,000 4,139 4,139 100,000
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 8,372 8,372 100,000 8,232 8,232 100,000
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 12,493 12,493 100,000 12,262 12,262 100,000
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 16,566 16,566 100,000 16,229 16,229 100,000
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 20,589 20,589 100,000 20,133 20,133 100,000
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 24,528 24,528 100,000 23,976 23,976 100,000
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 28,421 28,421 100,000 27,757 27,757 100,000
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 27,668 27,668 100,000 26,879 26,879 100,000
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 26,897 26,897 100,000 25,965 25,965 100,000
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 26,102 26,102 100,000 25,008 25,008 100,000
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 25,187 25,187 100,000 24,002 24,002 100,000
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 24,242 24,242 100,000 22,940 22,940 100,000
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 23,263 23,263 100,000 21,815 21,815 100,000
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 22,247 22,247 100,000 20,621 20,621 100,000
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 21,192 21,192 100,000 19,346 19,346 100,000
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 19,923 19,923 100,000 17,977 17,977 100,000
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 18,601 18,601 100,000 16,500 16,500 100,000
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 17,220 17,220 100,000 14,896 14,896 100,000
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 15,769 15,769 100,000 13,141 13,141 100,000
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 14,242 14,242 100,000 11,210 11,210 100,000
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 8,043 8,043 100,000 <F***> <F***> <F***>
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 <F***> <F***> <F***> <F***> <F***> <F***>
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
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<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(4.85% Net)<F*> (4.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,466 4,466 100,000 4,403 4,403 100,000
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 9,170 9,170 100,000 9,023 9,023 100,000
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 14,103 14,103 100,000 13,852 13,852 100,000
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 19,277 19,277 100,000 18,901 18,901 100,000
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 24,705 24,705 100,000 24,183 24,183 100,000
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 30,367 30,367 100,000 29,711 29,711 100,000
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 36,314 36,314 100,000 35,499 35,499 100,000
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 37,683 37,683 100,000 36,685 36,685 100,000
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 39,106 39,106 100,000 37,898 37,898 100,000
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 40,581 40,581 100,000 39,135 39,135 100,000
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 42,036 42,036 100,000 40,393 40,393 100,000
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 43,548 43,548 100,000 41,671 41,671 100,000
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 45,117 45,117 100,000 42,970 42,970 100,000
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 46,747 46,747 100,000 44,289 44,289 100,000
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 48,444 48,444 100,000 45,624 45,624 100,000
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 50,097 50,097 100,000 46,973 46,973 100,000
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 51,819 51,819 100,012 48,333 48,333 100,000
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 53,615 53,615 100,796 49,699 49,699 100,000
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 55,482 55,482 101,532 51,063 51,063 100,000
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 57,419 57,419 102,780 52,420 52,420 100,000
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 69,711 69,711 110,144 58,954 58,954 100,000
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 84,013 84,013 120,138 64,313 64,313 100,000
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-4
<PAGE> 223
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(10.85% Net)<F*> (10.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,732 4,732 100,000 4,666 4,666 100,000
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 10,001 10,001 100,000 9,845 9,845 100,000
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 15,844 15,844 100,000 15,572 15,572 100,000
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 22,330 22,330 100,000 21,911 21,911 100,000
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 29,528 29,528 100,000 28,931 28,931 100,000
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 37,490 37,490 100,474 36,712 36,712 100,000
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 46,269 46,269 119,837 45,276 45,276 117,265
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 50,831 50,831 127,585 49,579 49,579 124,443
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 55,844 55,844 136,258 54,278 54,278 132,439
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 61,349 61,349 144,784 59,410 59,410 140,207
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 67,286 67,286 154,086 65,007 65,007 148,865
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 73,797 73,797 164,567 71,103 71,103 158,559
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 80,942 80,942 174,834 77,749 77,749 167,938
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 88,779 88,779 186,437 84,988 84,988 178,474
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 97,381 97,381 198,656 92,866 92,866 189,446
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 106,583 106,583 212,100 101,423 101,423 201,832
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 116,679 116,679 225,190 110,728 110,728 231,706
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 127,741 127,741 240,153 120,822 120,822 227,146
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 139,859 139,859 255,943 131,761 131,761 241,123
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 153,120 153,120 274,084 143,580 143,580 257,007
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 246,241 246,241 389,060 218,564 218,564 345,331
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 393,001 393,001 561,992 326,542 326,542 466,955
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-5
<PAGE> 224
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(-1.15% Net)<F*> (-1.30% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,136 4,136 104,136 4,074 4,074 104,074
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 8,265 8,265 108,265 8,123 8,123 108,123
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 12,328 12,328 112,328 12,092 12,092 112,092
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 16,327 16,327 116,327 15,977 15,977 115,977
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 20,257 20,257 120,257 19,778 19,778 119,778
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 24,071 24,071 124,071 23,492 23,492 123,492
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 27,814 27,814 127,814 27,115 27,115 127,115
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 26,922 26,922 126,922 26,086 26,086 126,086
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 26,010 26,010 126,010 25,014 25,014 125,014
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 25,068 25,068 125,068 23,890 23,890 123,890
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 23,971 23,971 123,971 22,708 22,708 122,708
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 22,843 22,843 122,843 21,461 21,461 121,461
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 21,677 21,677 121,677 20,144 20,144 120,144
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 20,474 20,474 120,474 18,751 18,751 118,751
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 19,232 19,232 119,232 17,271 17,271 117,271
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 17,732 17,732 117,732 15,694 15,694 115,694
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 16,187 16,187 116,187 14,007 14,007 114,007
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 14,590 14,590 114,590 12,193 12,193 112,193
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 12,932 12,932 112,932 10,233 10,233 110,233
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 11,208 11,208 111,208 8,106 8,106 108,106
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 4,535 4,535 104,535 <F***> <F***> <F***>
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 <F***> <F***> <F***> <F***> <F***> <F***>
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-6
<PAGE> 225
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(4.85% Net)<F*> (4.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,398 4,398 104,398 4,334 4,334 104,334
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 9,052 9,052 109,052 8,902 8,902 108,902
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 13,913 13,913 113,913 13,655 13,655 113,655
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 18,991 18,991 118,991 18,600 18,600 118,600
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 24,292 24,292 124,292 23,742 23,742 123,742
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 29,777 29,777 129,777 29,087 29,087 129,087
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 35,501 35,501 135,501 34,639 34,639 134,639
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 36,632 36,632 136,632 35,569 35,569 135,569
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 37,787 37,787 137,787 36,484 36,484 136,484
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 38,956 38,956 138,956 37,374 37,374 137,374
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 40,011 40,011 140,011 38,231 38,231 138,231
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 41,072 41,072 141,072 39,045 39,045 139,045
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 42,132 42,132 142,132 39,809 39,809 139,809
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 43,192 43,192 143,192 40,513 40,513 140,513
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 44,248 44,248 144,248 41,142 41,142 141,142
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 45,075 45,075 145,075 41,680 41,680 141,680
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 45,877 45,877 145,877 42,108 42,108 142,108
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 46,647 46,647 146,647 42,404 42,404 142,404
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 47,371 47,371 147,371 42,539 42,539 142,539
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 48,044 48,044 148,044 42,482 42,482 142,482
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 53,936 53,936 153,936 38,257 38,257 138,257
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 57,104 57,104 157,104 23,052 23,052 123,052
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-7
<PAGE> 226
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(10.85% Net)<F*> (10.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,659 4,659 104,659 4,593 4,593 104,593
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 9,870 9,870 109,870 9,712 9,712 109,712
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 15,627 15,627 115,627 15,347 15,347 115,347
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 21,989 21,989 121,989 21,553 21,553 121,553
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 29,018 29,018 129,018 28,386 28,386 128,386
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 36,734 36,734 136,734 35,912 35,912 135,912
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 45,259 45,259 145,259 44,196 44,196 144,196
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 49,561 49,561 149,561 48,205 48,205 148,205
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 54,298 54,298 154,298 52,583 52,583 152,583
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 59,505 59,505 159,505 57,360 57,360 157,360
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 65,102 65,102 165,102 62,571 62,571 162,571
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 71,259 71,259 171,259 68,253 68,253 168,253
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 78,031 78,031 178,031 74,453 74,453 174,453
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 85,484 85,484 185,484 81,218 81,218 181,218
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 93,690 93,690 193,690 88,595 88,595 188,595
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 102,497 102,497 203,969 96,638 96,638 196,638
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 112,183 112,183 216,512 105,403 105,403 205,403
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 122,814 122,814 230,890 114,949 114,949 216,103
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 134,463 134,463 246,067 125,324 125,324 229,342
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 147,209 147,209 263,505 136,557 136,557 244,438
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 236,723 236,723 374,022 207,845 207,845 328,395
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 377,797 377,797 540,250 310,498 310,498 444,013
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-8
<PAGE> 227
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(-1.15% Net)<F*> (-1.30% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,186 4,186 104,880 4,123 4,123 104,880
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 8,325 8,325 109,760 8,182 8,182 109,760
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 12,395 12,395 114,640 12,155 12,155 114,640
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 16,397 16,397 119,520 16,042 16,042 119,520
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 20,326 20,326 124,400 19,838 19,838 124,400
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 24,132 24,132 129,280 23,540 23,540 129,280
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 27,860 27,860 134,160 27,142 27,142 134,160
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 26,933 26,933 134,160 26,069 26,069 134,160
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 25,979 25,979 134,160 24,942 24,942 134,160
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 24,986 24,986 134,160 23,751 23,751 134,160
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 23,817 23,817 134,160 22,485 22,485 134,160
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 22,603 22,603 134,160 21,135 21,135 134,160
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 21,337 21,337 134,160 19,693 19,693 134,160
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 20,017 20,017 134,160 18,149 18,149 134,160
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 18,639 18,639 134,160 16,485 16,485 134,160
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 16,947 16,947 134,160 14,685 14,685 134,160
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 15,178 15,178 134,160 12,728 12,728 134,160
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 13,323 13,323 134,160 10,586 10,586 134,160
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 11,366 11,366 134,160 8,226 8,226 134,160
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 9,299 9,299 134,160 5,610 5,610 134,160
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 1,058 1,058 134,160 <F***> <F***> <F***>
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 <F***> <F***> <F***> <F***> <F***> <F***>
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-9
<PAGE> 228
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(4.85% Net)<F*> (4.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,450 4,450 104,880 4,386 4,386 104,880
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 9,120 9,120 109,760 8,969 8,969 109,760
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 13,997 13,997 114,640 13,737 13,737 114,640
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 19,092 19,092 119,520 18,697 18,697 119,520
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 24,412 24,412 124,400 23,855 23,855 124,400
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 29,919 29,919 129,280 29,218 29,218 129,280
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 35,669 35,669 134,160 34,792 34,792 134,160
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 36,820 36,820 134,160 35,735 35,735 134,160
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 38,002 38,002 134,160 36,671 36,671 134,160
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 39,208 39,208 134,160 37,592 37,592 134,160
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 40,318 40,318 134,160 38,490 38,490 134,160
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 41,449 41,449 134,160 39,358 39,358 134,160
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 42,596 42,596 134,160 40,191 40,191 134,160
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 43,761 43,761 134,160 40,981 40,981 134,160
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 44,945 44,945 134,160 41,716 41,716 134,160
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 45,948 45,948 134,160 42,383 42,383 134,160
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 46,955 46,955 134,160 42,966 42,966 134,160
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 47,963 47,963 134,160 43,445 43,445 134,160
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 48,963 48,963 134,160 43,795 43,795 134,160
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 49,953 49,953 134,160 43,987 43,987 134,160
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 57,668 57,668 134,160 41,486 41,486 134,160
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 64,819 64,819 134,160 27,501 27,501 134,160
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-10
<PAGE> 229
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $4,880
<CAPTION>
============================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
- ------------------------------------------------------------------------------------------------------------
Current Guaranteed
(10.85% Net)<F*> (10.70% Net)<F**>
- ------------------------------------------------------------------------------------------------------------
Premium Insurance Net Insurance Net
Accum. Annual Account Cash Death Account Cash Death
Year Age @5% Premium Value Value Benefit Value Value Benefit
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 5,124 4,880 4,716 4,716 104,880 4,649 4,649 104,880
- ------------------------------------------------------------------------------------------------------------
2 47 10,504 4,880 9,948 9,948 109,760 9,789 9,789 109,760
- ------------------------------------------------------------------------------------------------------------
3 48 16,153 4,880 15,732 15,732 114,640 15,450 15,450 114,640
- ------------------------------------------------------------------------------------------------------------
4 49 22,085 4,880 22,128 22,128 119,520 21,689 21,689 119,520
- ------------------------------------------------------------------------------------------------------------
5 50 28,313 4,880 29,202 29,202 124,400 28,566 28,566 124,400
- ------------------------------------------------------------------------------------------------------------
6 51 34,853 4,880 36,983 36,983 129,280 36,154 36,154 129,280
- ------------------------------------------------------------------------------------------------------------
7 52 41,720 4,880 45,599 45,599 134,160 44,527 44,527 134,160
- ------------------------------------------------------------------------------------------------------------
8 53 43,806 0 50,012 50,012 134,160 48,647 48,647 134,160
- ------------------------------------------------------------------------------------------------------------
9 54 45,996 0 54,903 54,903 134,160 53,185 53,185 134,160
- ------------------------------------------------------------------------------------------------------------
10 55 48,296 0 60,307 60,307 142,326 58,183 58,183 137,311
- ------------------------------------------------------------------------------------------------------------
11 56 50,710 0 66,143 66,143 151,467 63,661 63,661 145,785
- ------------------------------------------------------------------------------------------------------------
12 57 53,246 0 72,542 72,542 161,769 69,629 69,629 155,273
- ------------------------------------------------------------------------------------------------------------
13 58 55,908 0 79,564 79,564 171,859 76,136 76,136 164,454
- ------------------------------------------------------------------------------------------------------------
14 59 58,704 0 87,268 87,268 183,262 83,222 83,222 174,767
- ------------------------------------------------------------------------------------------------------------
15 60 61,639 0 95,722 95,722 195,272 90,934 90,934 185,506
- ------------------------------------------------------------------------------------------------------------
16 61 64,721 0 104,766 104,766 208,485 99,312 99,312 197,631
- ------------------------------------------------------------------------------------------------------------
17 62 67,957 0 114,689 114,689 221,349 108,421 108,421 209,253
- ------------------------------------------------------------------------------------------------------------
18 63 71,355 0 125,561 125,561 236,055 118,303 118,303 222,410
- ------------------------------------------------------------------------------------------------------------
19 64 74,922 0 137,472 137,472 251,574 129,012 129,012 236,091
- ------------------------------------------------------------------------------------------------------------
20 65 78,669 0 150,505 150,505 269,404 140,581 140,581 251,640
- ------------------------------------------------------------------------------------------------------------
25 70 100,403 0 242,030 242,030 382,408 213,987 213,987 338,099
- ------------------------------------------------------------------------------------------------------------
30 75 128,143 0 386,275 386,275 552,374 319,692 319,692 457,159
============================================================================================================
<FN>
<F*> These values reflect investment results using current mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F**> These values reflect investment results using guaranteed mortality and expense risk charges, monthly
administrative charges, and cost of insurance rates for the exact combination of premiums and
benefits shown.
<F***> The Contract would lapse under these assumptions. Additional premium would be required to keep the
Contract in force.
The hypothetical investment rate of return shown above is illustrative only, and should not be deemed a
representation of past or future results. Actual investment results may be more or less than those shown
and will depend on a number of factors, including the investment allocation made by the Contract Holder, and
the investment results for the Underlying Portfolios. The Insurance Account Value, Net Cash Value and Death
Benefit for a Contract would be different from those shown if the actual rates of return averaged the rate
shown over a period of years, but also fluctuated above or below that average for individual Contract Years.
No representation can be made by SELIC, Walnut Street Securities, the Underlying Portfolios, their various
investment managers, or any representative thereof, that this hypothetical rate of return can be achieved
for any one year, or sustained over any period of time.
Illustrated values shown above are as of the end of the Contract Years indicated and assume any additional
premiums shown are received on the Contract Anniversaries.
</TABLE>
C-11
