<PAGE> 1
As filed with Securities and Exchange Commission on April 29, 1996
Registration No. 33-88524
811-8938
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-
POST-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM S-6
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SECURITY EQUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT 13
(Exact Name of Trust)
SECURITY EQUITY LIFE INSURANCE COMPANY
(Name of Depositor)
84 Business Park Drive - Suite 303
Armonk, New York 10504
(Address of depositor's principal executive offices)
JUANITA M. THOMAS, ESQ.
Counsel
Security Equity Life Insurance Company
c/o General American Life Insurance Company
700 Market Street
St. Louis, Missouri 63101
(Name and address of agent for service)
Copies to:
STEPHEN E. ROTH, ESQ.
Sutherland, Asbill & Brennan
1275 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2404
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<PAGE> 2
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph
(b), of Rule 485
x on April 29, 1996 pursuant to paragraph (b)
of Rule 485
60 days after filing pursuant to paragraph
(a)(1) of Rule 485
on ( ) pursuant to paragraph (a)(1) of Rule
485
this post-effective amendment designates a new
effective date for a previously filed post-
effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite amount of securities under the Securities Act of
1933. The Notice required by Rule 24f-2 for 1995 was filed (suspended) on
February 29, 1996, and re-filed on March 5, 1996.
<PAGE> 3
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT 13
Registration Statement on Form S-6
Cross-Reference Sheet
<CAPTION>
Form N-8B-2
Item No. Caption in Prospectus
<C> <S>
1 Cover Page
2 Cover Page
3 Inapplicable
4 Sale of the Contract
5 Information about SELIC
6 The Separate Account
9 Inapplicable
10(a) Additional Provisions of the Contract
10(b) The Contract
10(c), (d), (e) Death Benefits under the Contract; Contract
Values; Summary of the Contract;
Additional Provisions of the Contract; Surrender
and Partial Withdrawals; Contract
Loan Privilege; Transfers; Premiums; Appendix B
10(f), (g), (h) Voting Rights; Additional Provisions of the
Contract
10(i) Additional Provisions of the Contract; Death
Benefits under the Contract; The Separate
Account; Appendix B
11 The Separate Account
12 The Separate Account; Appendix A; Sale of the
Contract
13 Charges and Deductions; Sale of the Contract;
Appendix A
14 Premiums; Charges and Deductions; Sale of the
Contract
15 Premiums
16 The Separate Account; Appendix A
17 Captions referenced under Items 10(c), (d), (e)
and (i) above
18 The Separate Account; Contract Values
19 Records and Reports; Sale of the Contracts
20 Captions referenced under Items 6 and 10(g) above
21 Contract Loan Privilege
22 Inapplicable
23 Sale of the Contract
24 Additional Provisions of the Contract
25 Information about SELIC
26 Sale of the Contract
27 Information about SELIC
<PAGE> 4
<CAPTION>
Form N-8B-2
Item No. Caption in Prospectus
<C> <S>
28 Management of the Company
29 Information about SELIC
30 Inapplicable
31 Inapplicable
32 Inapplicable
33 Inapplicable
34 Sale of the Contract
35 Information about SELIC
36 Inapplicable
37 Inapplicable
38 Sale of the Contract
39 Sale of the Contract
40 Sale of the Contract
41(a) Sale of the Contract
42 Inapplicable
43 Inapplicable
44(a) The Separate Account; Appendix A; Premiums;
Charges and Deductions
44(b) Charges and Deductions
44(c) Premiums; Charges and Deductions
45 Inapplicable
46 Appendix A; Captions referenced under Items
10(c), (d) and (e) above
47 Inapplicable
48 Inapplicable
49 Inapplicable
50 Inapplicable
51 Cover Page; Death Benefits under the Contract;
Termination; Charges and Deductions; The
Contract; Appendix B; Summary; Additional
Provisions of the Contract; Premiums; Sale of the
Contract
52 Additional Provisions of the Contract
53 Federal Income Tax Considerations
54 Inapplicable
55 Inapplicable
59 Financial Statements
</TABLE>
<PAGE> 5
This Post-Effective Amendment No. 1 to the Registration Statement on Form
S-6 includes two prospectuses describing the Contracts.
The first prospectus describes the Contracts as they will be sold in the
general market (the "Standard Version"), and will be delivered in connection
with sales of the Standard Version.
The second prospectus describes the Contracts as they will be sold primarily
through a particular bank-affiliated distribution network (the "Bank
Version"), and will be delivered in connection with sales of the Bank
Version.
<PAGE> 6
Prospectus
Flexible Premium Variable Life Insurance Contract
Issued by Security Equity Life Insurance Company
Security Equity's Separate Account 13
Prospectus dated April 29, 1996
Security Equity Life Insurance Company
84 Business Park Drive
Suite 303
Armonk, NY 10504
As of April 29, 1996, the following Divisions of the Separate Account are
not yet available for the Allocation of Net Premiums: Equity-Income
Portfolio, Overseas Portfolio, High Income Portfolio, Evergreen VA
Portfolio, Evergreen VA Growth and Income Portfolio and Evergreen VA
Foundation Portfolio.
<PAGE> 7
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.
<PAGE> 8
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 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 isApril 29, 1996
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<PAGE> 9
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Definitions
Summary of Contract
Explanation of a Case
Purpose of the Contract
The Contract Holder and Beneficiary
Availability of the Contract
Joint Insureds
Contract Values
The Separate Account
Death Benefit
Premiums
Charges and Deductions
Contract Loans
Surrender and Partial Withdrawals
Termination
Illustrations
Replacement of Existing Coverage
Tax Considerations
Free Look and Conversion Rights
Information About SELIC
The Separate Account
The Contract
Availability of Insurance Coverage
Evidence of Insurability
Premiums
Contract Values
Transfers
Contract Loan Privilege
Surrender and Partial Withdrawals
Death Benefits Under the Contract
Charges and Deductions
Premium Load
Daily Charges
Monthly Charges
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<PAGE> 10
Underwriting Charges
Annual Charges
Other Charges
Termination
Maturity Date
Termination for Insufficient Net Cash Value
Reinstatement of a Contract Terminated for Insufficient Value
The Fixed Fund
General Description
Allocation of Amounts to the Fixed Fund
Fixed Fund Benefits
Fixed Fund Insurance Account Value
Fixed Fund Transfers, Surrenders, Partial Withdrawals and Contract Loans
Federal Income Tax Considerations
Additional Provisions of the Contract
Addition, Deletion, or Substitution of Investments
Incontestability
Conversion Rights
Misstatement of Age or Sex
Suicide
Availability of Funds
Entire Contract
Representations in Application
Contract Application and Contract Schedules
Right to Amend Contract
Computation of Contract Values
Claims of Creditors
Notice
Assignments
Construction
Severability
State Variations
Unisex Requirements Under Montana Law
Records and Reports
Sale of the Contract
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<PAGE> 11
Voting Rights
State Regulation of the Company
Management of the Company
Legal Matters
Legal Proceedings
Experts
Additional Information
Financial Statements
Appendix A - Underlying Portfolios A-1
Appendix B - Contract Riders B-1
Appendix C - Illustrations of Death Benefits and Insurance Account Value C-1
</TABLE>
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<PAGE> 12
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.
-6-
<PAGE> 13
Contract Loan: An amount borrowed by the Contract Holder from the Insurance
Account Value of the Contract.
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.
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<PAGE> 14
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.
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").
-8-
<PAGE> 15
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).
-9-
<PAGE> 16
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.
-10-
<PAGE> 17
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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<PAGE> 18
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.
- -------------------------
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
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<PAGE> 19
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.
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.
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<PAGE> 20
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 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
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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 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
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<PAGE> 22
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 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
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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".
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
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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.
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
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<PAGE> 25
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, 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.
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<PAGE> 26
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;
(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
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<PAGE> 27
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."
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
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<PAGE> 28
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-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
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<PAGE> 29
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.
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).
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<PAGE> 30
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 "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
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<PAGE> 31
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:
(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
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<PAGE> 32
(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 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")
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<PAGE> 33
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.
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
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<PAGE> 34
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 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
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<PAGE> 35
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 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.
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<PAGE> 36
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 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".
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<PAGE> 37
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 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
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<PAGE> 38
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. 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.
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<PAGE> 39
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.
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
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<PAGE> 40
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 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
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<PAGE> 41
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 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:
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<PAGE> 42
(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 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
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<PAGE> 43
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:
<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:
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<PAGE> 44
<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.
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%.
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<PAGE> 45
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.
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
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<PAGE> 46
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;
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%
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<PAGE> 47
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 Contracts 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 Contracts 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 Contracts 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 Contracts 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.
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
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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 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.
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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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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
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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.
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
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assets of the Separate Accounts. In addition, SELIC does not know what
standards will be set forth 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
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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
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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.
(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.
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(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 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.
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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 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
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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 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
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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.
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.
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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:
(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
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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.
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.
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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.
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.
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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")
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
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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.
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
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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.
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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
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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
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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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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.
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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.
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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.
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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: General American Investment Management Company
("GAIMCO"), is the investment adviser. GAIMCO 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 an
Massachusetts
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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
an 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.
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<PAGE> 77
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.
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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: 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.
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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.
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.
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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.
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.
A-6
<PAGE> 81
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 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.
A-7
<PAGE> 82
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.
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> 83
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> 84
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> 85
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.
B-3
<PAGE> 86
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")
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.
B-4
<PAGE> 87
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.
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
B-5
<PAGE> 88
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,
(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.
B-6
<PAGE> 89
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.
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> 90
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
C-1
<PAGE> 91
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.
C-2
<PAGE> 92
<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> 93
<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> 94
<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> 95
<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> 96
<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> 97
<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> 98
<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> 99
<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> 100
<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> 101
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
March 22, 1996
<PAGE> 102
<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>
<PAGE> 103
<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>
<PAGE> 104
<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>
<PAGE> 105
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)
<PAGE> 106
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.
(Continued)
<PAGE> 107
3
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
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 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)
<PAGE> 108
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.
<PAGE> 109
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.
<PAGE> 110
Independent Auditors' Report
The Board of Directors
Security Equity Life Insurance Company:
We have audited the accompanying balance sheets of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations, stockholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 22, 1996
<PAGE> 111
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>
1
<PAGE> 112
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>
2
<PAGE> 113
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>
3
<PAGE> 114
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>
4
<PAGE> 115
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)
5
<PAGE> 116
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)
6
<PAGE> 117
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.
(h) Deferred Policy Acquisition Costs
(Continued)
7
<PAGE> 118
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, have been
deferred to the extent that such costs are deemed recoverable from
future premiums. Such costs may include commissions, as well as
certain costs of policy issuance and underwriting. In 1995, the
Company deferred $1.5 million in acquisition costs related to
interest sensitive products and recognized amortization of $75,000
based on the estimated gross profits of the underlying business.
The Company did not defer any acquisition costs in 1994 or have any
deferred acquisition costs at December 31, 1994. This was a result
of the nature of the policies written through December 31, 1994 for
which management determined that deferrable acquisition costs were
insignificant.
(i) Separate Account Business
The assets and liabilities of the separate account represent
segregated funds administered and invested by the Company for
purposes of funding variable life insurance contracts for the
exclusive benefit of variable life insurance contract holders. The
Company receives administrative fees from the separate account and
retains varying amounts of withdrawal charges to cover expenses in
the event of early withdrawals by contract holders. The assets and
liabilities of the separate account are carried at market value.
(j) Fair Market Disclosures
Fair value disclosures are required under SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. Such fair
value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Although fair
value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could significantly
affect the estimates and such estimates should be used with care.
The following assumptions were used to estimate the fair market
value of each class of financial instrument for which it was
practicable to estimate fair value:
Invested assets - Fixed maturities are valued using quoted market
---------------
prices, if available. If quoted market prices are not available,
fair value is estimated using quoted market prices of similar
securities. The carrying value of policy loans approximates fair
value.
Policyholder account balances - The fair value of policyholder
-----------------------------
account balances is equal to the discounted estimated future cash
flows using discounted cash flow calculations, based on interest
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
The carrying value approximates fair value at December 31, 1995 and
1994, respectively.
Cash and short-term investments - The carrying amount is a
-------------------------------
reasonable estimate of fair value.
(k) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
represent demand deposits and highly liquid short-term
investments, which include U.S. Treasury bills, commercial paper,
and repurchase agreements with original or remaining maturities of
90 days or less when purchased.
(Continued)
8
<PAGE> 119
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(l) Reclassification
Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
(2) Investments
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
================================================================================
1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 4,458,159 3,840,763
Short-term investments 43,781 133,755
Policy loans and other 294,298 216,942
--------------------------------------------------------------------------------
4,796,238 4,191,460
Investment expenses 96,525 95,915
--------------------------------------------------------------------------------
Net investment income $ 4,699,713 4,095,545
================================================================================
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>
<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>
9
<PAGE> 120
<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)
10
<PAGE> 121
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)
11
<PAGE> 122
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)
12
<PAGE> 123
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(5) Related-Party Transactions
In 1995 and 1994, the Company purchased certain administrative services
from General American. Charges for services performed are based
upon personnel and other costs involved in providing such services.
The net expenses incurred for these services were $463,200 and
$407,000 for 1995 and 1994, respectively.
Effective January 1, 1994, the Company entered into an administrative
service agreement with Security Mutual with respect to the provision
of routine services for policies issued through December 31, 1993.
The net expense incurred for these services was $1,842,320 and
$1,980,812 for 1995 and 1994, respectively.
(6) Pension, Incentive, and Health and Life Insurance Benefit Plans
Associates of SELIC participate in a noncontributory multi-employer
defined benefit pension plan jointly sponsored by SELIC and
General American. The benefits are based on years of service and
compensation level. No pension expense was recognized in 1995 or
1994 due to overfunding of the plan.
In addition, SELIC has adopted in 1995 an associate bonus plan
applicable to full-time exempt associates. Bonuses are based on an
economic value-added model prepared annually by the Company. Total
bonuses accrued to Company employees for 1995 were $59,500. In
1994, the Company accrued bonuses of $150,000 under a nonrelated
associate bonus plan.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions. SFAS
No. 106 requires the Company to accrue the estimated cost of retiree
benefit payments during the years the employee provides services.
SFAS No. 106 allows recognition of the cumulative effect of the
liability in the year of the adoption or the amortization of the
transition obligation over a period of up to 20 years. The Company
has elected to recognize the initial post-retirement benefit
obligation of approximately $16,427 over a period of 20 years. The
unrecognized initial post-retirement benefit obligation was
approximately $14,784 and $15,606 at December 31, 1995 and 1994,
respectively. Net periodic post-retirement benefit cost for the
years ended December 31, 1995 and 1994 were approximately $6,711 and
$6,232, respectively. This includes expected costs of benefits for
newly eligible or vested employees, interest costs, gains and losses
from differences between actuarial and actual experience, and
amortization of the initial post-retirement benefit obligation. The
accumulated post-retirement benefit obligation was approximately
$17,089 and $16,427 at December 31, 1995 and 1994, respectively.
The discount rate used in determining the accumulated post-retirement
benefit obligation was 8.25%. The health care cost trend rates were 10%
for the Indemnity Plan, 9% for the HMO Plan, and 10% for the Dental Plan.
These rates were graded to 6% over the next 14 years. A one percentage
point increase in the assumed health care cost 3 trend rates would
increase the December 31, 1995 accumulated post-retirement obligation by
11%, and the estimated service cost and interest cost components of the
net periodic post-retirement benefit cost for 1995 by 14%.
(7) Statutory Financial Information
The Company is subject to financial statement filing requirements of
the State of New York Department of Insurance, its state of domicile, as
well as the states in which it transacts business. Such financial
statements, generally referred to as statutory financial statements, are
prepared on a basis of accounting which varies in some respects from
generally accepted accounting principles (GAAP). Statutory
(Continued)
13
<PAGE> 124
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
accounting principles include: (1) charging of policy acquisition costs
to income as incurred; (2) establishment of a liability for future policy
benefits computed using required valuation standards which may vary in
methodology utilized; (3) nonprovision of deferred federal income
taxes resulting from temporary differences between financial reporting and
tax bases of assets and liabilities; (4) recognition of statutory
liabilities for asset impairments and yield stabilization on fixed
maturity dispositions prior to maturity with asset valuation reserves
based on statutorily determined formulae and interest stabilization
reserves designed to level yields over their original purchase maturities;
(5) deferred premiums provided for statutory mean reserves; (6) annuity
contract deposits represent funds deposited by policyholders and are
included in premiums or contract charges; and (7) non-recognition of
certain assets as nonadmitted through a direct charge to surplus.
A reconciliation of stockholder's equity of the Company at December 31,
1995 and 1994, as determined using statutory accounting practices,
to that reflected in the accompanying financial statements is as
follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of stockholder's equity:
Statutory surplus as reported to regulatory authorities $15,125,968 17,264,148
Asset valuation reserve 583,391 568,742
Interest maintenance reserve 1,227,492 1,049,290
Unrealized gain (loss) on investments 1,990,132 (4,061,215)
Goodwill 1,428,369 1,507,725
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 3,349,179 3,387,465
Differences between statutory and GAAP insurance reserves
and other, net 1,539,019 (559,673)
-----------------------------------------------------------------------------------------------------------
Stockholder's equity as reported herein $27,684,550 21,569,482
===========================================================================================================
</TABLE>
A reconciliation of net gain (loss) of the Company at December 31, 1995
and 1994, as determined using statutory accounting practices, to
that reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net loss:
Net loss as reported to regulatory authorities $ (1,465,539) (3,779,205)
Premium and annuity considerations (18,336,148) (34,935,560)
Insurance reserves 19,119,961 35,752,650
Interest maintenance reserve, net (72,752) (118,754)
Investment income and capital gains and losses (491,428) (1,131,731)
Deferred policy acquisition costs 1,471,754 -
Goodwill amortization (79,356) (79,354)
Value of business acquired accretion, net 28,000 50,000
Other, net (110,771) (75,241)
-----------------------------------------------------------------------------------------------------------
Net gain (loss) as reported herein $ 63,721 (4,317,195)
===========================================================================================================
</TABLE>
(Continued)
14
<PAGE> 125
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>
15
<PAGE> 126
Prospectus
Flexible Premium Variable Life Insurance Contract
Issued by Security Equity Life Insurance Company
Security Equity's Separate Account 13
Prospectus dated April 29, 1996
Security Equity Life Insurance Company
84 Business Park Drive
Suite 303
Armonk, NY 10504
As of April 29, 1996, the following Divisions of the Separate Account are
not yet available for the Allocation of Net Premiums: Equity-Income
Portfolio, Overseas Portfolio, High Income Portfolio, Evergreen VA
Portfolio, Evergreen VA Growth and Income Portfolio and Evergreen VA
Foundation Portfolio.
<PAGE> 127
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".
<PAGE> 128
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 April 29, 1996.
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<PAGE> 129
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
Definitions
Summary of Contract
Explanation of a Case
Purpose of the Contract
The Contract Holder and Beneficiary
Availability of the Contract
Joint Insureds
Contract Values
The Separate Account
Death Benefit
Premiums
Charges and Deductions
Contract Loans
Surrender and Partial Withdrawals
Termination
Illustrations
Replacement of Existing Coverage
Tax Considerations
Free Look and Conversion Rights
Information About SELIC
The Separate Account
The Contract
Availability of Insurance Coverage
Evidence of Insurability
Premiums
Contract Values
Transfers
Contract Loan Privilege
Surrender and Partial Withdrawals
Death Benefits Under the Contract
Charges and Deductions
Premium Load
Daily Charges
Monthly Charges
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Underwriting Charges
Annual Charges
Other Charges
Termination
Maturity Date
Termination for Insufficient Net Cash Value
Reinstatement of a Contract Terminated for Insufficient Value
The Fixed Fund
General Description
Allocation of Amounts to the Fixed Fund
Fixed Fund Benefits
Fixed Fund Insurance Account Value
Fixed Fund Transfers, Surrenders, Partial Withdrawals and Contract
Loans
Federal Income Tax Considerations
Additional Provisions of the Contract
Addition, Deletion, or Substitution of Investments
Incontestability
Conversion Rights
Misstatement of Age or Sex
Suicide
Availability of Funds
Entire Contract
Representations in Application
Contract Application and Contract Schedules
Right to Amend Contract
Computation of Contract Values
Claims of Creditors
Notice
Assignments
Construction
Severability
State Variations
Records and Reports
Unisex Requirements Under Montana Law
Sale of the Contract
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<PAGE> 131
Voting Rights
State Regulation of the Company
Management of the Company
Legal Matters
Legal Proceedings
Experts
Additional Information
Financial Statements
Appendix A - Underlying Portfolios A-1
Appendix B - Contract Riders B-1
Appendix C - Illustrations of Death Benefits and Insurance Account Value C-1
</TABLE>
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<PAGE> 132
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.
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Contract Loan: An amount borrowed by the Contract Holder from the Insurance
Account Value of the Contract.
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.
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<PAGE> 134
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.
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").
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<PAGE> 135
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 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.
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<PAGE> 136
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 "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.
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<PAGE> 137
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 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
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<PAGE> 138
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.")
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.
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<PAGE> 139
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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<PAGE> 140
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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<PAGE> 141
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 will
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<PAGE> 143
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
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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.
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.
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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, 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
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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;
(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
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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."
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.
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<PAGE> 148
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-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
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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.
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
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<PAGE> 150
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 "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:
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<PAGE> 151
(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:
(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
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<PAGE> 152
(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".
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
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(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.
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:
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<PAGE> 154
(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 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
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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 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.
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<PAGE> 156
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 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".
$"- 30 -"
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 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
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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. 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.
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<PAGE> 158
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.
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
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<PAGE> 159
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 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
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<PAGE> 160
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 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:
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<PAGE> 161
(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 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
- 36 -
<PAGE> 162
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:
<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:
- 37 -
<PAGE> 163
<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.
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%.
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<PAGE> 164
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.
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
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<PAGE> 165
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;
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%
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<PAGE> 166
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 Contracts 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 Contracts 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 Contracts 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 Contracts 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.
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
- 41 -
<PAGE> 167
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 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.
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<PAGE> 168
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> 169
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> 170
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
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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.
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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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
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of final regulations, and lack of other pertinent interpretations
of 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
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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 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
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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
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
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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.
(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.
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(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
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
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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 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
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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 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.
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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.
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.
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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:
(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
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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.
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.
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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.
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.
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<PAGE> 185
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").
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
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<PAGE> 186
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.
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
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<PAGE> 187
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.
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<PAGE> 188
<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.
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<PAGE> 189
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
- 64 -
<PAGE> 190
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>
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<PAGE> 191
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.
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<PAGE> 192
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.
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<PAGE> 193
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.
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<PAGE> 194
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: General American Investment Management Company
("GAIMCO"), is the investment adviser. GAIMCO is an affiliate of SELIC.
The investment adviser is registered with the Securities and Exchange
Commission under the Investment Advisers Act of 1940.
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
A-1
<PAGE> 195
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.
Objective: Seeks high total return with reduced risk over the long-term.
A-2
<PAGE> 196
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.
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<PAGE> 197
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> 198
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> 199
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-6
<PAGE> 200
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").
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<PAGE> 201
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").
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<PAGE> 202
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 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").
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<PAGE> 203
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 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
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<PAGE> 204
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.
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> 205
(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.
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.
B-6
<PAGE> 206
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> 207
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
C-1
<PAGE> 208
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 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> 209
<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>
C-3
<PAGE> 210
<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> 211
<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> 212
<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> 213
<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> 214
<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> 215
<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> 216
<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> 217
<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
<PAGE> 218
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
March 22, 1996
<PAGE> 219
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>
<PAGE> 220
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>
<PAGE> 221
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>
<PAGE> 222
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.
(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.
(Continued)
<PAGE> 223
2
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
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
(Continued)
<PAGE> 224
3
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
Notes to Financial Statements
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 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.
<PAGE> 225
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.
<PAGE> 226
Independent Auditors' Report
The Board of Directors
Security Equity Life Insurance Company:
We have audited the accompanying balance sheets of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the related
statements of operations, stockholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Equity Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 22, 1996
<PAGE> 227
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>
1
<PAGE> 228
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>
2
<PAGE> 229
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>
3
<PAGE> 230
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>
4
<PAGE> 231
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)
5
<PAGE> 232
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)
6
<PAGE> 233
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.
(h) Deferred Policy Acquisition Costs
(Continued)
7
<PAGE> 234
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
The costs of acquiring new business, which vary with and are
primarily related to the production of new business, have been
deferred to the extent that such costs are deemed recoverable from
future premiums. Such costs may include commissions, as well as
certain costs of policy issuance and underwriting. In 1995, the
Company deferred $1.5 million in acquisition costs related to
interest sensitive products and recognized amortization of $75,000
based on the estimated gross profits of the underlying business.
The Company did not defer any acquisition costs in 1994 or have any
deferred acquisition costs at December 31, 1994. This was a result
of the nature of the policies written through December 31, 1994 for
which management determined that deferrable acquisition costs were
insignificant.
(i) Separate Account Business
The assets and liabilities of the separate account represent
segregated funds administered and invested by the Company for
purposes of funding variable life insurance contracts for the
exclusive benefit of variable life insurance contract holders. The
Company receives administrative fees from the separate account and
retains varying amounts of withdrawal charges to cover expenses in
the event of early withdrawals by contract holders. The assets and
liabilities of the separate account are carried at market value.
(j) Fair Market Disclosures
Fair value disclosures are required under SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. Such fair
value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Although fair
value estimates are calculated using assumptions that management
believes are appropriate, changes in assumptions could significantly
affect the estimates and such estimates should be used with care.
The following assumptions were used to estimate the fair market
value of each class of financial instrument for which it was
practicable to estimate fair value:
Invested assets - Fixed maturities are valued using quoted market
---------------
prices, if available. If quoted market prices are not available,
fair value is estimated using quoted market prices of similar
securities. The carrying value of policy loans approximates fair
value.
Policyholder account balances - The fair value of policyholder
-----------------------------
account balances is equal to the discounted estimated future cash
flows using discounted cash flow calculations, based on interest
rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
The carrying value approximates fair value at December 31, 1995 and
1994, respectively.
Cash and short-term investments - The carrying amount is a
-------------------------------
reasonable estimate of fair value.
(k) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
represent demand deposits and highly liquid short-term
investments, which include U.S. Treasury bills, commercial paper,
and repurchase agreements with original or remaining maturities of
90 days or less when purchased.
(Continued)
8
<PAGE> 235
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(l) Reclassification
Certain amounts in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
(2) Investments
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
================================================================================
1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
Bonds $ 4,458,159 3,840,763
Short-term investments 43,781 133,755
Policy loans and other 294,298 216,942
--------------------------------------------------------------------------------
4,796,238 4,191,460
Investment expenses 96,525 95,915
--------------------------------------------------------------------------------
Net investment income $ 4,699,713 4,095,545
================================================================================
</TABLE>
The amortized cost and estimated market value of bonds at December 31,
1995 and 1994 are shown below. Market value is based upon market prices
obtained from independent pricing services which approximate fair value.
<TABLE>
<CAPTION>
============================================================================================================================
1995
----------------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 9,299,846 287,844 (273,583) 9,314,107
Corporate securities 40,799,139 3,013,425 (388,584) 43,423,980
Mortgage-backed securities 10,095,402 432,140 (9,502) 10,518,040
----------------------------------------------------------------------------------------------------------------------------
$60,194,387 3,733,409 (671,669) 63,256,127
============================================================================================================================
(Continued)
</TABLE>
9
<PAGE> 236
<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)
10
<PAGE> 237
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)
11
<PAGE> 238
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)
12
<PAGE> 239
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(5) Related-Party Transactions
In 1995 and 1994, the Company purchased certain administrative services
from General American. Charges for services performed are based
upon personnel and other costs involved in providing such services.
The net expenses incurred for these services were $463,200 and
$407,000 for 1995 and 1994, respectively.
Effective January 1, 1994, the Company entered into an administrative
service agreement with Security Mutual with respect to the provision
of routine services for policies issued through December 31, 1993.
The net expense incurred for these services was $1,842,320 and
$1,980,812 for 1995 and 1994, respectively.
(6) Pension, Incentive, and Health and Life Insurance Benefit Plans
Associates of SELIC participate in a noncontributory multi-employer
defined benefit pension plan jointly sponsored by SELIC and
General American. The benefits are based on years of service and
compensation level. No pension expense was recognized in 1995 or
1994 due to overfunding of the plan.
In addition, SELIC has adopted in 1995 an associate bonus plan
applicable to full-time exempt associates. Bonuses are based on an
economic value-added model prepared annually by the Company. Total
bonuses accrued to Company employees for 1995 were $59,500. In
1994, the Company accrued bonuses of $150,000 under a nonrelated
associate bonus plan.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions. SFAS
No. 106 requires the Company to accrue the estimated cost of retiree
benefit payments during the years the employee provides services.
SFAS No. 106 allows recognition of the cumulative effect of the
liability in the year of the adoption or the amortization of the
transition obligation over a period of up to 20 years. The Company
has elected to recognize the initial post-retirement benefit
obligation of approximately $16,427 over a period of 20 years. The
unrecognized initial post-retirement benefit obligation was
approximately $14,784 and $15,606 at December 31, 1995 and 1994,
respectively. Net periodic post-retirement benefit cost for the
years ended December 31, 1995 and 1994 were approximately $6,711 and
$6,232, respectively. This includes expected costs of benefits for
newly eligible or vested employees, interest costs, gains and losses
from differences between actuarial and actual experience, and
amortization of the initial post-retirement benefit obligation. The
accumulated post-retirement benefit obligation was approximately
$17,089 and $16,427 at December 31, 1995 and 1994, respectively.
The discount rate used in determining the accumulated post-retirement
benefit obligation was 8.25%. The health care cost trend rates were 10%
for the Indemnity Plan, 9% for the HMO Plan, and 10% for the Dental Plan.
These rates were graded to 6% over the next 14 years. A one percentage
point increase in the assumed health care cost 3 trend rates would
increase the December 31, 1995 accumulated post-retirement obligation by
11%, and the estimated service cost and interest cost components of the
net periodic post-retirement benefit cost for 1995 by 14%.
(7) Statutory Financial Information
The Company is subject to financial statement filing requirements of
the State of New York Department of Insurance, its state of domicile, as
well as the states in which it transacts business. Such financial
statements, generally referred to as statutory financial statements, are
prepared on a basis of accounting which varies in some respects from
generally accepted accounting principles (GAAP). Statutory
(Continued)
13
<PAGE> 240
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
accounting principles include: (1) charging of policy acquisition costs
to income as incurred; (2) establishment of a liability for future policy
benefits computed using required valuation standards which may vary in
methodology utilized; (3) nonprovision of deferred federal income
taxes resulting from temporary differences between financial reporting and
tax bases of assets and liabilities; (4) recognition of statutory
liabilities for asset impairments and yield stabilization on fixed
maturity dispositions prior to maturity with asset valuation reserves
based on statutorily determined formulae and interest stabilization
reserves designed to level yields over their original purchase maturities;
(5) deferred premiums provided for statutory mean reserves; (6) annuity
contract deposits represent funds deposited by policyholders and are
included in premiums or contract charges; and (7) non-recognition of
certain assets as nonadmitted through a direct charge to surplus.
A reconciliation of stockholder's equity of the Company at December 31,
1995 and 1994, as determined using statutory accounting practices,
to that reflected in the accompanying financial statements is as
follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of stockholder's equity:
Statutory surplus as reported to regulatory authorities $15,125,968 17,264,148
Asset valuation reserve 583,391 568,742
Interest maintenance reserve 1,227,492 1,049,290
Unrealized gain (loss) on investments 1,990,132 (4,061,215)
Goodwill 1,428,369 1,507,725
Value of business acquired 2,441,000 2,413,000
Deferred tax asset 3,349,179 3,387,465
Differences between statutory and GAAP insurance reserves
and other, net 1,539,019 (559,673)
-----------------------------------------------------------------------------------------------------------
Stockholder's equity as reported herein $27,684,550 21,569,482
===========================================================================================================
</TABLE>
A reconciliation of net gain (loss) of the Company at December 31, 1995
and 1994, as determined using statutory accounting practices, to
that reflected in the accompanying financial statements is as follows:
<TABLE>
<CAPTION>
===========================================================================================================
1995 1994
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of net loss:
Net loss as reported to regulatory authorities $ (1,465,539) (3,779,205)
Premium and annuity considerations (18,336,148) (34,935,560)
Insurance reserves 19,119,961 35,752,650
Interest maintenance reserve, net (72,752) (118,754)
Investment income and capital gains and losses (491,428) (1,131,731)
Deferred policy acquisition costs 1,471,754 -
Goodwill amortization (79,356) (79,354)
Value of business acquired accretion, net 28,000 50,000
Other, net (110,771) (75,241)
-----------------------------------------------------------------------------------------------------------
Net gain (loss) as reported herein $ 63,721 (4,317,195)
===========================================================================================================
</TABLE>
(Continued)
14
<PAGE> 241
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>
15
<PAGE> 242
PART II - OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary and
periodic information, documents, and reports as may be prescribed by any rule
or regulation of the Commission heretofore or hereafter duly adopted pursuant
to authority conferred in that section.
RULE 484 UNDERTAKING
Reference is made to the Depositor's Articles of Incorporation,
and to Article VII of the Depositor's By-Laws, each filed as an exhibit to
this Registration Statement. Specifically, Section VII.1. of Article VII of
the Depositor's By-Laws provides that the Depositor may indemnify a director
or officer ("Indemnified Person") for amounts paid in settlement and
reasonable expenses in connection with an action (i) brought by or in the
right of the Depositor, if the Indemnified Person acted in good faith for a
purpose reasonably believed by the Indemnified Person to be in (or, under
certain circumstances, not opposed to) the best interests of the Depositor;
or (ii) other than an action brought by or in the right of the Depositor, if
the Indemnified Person acted in good faith for a purpose reasonably believed
by the Indemnified Person to be in (or, under certain circumstances, not
opposed to) the best interests of the Depositor, and in criminal actions or
proceedings, in addition, had no reasonable cause to believe that his or her
conduct was unlawful. Section VII.1. further provides that such
indemnification must be authorized by the Board of Directors of the Depositor
acting by a quorum consisting of directors who are not parties to the action
or proceeding, or if such quorum is unobtainable or if a quorum of
disinterested directors so directs, by the Board of Directors upon an opinion
of independent legal counsel, or by the Depositor's shareholders, in each
case provided that certain findings are made. Section VII.1. further
provides that the Depositor will indemnify a director or officer in
connection with actions described under (i) and (ii) above if the Indemnified
Person has been successful in the defense of a civil or criminal action or
proceeding as described in (i) and (ii) above. Section VII.1. further
provides that a notification of payment of indemnification, advancement or
allowance under Sections 721 to 726, inclusive, of the Business Corporation
Law of New York shall be made unless a notice has been filed with the
Superintendent of Insurance of the State of New York as specified in Section
VII.1. This description is qualified in its entirety by the provisions of
the By-Laws filed as an exhibit to this Registration Statement.
II-1
<PAGE> 243
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification may be against public policy as
expressed in the Act and may be, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE> 244
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment
Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Contracts described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk charge is
within the range of industry practice for comparable
flexible or scheduled contracts.
(3) Registrant has concluded that there is a reasonable
likelihood that the distribution financing arrangement of
the Separate Account will benefit the Separate Account
and Contract Holders and will keep and make available to
the Commission on request a memorandum setting forth the
basis for this representation.
(4) The Separate Account will invest only in management
investment companies which have undertaken to have a
board of directors, a majority of whom are not interested
persons of the company, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph
(2) above is based on an analysis of the mortality and expense risk charge
contained in other variable life insurance contracts. Registrant undertakes
to keep and make available to the Commission on request the documents used to
support the representation in paragraph (2) above.
II-3
<PAGE> 245
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement consists of the following papers and
documents:
The facing sheet.
A reconciliation and tie of the information shown in the prospectuses
with the items of Form N-8B-2.
A prospectus consisting of pages and a prospectus consisting of
pages.
The Undertaking to File Reports.
The Rule 484 Undertaking.
The signatures.
Written consents of the following persons:
Ralph A. Gorter, FSA
Sutherland, Asbill & Brennan
KPMG Peat Marwick LLP
The following exhibits:
1.A. (1) Resolutions Establishing Security Equity
Life Insurance Company Separate Account 13. <F1>
(2) None.
(3)(a) Principal Underwriting Agreement between SELIC
and Walnut Street Securities, Inc. <F1>
(b) Form of Selling Agreement between Walnut Street
Securities, Inc. and Selling Firms. <F1>
(c) Schedule of Sales Commissions. <F2>
(4) None.
(5)(a) Specimen of Contract. <F1>
(b) Riders and Endorsements. <F1>
(6) Certificate of Incorporation and By-Laws of
SELIC. <F1>
II-4
<PAGE> 246
(7) None.
(8) None.
(9)(a) Form of Participation Agreement. <F2>
(b) Participation Agreement Among Variable Insurance
Products Fund, Fidelity Distributors Corporation
and Security Equity Life Insurance Company. <F2>
(c) Participation Agreement Among Variable Insurance
Products Fund II, Fidelity Distributors Corporation
and Security Equity Life Insurance Company. <F2>
(d) Form of Amendment No. 1 to Participation Agreement
among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Equity Life
Insurance Company.
(e) Form of Amendment No. 1 to Participation Agreement
among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Security
Equity Life Insurance Company.
(f) Form of Participation Agreement between Evergreen
Variable Trust and Security Equity Life Insurance
Company.
(10) Specimen of Application for Policy. <F1>
2. See Exhibit 3.(i).
3.(i) Opinion of Juanita M. Thomas, Esq. as to the Legality
of Securities Being Issued and Consent. <F2>
(ii) Opinion of Victor Bertolozzi, FSA, MAAA and Consent. <F2>
(iii) Opinion of Ralph A. Gorter, FSA, and Consent.
4. None.
5. Inapplicable.
6. Consent of Sutherland, Asbill & Brennan.
7. Powers of Attorney. <F1>
8. Form of Notice of Withdrawal Right. <F2>
II-5
<PAGE> 247
9. Consent of KPMG Peat Marwick LLP.
11. Memorandum describing certain procedures, filed pursuant
to Rule 6e-3(T)(b)(12)(iii). <F2>
[FN]
<F1> Incorporated by reference to Registrant's registration
statement on Form S-6 (File No. 88524), filed January 13,
1995.
<F2> Incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to registration statement on Form S-6 (File
No. 33-88524), filed August 30, 1995.
II-6
<PAGE> 248
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Security Equity
Life Insurance Company and Security Equity Life Insurance Company Separate
Account 13 certify that they meet all of the requirements for effectiveness
of this amended Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and have duly caused this amended Registration
Statement to be signed on their behalf by the undersigned thereunto duly
authorized, and the seal of Security Equity Life Insurance Company to be
hereunto affixed and attested, all in the City of Armonk and the State of New
York, on the 22nd day of April, 1996.
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13
(REGISTRANT)
By: SECURITY EQUITY LIFE INSURANCE
COMPANY
(for Registrant and as Depositor)
Attest: /s/ Juanita M. Thomas By: /s/ William C. Thater
Juanita M. Thomas William C. Thater
Secretary President
II-7
<PAGE> 249
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William C. Thater 4/22/96
- ----------------------------
William C. Thater President & Director
/s/ Fabio Pieroni 4/22/96
- ---------------------------- Vice President, Treasurer,
Fabio Pieroni and Controller
<F*>
- ----------------------------
Willard N. Archie Director
<F*>
- ----------------------------
Carson E. Beadle Director
<F*>
- ----------------------------
James R. Elsesser Director
<F*>
- ----------------------------
Stanley Goldstein Director
<F*>
- ----------------------------
David D. Holbrook Director
<F*>
- ----------------------------
Richard A. Liddy Director
<F*>
- ----------------------------
Timothy C. Nicholson Director
<F*>
- ----------------------------
Leonard M. Rubenstein Director
II-8
<PAGE> 250
<CAPTION>
Signature Title Date
<S> <C> <C>
<F*> Director
- ----------------------------
H. Edwin Trusheim
<F*> Director
- ----------------------------
Virginia V. Weldon, M.D.
<F*> Director
- ----------------------------
Ted C. Wetterau
<F*> Director
- ----------------------------
Ben H. Wolzenski
<F*> Director
- ----------------------------
A. Greig Woodring
By: /s/ Juanita M. Thomas
Juanita M. Thomas 4/22/96
<FN>
<F*>Copies of powers of attorney authorizing Juanita M. Thomas and William C.
Thater, and each of them singly, to sign the Registration Statement and
amendments thereto on behalf of the Directors of Security Equity Life
Insurance Company are on file with the Securities and Exchange Commission.
</TABLE>
II-9
<PAGE> 251
EXHIBIT INDEX
1.A.(9)(d) Form of Amendment No. 1 to Participation Agreement
(e) Form of Amendment No. 1 to Participation Agreement
(f) Form of Participation Agreement
3.(iii) Opinion of Ralph A. Gorter, FSA, and Consent
6. Consent of Sutherland, Asbill & Brennan
9. Consent of KPMG Peat Marwick LLP
<PAGE> 1
EXHIBIT 1.A.(9)(d)
FORM OF AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
<PAGE> 2
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
Amendment No. 1 to Participation Agreement among Variable Insurance
Products Fund (the Fund), Fidelity Distributors Corporation (the
Underwriter), and Security Equity Life Insurance Company (the Company) dated
as of November, 19, 1994 (the Agreement).
WHEREAS each of the parties desires to amend Schedule A of the
Agreement by adding three segregated asset accounts which have been or will
be established by the Company. Specifically, the Fund, Underwriter, and the
Company hereby agree to amend Schedule A-1 in its entirety, as follows:
For Schedule A-1 (Unregistered Accounts):
Name of Account Date of Resolution of Company's Board
which Established the Account
Separate Account 7 Effective as of December 15, 1994
Separate Account 18 February 8, 1996
Separate Account 19 May 14, 1996
Separate Account 20 May 14, 1996
WHEREAS each of the parties wishes to update the list of options which
are available for the investment of net amounts under the Contracts, as that
term is defined in the Agreement. Specifically, the Fund, Underwriter, and
the Company hereby agree to amend Schedule B-3 in its entirety, as follows:
For Schedule B-3 (Investment Option Currently Available Under Products on
Schedules B-1 and B-2):
Wells Fargo Nikko Asset Allocation Fund
Wells Fargo Nikko U.S. Government Allocation Fund
GCG Trust Emerging Markets
GCG Trust Limited Maturity Bond Fund
GCG Trust Liquid Assets
General American Capital Company Money Market Fund
<F*> Offitbank Emerging Markets Fund
<F*> Offitbank High Yield Fund
<F*> Offitbank Investment Grade Global Debt Fund
<F*> Trainer Wortham Balanced Portfolio
<F**> Tremont
<F***>Evergreen VA Fund
<PAGE> 3
<F***>Evergreen VA Foundation Fund
(Amendment to Participation Agreement continued)
<F***>Evergreen VA Growth and Income Fund
[FN]
<F*> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022.
<F**> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022 and Contract Form #LCL1(I) 6000022.
<F***>These funds are only available to purchasers of Contract
Form #LCL2.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 1 to Participation Agreement to be executed in its name and on
its behalf by its duly authorized representative as of the 19th day of April,
1996.
VARIABLE INSURANCE PRODUCTS FUND
By: ----------------------------------
Title: -------------------------------
Date: --------------------------------
SECURITY EQUITY LIFE INSURANCE COMPANY
By: ----------------------------------
Title: -------------------------------
Date: --------------------------------
FIDELITY DISTRIBUTORS CORPORATION
By: ----------------------------------
Title: -------------------------------
Date: --------------------------------
2
<PAGE> 4
Schedule A-1
Unregistered Accounts
Name of Account Date of Resolution of Company's
Board which Established the Account
Separate Account 7 Effective as of December 15, 1994
Separate Account 18 February 8, 1996
Separate Account 19 May 14, 1996
Separate Account 20 May 14, 1996
3
<PAGE> 5
Schedule B-3
Investment Option Currently Available Under Products on Schedules B-1
and B-2
Wells Fargo Nikko Asset Allocation Fund
Wells Fargo Nikko U.S. Government Allocation Fund
GCG Trust Emerging Markets
GCG Trust Limited Maturity Bond Fund
GCG Trust Liquid Assets
General American Capital Company Money Market Fund
<F*> Offitbank Emerging Markets Fund
<F*> Offitbank High Yield Fund
<F*> Offitbank Investment Grade Global Debt Fund
<F*> Trainer Wortham Balanced Portfolio
<F**> Tremont
<F***>Evergreen VA Fund
<F***>Evergreen VA Foundation Fund
<F***>Evergreen VA Growth and Income Fund
[FN]
<F*> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022.
<F**> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022 and Contract Form #LCL1(I) 6000022.
<F***>These funds are only available to purchasers of Contract
Form #LCL2.
4
<PAGE> 6
EXHIBIT 1.A.(9)(e)
FORM OF AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
<PAGE> 7
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
Amendment No. 1 to Participation Agreement among Variable Insurance
Products Fund II (the Fund), Fidelity Distributors Corporation (the
Underwriter), and Security Equity Life Insurance Company (the Company) dated
as of November, 19, 1994 (the Agreement).
WHEREAS each of the parties desires to amend Schedule A of the
Agreement by adding three segregated asset accounts which have been or will
be established by the Company. Specifically, the Fund, Underwriter, and the
Company hereby agree to amend Schedule A-1 in its entirety, as follows:
For Schedule A-1 (Unregistered Accounts):
Name of Account Date of Resolution of Company's Board
which Established the Account
Separate Account 8 Effective as of December 15, 1994
Separate Account 9 Effective as of December 15, 1994
Separate Account 10 Effective as of December 15, 1994
WHEREAS each of the parties wishes to update the list of options which
are available for the investment of net amounts under the Contracts, as that
term is defined in the Agreement. Specifically, the Fund, Underwriter, and
the Company hereby agree to amend Schedule B-3 in its entirety, as follows:
For Schedule B-3 (Investment Option Currently Available Under Products on
Schedules B-1 and B-2):
Wells Fargo Nikko Asset Allocation Fund
Wells Fargo Nikko U.S. Government Allocation Fund
GCG Trust Emerging Markets
GCG Trust Limited Maturity Bond Fund
GCG Trust Liquid Assets
General American Capital Company Money Market Fund
<F*> Offitbank Emerging Markets Fund
<F*> Offitbank High Yield Fund
<F*> Offitbank Investment Grade Global Debt Fund
<F*> Trainer Wortham Balanced Portfolio
<F**> Tremont
<F***>Evergreen VA Fund
<PAGE> 8
(Amendment to Participation Agreement continued)
<F***>Evergreen VA Foundation Fund
<F***>Evergreen VA Growth and Income Fund
[FN]
<F*> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022.
<F**> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022 and
Contract Form #LCL1(I) 6000022.
<F***>These funds are only available to purchasers of Contract
Form #LCL2.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 1 to Participation Agreement to be executed in its name and on
its behalf by its duly authorized representative as of the 19th day of April,
1996.
VARIABLE INSURANCE PRODUCTS FUND II
By: ------------------------------------
Title: ---------------------------------
Date: ----------------------------------
SECURITY EQUTY LIFE INSURANCE COMPANY
By: ------------------------------------
Title: ---------------------------------
Date: ----------------------------------
FIDELITY DISTRIBUTORS CORPORATION
By: ------------------------------------
Title: ---------------------------------
Date: ----------------------------------
<PAGE> 9
Schedule A-1
Unregistered Accounts
Name of Account Date of Resolution of Company's Board
which Established the Account
Separate Account 8 Effective as of December 15, 1994
Separate Account 9 Effective as of December 15, 1994
Separate Account 10 Effective as of December 15, 1994
<PAGE> 10
Schedule B-3
Investment Option Currently Available Under Products on Schedules B-1
and B-2
Wells Fargo Nikko Asset Allocation Fund
Wells Fargo Nikko U.S. Government Allocation Fund
GCG Trust Emerging Markets
GCG Trust Limited Maturity Bond Fund
GCG Trust Liquid Assets
General American Capital Company Money Market Fund
<F*> Offitbank Emerging Markets Fund
<F*> Offitbank High Yield Fund
<F*> Offitbank Investment Grade Global Debt Fund
<F*> Trainer Wortham Balanced Portfolio
<F**> Tremont
<F***>Evergreen VA Fund
<F***>Evergreen VA Foundation Fund
<F***>Evergreen VA Growth and Income Fund
[FN]
<F*> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022.
<F**> These funds are only available to purchasers of Contract
Form #LCL1(G) 6000022 and Contract Form #LCL1(I) 6000022.
<F***>These funds are only available to purchasers of Contract
Form #LCL2.
<PAGE> 11
EXHIBIT 1.A.(9)(f)
FORM OF PARTICIPATION AGREEMENT
<PAGE> 12
PARTICIPATION AGREEMENT
Between
EVERGREEN VARIABLE TRUST
and
SECURITY EQUITY LIFE INSURANCE COMPANY
THIS AGREEMENT is made and entered into as of this day of
, 1996, by and between SECURITY EQUITY LIFE INSURANCE COMPANY, a New York
corporation (hereinafter the "Company"), on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A hereto
as such schedule may be amended from time to time (each such account
hereinafter referred to as the "Account" and collectively as the "Accounts"),
and Evergreen Variable Trust, a Massachusetts business trust (hereinafter the
"Investment Company").
WHEREAS, Investment Company engages in business as a diversified
open-end management investment company and is available to act as the
investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts (collectively, the
"Variable Insurance Products") to be offered by insurance companies which
have entered into participation agreements with the Investment Company
(hereinafter "Participating Insurance Companies") and also offers its shares
to certain qualified pension and retirement plans ("Qualified Plans"; and
WHEREAS, the beneficial interest in the Investment Company is
divided into several series of shares, referred to individually as "Funds"
and representing the interest in a particular managed portfolio of securities
and other assets; and
WHEREAS, Investment Company has obtained an order from the
Securities and Exchange Commission (hereinafter the "SEC"), dated March 5,
1996 (File No. 812-9856), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions
from the provisions of sections 9(a), 13 (a), 15 (a), and 15 (b) of the
Investment Company Act of 1940, as amended (hereinafter the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of Investment Company to be sold to and held by variable
annuity and variable life separate accounts of both affiliated and
unaffiliated life insurance companies and Qualified Plans (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, Investment Company is registered as an open-end
management investment company under the 1940 Act, and its shares are
registered under the Securities Act of 1933, as amended (hereinafter the
"1933 Act"); and
WHEREAS, Evergreen Asset Management Corp. (the "Adviser") is
registered as an investment adviser under the federal Investment Advisers Act
of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life and variable annuity contracts under the 1933 Act, and offers
or will offer for sale certain group variable life and variable annuity
contracts which are or will be exempt from registration; and
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors
of the Company, on the date shown
<PAGE> 13
for such Account on Schedule A hereto, to set aside and invest assets
attributable to one or more variable life and annuity contracts; and
WHEREAS, the Company has registered or will register certain of
the Accounts as a unit investment trust under the 1940 Act and certain of the
Accounts are exempt from registration; and
WHEREAS, to the extend permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Funds on behalf of
each Account to fund certain of the aforesaid variable life and variable
annuity contracts, and the Investment Company is authorized to sell such
shares to unit investment trusts such as each Account at net asset value.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and other good and valuable consideration the
receipt of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I. Sale of Investment Company Shares
1.1 The Investment Company agrees to sell to the Company those shares
of Investment Company which each Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the
Investment Company or its designee of the order for the shares of the
Investment Company. For purposes of this Section 1.1, the Company shall be
the designee of the Investment Company for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the
Investment Company; provided that the Investment Company receives notice of
such order by 9:00 a.m. Eastern time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which Investment Company calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2 The Investment Company agrees to make its shares available
indefinitely for purchase at the applicable net asset value per share by the
Company and its Accounts on those days on which the Investment Company
calculates its net asset value pursuant to rules of the Securities and
Exchange Commission (the "SEC"), and the Investment Company shall use
reasonable efforts to calculate such net asset value on each day which the
New York Stock Exchange is open for trading. Notwithstanding the foregoing,
the Board of Trustees of the Investment Company (hereinafter the "Board") may
refuse to sell shares of any Fund to any person, or suspend or terminate the
offering of shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of such Fund.
1.3 The Investment Company agrees that shares of the Investment
Company will be sold only to Participating Insurance Companies and their
separate accounts and certain qualified pension and retirement plans to the
extent permitted in the Shared Funding Exemptive Order. No shares of any
Fund will be sold to the general public.
1.4 The Investment Company will not sell Investment Company shares to
any insurance company or separate account unless an agreement continuing
provisions substantially the same as Articles I, III, V, VII, and Section 2.5
of Article II of this Agreement is in effect to govern such sales.
1.5 The Investment Company agrees to redeem for cash, on the
Company's request, any full or fractional shares of the Investment Company
held by the Company, executing such requests on a daily basis at the net
asset value next computed after receipt by the Investment
<PAGE> 14
Company or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Investment Company for
receipt of requests for redemption from each Account, and receipt by such
designee shall constitute receipt by the Investment Company; provided that
the Investment Company receives notice of such request for redemption on the
next following Business Day.
1.6 The Company agrees to purchase and redeem the shares of selected
Funds offered by the then-current prospectus of the Investment Company and in
accordance with the provisions of such prospectus. The Company agrees that
all net amounts available under the variable life and variable annuity
contracts with the form numbers(s) which are listed on Schedule B attached
hereto and incorporated herein by this reference, as such Schedule B may be
amended from time to time hereafter by mutual written agreement of all the
parties hereto (the "Contracts"), may be invested in the Investment Company,
in such other investment companies advised by the Adviser as may be mutually
agreed to in writing by the parties hereto, in the Company's general account
or in other separate accounts of the Company managed by the Company or an
affiliate, or in an investment company other than the Investment Company.
1.7 The Company shall pay for Investment Company shares on the next
Business Day after an order to purchase Investment Company shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire.
1.8 Issuance and transfer of the Investment Company's shares will be
by book entry only. Stock certificates will not be issued to the Company or
any Account. Shares ordered from the Investment Company will be recorded in
an appropriate title for each Account or the appropriate subaccount of each
Account.
1.9 The Investment Company shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the Company of any income
dividends or capital gain distributions payable on the Investment Company's
shares. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on the Fund shares in additional
shares of that Fund. The Company reserves the right to revoke this election
and to receive all such income dividends and capital gain distributions in
cash. Investment Company shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.10 The Investment Company shall make the net asset value per share
for each Fund available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated.
1.11 The Company agrees and acknowledges that the Adviser is the sole
owner of the name and mark "Evergreen" and that all use of any designation
comprised in whole or part of Evergreen (an "Evergreen Mark") under this
Agreement shall inure to the benefit of the Adviser. Except as provided in
Sections 4.1 and 4.6, the Company shall not use any Evergreen Mark on its own
behalf or on behalf of the Accounts or Contracts in any registration
statement, advertisement, sales literature, or other materials relating to
the Accounts or Contracts without the prior written consent of the Adviser.
Upon termination of this Agreement for any reason, the Company shall cease
all use of any Evergreen Mark(s) as soon as reasonable practicable.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are
registered under the 1933 Act or are exempt from registration thereunder;
that the Contract will be issued and sold in compliance in all material
respects with all applicable Federal and State laws and that the sale of the
Contracts shall comply in all material respects with state insurance
suitability requirements. The
<PAGE> 15
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally
and validly established each Account prior to any issuance or sale thereof
as a segregated asset account under Section 4240 of the Insurance Law of the
State of New York and that each Account is or will be registered as a unit
investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts or is exempt from
registration thereunder.
2.2 The Investment Company represents and warrants that Investment
Company shares sold pursuant to this Agreement shall be registered under the
1933 Act, duly authorized for issuance and sold in compliance with the laws
of the State of New York and all applicable federal and state securities laws
and that the Investment Company is and shall remain registered under the 1940
Act. The Investment Company shall amend the Registration Statement for its
shares under the 1933 and the 1940 Act from time to time as required in order
to effect the continuous offering of its shares. The Investment Company
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the
Investment Company.
2.3 The Investment Company represents that it is currently qualified
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, as amended, (the "Code) and that it will make every effort to
maintain such qualification (under Subchapter M or any successor or similar
provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
2.4 The Company represents that the Contracts are currently treated
as endowment, annuity or life insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Investment Company immediately upon
having a reasonable basis for believing that the Contracts have ceased to be
so treated or that they might not be so treated in the future.
2.5 The Investment Company currently does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act or otherwise, although it may make such payments in the future. To
the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Investment Company undertakes to have a board of trustees, a
majority of whom are not interested persons of the Investment Company,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.6 The Investment Company makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses
and investment policies) complies with the insurance laws or regulations of
the various states except that the Investment Company represents that the
Investment Company's investment policies, fees and expenses are and shall at
all times remain in compliance with the laws of the State of New York and the
Investment Company represents that its operations are and shall at all times
remain in material compliance with the laws of the State of New York to the
extent required to perform this Agreement.
2.7 The Investment Company represents that it is lawfully organized
and validly existing under the laws of the Commonwealth of Massachusetts and
that it does and will comply in all material respects with the 1940 Act.
2.8 The Investment Company represents and warrants that the Adviser
is and shall remain duly registered in all material respects under all
applicable federal and state securities laws and that the Adviser shall
perform its obligations for the Investment Company compliance in all material
respects with the laws of the State of New York and any applicable state and
federal securities laws.
<PAGE> 16
2.9 The Investment Company represents and warrants that all of its
trustees, officers, employees, investment advisers, and other
individuals/entities dealing with the money or securities of the Investment
Company are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Investment Company
in an amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from time
to time. The aforesaid Bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other entities dealing with the
money or securities of the Investment Company are and shall continue to be at
all times covered by a blanket fidelity bond or similar coverage for the
benefit of the Investment Company in an amount not less than five million
dollars ($5 million). The aforesaid Bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1 The Investment Company or its designee shall provide the Company
with as many printed copies of the Investment Company's current prospectus
and Statement of Additional Information as the Company may reasonably
request. If requested by the Company in lieu thereof, the Investment Company
or its designee shall provide camera-ready film or computer diskettes
containing the Investment Company's prospectus and Statement of Additional
Information and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
Statement of Additional Information for the Investment Company is amended
during the year) to have the prospectus for the Contracts and the Investment
Company's prospectus printed together in one document, and to have the
Statement of Additional Information for the Investment Company and the
Statement of Additional Information for the Contracts printed together in one
document. Alternatively, the Company may print the Investment Company's
prospectus and/or its Statement of Additional Information in combination with
other fund companies' prospectuses and statements of additional information.
Except as provided in the following three sentences, all expenses of printing
and distributing Investment Company prospectuses and Statements of Additional
Information shall be the expense of the Company. For Prospectuses and
Statements of Additional Information provided by the Company to its existing
owners of Contracts in order to update disclosure as required by the 1933 Act
and/or the 1940 Act, the cost of printing shall be borne by the Investment
Company. If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Investment Company's
prospectus, the Investment Company or its designee will reimburse the Company
in an amount equal to the product of A and B where A is the number of such
prospectuses distributed to owners of the Contracts, and B is the Investment
Company's per unit cost of typesetting and printing the Investment Company's
prospectus. The same procedures shall be followed with respect to the
Investment Company's Statement of Additional Information.
The Company agrees to provide the Investment Company or its designee
with such information as may be reasonably requested by the Investment
Company to assure that the Investment Company's expenses do not include the
cost of printing any prospectuses or Statements of Additional Information
other than those actually distributed to existing owners of the Contracts.
3.2 The Investment Company's prospectus shall state that the
Statement of Additional Information for the Investment Company is available
from the Company (or in the Fund's discretion, the Prospectus shall state
that such Statement is available from the Investment Company).
<PAGE> 17
3.3 The Investment Company, at its expense, shall provide, or cause
to be provided, the Company with copies of its proxy statements, reports to
shareholders, and other communications (except for prospectuses and
Statements of Additional Information, which are covered in Section 3.1) to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote Investment Company shares in accordance with
instructions received from Contract owners: and
(iii) vote Investment Company shares for which no instructions
have been received in the same proportion as Investment
Company shares of such Fund for which instructions have
been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Investment Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each
of their separate accounts participating in the Investment Company calculates
voting privileges in a manner consistent with the standards set forth on
Schedule C attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance
Companies.
3.5 The Investment Company will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular the Investment
Company will either provide for annual meetings or comply with the
requirements of Section 16(c) of the 1940 Act (although the Investment
Company is not one of the trusts described in Section 16(c) of that Act) as
well as with Sections 16(a) and, if and when applicable, 16(b). Further, the
Investment Company will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Investment Company or its designee, each piece of sales literature or other
promotional material in which the Investment Company or the Adviser is named,
at least fifteen Business Days prior to its use. No such material shall be
used if the Investment Company or its designee object to such use within
fifteen Business Days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Investment Company or
concerning the Investment Company in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or prospectus for the Investment Company shares, as
such registration statement and prospectus may be amended or supplemented
from time to time, or in reports or proxy statements for the Investment
Company, or in sales literature or other promotional material approved by the
Investment Company or its designee, except with the permission of the
Investment Company or its designee.
4.3 The Investment Company or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company or its separate
Accounts are named at least fifteen Business Days
<PAGE> 18
prior to its use. No such material shall be used if the Company or its
designee objects to such use within fifteen Business Days after receipt of
such material.
4.4 The Investment Company shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus or offering materials for
the Contracts, as such may be amended or supplemented from time to time, or
in published reports for each Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Investment Company or its designee will provide to the
Company at least one complete copy of all registration statements,
prospectuses, Statements of Additional Information, reports, proxy
statements, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments to any of
the above, that relate to the Investment Company or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 The Company will provide to the Investment Company at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities. In the case of
unregistered Contracts, in lieu of providing prospectuses and Statements of
Additional Information, the Company shall provide the Investment Company with
one complete copy of the offering materials for the Contracts.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
and registration statements, prospectuses, Statements of Additional
Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1 The Investment Company shall pay no fee or other compensation to
the Company under this Agreement, except that if the Investment Company or
any Fund adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Investment Company's distributor may make
payments to the Company or to the underwriter for the Contracts if and in
amounts agreed to by the such distributor in writing and such payments will
be made out of existing fees otherwise payable to the distributor, past
profits of the distributor, or other resources available to the distributor.
No such payments shall be made directly by the Investment Company.
Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Investment Company
under this Agreement shall be paid by the Investment Company or its designee.
The Investment Company shall see to it that all its shares are registered and
authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Investment Company, in accordance
with applicable state laws prior to their sale. The Investment Company
shall bear or
<PAGE> 19
cause to be borne the expenses for the cost of registration and
qualification of the Investment Company's shares, preparation and filing of
the Investment Company's prospectus and registration statement, proxy
materials and reports, setting the prospectus in type, setting in type and
printing the proxy materials and reports to shareholders (including the costs
of printing a prospectus that constitutes an annual report), the preparation
of all statements and notices required by any federal or state law, all taxes
on the issuance or transfer of the Investment Company's shares.
5.3 The Company shall bear the expenses of distributing the
Investment Company's prospectus, proxy materials, and reports to owners of
Contracts issued by the Company.
ARTICLE VI. Diversification
6.1 The Investment Company will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable contracts under the Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Investment Company will at
all times comply with Section 817(h) of the Code and Treasury Regulation
1.817-5, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations.
ARTICLE VII. Potential Conflicts
7.1 The Board will monitor the Investment Company for the existence
of any irreconcilable material conflict between the interests of the contract
owners of all separate accounts investing in the Investment Company. An
irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Fund are
being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company in writing if it
determines that an irreconcilable material conflict exists and the
implications thereof.
7.2 The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemptive Order by
providing the Board with all information reasonably necessary for the Board
to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever contract owner voting
instructions are disregarded. These responsibilities of the Company will be
carried out with a view only to the interests of the Contract owners.
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested members, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Investment Company or any Fund and reinvesting such assets in a different
investment medium, including (but not limited to) another Fund, or submitting
the question whether such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
----
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
<PAGE> 20
affected Contract owners the option of making such a change; and (2),
establishing a new registered management investment company or managed
separate account.
7.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Investment Company's election, to
withdraw the affected Account's investment in the Investment Company and
terminate this Agreement with respect to such Account; provided, that no
charge or penalty will be imposed as a result of such withdrawal, and further
provided, however that such withdrawal and termination shall be limited to
the extent required by the foregoing irreconcilable material conflict as
determined by a majority of the disinterested members of the Board. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Contract owners. Any such withdrawal and
termination must take place within six (6) months after the Investment
Company gives written notice that this provision is being implemented, and
until the end of that six month period the Investment Company shall continue
to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Investment Company.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Investment Company and terminate this
Agreement with respect to such Account within six months after the Board
informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Investment Company shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Investment
Company.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Investment Company or the Adviser (or any other
investment adviser of the Investment Company) be required to establish a new
funding medium for the Contracts. The Company shall not be required by
Section 7.3 to establish a new funding medium for the Contracts if an offer
to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In
the event that the Board determines that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Investment Company and terminate
this Agreement within six (6) months after the Board informs the Company in
writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7 No less than annually, the Company shall submit to the Board such
reports, materials, or data as the Board may reasonably request so that the
Board may fully carry out its obligations. Such reports, materials, and data
shall be submitted more frequently if deemed appropriate by the Board.
7.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Investment Company or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable; and (b) Sections 3.4,
<PAGE> 21
3.5, 7.1, 7.2, 7.3, 7.4. and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the
Investment Company and each member of the Board and officers and each person,
if any, who controls the Investment Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1)against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Company) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Investment Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in any Registration Statement, prospectus or other
offering materials for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of
the Investment Company for use in any Registration
Statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Investment Company's shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the Registration Statement, prospectus or sales literature of
the Investment Company not supplied by the Company, or
persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Investment
Company shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the
Investment Company or any amendment thereof or supplement
thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon
information furnished to the Investment Company by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of a result from any material breach of any
representation or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and
in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
<PAGE> 22
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to the Investment Company, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provisions with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company
of any such claim shall not relieve the Company from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Company shall be
entitled to participate, at its own expense, in the defense of such action.
The Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Investment Company shares or the Contracts or the
operation of the Investment Company.
8.2 Indemnification by the Investment Company
8.2(a). The Investment Company agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Investment Company or
litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the sale or acquisition of
the Investment Company's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement of prospectus or sales
literature of the Investment Company (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Investment Company by or on
behalf of the Company for use in the Registration
Statement or prospectus for the Investment Company or in
the sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Investment Company shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in any
Registration Statement, prospectus, other offering
<PAGE> 23
materials or sales literature for the Contracts not
supplied by the Investment Company or persons under its
control) or wrongful conduct of the Investment Company, the
Adviser, or persons under their control, with respect to
the sale or distribution of the Contracts or Investment
Company shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in any Registration
Statement, prospectus, other offering materials or sales
literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, it such statement or
omission was made in reliance upon information furnished
to the Company by or on behalf of the Investment Company;
or
(iv) arise as a result of any failure by the Investment Company
to provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation or warranty made by the Investment Company
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Investment
Company; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Investment Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or
by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or each Account, whichever is
applicable.
8.2(c). The Investment Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified the
Investment Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify the Investment Company of any such claim shall not relieve
the Investment Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Investment Company will be
entitled to participate, at its own expense, in the defense thereof. The
Investment Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Investment Company to such party of the Investment Company's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Investment Company
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Investment Company of
the commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
ARTICLE IX. Applicable Law
<PAGE> 24
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. To the extent they are applicable, this Agreement shall be subject
to the provisions of the 1933 Act, the Securities Exchange Act of 1934, and
1940 Act, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may
grant (including, but not limited to, the Shared Funding Exemptive Order) and
the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination of Agreement
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days'
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the
Investment Company with respect to any Fund based upon the
Company's determination that shares of such Fund are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the
Investment Company with respect to any Fund in the event
any of the Fund's shares are not registered, issued, or
sold in accordance with applicable state or federal law or
such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the
Investment Company with respect to any Fund in the event
that such Fund ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company
reasonably believes that the Investment Company may fail to
so qualify; or
(e) termination by the Company by written notice to the
Investment Company with respect to any Fund in the event
that such Fund fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by the Investment Company by written notice to
the Company, if the Investment Company shall determine, in
its sole judgment exercised in good faith, that the Company
or its affiliated companies has suffered a material adverse
change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(g) termination by the Company by written notice to the
Investment Company, if the Company shall determine, in its
sole judgment exercised in good faith, that the Investment
Company has suffered a material adverse change in its
business, operations, financial condition, or prospects
since the date of this Agreement or is the subject of
material adverse publicity; or
(h) termination at the option of the Investment Company if the
Contracts cease to qualify as annuity contracts or life insurance contracts,
as applicable, under the Code, or if the Investment Company reasonably
believes that the Contracts may fail to so qualify; or
(i) termination at the option of the Investment Company if the
Contracts are not registered, issued, or sold in accordance with
applicable federal and/or state law.
<PAGE> 25
10.2 Notwithstanding any termination of this Agreement, the Investment
Company shall at the option of the Company, continue to make available
additional shares of the Investment Company pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Investment
Company, redeem investments in the Investment Company, or invest in the
Investment Company upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply
to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.3 The Company shall not redeem Investment Company shares
attributable to the Contracts (as opposed to Investment Company shares
attributable to the Company's assets held in any of the Accounts) except (i)
as necessary to implement Contract owner initiated transactions, or (ii) as
required by state or federal laws or regulations or judicial or other legal
precedent of general application (hereinafter referred to as a "Legally
Required Redemption"). Upon request, the Company will promptly furnish to
the Investment Company the opinion of counsel for the Company (which counsel
shall be reasonably satisfactory to the Investment Company) to the effect
that any redemption pursuant to clause (ii) above is a Legally Required
Redemption. Furthermore, except in cases where permitted under the terms of
the Contracts, the Company shall not prevent Contract owners from allocating
payments to a Fund that was otherwise available under the Contracts without
first giving the Investment Company ninety (90) days notice of its intention
to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party ad the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Investment Company:
Evergreen Variable Trust
2500 Westchester Avenue
Purchase, New York 10577
Attention: Joseph J. McBrien, Esq.
If to the Company:
Security Equity Life Insurance Company
84 Business Park Drive, Suite 303
Armonk, New York 10504
Attention: William C. Thater, President
<PAGE> 26
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Investment Company must look solely
to the property of the Investment Company for the enforcement of any claims
against the Investment Company as neither the Board, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Investment Company.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement, shall not disclose, disseminate or utilize
such names and addresses and other confidential information until such time
as it may come into the public domain without the express written consent of
the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provisions of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the National Association of Securities Dealers, Inc., and state insurance
regulators) and shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby. Notwithstanding the
generality of the foregoing, each party hereto further agrees to furnish the
California Insurance Commissioner with any information or reports in
connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable life
insurance operations of the Company are being conducted in a manner
consistent with the California Variable Life Insurance Regulations and any
other applicable law or regulations.
12.7 The Investment Company agrees that to the extent any advisory or
other fees received by the Investment Company or the Adviser are determined
to be unlawful in legal or administrative proceedings under the 1973 NAIC
model variable life insurance regulation in the states of California,
Colorado, Maryland, or Michigan, the Investment Company shall indemnify and
reimburse the Company for any out of pocket expenses and actual damages the
Company has incurred as a result of any such proceeding; provided however
that the provisions of Section 8.2(b) and 8.2(c) shall apply to such
indemnification and reimbursement obligation. Such indemnification and
reimbursement obligation shall be in addition to any other indemnification
and reimbursement obligations of the Investment Company under this Agreement.
12.8 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.9 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.10 The Company shall furnish, or shall cause to be furnished, to the
Investment Company or its designee copies of the following reports:
<PAGE> 27
(a) the Company's annual statement prepared
under statutory Accounting principles),
as soon as practical and in any event
within 90 days after the end of each
fiscal year;
(b) the Company's quarterly statements
(statutory), as soon as practical and in
any event within 45 days after the end
of each quarterly period:
(c) any financial statement, proxy
statement, notice or report of the
Company sent to stockholders or
policyholders, as soon as practical
after the delivery thereof;
<PAGE> 28
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed in its name and on behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
SECURITY EQUITY LIFE
INSURANCE COMPANY
ATTEST: --------------------- BY -------------------------
Secretary President
DATE:
EVERGREEN VARIABLE TRUST
ATTEST: --------------------- BY --------------------------
Secretary President
DATE:
<PAGE> 29
Schedule A
Accounts
Name of Account Date of Resolution of Company's
Board which Established the
Account
Separate Account 13 Effective December 30, 1994, as amended
Separate Account 21
Separate Account 22
Separate Account 23
<PAGE> 30
Schedule B
Contracts
1. Contract Form Numbers:
2. Funds currently available to act as investment vehicles for certain of the
above-listed contracts:
<PAGE> 31
Schedule C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for
the handling of proxies relating to the Investment Company by the Investment
Company and the Company. The defined terms herein shall have the meanings
assigned in the Participation Agreement except that the term "Company" shall
also include the department or third party assigned by the Insurance Company
to perform the steps delineated below.
1. The number of proxy proposals is given to the Company by the Investment
Company as early as possible before the date set by the Investment Company
for the shareholder meeting to facilitate the establishment of tabulation
procedures. At this time the Investment Company will inform the Company of
the Record, Mailing and Meeting dates. This will be done verbally
approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number of
units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers as soon as possible, but no later than two weeks after
the Record Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts as of the
Record Date.
3. When required by law, the Investment Company's Annual Report must be
sent to each Customer by the Company either before or together with the
Customers' receipt of a proxy statement. The Investment Company will provide
at least one copy of the last Annual Report to the Company.
4. The text and format for the Voting Instruction Cards ("Cards" or
"Card") is provided to the Company by the Investment Company. The Company,
at its expense, shall produce and personalize the Voting Instruction Cards.
The Legal Department of the Investment Company's Adviser or its affiliate
must approve the Card before it is printed. Allow approximately 2-4 business
days for printing information on the Cards. Information commonly found on
the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for us in tracking and
verification of votes (already on Cards as
printed by the Investment Company)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Adviser's Legal Department will develop, produce,
and the Investment Company will pay for the Notice of Proxy and the Proxy
Statement (one document).
<PAGE> 32
Printed and folded notices and statements will be
sent to Company for insertion into envelopes (envelopes and return envelopes
are provided and paid for by the Insurance Company). Contents of envelope
sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended.
(This is a small, single sheet of paper that
requests Customers to vote as quickly as
possible and that their vote is important. One
copy will be supplied by the Investment Company.
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by the Adviser's
Legal Department.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Adviser's Legal Department.
7. Package mailed by the Company.
<F*> The Investment Company must allow at least a 15-day solicitation
time to the Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not including) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "John Smith,
Trustee," then that is the exact legal name to be printed on the Card and is
the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any Cards
that have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation
of votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal audit
of that vote should occur. This may entail a recount.
<PAGE> 33
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Investment Company receives the
tabulations stated in terms of a percentage and the number of shares.) The
Adviser's Legal Department must review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the
Adviser's Legal Department on the morning of the meeting not later than 9:00
a.m. Eastern time. The Adviser's Legal Department may request an earlier
deadline if required to calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as original copy of the final vote. The
Adviser's Legal Department will provide a standard form for each
Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Adviser's Legal
Department will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE> 1
EXHIBIT 3.(iii)
OPINION OF RALPH A. GORTER, FSA, AND CONSENT
<PAGE> 2
April 19, 1996
Board of Directors
Re: Security Equity's Variable Life Separate Account 13
To The Board of Directors:
This opinion is furnished in connection with the filing attachments to the
Registration Statement on Form S-6 (No. 33-88524) which covers premiums
received under certain flexible premium variable life insurance contracts
("Contract") issued by Security Equity Life Insurance Company (the "Company").
The Prospectus included in the Registration Statement describes Contracts
which are issued by the Company. The Contract forms were reviewed under my
direction, and I am familiar with the Registration statement and exhibits
thereto. In my opinion:
1. The "sales load" as defined in paragraph (c)(4) of Rule 6e-3(T) under
the Investment Company Act of 1940, will not exceed 9 per centum 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
named insured, based on the 1980 Commissioners Standard Ordinary Smoker/
Nonsmoker Mortality Table. The sales load on payments made in excess of
such sum will not exceed 9.0%. Subject to the foregoing, the sales load
on payments made up to such sum will not exceed 30 per centum of payments
up to one guideline annual premium, plus 10 per centum of payments greater
than one but no greater than two guideline annual premiums, plus 9% of
premiums in excess of two guideline annual premiums.
2. The illustrations of death benefits, insurance account value, net cash
surrender values and accumulated premiums included in the Registration
Statement and based upon assumptions stated in the illustrations, are
consistent with the provisions of the Contract. The rate structure of the
Contract has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear more favorable
to a prospective purchaser of a Contract for the ages and sexes shown, than
to prospective purchasers of a Contract for other ages and sex.
3. The table of representative Minimum Death Benefit factors included in the
"Death Benefits Under the Contract" section is consistent with the provision
of the Contract.
<PAGE> 3
4. The charge for federal taxes that is imposed under the Contracts is
reasonable in relation to the Company's increased tax burden under Section 848
of the Internal Revenue Code of 1986, as amended, resulting from the Company's
receipt of such premiums. The cost of Company capital (rate of return on
surplus) used to satisfy its increased federal tax burden under Section 848
is, in essence, the Company's targeted rate of return. The targeted rate of
return that is used in calculating the level of such charges is reasonable,
and the factors taken into account by the Company in determining such targeted
rate of return are the appropriate factors to consider in determining such
targeted rate of return.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of my name relating to actuarial matters under the
heading "Experts" in the Prospectus.
/s/ Ralph Gorter
----------------------------------------
Ralph Gorter, F.S.A.
Second Vice President - Actuary
<PAGE> 1
EXHIBIT 6.
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
<PAGE> 2
[Sutherland, Asbill & Brennan]
CONSENT OF SUTHERLAND, ASBILL & BRENNAN
We consent to the reference to our firm under the heading "Legal
Matters" in each prospectus included in Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6 for certain variable life insurance
policies issued through Security Equity Life Insurance Company Separate
Account 13 of Security Equity Life Insurance Company (File No. 33-88524). In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933.
/s/ Sutherland, Asbill & Brennan
SUTHERLAND, ASBILL & BRENNAN
Washington, D.C.
April 25, 1996
<PAGE> 1
EXHIBIT 9.
CONSENT OF KPMG PEAT MARWICK LLP
<PAGE> 2
Independent Auditors' Consent
-----------------------------
The Board of Directors
Security Equity Life Insurance Company
We consent to the use of our reports included herein and to the
reference of our firm under the heading "Experts" in the
Registration Statement and Prospectus for Security Equity Separate
Account 13.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 29, 1996
