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As filed with Securities and Exchange Commission on May 1, 1998
Registration Nos. 33-88524; 811-8938
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
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)
CHRISTOPHER A. MARTIN, ESQ.
Counsel, 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
It is proposed that this filing will become effective:
/x/ Immediately upon filing pursuant to paragraph (b), of Rule 485.
/ / on (date) pursuant to paragraph (b) of Rule 485.
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
/ / On (date) 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 1997 was filed on March 13, 1998.
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<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.
7 Not Required.
8 Not Required.
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.
28 Management of the Company.
29 Information about SELIC.
30 Inapplicable.
31 Inapplicable.
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FORM N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
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>
This Post-Effective Amendment No. 3 to the Registration Statement on Form
S-6 includes two prospectuses describing the Contracts. The first prospectus
("Prospectus Version A") describes the Contracts as they will be sold in the
general market. The second prospectus ("Prospectus Version B") describes the
Contracts as they will be sold primarily through a particular bank-affiliated
distribution network.
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PROSPECTUS VERSION A
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PROSPECTUS
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
ISSUED BY SECURITY EQUITY LIFE INSURANCE COMPANY
SECURITY EQUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT 13
PROSPECTUS DATED MAY 1, 1998
SECURITY EQUITY LIFE INSURANCE COMPANY
84 BUSINESS PARK DRIVE
SUITE 303
ARMONK, NY 10504
TEL: (914) 273-1290
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
ISSUED BY
SECURITY EQUITY LIFE INSURANCE COMPANY
84 BUSINESS PARK DRIVE, SUITE 303
ARMONK, NY 10504
TEL: (914) 273-1290
This Prospectus describes the Individual Flexible Premium Variable Life
Insurance Contract (the "Contract") offered by Security Equity Life Insurance
Company ("SELIC" or the "Company"). The Contract is designed to provide
lifetime insurance protection to age 100 and at the same time provide maximum
flexibility to vary premium payments and change the level of death benefits
payable under the Contract. This flexibility allows a Contract Holder to
provide for changing insurance needs under a single insurance Contract. A
Contract Holder also has the opportunity to allocate Net Premiums among
several investment portfolios with different investment objectives.
The Contract provides for: (1) a Net Cash Value that can be obtained by
surrendering the Contract; (2) Contract loans; and (3) a Death Benefit
payable at the Insured's death. Contract Holders may also attach a rider
that amends the Contract to instead provide insurance coverage on the lives
of two Insureds, with proceeds payable upon the death of the last surviving
Insured. As long as a Contract remains in force, the Death Benefit will not
be less than the current Face Amount of the Contract. A Contract will remain
in force so long as its Net Cash Value is sufficient to pay certain monthly
charges imposed in connection with the Contract.
During the "Free Look" period, Net Premiums are allocated to the Money Market
Division as specified in Appendix A. After the end of the "Free Look"
period, Net Premiums may be allocated to one or more of the Available
Divisions of the Separate Account or to the Fixed Fund. If Net Premiums are
allocated to the Separate Account, the duration of the Contract and the
amount of the Insurance Account Value will vary to reflect the investment
performance of the Available Divisions selected by the Contract Holder, and
depending on the Death Benefit option elected, the amount of the Death
Benefit above the minimum may also vary with that investment performance. The
Contract Holder bears the entire investment risk for all amounts allocated to
the Separate Account; there is no minimum guaranteed Insurance Account Value.
Each Available Division of the Separate Account 13 will invest in one of the
Underlying Portfolios shown in Appendix A. The accompanying Prospectuses for
these portfolios describe the investment objectives and policies, and the
risks of the portfolios. This Prospectus generally describes only the
portion of the Contracts involving the Available 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
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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 May 1, 1998.
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<TABLE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
Definitions 6
Summary of Contract 10
Explanation of a Case 10
Purpose of the Contract 11
The Contract Holder and Beneficiary 11
Availability of the Contract 12
Joint Insureds 12
Contract Values 12
The Separate Account 13
Death Benefit 13
Premiums 13
Charges and Deductions 14
Contract Loans 15
Surrender and Partial Withdrawals 16
Termination 16
Illustrations 16
Replacement of Existing Coverage 16
Tax Considerations 16
Free Look and Conversion Rights 17
Information About SELIC 17
The Separate Account 18
The Contract 19
Availability of Insurance Coverage 20
Evidence of Insurability 21
Premiums 21
Contract Values 24
Transfers 26
Contract Loan Privilege 27
Surrender and Partial Withdrawals 30
Death Benefits Under the Contract 32
Charges and Deductions 37
Premium Load 37
Daily Charges 39
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<CAPTION>
TABLE OF CONTENTS
(continued)
PAGE
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<S> <C>
Monthly Charges 39
Underwriting Charges 42
Annual Charges 43
Other Charges 43
Termination 44
Maturity Date 44
Termination for Insufficient Net Cash Value 44
Reinstatement of a Contract Terminated for Insufficient Value 45
The Fixed Fund 45
General Description 46
Allocation of Amounts to the Fixed Fund 46
Fixed Fund Benefits 46
Fixed Fund Insurance Account Value 46
Fixed Fund Transfers, Surrenders, Partial Withdrawals and Contract Loans 48
Federal Income Tax Considerations 48
Additional Provisions of the Contract 55
Addition, Deletion, or Substitution of Investments 55
Incontestability 56
Conversion Rights 56
Misstatement of Age or Sex 57
Suicide 57
Availability of Funds 57
Entire Contract 58
Representations in Application 58
Contract Application and Contract Schedules 58
Right to Amend Contract 58
Computation of Contract Values 59
Claims of Creditors 60
Notice 59
Assignments 59
Construction 59
Severability 59
State Variations 60
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<CAPTION>
TABLE OF CONTENTS
(continued)
PAGE
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<S> <C>
Unisex Requirements Under Montana Law 61
Records and Reports 60
Sale of the Contract 60
Voting Rights 61
State Regulation of the Company 62
Management of the Company 63-65
Legal Matters 66
Legal Proceedings 66
Experts 66
Additional Information 66
Financial Statements 67
Appendix A - Underlying Portfolios A1
Appendix B - Contract Riders B1-B7
Appendix C - Illustrations of Death Benefits and Net Insurance Account Value C1-C11
</TABLE>
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DEFINITIONS
See Appendix B for modifications to Definitions in the event that riders are
added to the Contract.
ATTAINED AGE: The Insured's Issue Age under the Contract plus the number of
completed Contract Years.
APPLICATION: The application form that must be completed by any purchaser of
the Contract, before the Contract can be issued.
AVAILABLE DIVISION: A Division of the Separate Account to which Net Premiums
may be allocated or Separate Account Value or Fixed Fund Insurance Account
Value may be transferred under the Contracts. Each Available Division
invests exclusively in the shares of a corresponding Underlying Portfolio
listed in Appendix A.
BENEFICIARY: The person(s), entity or entities named on SELIC's records to
receive the insurance proceeds payable under the Contract after the Insured
dies.
BORROWED FUND: An account established in SELIC's General Account for any
amounts transferred from the Available Divisions and the Fixed Fund and held
as collateral for Contract Loans. (See "Contract Loan Privilege").
CASE: A grouping of one or more Contracts connected by a non-arbitrary
factor, presented to SELIC as a group. (An example of such a factor is a
common employer for the Insureds under each Contract in the grouping). (See
"Explanation of a Case").
CONTRACT: The Flexible Premium Variable Life Insurance Contract offered by
SELIC that is described in this Prospectus.
CONTRACT ANNIVERSARY: An anniversary of the Contract Date. It marks the
start of a new Contract Year.
CONTRACT DATE: The date used to begin calculating Monthly Charges and Annual
Charges under the Contract. The Contract Date is shown in the Contract.
CONTRACT HOLDER: The owner of the Contract, as shown in the records of
SELIC. All of the rights and benefits of the Contract belong to the Contract
Holder, unless otherwise stated in the Contract.
CONTRACT LOAN: An amount borrowed by the Contract Holder from the Insurance
Account Value of the Contract.
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CONTRACT MONTH: Each one month period commencing on the Contract Date and on
each Monthiversary thereafter.
CONTRACT YEAR: Each successive twelve month period starting on the Contract
Date and on each Contract Anniversary thereafter.
DEATH BENEFIT: The benefit payable to the Beneficiary when the Insured dies.
DEATH BENEFIT OPTION ACCUMULATION RATE: The rate at which Premiums are
accumulated for purposes of calculating Death Benefit Option 3.
DIVISION: A sub-account of the Separate Account. Only Available Divisions
(described in this Prospectus) are available for investment under the
Contracts.
EMPLOYER: A corporation, partnership, sole proprietorship, association,
trust, and other similar or related entity. Affiliated Employers are
considered one Employer.
EXCESS PREMIUM: Any amount of Premium paid in a Contract Year over and above
the Target Premium.
FACE AMOUNT: The amount of insurance under the contract, excluding any
Supplemental Term Insurance Amount. The Initial Face Amount on the Issue
Date is shown in the Contract. Thereafter, it may change in accordance with
the terms of the Contract.
FIXED FUND: The portion of the Insurance Account Value allocated to the
Company's General Account (excluding the Borrowed Fund).
GOVERNING JURISDICTION: The state or jurisdiction in which the Contract is
delivered and whose laws govern its terms. The Governing Jurisdiction is set
forth in the Contract.
HOME OFFICE: The principal administrative office of SELIC, which is located
at 84 Business Park Drive, Suite 303, Armonk, NY 10504.
INITIAL NET PREMIUM: The Initial Premium paid under the Contract less the
applicable Premium Load.
INITIAL PREMIUM: The first Premium paid under the Contract.
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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 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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NET AMOUNT AT RISK: The Net Amount at Risk is calculated on any
Monthiversary by subtracting the Insurance Account Value from the Death
Benefit, discounted one month at a 4.00% 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
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).
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TOTAL INSURANCE COVERAGE: Total amount of insurance, including coverage
provided by any Supplemental Term Insurance Rider under the Contract.
UNDERLYING PORTFOLIO: An investment portfolio, managed by one or more
investment managers, the shares or units of which comprise the investment of
an Available Division of the Separate Account.
VALUATION DAY: A day that is a regular business day of SELIC and that the
New York Stock Exchange (or its successor) is open for trading. Each
Valuation Day ends at the Valuation Time.
VALUATION TIME: The close of trading on the New York Stock Exchange (or any
successor exchange), which is generally 4 p.m. Eastern Time.
VALUATION PERIOD: The period of time between Valuation Days. A Valuation
Period begins immediately after the Valuation Time on the previous Valuation
Day and ends as of the Valuation Time on the next succeeding Valuation Day.
SUMMARY OF THE CONTRACT
This summary provides a brief overview of the more significant aspects of the
Contract and should be read in conjunction with the detailed information
appearing elsewhere in this Prospectus. Further detail is provided in the
Contract, the Application, and the prospectuses for the Underlying
Portfolios. See Appendix B for modifications to this section in the event
that riders are added to the Contract.
EXPLANATION OF A CASE
Every Contract issued by SELIC will be part of a Case. A Case is a grouping
of one or more Contracts linked together by a non-arbitrary factor such as a
common Employer of each Insured under the Contracts. SELIC in its sole
discretion will determine what constitutes a Case. A Case may have one
Contract Holder (i.e., a single entity owns all the Contracts in the Case)
----
or as many Contract Holders as there are Contracts in the Case. The Premium
Load, Minimum Initial Premiums, and underwriting standards for an individual
Contract are determined based on the characteristics of the Case to which the
Contract belongs. (See "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
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<PAGE> 16
Contract will be treated as an individual Contract, yet will also be
linked to the Case it belongs for purposes of determining certain Contract
features and charges.
PURPOSE OF THE CONTRACT
The Contract offers a means to obtain insurance protection relating to the
life of a person in whom the Contract Holder has an insurable interest. A
Death Benefit is payable to the applicable Beneficiary upon the death of the
Insured so long as the Contract remains in force. The accumulated values and
benefits under the Contract may be used by Contract 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. (See "Termination -- Termination for Insufficient Net Cash Value"). 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
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<PAGE> 17
are paid or Contract values maintained, then Contracts may not achieve the
purpose for which they were purchased, or may lapse. (See "Termination --
Termination for Insufficient Net Cash Value"). 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.")
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.
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<PAGE> 18
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 list 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
Appendix A of 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 Underlying Portfolio has a
different investment objective, and is described 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 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> 19
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, 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 and thereafter (a maximum of 4% of Premiums paid during
each Contract Year up to a Target Premium 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 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) and a charge for the cost of insurance provided under the
Contract. Monthly Charges also include any charges for additional benefits
provided by Contract rider and charges for a special class rating, if
applicable.
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SELIC will deduct an Underwriting Charge, not to exceed $100, on the Issue
Date for Contracts issued on a medically underwritten basis, and on any
Monthiversary following any medical underwriting in connection with certain
Contract changes. This charge changes if a Joint and Last Survivor Rider is
added to the Contract. See Appendix B. SELIC may reduce or waive the
Underwriting Charge under certain circumstances.
On each Contract Anniversary the Insurance Account Value attributable to the
Separate Account and Fixed Fund is: (i) reduced by Contract Loan interest due
and unpaid for the previous Contract Year; and (ii) increased by the interest
credited to the Borrowed Fund during the previous Contract Year. The net
result is that if Contract Loan interest is not paid when due, then on the
Contract Anniversary, the Insurance Account Value attributable to the
Separate Account and Fixed Fund will be reduced by the difference between the
Contract Loan interest due and unpaid for the previous Contract Year and the
interest credited to the Borrowed Fund during the previous Contract Year.
No charges are currently made to the Separate Account for federal, state or
local taxes that SELIC incurs which may be attributable to the Separate
Account. However, SELIC may impose such a charge in the future to provide
for any tax liability of the Separate Account.
Investment advisory fees and operating expenses of each Underlying Portfolio
are paid by such portfolio, and are reflected in the Separate Account Value
of a Contract.
At the Contract Holder's request, SELIC will provide an illustrative report
in addition to the reports it customarily provides. Depending upon the type
and complexity of the requested report, SELIC may charge a reasonable fee not
to exceed $50.
CONTRACT LOANS
The Contract Holder may obtain a Contract Loan under the Contract on any
Monthiversary. There is a maximum amount that may be borrowed, and interest
will be charged for any amount borrowed in accordance with the Contract Loan
interest rate option selected by the Contract Holder in the Application or as
subsequently changed. (See "Contract Loan Privilege").
Contract Loans are deducted from the amount payable on surrender of the
Contract and are also deducted from any Death Benefit proceeds. Contract
Loan interest accrues daily, and if it is not repaid each year, it is
capitalized and added to the Contract Loan. Depending upon the investment
performance of the Available Divisions and the amounts borrowed, Contract
Loans may cause a Contract to lapse. If the Contract lapses with a Contract
Loan outstanding, adverse tax consequences may result. A Contract Loan may
also have other Federal income tax consequences. (See "Federal Income Tax
Considerations").
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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 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.
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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 10 days after
it is received by the Contract Holder, 10 days after SELIC mails or
personally delivers the Notice of Withdrawal Right to the Contract Holder, or
within 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 life insurance company domiciled in Missouri. General American
is, in turn, wholly-owned by GenAmerica Corporation, an intermediate stock
holding company, which is, in turn, wholly-owned by General American Mutual
Holding Company, a mutual holding company organized under Missouri law.
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 49 states, the District of
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Columbia, and 10 Canadian provinces. The principal offices of General American
are located in St. Louis, Missouri.
SELIC is admitted to sell life insurance and annuities in 40 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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<PAGE> 24
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES OF ANY UNDERLYING PORTFOLIO
WILL BE ACHIEVED.
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
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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); and
(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
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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 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 depends upon the Insured's Issue Age, sex, underwriting class and
Face Amount. The Target Premium for the initial Face Amount is determined to
be the level annual premium payable to age 100 for a level death benefit that
under guaranteed cost of insurance rates and guaranteed policy expense
charges and a 4.00% net interest rate (after the M&E charge) the cash value
will accumulate to equal the initial Face Amount at age 100. The Target
Premium is determined on the Issue Date. It is not recalculated if there is
an increase in the Face Amount. It is recalculated if there is a decrease in
the Face Amount, but only if the new Face Amount is below the initial Face
Amount.
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SELIC has the right to refund promptly any amount of Premium paid if
necessary to keep the Contract in compliance with state and federal laws,
including federal income tax laws. In particular, if a Contract Holder pays
Premium amounts during the first Contract Year significantly in excess of the
Planned Renewal Premium, SELIC reserves the right to refund promptly part or
all of such excess if applicable state insurance law restricts the amount of
commissions that would otherwise be payable to the writing agent in
connection with part or all of such Premium amounts.
SELIC will not issue the Contract unless it receives a Premium payment at
least equal to the initial Minimum Premium amount. The initial Minimum
Premium under the Contract is equal to twelve times the Monthly Charges due
under the Contract in the first Contract Month, plus any applicable Premium
Load. SELIC may, in its sole discretion, require a reduced initial Minimum
Premium in connection with the purchase of Contracts sold by licensed agents
of SELIC that are also registered representatives of Walnut Street
Securities, Inc. ("Walnut Street"), the distributor of the Contracts, or
selected broker-dealers or through banks that have entered into written sales
agreements with Walnut Street.
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 Money Market Division of 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
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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, 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 and, or the Fixed Fund
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; 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 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 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.
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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 proper
form after the Valuation Time on a Valuation Day, will be effected as of the
Valuation Time of the following Valuation Day.
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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;
(2) Administration Charges;
(3) Any charges that are deducted from the Insurance Account Value for
benefits provided by Contract riders;
(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;
(2) Any amounts transferred to that Available Division from another
Available Division, the Fixed Fund or the Borrowed Fund; and
(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;
(3) The Cost of Insurance Charges allocated to that Available Division
(deducted only on a Monthiversary);
(4) The Administration Charges allocated to that Available Division
(deducted only on a Monthiversary);
(5) Any partial withdrawals taken from such Contract and allocated to that
Available Division;
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<PAGE> 31
(6) Any charges allocated to that Available Division that are deducted from
the Insurance Account Value for benefits provided by Contract riders;
(7) Any Underwriting Charges allocated to that Available Division;
(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 "The Contract -- Contract Loan Privilege."
For description of the Insurance Account Value in the Fixed Fund and the
Borrowed Fund, see "The Contract -- 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
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 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:
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(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 whole percentage. SELIC will
execute a transfer only upon receipt of a properly executed transfer request.
Written confirmation of each transfer will be sent to the Contract Holder.
Notwithstanding the above limitations, which are set forth in the Contract,
SELIC will, as a matter of administrative practice, allow up to 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:
(1) The Minimum Net Premium for the current Contract Year;
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(2) The outstanding Contract Loan amount together with interest accrued but
unpaid; 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 90 days nor less than 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
4.50%. 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 rate calculated is at least .50% lower than the rate in
effect for the previous year, SELIC will decrease the rate.
If the Variable Contract Loan Interest Rate option is selected, SELIC will
inform the Contract Holder of the current Variable Contract Loan Interest
Rate at the time a Contract Loan is made. The current Variable Contract Loan
Interest Rate can be changed by SELIC on any Contract Anniversary, but the
rate will never exceed the
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<PAGE> 34
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 4.00%.
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> 35
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 WITHDRAWALS
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").
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<PAGE> 36
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 Minimum Net Premium for the current Contract Year;
(2) The outstanding Contract Loan amount together with the unpaid accrued
Contract Loan interest on the Contract Loan amount; 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").
Split Dollar Exception: Notwithstanding the above limitations, SELIC will,
as a matter of administrative practice, at the time of a split dollar
rollout, allow the owner of a Death Benefit Option 3 Contract, the option of
reducing the accumulated Premiums before reducing the Face Amount. If the
withdrawal is greater than the accumulated Premiums, a reduction in Face
Amount will occur for the amount in excess of the accumulated Premiums.
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<PAGE> 37
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 of 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; or
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
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<PAGE> 38
Guideline Premium Test" that test and the Minimum Death Benefit Factors will be
employed throughout the life of the Contract.
A table of representative Minimum Death Benefit Factors follows:
<TABLE>
========================================================
MINIMUM DEATH BENEFIT FACTORS
- --------------------------------------------------------
<CAPTION>
UNISEX
AGE UNISMOKE
========================================================
<S> <C>
25 5.79
- --------------------------------------------------------
30 4.93
- --------------------------------------------------------
35 4.18
- --------------------------------------------------------
40 3.55
- --------------------------------------------------------
45 3.03
- --------------------------------------------------------
50 2.60
- --------------------------------------------------------
55 2.25
- --------------------------------------------------------
60 1.97
- --------------------------------------------------------
65 1.74
- --------------------------------------------------------
70 1.56
========================================================
</TABLE>
Under Death Benefit Option 1 and Death Benefit Option 3, positive investment
performance (if any) will be reflected in Insurance Account Value, but not in
the Death Benefit, unless the Death Benefit equals the Minimum Death Benefit.
Under Death Benefit Option 2, the amount of Death Benefit will always vary as
the Insurance Account Value varies, but will never be less than the Face
Amount. In general, if Death Benefit Option 2 is selected, positive
investment performance (if any) will be reflected in the Death Benefit.
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 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,
the order in which the Face Amount is reduced is assessed in the same manner
as a decrease in Face Amount. (See "Face Amount"). Any change in the Death
Benefit Option will not be
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<PAGE> 39
effected if it would result in Total Insurance Coverage that is less than the
Minimum Insurance Coverage of the Contract. SELIC also reserves the right not to
effect a requested change in Face Amount if the change would result in the
Contract not satisfying the requirements of the Internal Revenue Code of 1986,
as amended.
A change in the Death Benefit Option will not result in an immediate change
in the amount of a Contract's Death Benefit or Insurance Account Value. If a
Contract is changed from Death Benefit Option 1 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 Death Benefit Option 3 to Death Benefit Option 2, then the
Face Amount will equal the Face Amount prior to the change plus the
accumulated Premiums 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
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<PAGE> 40
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
Withdrawals"). Decreases in Face Amount cannot reduce the Total Insurance
Coverage to less than the Minimum Insurance Coverage. No such change will be
effective if the Insured dies before the date of such change. SELIC reserves
the right not to effect a requested change in Face Amount if the change would
result in the Contract not satisfying the requirements of the Internal Revenue
Code of 1986, as amended. The Net Cash Value immediately following the increase
in Face Amount must be sufficient to cover Monthly Charges to be deducted on the
next Monthiversary. If Net Cash Value will not be sufficient, an additional
Premium will be necessary before the increase in Face Amount will be
effected.
If the Face Amount is decreased, and the Contract's Face Amount before the
change in Death Benefit Option reflects previous Face Amount increases, then
the Face Amount reduction will result first in the reduction of the Face
Amount provided by the most recent increase, then the next most recent
increase successively, and finally the Initial Face Amount.
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 "The Contract -- 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.
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<PAGE> 41
A change in Face Amount may have Federal income tax consequences. (See
"Federal Income Tax Considerations").
PAYMENT OF DEATH BENEFIT: The amount of any Death Benefit payable is
adjusted as follows:
(1) By deducting the amount of any unpaid Monthly Charges against the
Insurance Account Value to the date of death (See "Charges and
Deductions");
(2) By deducting the amount of any Contract Loans outstanding against the
Insurance Account Value on the date of death plus accrued but unpaid
interest on such Contract Loans on the date of death (See "The Contract
-- Contract Loan Privilege"); 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 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 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 1.00% 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.
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<PAGE> 42
CHARGES AND DEDUCTIONS
Certain charges will be deducted by SELIC from Premiums and from Insurance
Account Value as compensation for providing the insurance benefits under the
Contract, for administering the Contract, for assuming certain risks, and for
incurring certain expenses in distributing the Contract. A prospective
purchaser may request personalized hypothetical illustrations of the
Contract's Insurance Account Value and Death Benefits. Such hypothetical
illustrations will reflect the effect of the charges and deductions under the
Contract and may assist a prospective purchaser in understanding the
operation of the Contract.
PREMIUM LOAD
Before crediting a Premium to the Available Divisions and/or the Fixed Fund,
a Premium Load, consisting of a Distribution Charge, a DAC Tax charge and a
Premium Tax Charge, is deducted from that Premium. Premium Load is expressed
as a percentage of Premium; the percentage depends upon whether the Premium
is Target Premium or Excess Premium, on the Contract Year during which the
Premium is paid, and on the Issue Age of the Insured.
DISTRIBUTION CHARGE: The Distribution Charge, which is a sales load, is
comprised of a Premium Expense Load and a Commission Charge.
The Premium Expense Load will be deducted from each Premium and will equal a
percentage of the Premium. The percentage will be determined based on the
sum of the Initial Premiums for all Contracts in a Case, in accordance with
the following table:
<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> 43
<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 2.00% for Year 16 and
thereafter.
For Single Premium Payments, the maximum Commission Charge will be 6.00% 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, 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
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<PAGE> 44
of the state in which the Contract Holder resides. For Cases with a greater
number of Insureds and one Contract Holder, the amount of the charge as to any
Contract will be determined in accordance with the law of the state in which the
Insured resides. State premium tax rates currently range from .75% to 5.00%.
DAC TAX CHARGE: SELIC also deducts from each Premium a charge for federal
income taxes, equal to 1.00%, which compensates SELIC for an increased
federal tax burden resulting from the receipt of Premiums under Section 848
of the Internal Revenue Code. This charge for federal income taxes is
reasonable in relation to SELIC's 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.
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<PAGE> 45
ADMINISTRATION CHARGE: On each Monthiversary, a charge is deducted to
compensate SELIC for administrative expenses. The current amount of this
charge is $4.50 per month per Contract. This charge may change, but is
guaranteed not to exceed $8.00 per month per Contract. The Administration
Charge is assessed to reimburse SELIC for the expenses associated with the
administration and maintenance of the Contract and the Separate Account.
SELIC does not expect to profit from this charge.
COST OF INSURANCE CHARGE: A deduction for SELIC's cost of insurance
protection is made on each Monthiversary and, unless otherwise specified by
the Contract Holder, will be based on unisex and unismoke rates. The cost of
insurance rates generally increase as the Insured's Attained Age increases.
SELIC also offers rates, upon a Contract Holder's request, that vary based on
the sex (except Contracts sold in Montana; See "Unisex Requirements Under
Montana Law") and smoker class of the Insured. However, any variation by sex
and/or smoker class must be applied on a consistent basis for all Contracts
in the applicable Case.
The Cost of Insurance Charge is determined by multiplying the applicable cost
of insurance rate by the Net Amount at Risk each Contract Month. Any change
in the Net Amount at Risk will affect the total Cost of Insurance Charges
deducted from the applicable Insurance Account Value. Since the Net Amount at
Risk may not be constant, the charge could vary monthly.
The guaranteed cost of insurance rates will not be greater than the
guaranteed maximum cost of insurance rates set forth in the Contract. Those
rates, as well as the rates used for Federal income tax purposes, are based
on the 1980 Commissioners Standard Ordinary (CSO) Mortality Tables, Age
Nearest Birthday that correspond to the applicable sex and smoker blend under
the Contract. Current Cost of Insurance Charges may be lower and may be
changed. The current Cost of Insurance Charges for the Contract Year are
shown in the Contract Holder's annual statement.
SELIC may offer insurance coverage up to $1 million on a guaranteed issue or
simplified issue basis under Contracts that meet all the following
requirements:
1) The Case to which the Contract belongs has at least 25 Insureds;
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;
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<PAGE> 46
4) The Face Amount, and any Supplemental Term Insurance Amount, for each
Contract in the applicable Case must be determined in all years by a
formula acceptable to SELIC;
5) The Face Amount increases, including any increases in Supplemental Term
Insurance Amount, in any given year for any Contract in the applicable
Case cannot exceed 10% and the cumulative increase in any Face Amount
cannot exceed the smaller of the initial Total Insurance Coverage or
$1,000,000;
6) The Contract Holder, Insured and Beneficiary of each Contract in the
applicable Case must be either an entity domiciled in the United States
or a United States citizen; and
7) The Insured under each Contract in the applicable Case must be between
the ages of 20 and 65.
For Simplified Issue Contracts, SELIC requires that certain medical
information regarding the prospective Insured be provided in the Application.
SELIC will also offer Contracts on a medically underwritten basis. In these
situations, the rating of an Insured will affect the cost of insurance rates.
SELIC will offer medically underwritten Contracts on a standard and
substandard rating basis. Standard rates will, in general, be less than
substandard rates.
For 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.
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Each Insured is placed in a rate class when SELIC issues a Contract, based on
the Case to which the Contract belongs and underwriting information,
including medical underwriting, if any. When an increase in Face Amount is
requested, SELIC reserves the right: (i) to accept or reject the request,
with or without obtaining additional underwriting information; and (ii) to
obtain additional underwriting information, including medical underwriting,
before approving the increase to determine whether a different rate class
would apply to the increase. If the Insured's rate class at the time of the
increase has declined since the last change in coverage, and SELIC approves
the change in coverage, then the lower rate class will be applied to the Face
Amount increase only. If the Insured's rate class at the time of the
increase has improved since the last change in coverage, then the improved
rate class will be applied to the Total Insurance Coverage provided under the
Policy.
ADDITIONAL INSURANCE BENEFITS AND SPECIAL INSURANCE CLASS RATINGS: Subject
to certain requirements, one or more riders may be added to a Contract.
These riders and the charges associated therewith are described in Appendix B
to this Prospectus. (See "Additional Provisions of the Contract -- Entire
Contract"). Deductions will be made on each Monthiversary for applicable
charges for any additional benefits provided by Contract rider.
Deductions will also be made on each Monthiversary for any applicable Special
Insurance Class Rating Charges, which are imposed under the Contract if a
Contract is issued on a substandard basis. These charges are set forth in
the Contract.
UNDERWRITING CHARGES
An Underwriting Charge of up to $100 will be deducted from the Insurance
Account Value on the Issue Date if the Contract is issued on a medically
underwritten basis. Medically underwritten Contracts, for purposes of
deducting this charge, are all Contracts other than those issued on a
guaranteed issue or simplified issue basis (see "Charges and Deductions --
Monthly Charges -- Cost of Insurance Charges"). SELIC also reserves the
right to deduct an Underwriting Charge of up to $100 from the Contract's
Insurance Account Value on any Monthiversary following a Contract Month in
which medical underwriting has taken place due to an increase in SELIC's Net
Amount at Risk with respect to the Contract. The Underwriting Charge is
assessed to reimburse SELIC for the expenses associated with the underwriting
of the Contract. SELIC does not expect to profit from this charge.
SELIC may, in its sole discretion, reduce or waive the Underwriting Charge in
connection with the purchase of Contracts sold by licensed agents of SELIC
that are also registered representatives of selected broker-dealers or
through banks that have
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entered into written sales agreements with Walnut Street. Any reduction in or
waiver of the Underwriting Charge is reflected in the Contract.
The Underwriting Charge will be deducted from the Available Divisions and the
Fixed Fund in proportion to Insurance Account Value attributable to each
Division and the Fixed Fund.
For modifications to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
ANNUAL CHARGES
On each Contract Anniversary, the Insurance Account Value attributable to
the Separate Account and Fixed Fund is: (i) reduced by Contract Loan interest
due and unpaid for the previous Contract Year; and (ii) 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);
(2) The surrender of the Contract by the Contract Holder;
(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 times the Monthly Charges due when the Grace Period began, plus Premium
Load.
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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.
REINSTATEMENT OF A CONTRACT TERMINATED FOR INSUFFICIENT VALUE
A Contract that has terminated for insufficient Net Cash Value may be
reinstated within five 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 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.
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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 4.00%, compounded annually, independent
of the actual investment experience of the General Account.
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 be 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. SELIC 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 4.00% per
year, compounded annually. SELIC may, in its sole discretion, credit a
higher rate of interest, although it is not obligated to credit
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interest in excess of 4.00% 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 4.00% 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 4.00% 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
4.00% per year, plus any excess interest which SELIC credits and any amounts
transferred into the Fixed Fund, less the sum of all Contract charges
allocable to the Fixed Fund and any amounts deducted from the Fixed Fund in
connection with partial withdrawals, surrender charges or transfers to the
Separate Account.
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;
(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;
(2) The Cost of Insurance Charges allocated to the Fixed Fund (deducted
only on a Monthiversary);
(3) The Administration Charges allocated to the Fixed Fund (deducted only
on a Monthiversary);
(4) Any partial withdrawals taken from such Contract and allocated to the
Fixed Fund;
(5) Any charges allocated to the Fixed Fund that are deducted from the
Insurance Account Value for benefits provided by Contract riders;
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(6) Any Underwriting Charges allocated to the Fixed Fund;
(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."
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 Withdrawals").
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 2.50% 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
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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 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
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circumstances in which an owner's control of the investments of a separate
account may cause the contract owner rather than the insurance company, to
be treated as the owner of the assets in the separate account. If a
Contract Holder is considered the owner of the assets of the Separate
Account, income and gains from the Account would be included in the
Holder's gross income.
Though no Regulations on the subject of an owner's control of the
investments of a separate account have been issued since the Regulations
specifying the diversification requirements were issued, informal
guidance is available from certain private letter rulings issued by the
Internal Revenue Service to individual taxpayers. The ownership rights
under the Contract are different in certain respects from, those
described by the Internal Revenue Service in rulings in which it
determined the owners were not owners of separate account assets. For
example, a Contract Holder has additional flexibility in allocating
premium payments and cash values. These differences could result in the
Contract Holder being treated as the owner of a pro rata share of the
assets of the Separate Accounts. In addition, SELIC does not know what
standards will be set forth 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
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Contract until there is a distribution. The tax consequences of
distributions from, and loans taken from or secured by, the Contract(s)
should generally be determined on a Contract by Contract basis.
(See "Multiple Contracts," below).
Such tax consequences further depend on whether the Contract from which
the distribution is made or Contract Loan is taken is classified as a
"modified endowment contract" under Section 7702A. However, upon a
complete surrender or lapse of any Contract, if the amount received plus
the amount of Indebtedness exceeds the total investment in the Contract,
the excess will generally be treated as ordinary income subject to tax.
3. MODIFIED ENDOWMENT CONTRACTS: A Contract may be treated as a
modified endowment contract depending upon the amount of premiums paid
in relation to the death benefit provided in respect of such Contract.
The premium limitation rules for determining whether a Contract is a
modified endowment contract are complex. In general, a Contract will be
a modified endowment contract if the accumulated premiums paid at any
time during the first seven years after the Contract is established
exceeds the sum of the net level premiums which would have been paid on
or before 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
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Account Value of such a Contract, as well as due but unpaid
interest thereon, are treated as distributions from such Contract
and taxed accordingly. Third, a 10 percent additional income tax
is imposed on the portion of any distribution from, or loan taken
from or secured by, such a Contract that is included in income
except where the distribution or loan is made on or after the
taxpayer attains age 59 1/2, is attributable to the taxpayer's
becoming disabled, or is part of a series of substantially equal
periodic payments for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and the taxpayer's Beneficiary. Contract Holders that
are not natural persons are unlikely to meet these exceptions.
If a Contract becomes a modified endowment Contract after it is
issued, distributions made during the Contract year in which it
becomes a modified endowment Contract, distributions in any
subsequent Contract year and distributions within two years before
the Contract becomes a modified endowment Contract will be subject
to the tax treatment described above. This means that a
distribution from a Contract that is not a modified endowment
Contract could later become taxable as a distribution from a
modified endowment Contract.
(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.
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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% 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% additional income tax.
(c) Classification of Contract: Due to the Contract's flexibility,
classification of a Contract as a modified endowment contract will
depend upon the circumstances of each Contract. SELIC has adopted
administrative steps designed to protect a Contract Holder against
the possibility that a Contract might become a modified endowment
contract. SELIC believes the safeguards are adequate for most
situations, but it cannot provide complete assurance that a
Contract will not be classified as a modified endowment contract.
At the time a Net Premium is credited which (according to SELIC's
calculations) would cause a Contract to become a modified
endowment contract, SELIC will notify the Contract Holder that
unless a refund of the excess Premium is requested by the Contract
Holder, the Contract will be a modified endowment contract. The
Contract Holder will have 30 days after receiving such
notification to request the refund. The excess Premium paid with
4.00% 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 business taxpayer on the life of any individual who is an officer of
or is financially interested in the business carried on by that taxpayer
is deductible only under certain very
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limited circumstances. 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. INTEREST EXPENSE ON UNRELATED INDEBTEDNESS: Under provisions
added to the Code in 1997 applicable to insurance policies issued after
June 8, 1997, if a business taxpayer owns or is the beneficiary of a
Contract on the life of any individual who is not an officer, director,
employee, or 20 percent owner of the business carried on by that
taxpayer and the taxpayer also has indebtedness unrelated to the
Contract, no tax deduction will be allowed for that portion of the
taxpayer's unrelated interest expense that is "allocable" to the Net
Cash Value (unborrowed Insurance Account Value) of the Contract. The
allocable portion of unrelated interest expense is based on the ratio of
the unborrowed cash surrender values of all life insurance and annuity
contracts issued to the taxpayer after June 8, 1997 to the adjusted
basis of all other assets of the taxpayer. A Contract issued before June
9, 1997 will become subject to this pro rata disallowance rule if there
is a material increase in the death benefit or other material change in
the terms of the Contract. No business taxpayer should purchase,
exchange, or increase the death benefit under a Contract on the life of
any individual who is not an officer, director, employee, or 20 percent
owner of the business without specifically considering the overall tax
effect that an interest in such a Contract would, or could, have.
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8. ALTERNATIVE MINIMUM TAX: There may also be an indirect tax upon the
inside build-up of the Contract under the corporate alternative minimum
tax.
9. 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.
10. POSSIBLE CHANGES IN TAXATION: As of the date of this Prospectus,
the President's budget for fiscal year 1999 includes proposals that
would (i) restrict even further the deductibility of policy loan
interest, so that no policy loan interest would be deductible except for
interest on loans under policies insuring 20 percent owners, (ii) expand
the unrelated interest expense pro rata disallowance rule enacted in
1997 so that the rule would apply to all policies owned by business
entities, except for policies on 20 percent owners, (iii) tax the inside
buildup of variable life insurance policies whenever policy values were
reallocated among investment options available under a policy, (iv) end
the tax free treatment under Code section 1035 of exchanges of variable
life insurance policies, and (v) decrease the policyholder's tax basis
in an insurance contract by the amount of mortality and expense charges
paid to the insurer over the life of the contract. Moreover, it is
possible that any changes in the tax treatment of life insurance
policies could be effective prior to the date of any new legislation.
11. POSSIBLE CHARGE FOR TAXES: SELIC is presently taxed as a life
insurance company and does not incur federal income tax liability, or
state or local tax liability, attributable to investment income or
capital gains of the Separate Account. Based on these assumptions, no
charge is currently being made to the Separate Account for federal
income taxes, or state or local taxes. However, SELIC may in the future
impose such a charge if (i) the tax treatment of SELIC is ultimately
determined to be other than what SELIC believes it to be, (ii) there are
changes made in the income tax treatment, or state or local tax
treatment, of variable life insurance at the company level, or of the
separate accounts, or (iii) there is a change in SELIC's status. Any
such charge would be designed to cover the taxes attributable to the
investment results of the Separate Accounts.
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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
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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 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. 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 the Contract's Death Benefit, Contract Loans, Face Amount, Net
Amount at Risk, Issue Age or insurance class. All benefits after a
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 six months. If payment is
deferred for 30 days or more, SELIC will pay interest on such amounts at the
rate of 2.50% 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.
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The failure of SELIC to enforce any provision of the Contract does not
constitute and cannot be construed as a waiver of such provision or of the
right to enforce it at a later time, nor does the waiver of any provision by
SELIC on one or more occasions constitute nor can it be construed as a waiver
for all occasions, and SELIC cannot be stopped from enforcing any provision
of the Contract except as may be otherwise agreed to in writing by an officer
of SELIC.
REPRESENTATIONS IN APPLICATION
SELIC deems all statements in the Application to be representations and not
warranties. 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.
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CLAIMS OF CREDITORS
The proceeds of the Contract will be free from creditors' claims to the
extent allowed by law.
NOTICE
Any written notice required by the Contract to be given by SELIC to the
Contract Holder will be effective five days after it is mailed by first class
mail or 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.
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UNISEX REQUIREMENTS UNDER MONTANA LAW
The state of Montana generally prohibits the use of actuarial tables that
distinguish between men and women in determining premiums and policy benefits
for policies issued on the lives of its residents. Therefore, all Contracts
offered by this Prospectus and issued for delivery in Montana will have
premiums and benefits which are based on actuarial tables that do not
differentiate on the basis of sex.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account Divisions will be
maintained by SELIC. Each year within 30 days after the Contract
Anniversary, SELIC will mail a report to the Contract Holder. The report
will show the Insurance Account Value at the beginning of the previous
Contract Year and all Premiums paid since that time. It will also show the
additions to, and deductions from, the Insurance Account Value during the
Contract Year, and the Insurance Account Value, Death Benefit, Net Cash
Value, any outstanding Contract Loan amount and accrued Contract Loan
interest as of the current Contract Anniversary. The report will also
include any additional information required by applicable law or regulation.
SELIC also will mail the Contract Holder any other reports or documents
required by applicable law or regulation.
In addition to the periodic reports, the Contract Holder may request an
illustrative report showing projected Contract values. There may be a charge
for providing an illustrative report. (See "Charges and Deductions -- Other
Charges").
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 an indirect 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, however, the
policies issued through the Separate Account may be used to fund nonqualified
deferred obligations of the depositor or its affiliates subject to any
regulatory requirements. However, the policies issued through the Separate
Account may be used to fund nonqualified deferred obligations of the
depositor or its affiliates subject to any regulatory requirements.
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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 14.00% of any Excess Premiums paid in any Contract Year on
Contracts issued without any riders attached.
VOTING RIGHTS
To the extent required by law, SELIC will vote shares of the Underlying
Portfolios held in the Separate Account at regular or special shareholder
meetings of the Underlying Portfolios in accordance with instructions
received from persons having voting interests in the corresponding Divisions
of the Separate Account. If, however, the 1940 Act or any regulation
thereunder should be amended or if the present interpretation thereof should
change, and as a result the Company determines that it is permitted to vote
shares of the Underlying Portfolios in its own right, it may elect to do so.
The number of votes that a Contract Holder has the right to instruct will be
calculated separately for each Division. Voting rights reflect the dollar
value of the total number of units of each Division of the Separate Account
credited to the Contract Holder at the record date rather than the number of
units alone. Fractional shares will be counted. The number of votes of an
Underlying Portfolio that the Contract Holder has the right to instruct will
be determined as of the date established by that Underlying Portfolio for
determining eligibility to vote at the meetings of the Underlying Portfolio.
Voting instructions will be solicited by written communications prior to such
meeting in accordance with procedures established by the Underlying
Portfolio.
SELIC 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. SELIC 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: SELIC 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, SELIC 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 SELIC reasonably disapproves of such changes. A
proposed
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change would be disapproved only if the proposed change is contrary to state law
or prohibited by state regulatory authorities, or SELIC 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 SELIC 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
SELIC, a stock life insurance company organized under the laws of New York,
is subject to regulation by the New York Department of Insurance. An annual
statement is filed with the Superintendent of Insurance on or before March
1st of each year covering the operations and reporting on the financial
condition of SELIC 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. 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, SELIC 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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<TABLE>
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS AND PRINCIPAL OFFICERS
<CAPTION>
NAME PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
<C> <S>
Willard N. Archie SELIC Director; Chief Executive Officer,
Chief Executive Officer Mitchell, Titus & Company (CPA management
Mitchell, Titus & Company, LLP consulting firm). Prior to January 1998, Vice
One Battery Park Plaza Chairman, Mitchell, Titus & Company. Prior to
New York, NY 10004-1461 January, 1996, Managing Partner, Mitchell, Titus
& Company.
Carson E. Beadle, SELIC Director; Consultant, Carson E. Beadle,
Consultant Inc. (consulting). Prior to April, 1998, Managing
Carson E. Beadle, Inc. Director, William M. Mercer Inc. (actuarial,
750 Park Avenue, Apt. 14E employee benefits, compensation and human
New York, NY 10021 resources management consulting firm).
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; J&H, Marsh & McLennan. Prior
J&H, Marsh & McLennan, Inc. to May 1997, Chairman, Marsh & McLennan,
1166 Avenue of the Americas Inc. (insurance and reinsurance brokers,
New York, NY 10036 consulting and investment management).
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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
St. Louis, MO 63101
Leonard M. Rubenstein, SELIC Director; Chairman, Chief Executive
Chairman, CEO and CIO Officer and Chief Investment Officer - Conning
Conning Asset Management Company Asset Management Company (investments). Prior
700 Market Street to January 1998, Executive Vice President -
St. Louis, MO 63101 Investments, General American Life Insurance
Co. (life insurance).
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
Armonk, NY 10504
H. Edwin Trusheim SELIC Director; Retired Chairman, General
General American Life Insurance Co. American Life Insurance Co. (life insurance).
700 Market Street
St. Louis, MO 63101
Virginia V. Weldon, M.D. SELIC Director; Prior to March 1998, Senior
242 Carlyle Lake Vice President, Monsanto Company (chemicals
St. Louis, MO 63141 diversified industry, pharmaceuticals, life science
products, and food ingredients business).
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Ted C. Wetterau SELIC Director; Chairman and Chief Executive
Chairman and CEO Officer, Wetterau & Associates, Inc. (retail and
Wetterau Associates wholesale grocery, manufacturing business).
8112 Maryland Avenue, Suite 250
St. Louis, MO 63105
Ben H. Wolzenski, SELIC Director; Executive Vice President,
Executive Vice President - Individual General American Life Insurance Co. (life
General American Life Insurance Co. insurance).
13045 Tesson Ferry Road
St. Louis, MO 63128
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
</TABLE>
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LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
has been provided by Matthew P. McCauley, General Counsel, SELIC.
LEGAL PROCEEDINGS
Neither SELIC nor the Separate Account is involved in any material legal
proceedings.
EXPERTS
The audited financial statements of Security Equity Life Insurance Company
and the Separate Account have been included in the Prospectus in reliance on
the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and on the authority of said firm as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Ralph A.
Gorter of Security Equity Life Insurance Company, whose opinion is filed as
an exhibit to the registration statement for the Contracts.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Contracts. This Prospectus does not contain all the information set forth in
the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, SELIC and the Contracts.
Statements contained in this Prospectus as to the contents of the Contract
and other legal instruments are summaries. For a complete statement of the
terms thereof, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of SELIC which are included in this Prospectus
should be distinguished from the financial statements of the Separate
Account, and should be considered only as bearing on the ability of SELIC to
meet its obligations under the Policy. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account.
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APPENDIX A -- UNDERLYING PORTFOLIOS
The Available Division invests in shares or units of an Underlying Portfolio
from the following open-end, management investment companies:
EVERGREEN VARIABLE TRUST
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Growth and Income Fund
FRANK RUSSELL INVESTMENT MANAGEMENT COMPANY
Aggressive Equity Fund
Core Bond Fund
Multi-Style Equity Fund
Non-U.S. Fund
GENERAL AMERICAN CAPITAL COMPANY
Money Market Fund
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Index 500 Portfolio
Investment Grade Bond Portfolio
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.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR EACH
UNDERLYING PORTFOLIO LISTED.
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.
The prospectus for each Underlying Portfolio also includes investment
strategies, objectives and investment advisor.
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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 Last Insured.
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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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 " Charges and Deductions -- Cost
of Insurance Charge").
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
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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 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 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> 77
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 "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 to a single life Contract, or a Contract to which a
Joint and Last Survivor 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 RIDER: A rider added to the Contract described
in this Prospectus, which will increase the Total Insurance Amount under the
Contract.
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<PAGE> 78
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 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
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<PAGE> 79
Monthiversary on which the Supplemental Term Insurance Rider is in force, the
Cost of Insurance for the Supplemental Term Insurance Rider will be added to the
Monthly Charges deducted from the Insurance Account Value.
TERMINATION OF THE SUPPLEMENTAL TERM INSURANCE RIDER
The Supplemental Term Insurance Rider may be terminated as of any
Monthiversary following a written request to the Company. The Supplemental
Term Insurance Rider will terminate automatically when any of the following
events occur:
(a) The lapse of the Contract;
(b) The surrender of the Contract;
(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 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> 80
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 Withdrawals").
(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> 81
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 (.44% of
aggregate average daily net assets is assumed) and operating expenses of the
Underlying Portfolio (which are assumed to be .36%). 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
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<PAGE> 82
investment advisors. The investment advisors could terminate these arrangements
at any time. If any of these arrangements are terminated, the above net annual
rates of return would be reduced. The actual investment advisory fee applicable
to each Division is shown in the respective prospectuses for 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
underwriting class, the Face Amount and Premium pattern requested, and any
available riders requested.
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<PAGE> 83
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
Current Guaranteed
(-1.14% Net)<F*> (-1.29% 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 4,198 4,198 100,000 4,136 4,136 100,000
2 47 10,504 4,880 8,369 8,369 100,000 8,230 8,230 100,000
3 48 16,153 4,880 12,491 12,491 100,000 12,259 12,259 100,000
4 49 22,085 4,880 16,564 16,564 100,000 16,227 16,227 100,000
5 50 28,313 4,880 20,589 20,589 100,000 20,133 20,133 100,000
6 51 34,853 4,880 24,529 24,529 100,000 23,977 23,977 100,000
7 52 41,720 4,880 28,424 28,424 100,000 27,760 27,760 100,000
8 53 43,806 0 27,674 27,674 100,000 26,884 26,884 100,000
9 54 45,996 0 26,906 26,906 100,000 25,973 25,973 100,000
10 55 48,296 0 26,113 26,113 100,000 25,019 25,019 100,000
11 56 50,710 0 25,201 25,201 100,000 24,016 24,016 100,000
12 57 53,246 0 24,258 24,258 100,000 22,955 22,955 100,000
13 58 55,908 0 23,281 23,281 100,000 21,833 21,833 100,000
14 59 58,704 0 22,268 22,268 100,000 20,641 20,641 100,000
15 60 61,639 0 21,215 21,215 100,000 19,367 19,367 100,000
16 61 64,721 0 19,947 19,947 100,000 18,000 18,000 100,000
17 62 67,957 0 18,628 18,628 100,000 16,525 16,525 100,000
18 63 71,355 0 17,249 17,249 100,000 14,923 14,923 100,000
19 64 74,922 0 15,800 15,800 100,000 13,170 13,170 100,000
20 65 78,669 0 14,274 14,274 100,000 11,240 11,240 100,000
25 70 100,403 0 8,081 8,081 100,000 <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.
</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.
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<PAGE> 84
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
Current Guaranteed
(4.86% Net)<F*> (4.71% 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 4,463 4,463 100,000 4,400 4,400 100,000
2 47 10,504 4,880 9,167 9,167 100,000 9,019 9,019 100,000
3 48 16,153 4,880 14,099 14,099 100,000 13,848 13,848 100,000
4 49 22,085 4,880 19,275 19,275 100,000 18,899 18,899 100,000
5 50 28,313 4,880 24,704 24,704 100,000 24,182 24,182 100,000
6 51 34,853 4,880 30,368 30,368 100,000 29,712 29,712 100,000
7 52 41,720 4,880 36,317 36,317 100,000 35,502 35,502 100,000
8 53 43,806 0 37,690 37,690 100,000 36,692 36,692 100,000
9 54 45,996 0 39,117 39,117 100,000 37,909 37,909 100,000
10 55 48,296 0 40,597 40,597 100,000 39,150 39,150 100,000
11 56 50,710 0 42,057 42,057 100,000 40,413 40,413 100,000
12 57 53,246 0 43,574 43,574 100,000 41,696 41,696 100,000
13 58 55,908 0 45,148 45,148 100,000 43,001 43,001 100,000
14 59 58,704 0 46,785 46,785 100,000 44,326 44,326 100,000
15 60 61,639 0 48,489 48,489 100,000 45,667 45,667 100,000
16 61 64,721 0 50,149 50,149 100,000 47,024 47,024 100,000
17 62 67,957 0 51,880 51,880 100,129 48,392 48,392 100,000
18 63 71,355 0 53,684 53,684 100,926 49,765 49,765 100,000
19 64 74,922 0 55,561 55,561 101,676 51,139 51,139 100,000
20 65 78,669 0 57,507 57,507 102,937 52,507 52,507 100,000
25 70 100,403 0 69,851 69,851 110,365 59,110 59,110 100,000
30 75 128,143 0 84,222 84,222 120,438 64,595 64,595 100,000
<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.
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<PAGE> 85
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
Current Guaranteed
(10.86% Net)<F*> (10.71% 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 4,729 4,729 100,000 4,663 4,663 100,000
2 47 10,504 4,880 9,997 9,997 100,000 9,841 9,841 100,000
3 48 16,153 4,880 15,841 15,841 100,000 15,569 15,569 100,000
4 49 22,085 4,880 22,326 22,326 100,000 21,908 21,908 100,000
5 50 28,313 4,880 29,526 29,526 100,000 28,929 28,929 100,000
6 51 34,853 4,880 37,490 37,490 100,474 36,712 36,712 100,000
7 52 41,720 4,880 46,273 46,273 119,846 45,279 45,279 117,273
8 53 43,806 0 50,839 50,839 127,606 49,587 49,587 124,463
9 54 45,996 0 55,858 55,858 136,293 54,292 54,292 132,472
10 55 48,296 0 61,370 61,370 144,833 59,430 59,430 140,254
11 56 50,710 0 67,315 67,315 154,152 65,035 65,035 148,929
12 57 53,246 0 73,836 73,836 164,653 71,140 71,140 158,642
13 58 55,908 0 80,991 80,991 174,941 77,797 77,797 168,041
14 59 58,704 0 88,842 88,842 186,568 85,048 85,048 178,600
15 60 61,639 0 97,458 97,458 198,814 92,940 92,940 189,597
16 61 64,721 0 106,678 106,678 212,288 101,513 101,513 202,011
17 62 67,957 0 116,793 116,793 225,410 110,837 110,837 213,915
18 63 71,355 0 127,877 127,877 240,409 120,952 120,952 227,389
19 64 74,922 0 140,021 140,021 256,239 131,914 131,914 241,403
20 65 78,669 0 153,311 153,311 274,426 143,759 143,759 257,329
25 70 100,403 0 246,660 246,660 389,723 218,937 218,937 345,921
30 75 128,143 0 393,849 393,849 563,203 327,249 327,249 467,966
<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.
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<PAGE> 86
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
Current Guaranteed
(-1.14% Net)<F*> (-1.29% 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 4,184 4,184 104,184 4,122 4,122 104,122
2 47 10,504 4,880 8,327 8,327 108,327 8,185 8,185 108,185
3 48 16,153 4,880 12,404 12,404 112,404 12,167 12,167 112,167
4 49 22,085 4,880 16,417 16,417 116,417 16,067 16,067 116,067
5 50 28,313 4,880 20,362 20,362 120,362 19,882 19,882 119,882
6 51 34,853 4,880 24,190 24,190 124,190 23,611 23,611 123,611
7 52 41,720 4,880 27,948 27,948 127,948 27,249 27,249 127,249
8 53 43,806 0 27,058 27,058 127,058 26,221 26,221 126,221
9 54 45,996 0 26,147 26,147 126,147 25,150 25,150 125,150
10 55 48,296 0 25,206 25,206 125,206 24,026 24,026 124,026
11 56 50,710 0 24,110 24,110 124,110 22,845 22,845 122,845
12 57 53,246 0 22,982 22,982 122,982 21,598 21,598 121,598
13 58 55,908 0 21,818 21,818 121,818 20,281 20,281 120,281
14 59 58,704 0 20,615 20,615 120,615 18,889 18,889 118,889
15 60 61,639 0 19,374 19,374 119,374 17,409 17,409 117,409
16 61 64,721 0 17,874 17,874 117,874 15,832 15,832 115,832
17 62 67,957 0 16,329 16,329 116,329 14,144 14,144 114,144
18 63 71,355 0 14,732 14,732 114,732 12,330 12,330 112,330
19 64 74,922 0 13,073 13,073 113,073 10,369 10,369 110,369
20 65 78,669 0 11,349 11,349 111,349 8,241 8,241 108,241
25 70 100,403 0 4,672 4,672 104,672 <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.
</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-6
<PAGE> 87
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
Current Guaranteed
(4.86% Net)<F*> (4.71% 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 4,449 4,449 104,449 4,384 4,384 104,384
2 47 10,504 4,880 9,121 9,121 109,121 8,970 8,970 108,970
3 48 16,153 4,880 14,000 14,000 114,000 13,742 13,742 113,742
4 49 22,085 4,880 19,099 19,099 119,099 18,708 18,708 118,708
5 50 28,313 4,880 24,422 24,422 124,422 23,871 23,871 123,871
6 51 34,853 4,880 29,931 29,931 129,931 29,240 29,240 129,240
7 52 41,720 4,880 35,679 35,679 135,679 34,816 34,816 134,816
8 53 43,806 0 36,823 36,823 136,823 35,758 35,758 135,758
9 54 45,996 0 37,991 37,991 137,991 36,685 36,685 136,685
10 55 48,296 0 39,174 39,174 139,174 37,589 37,589 137,589
11 56 50,710 0 40,243 40,243 140,243 38,459 38,459 138,459
12 57 53,246 0 41,319 41,319 141,319 39,288 39,288 139,288
13 58 55,908 0 42,395 42,395 142,395 40,067 40,067 140,067
14 59 58,704 0 43,472 43,472 143,472 40,787 40,787 140,787
15 60 61,639 0 44,546 44,546 144,546 41,433 41,433 141,433
16 61 64,721 0 45,392 45,392 145,392 41,989 41,989 141,989
17 62 67,957 0 46,214 46,214 146,214 42,436 42,436 142,436
18 63 71,355 0 47,004 47,004 147,004 42,751 42,751 142,751
19 64 74,922 0 47,751 47,751 147,751 42,907 42,907 142,907
20 65 78,669 0 48,447 48,447 148,447 42,871 42,871 142,871
25 70 100,403 0 54,474 54,474 154,474 38,769 38,769 138,769
30 75 128,143 0 57,816 57,816 157,816 23,714 23,714 123,714
<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-7
<PAGE> 88
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
Current Guaranteed
(10.86% Net)<F*> (10.71% 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 4,713 4,713 104,713 4,647 4,647 104,647
2 47 10,504 4,880 9,946 9,946 109,946 9,787 9,787 109,787
3 48 16,153 4,880 15,728 15,728 115,728 15,448 15,448 115,448
4 49 22,085 4,880 22,118 22,118 122,118 21,681 21,681 121,681
5 50 28,313 4,880 29,179 29,179 129,179 28,546 28,546 128,546
6 51 34,853 4,880 36,931 36,931 136,931 36,107 36,107 136,107
7 52 41,720 4,880 45,496 45,496 145,496 44,431 44,431 144,431
8 53 43,806 0 49,828 49,828 149,828 48,470 48,470 148,470
9 54 45,996 0 54,599 54,599 154,599 52,881 52,881 152,881
10 55 48,296 0 59,845 59,845 159,845 57,695 57,695 157,695
11 56 50,710 0 65,484 65,484 165,484 62,947 62,947 162,947
12 57 53,246 0 71,689 71,689 171,689 68,676 68,676 168,676
13 58 55,908 0 78,515 78,515 178,515 74,928 74,928 174,928
14 59 58,704 0 86,028 86,028 186,028 81,751 81,751 181,751
15 60 61,639 0 94,302 94,302 194,302 89,193 89,193 189,193
16 61 64,721 0 103,183 103,183 205,334 97,309 97,309 197,309
17 62 67,957 0 112,949 112,949 217,992 106,156 106,156 206,156
18 63 71,355 0 123,666 123,666 232,493 115,791 115,791 217,687
19 64 74,922 0 135,409 135,409 247,798 126,262 126,262 231,059
20 65 78,669 0 148,259 148,259 265,383 137,594 137,594 246,294
25 70 100,403 0 238,520 238,520 376,862 209,523 209,523 331,046
30 75 128,143 0 380,840 380,840 544,601 313,151 313,151 447,806
<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-8
<PAGE> 89
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 0%
Current Guaranteed
(-1.14% Net)<F*> (-1.29% 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 4,183 4,183 104,880 4,120 4,120 104,880
2 47 10,504 4,880 8,322 8,322 109,760 8,179 8,179 109,760
3 48 16,153 4,880 12,392 12,392 114,640 12,153 12,153 114,640
4 49 22,085 4,880 16,395 16,395 119,520 16,040 16,040 119,520
5 50 28,313 4,880 20,325 20,325 124,400 19,837 19,837 124,400
6 51 34,853 4,880 24,133 24,133 129,280 23,541 23,541 129,280
7 52 41,720 4,880 27,863 27,863 134,160 27,145 27,145 134,160
8 53 43,806 0 26,939 26,939 134,160 26,075 26,075 134,160
9 54 45,996 0 25,987 25,987 134,160 24,950 24,950 134,160
10 55 48,296 0 24,997 24,997 134,160 23,761 23,761 134,160
11 56 50,710 0 23,830 23,830 134,160 22,498 22,498 134,160
12 57 53,246 0 22,618 22,618 134,160 21,150 21,150 134,160
13 58 55,908 0 21,355 21,355 134,160 19,710 19,710 134,160
14 59 58,704 0 20,037 20,037 134,160 18,167 18,167 134,160
15 60 61,639 0 18,661 18,661 134,160 16,506 16,506 134,160
16 61 64,721 0 16,970 16,970 134,160 14,707 14,707 134,160
17 62 67,957 0 15,203 15,203 134,160 12,751 12,751 134,160
18 63 71,355 0 13,350 13,350 134,160 10,611 10,611 134,160
19 64 74,922 0 11,394 11,394 134,160 8,251 8,251 134,160
20 65 78,669 0 9,328 9,328 134,160 5,636 5,636 134,160
25 70 100,403 0 1,090 1,090 134,160 <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.
</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-9
<PAGE> 90
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
Current Guaranteed
(4.86% Net)<F*> (4.71% 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 4,447 4,447 104,880 4,383 4,383 104,880
2 47 10,504 4,880 9,117 9,117 109,760 8,966 8,966 109,760
3 48 16,153 4,880 13,994 13,994 114,640 13,734 13,734 114,640
4 49 22,085 4,880 19,090 19,090 119,520 18,695 18,695 119,520
5 50 28,313 4,880 24,411 24,411 124,400 23,853 23,853 124,400
6 51 34,853 4,880 29,920 29,920 129,280 29,219 29,219 129,280
7 52 41,720 4,880 35,672 35,672 134,160 34,795 34,795 134,160
8 53 43,806 0 36,826 36,826 134,160 35,742 35,742 134,160
9 54 45,996 0 38,013 38,013 134,160 36,682 36,682 134,160
10 55 48,296 0 39,223 39,223 134,160 37,606 37,606 134,160
11 56 50,710 0 40,338 40,338 134,160 38,509 38,509 134,160
12 57 53,246 0 41,474 41,474 134,160 39,382 39,382 134,160
13 58 55,908 0 42,627 42,627 134,160 40,220 40,220 134,160
14 59 58,704 0 43,798 43,798 134,160 41,016 41,016 134,160
15 60 61,639 0 44,988 44,988 134,160 41,757 41,757 134,160
16 61 64,721 0 45,998 45,998 134,160 42,430 42,430 134,160
17 62 67,957 0 47,013 47,013 134,160 43,020 43,020 134,160
18 63 71,355 0 48,029 48,029 134,160 43,507 43,507 134,160
19 64 74,922 0 49,038 49,038 134,160 43,866 43,866 134,160
20 65 78,669 0 50,038 50,038 134,160 44,067 44,067 134,160
25 70 100,403 0 57,813 57,813 134,160 41,625 41,625 134,160
30 75 128,143 0 65,056 65,056 134,160 27,742 27,742 134,160
<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.
</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-10
<PAGE> 91
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $4,880
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 12%
Current Guaranteed
(10.86% Net)<F*> (10.71% 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 4,712 4,712 104,880 4,646 4,646 104,880
2 47 10,504 4,880 9,945 9,945 109,760 9,785 9,785 109,760
3 48 16,153 4,880 15,728 15,728 114,640 15,446 15,446 114,640
4 49 22,085 4,880 22,124 22,124 119,520 21,685 21,685 119,520
5 50 28,313 4,880 29,200 29,200 124,400 28,564 28,564 124,400
6 51 34,853 4,880 36,983 36,983 129,280 36,154 36,154 129,280
7 52 41,720 4,880 45,602 45,602 134,160 44,530 44,530 134,160
8 53 43,806 0 50,020 50,020 134,160 48,655 48,655 134,160
9 54 45,996 0 54,917 54,917 134,160 53,198 53,198 134,160
10 55 48,296 0 60,328 60,328 142,375 58,203 58,203 137,359
11 56 50,710 0 66,172 66,172 151,533 63,689 63,689 145,849
12 57 53,246 0 72,580 72,580 161,854 69,666 69,666 155,356
13 58 55,908 0 79,613 79,613 171,965 76,183 76,183 164,556
14 59 58,704 0 87,330 87,330 183,392 83,281 83,281 174,891
15 60 61,639 0 95,798 95,798 195,428 91,007 91,007 185,655
16 61 64,721 0 104,860 104,860 208,671 99,401 99,401 197,808
17 62 67,957 0 114,801 114,801 221,567 108,528 108,528 209,460
18 63 71,355 0 125,696 125,696 236,308 118,430 118,430 222,649
19 64 74,922 0 137,632 137,632 251,867 129,162 129,162 236,367
20 65 78,669 0 150,694 150,694 269,742 140,758 140,758 251,957
25 70 100,403 0 242,443 242,443 383,060 214,354 214,354 338,680
30 75 128,143 0 387,110 387,110 553,567 320,386 320,386 458,152
<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-11
<PAGE> 92
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Security Equity Life Insurance Company
and Policyholders of Security Equity
Life Insurance Company Separate Account Thirteen:
We have audited the statements of assets and liabilities, including the
schedule of investments, of the General American Capital Company Money Market
Fund, Wells Fargo Bank L&A Asset Allocation Fund, Wells Fargo Bank L&A US
Government Allocation Fund, Fidelity VIP Growth Fund, Fidelity VIP II
Investment Grade Bond Fund, Fidelity VIP II Index 500 Fund, Fidelity VIP
Overseas Fund, Fidelity VIP High Income Fund, Evergreen VA Fund, Evergreen VA
Foundation Fund, Evergreen VA Growth and Income Fund, Russell Multi-Style
Equity Fund, Russell Aggressive Equity Fund, Russell Non-US Fund, and the
Russell Core Bond Fund Divisions of Security Equity Life Insurance Company
Separate Account Thirteen as of December 31, 1997, and the related statements
of operations and changes in net assets for the periods presented. These
financial statements are the responsibility of the management of Security
Equity Life Insurance Company Separate Account Thirteen. 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,
1997 by correspondence with underlying Mutual Funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the General American Capital
Company Money Market Fund, Wells Fargo Bank L&A Asset Allocation Fund, Wells
Fargo Bank L&A US Government Allocation Fund, Fidelity VIP Growth Fund,
Fidelity VIP II Investment Grade Bond Fund, Fidelity VIP II Index 500 Fund,
Fidelity VIP Overseas Fund, Fidelity VIP High Income Fund, Evergreen VA Fund,
Evergreen VA Foundation Fund, Evergreen VA Growth and Income Fund, Russell
Multi-Style Equity Fund, Russell Aggressive Equity Fund, Russell Non-US Fund,
and the Russell Core Bond Fund Divisions of Security Equity Life Insurance
Company Separate Account Thirteen as of December 31, 1997, the results of
their operations and the changes in their net assets for the periods
presented, in conformity with generally accepted accounting principles.
St. Louis, Missouri
February 20, 1998
<PAGE> 93
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Assets and Liabilities
<CAPTION>
December 31, 1997
General Wells Wells
American Fargo Fargo Fidelity
Capital Bank Bank VIP II Fidelity
Company L&A L&A US Fidelity Investment Fidelity Fidelity VIP
Money Asset Government VIP Grade VIP II VIP High
Market Allocation Allocation Growth Bond Index 500 Overseas Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at
market value $2,291,672 22,753 1,075,054 4,337,386 4,273,361 7,409,458 128,437 172,015
Liabilities:
Payable to
Security
EquityLife
Insurance 351 4 165 663 649 1,150 9 22
Company ---------- ------ --------- --------- --------- --------- ------- -------
Total net assets $2,291,321 22,749 1,074,889 4,336,723 4,272,712 7,408,308 128,428 171,993
========== ====== ========= ========= ========= ========= ======= =======
Total units 1,933,223 13,509 886,655 2,180,702 3,306,395 3,313,560 116,002 147,714
========== ====== ========= ========= ========= ========= ======= =======
Unit value $ 1.19 1.68 1.21 1.99 1.29 2.24 1.11 1.16
========== ====== ========= ========= ========= ========= ======= =======
Cost of investments $2,346,299 23,284 1,068,153 3,570,421 4,082,197 6,391,952 131,744 158,094
========== ====== ========= ========= ========= ========= ======= =======
<CAPTION>
Evergreen
VA Russell Russell
Evergreen Growth Multi- Aggres- Russell
Evergreen VA and Style sive Russell Core
VA Foundation Income Equity Equity Non-US Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at
market value $4,307,387 3,402,506 4,328,391 127,313 45,517 60,943 42,781
Liabilities:
Payable to
Security
EquityLife
Insurance 657 519 661 19 7 9 7
Company ---------- --------- --------- ------- ------ ------ ------
Total net assets $4,306,730 3,401,987 4,327,730 127,294 45,510 60,934 42,774
========== ========= ========= ======= ====== ====== ======
Total units 2,843,275 2,334,346 2,874,370 123,323 41,107 68,511 41,107
========== ========= ========= ======= ====== ====== ======
Unit value $ 1.51 1.46 1.51 1.03 1.11 .89 1.04
========== ========= ========= ======= ====== ====== ======
Cost of investments $3,267,615 3,001,733 3,210,397 122,937 41,050 68,234 41,636
========== ========= ========= ======= ====== ====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE> 94
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Operations
Year ended December 31, 1997
<CAPTION>
Wells
General Wells Fargo Fidelity
American Fargo Bank VIP II
Capital Bank L&A Invest- Fidelity Fidelity
Company L&A US Fidelity ment VIP II Fidelity VIP
Money Asset Government VIP Grade Index VIP High
Market Allocation Allocation Growth Bond 500 Overseas Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ - 798 29,147 27,119 225,803 39,357 3,584 -
Expense:
Mortality and expense
charges 8,153 57 1,790 16,100 13,854 20,225 918 322
Net investment income (expense) (8,153) 741 27,357 11,019 211,949 19,132 2,666 (322)
----------- ----- ------ ------- ------- --------- ------- ------
Net realized gain (loss) on
investments:
Proceeds from sales 20,629,339 510 11,595 675,710 235,810 1,153,694 228,191 2,086
Cost of investments sold 21,128,960 503 11,537 522,627 229,902 803,888 224,866 2,056
----------- ----- ------ ------- ------- --------- ------- ------
Net realized gain
(loss) on sales (499,621) 7 58 153,083 5,908 349,806 3,325 30
Realized gain from
distributions 70,508 1,992 1,636 121,391 - 79,863 14,229 -
----------- ----- ------ ------- ------- --------- ------- ------
Net realized gain
(loss) on
investments (429,113) 1,999 1,694 274,474 5,908 429,669 17,554 30
----------- ----- ------ ------- ------- --------- ------- ------
Net unrealized gain (loss)
on investments:
Beginning of period (616,614) (727) - 152,534 72,512 190,361 - -
End of period (54,627) (531) 6,901 766,965 191,164 1,017,506 (3,307) 13,921
----------- ----- ------ ------- ------- --------- ------- ------
Net unrealized gain
(loss) on
investments 561,987 196 6,901 614,431 118,652 827,145 (3,307) 13,921
----------- ----- ------ ------- ------- --------- ------- ------
Net gain (loss)
on investments 132,874 2,195 8,595 888,905 124,560 1,256,814 14,247 13,951
----------- ----- ------ ------- ------- --------- ------- ------
Net increase (decrease)
in net assets
resulting from
operations $ 124,721 2,936 35,952 899,924 336,509 1,275,946 16,913 13,629
=========== ===== ====== ======= ======= ========= ======= ======
<CAPTION>
Evergreen
Evergreen VA Russell Russell
VA Growth Multi- Aggres- Russell
Evergreen Founda- and Style sive Russell Core
VA tion Income Equity Equity Non-US Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 14,086 56,929 19,339 186 - - 628
Expense:
Mortality and expense
charges 15,760 10,793 14,415 193 67 93 65
Net investment income (expense) (1,674) 46,136 4,924 (7) (67) (93) 563
---------- ------- --------- ----- ----- ------ -----
Net realized gain (loss) on
investments:
Proceeds from sales 1,142,113 718,799 510,045 612 215 306 204
Cost of investments sold 830,948 530,813 361,276 603 201 334 202
---------- ------- --------- ----- ----- ------ -----
Net realized gain
(loss) on sales 311,165 187,986 148,769 9 14 (28) 2
Realized gain from
distributions 192,033 159,412 152,804 - - - -
---------- ------- --------- ----- ----- ------ -----
Net realized gain
(loss) on
investments 503,198 347,398 301,573 9 14 (28) 2
---------- ------- --------- ----- ----- ------ -----
Net unrealized gain (loss)
on investments:
Beginning of period 174,857 90,314 218,007 - - - -
End of period 1,039,772 400,773 1,117,994 4,376 4,467 (7,291) 1,144
---------- ------- --------- ----- ----- ------ -----
Net unrealized gain
(loss) on
investments 864,915 310,459 899,987 4,376 4,467 (7,291) 1,144
---------- ------- --------- ----- ----- ------ -----
Net gain (loss)
on investments 1,368,113 657,857 1,201,560 4,385 4,481 (7,319) 1,146
---------- ------- --------- ----- ----- ------ -----
Net increase (decrease)
in net assets
resulting from
operations $1,366,439 703,993 1,206,484 4,378 4,414 (7,412) 1,709
========== ======= ========= ===== ===== ====== =====
See accompanying notes to financial statements.
</TABLE>
<PAGE> 95
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
<TABLE>
Statements of Operations
Year ended December 31, 1996
<CAPTION>
General Wells
American Fargo Fidelity Evergreen
Capital Bank VIP II Evergreen VA
Company L&A Fidelity Investment Fidelity VA Growth
Money Asset VIP Grade VIP II Evergreen Founda- and
Market Allocation Growth Bond Index VA tion Income
Fund Fund Fund Fund 500 Fund Fund Fund Fund
---- ---- ---- ---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Investment income:
Dividend income $ - 348 98 6,207 1,888 14,947 25,649 16,722
Expense:
Mortality and expense charges 8,455 19 9,716 6,971 5,182 2,914 1,512 2,926
---------- ---- --------- ------- ------- ------- ------- -------
Net investment income (expense) (8,455) 329 (9,618) (764) (3,294) 12,033 24,137 13,796
---------- ---- --------- ------- ------- ------- ------- -------
Net realized gain (loss) on
investments:
Proceeds from sales 9,427,292 545 2,657,607 964,149 996,124 34,167 17,279 36,201
Cost of investments sold 9,821,858 577 2,601,002 967,181 961,682 32,848 16,419 34,638
---------- ---- --------- ------- ------- ------- ------- -------
Net realized gain (loss) on
sales (394,566) (32) 56,605 (3,032) 34,442 1,319 860 1,563
Realized gain from
distributions 662,558 565 2,483 - 4,854 8,720 8,970 4,256
---------- ---- --------- ------- ------- ------- ------- -------
Net realized gain (loss) on
investments 267,992 533 59,088 (3,032) 39,296 10,039 9,830 5,819
---------- ---- --------- ------- ------- ------- ------- -------
Net unrealized gain (loss)
on investments:
Beginning of period (477,414) (264) (141) - - - - -
End of period (616,614) (727) 152,534 72,512 190,361 174,857 90,314 218,007
---------- ---- --------- ------- ------- ------- ------- -------
Net unrealized gain
(loss) on investments (139,200) (463) 152,675 72,512 190,361 174,857 90,314 218,007
---------- ---- --------- ------- ------- ------- ------- -------
Net gain on
investments 128,792 70 211,763 69,480 229,657 184,896 100,144 223,826
---------- ---- --------- ------- ------- ------- ------- -------
Net increase in net assets
resulting from
operations $ 120,337 399 202,145 68,716 226,363 196,929 124,281 237,622
========== ==== ========= ======= ======= ======= ======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE> 96
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
<TABLE>
Statements of Operations
Period from September 1, 1995 (inception) to December 31, 1995
<CAPTION>
General Wells
American Fargo
Capital Bank
Company L&A Fidelity
Money Asset VIP
Market Allocation Growth
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Investment income:
Dividend income $ - 46 -
Expense:
Mortality and expense charges 910 1 1
--------- ----- ----
Net investment income (expense) (910) 45 (1)
--------- ----- ----
Net realized gain on investments:
Proceeds from sales 8,244 - -
Cost of investments sold 8,217 - -
--------- ----- ----
Net realized gain (loss) on sales 27 - -
Realized gain from distributions 494,746 224 -
--------- ----- ----
Net realized gain on investments 494,773 224 -
--------- ----- ----
Net unrealized loss on investments:
Beginning of period - - -
End of period (477,414) (264) (141)
--------- ----- ----
Net unrealized loss on investments (477,414) (264) (141)
--------- ----- ----
Net gain (loss) on investments 17,359 (40) (141)
--------- ----- ----
Net increase (decrease) in net assets
resulting from operations $ 16,449 5 (142)
========= ===== ====
See accompanying notes to financial statements.
</TABLE>
<PAGE> 97
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Changes in Net Assets
Year ended December 31, 1997
<CAPTION>
General Wells
American Fargo Fidelity
Capital Wells Bank VIP II Fidelity
Company Fargo Bank L&A US Fidelity Investment Fidelity Fidelity VIP
Money L&A Asset Government VIP Grade VIP II VIP High
Market Allocation Allocation Growth Bond Index 500 Overseas Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment income
(expense) $ (8,153) 741 27,357 11,019 211,949 19,132 2,666 (322)
Net realized gain (loss)
on investments (429,113) 1,999 1,694 274,474 5,908 429,669 17,554 30
Net unrealized gain
(loss) on
investments 561,987 196 6,901 614,431 118,652 827,145 (3,307) 13,921
------------ ------ --------- --------- --------- --------- -------- -------
Net increase
(decrease) in net
assets resulting
from operations 124,721 2,936 35,952 899,924 336,509 1,275,946 16,913 13,629
------------ ------ --------- --------- --------- --------- -------- -------
Deposits into Separate
Account 8,313,213 8,594 - 52,684 187,438 238,135 1,137 1,364
Withdrawals from Separate
Account (12,409,728) - - (521,876) (78,701) (935,770) (212,942) -
Transfers to (from)
Divisions (8,186,180) - 1,047,944 464,587 247,811 4,375,652 337,545 157,274
Policy charges (536,474) (1,267) (9,007) (134,854) (134,974) (186,389) (14,225) (274)
------------ ------ --------- --------- --------- --------- -------- -------
Net deposits into
(withdrawals from)
Separate Account (12,819,169) 7,327 1,038,937 (139,459) 221,574 3,491,628 111,515 158,364
------------ ------ --------- --------- --------- --------- -------- -------
Increase (decrease) in
net assets (12,694,448) 10,263 1,074,889 760,465 558,083 4,767,574 128,428 171,993
Net assets, beginning of
period 14,985,769 12,486 - 3,576,258 3,714,629 2,640,734 - -
------------ ------ --------- --------- --------- --------- -------- -------
Net assets, end of period $ 2,291,321 22,749 1,074,889 4,336,723 4,272,712 7,408,308 128,428 171,993
============ ====== ========= ========= ========= ========= ======== =======
<CAPTION>
Evergreen
Evergreen VA Russell Russell
VA Growth Multi- Aggres- Russell
Evergreen Founda- and Style sive Russell Core
VA tion Income Equity Equity Non-US Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment income
(expense) $ (1,674) 46,136 4,924 (7) (67) (93) 563
Net realized gain (loss)
on investments 503,198 347,398 301,573 9 14 (28) 2
Net unrealized gain (loss) on
investments 864,915 310,459 899,987 4,376 4,467 (7,291) 1,144
---------- --------- --------- ------- ------ ------ ------
Net increase
(decrease) in net
assets resulting
from operations 1,366,439 703,993 1,206,484 4,378 4,414 (7,412) 1,709
---------- --------- --------- ------- ------ ------ ------
Deposits into Separate
Account - - - - - - -
Withdrawals from Separate
Account (600,093) (615,829) - - - - -
Transfers to (from)
Divisions 90,397 1,589,962 (400,000) 123,754 41,251 68,752 41,251
Policy charges (126,744) (90,084) (96,118) (838) (155) (406) (186)
---------- --------- --------- ------- ------ ------ ------
Net deposits into
(withdrawals from)
Separate Account (636,440) 884,049 (496,118) 122,916 41,096 68,346 41,065
---------- --------- --------- ------- ------ ------ ------
Increase (decrease) in
net assets 729,999 1,588,042 710,366 127,294 45,510 60,934 42,774
Net assets, beginning of
period 3,576,731 1,813,945 3,617,364 - - - -
---------- --------- --------- ------- ------ ------ ------
Net assets, end of period 4,306,730 3,401,987 4,327,730 127,294 45,510 60,934 42,774
========== ========= ========= ======= ====== ====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE> 98
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Changes in Net Assets
Year ended December 31, 1996
<CAPTION>
General Wells
American Fargo Evergreen
Capital Bank Fidelity Evergreen VA
Company L&A Fidelity VIP II Fidelity VA Growth
Money Asset VIP Investment VIP II Evergreen Founda- and
Market Allocation Growth Grade Bond Index 500 VA tion Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (expense) $ (8,455) 329 (9,618) (764) (3,294) 12,033 24,137 13,796
Net realized gain (loss) on
investments 267,992 533 59,088 (3,032) 39,296 10,039 9,830 5,819
Net unrealized gain (loss) on
investments (139,200) (463) 152,675 72,512 190,361 174,857 90,314 218,007
----------- ------ --------- --------- --------- --------- --------- ---------
Net increase in net assets
resulting from operations 120,337 399 202,145 68,716 226,363 196,929 124,281 237,622
----------- ------ --------- --------- --------- --------- --------- ---------
Deposits into Separate Account 16,201,970 6,223 1,854,129 1,992,244 1,139,931 1,799,979 899,908 1,799,969
Transfers to (from) Divisions (9,318,249) 3,087 1,757,397 1,878,412 1,439,294 1,696,024 848,012 1,696,024
Policy charges (864,845) (1,318) (241,335) (224,743) (164,854) (116,201) (58,256) (116,251)
----------- ------ --------- --------- --------- --------- --------- ---------
Net deposits into Separate
Account 6,018,876 7,992 3,370,191 3,645,913 2,414,371 3,379,802 1,689,664 3,379,742
----------- ------ --------- --------- --------- --------- --------- ---------
Increase in net assets 6,139,213 8,391 3,572,336 3,714,629 2,640,734 3,576,731 1,813,945 3,617,364
Net assets, beginning of period 8,846,556 4,095 3,922 - - - - -
----------- ------ --------- --------- --------- --------- --------- ---------
Net assets, end of period $14,985,769 12,486 3,576,258 3,714,629 2,640,734 3,576,731 1,813,945 3,617,364
=========== ====== ========= ========= ========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 99
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Changes in Net Assets
Period from September 1, 1995 (inception) to December 31, 1995
<CAPTION>
General Wells
American Fargo
Capital Bank
Company L&A Fidelity
Money Asset VIP
Market Allocation Growth
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Operations:
Net investment income (expense) $ (910) 45 (1)
Net realized gain on investments 494,773 224 -
Net unrealized loss on investments (477,414) (264) (141)
---------- ----- -----
Net increase (decrease) in net assets
resulting from operations 16,449 5 (142)
---------- ----- -----
Deposits into 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> 100
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
December 31, 1997
(1) Organization
------------
Security Equity Life Insurance Company Separate Account Thirteen (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). Security Equity is a subsidiary of General
American Life insurance Company.
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 Capital Company Money Market Fund, Wells Fargo
Bank L&A Asset Allocation Fund, Wells Fargo Bank L&A US Government
Allocation Fund, Fidelity VIP Growth Fund, Fidelity VIP II
Investment Grade Bond Fund, Fidelity VIP II Index 500 Fund,
Fidelity VIP Overseas Fund, Fidelity VIP High Income Fund, Fidelity
VIP II Asset Manager Fund Division, Evergreen VA Fund, Evergreen VA
Foundation Fund, Evergreen VA Growth and Income Fund, Russell
Multi-Style Equity Fund, Russell Aggressive Equity Fund, Russell
Non-US Fund, and the Russell Core Bond Fund.
Investments in the Fidelity VIP II Investment Grade Bond Fund, Fidelity
VIP II Index 500 Fund, Evergreen VA Fund, Evergreen VA Foundation
Fund, and Evergreen VA Growth and Income Fund Divisions were
initiated in the Separate Account for policyholders during 1996.
Investments in the Fidelity VIP Overseas Fund, Fidelity VIP High
Income Fund, Wells Fargo Bank L&A US Government Allocation Fund,
Russell Multi Style Equity Fund, Russell Aggressive Equity Fund,
Russell Non US Fund, and Russell Core Bond Fund Divisions were
initiated in the Separate Account for policyholders during 1997.
The Fidelity VIP II Asset Manager Fund Division had not commenced
operations at December 31, 1997.
The Bankers Trust Emerging Markets Fund, Bankers Trust Liquid Asset
Fund, and the Bankers Trust Limited Maturity Bond Fund were removed
as investment options from the Separate Account on May 1, 1997.
There had been no activity in these funds.
(2) Summary of 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.
(Continued)
<PAGE> 101
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
(b) Federal Income Taxes
--------------------
Under current federal income tax law, investment income or
realized capital gains from sales of investments of the
Separate Account are not taxable. Therefore, no federal
income tax expense has been provided.
(c) Dividend Reinvestment
---------------------
Dividends are recorded on the ex dividend date and
immediately reinvested on the pay date.
(d) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of increase and decrease in net assets from operations
during the period. Actual results could differ from
those estimates.
(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 policies.
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>
(Continued)
<PAGE> 102
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
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, and optional rider benefit charges.
Administrative Costs: Security Equity has responsibility for the
--------------------
administration of the policies and the Separate Account. As
reimbursement for administrative expenses related to the
maintenance of each policy and the Separate Account, Security
Equity assesses a monthly administrative charge against each
policy. This monthly charge is $4.50 per policy. This cost
may change, but is guaranteed not to exceed $8.00 per month per
policy.
Cost of Insurance: The cost of insurance is deducted on each
-----------------
monthly anniversary for the following policy month. Because
the cost of insurance depends upon a number of variables, the
cost varies for each policy month. The cost of insurance is
determined by multiplying the applicable cost of insurance rate
by the net amount at risk each policy month.
Optional Rider Benefit Charges: This monthly deduction includes
------------------------------
charges for any additional benefits provided by rider.
Mortality and Expense Charges: In addition to the above policy
-----------------------------
charges, a daily charge against the operations of each Division is
made for the mortality and expense risks assumed by Security
Equity. The mortality and expense risk charge assessed against
each Division 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.
(Continued)
<PAGE> 103
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
(4) Purchases and Sales
-------------------
During the period ended December 31, 1997, purchases and proceeds from
the sales pertaining to the Separate Account were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
General American Capital Company Money Market Fund $7,869,875 20,629,339
Wells Fargo Bank L&A Asset Allocation Fund 10,561 510
Wells Fargo Bank L&A US Government Allocation Fund 1,079,690 11,595
Fidelity VIP Growth Fund 663,291 675,710
Fidelity VIP II Investment Grade Bond Fund 662,053 235,810
Fidelity VIP II Index 500 Fund 4,737,485 1,153,694
Fidelity VIP Overseas Fund 356,610 228,191
Fidelity VIP High Income Fund 160,150 2,086
Evergreen VA Fund 696,517 1,142,113
Evergreen VA Foundation Fund 1,808,828 718,799
Evergreen VA Growth and Income Fund 172,142 510,045
Russell Multi-Style Equity Fund 123,540 612
Russell Aggressive Equity Fund 41,251 215
Russell Non-US Fund 68,569 306
Russell Core Bond Fund 41,839 204
</TABLE>
There were no purchases or sales for the Fidelity VIP II Asset Manager
Fund Division during 1997 (see note 1).
(Continued)
<PAGE> 104
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
(5) Accumulation Unit Activity
--------------------------
For the year ended December 31, 1997, transactions in accumulation
units were as follows:
<TABLE>
<CAPTION>
Units, Net Transfers Units,
beginning of deposits between end of
period (withdrawals) Divisions period
------ ------------- --------- ------
<S> <C> <C> <C> <C>
General American Capital Company
Money Market Fund 13,318,334 (4,108,503) (7,276,608) 1,933,223
Wells Fargo Bank L&A Asset Allocation Fund 8,931 4,798 (220) 13,509
Wells Fargo Bank L&A US Government
Allocation Fund - - 886,655 886,655
Fidelity VIP Growth Fund 2,212,740 (236,554) 204,516 2,180,702
Fidelity VIP II Investment Grade Bond Fund 3,124,238 81,752 100,405 3,306,395
Fidelity VIP II Index 500 Fund 1,561,960 (324,326) 2,075,926 3,313,560
Fidelity VIP Overseas Fund - (192,838) 308,840 116,002
Fidelity VIP High Income Fund - 1,205 146,509 147,714
Evergreen VA Fund 3,227,545 (407,318) 23,048 2,843,275
Evergreen VA Foundation Fund 1,585,211 (438,926) 1,188,061 2,334,346
Evergreen VA Growth and Income Fund 3,224,042 - (349,672) 2,874,370
Russell Multi-Style Equity Fund - - 123,323 123,323
Russell Aggressive Equity Fund - - 41,107 41,107
Russell Non-US Fund - - 68,511 68,511
Russell Core Bond Fund - - 41,107 41,107
</TABLE>
For the year ended December 31, 1996, transactions in accumulation
units were as follows:
<TABLE>
<CAPTION>
Units, Net Transfers Units,
beginning deposits between end of
of period (withdrawals) Divisions of period
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
General American Capital Company
Money Market Fund 8,266,085 13,774,894 (8,722,645) 13,318,334
Wells Fargo Bank L&A Asset Allocation Fund 3,253 5,521 157 8,931
Fidelity VIP Growth Fund 2,774 1,081,685 1,128,281 2,212,740
Fidelity VIP II Investment Grade Bond Fund - 1,607,694 1,516,544 3,124,238
Fidelity VIP II Index 500 Fund - 653,667 908,293 1,561,960
Evergreen VA Fund - 1,569,119 1,658,426 3,227,545
Evergreen VA Foundation Fund - 755,933 829,278 1,585,211
Evergreen VA Growth and
Income Fund - 1,565,607 1,658,435 3,224,042
</TABLE>
(Continued)
<PAGE> 105
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
For the period September 1, 1995 (inception) to December 31, 1995,
transactions in accumulation units were as follows:
<TABLE>
<CAPTION>
Units, Transfers Units,
beginning Net between end of
of period deposits Divisions of period
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
General American Capital
Company Money
Market Fund - 8,273,816 (7,731) 8,266,085
Wells Fargo Bank L&A
Asset Allocation
Fund - - 3,253 3,253
Fidelity VIP Growth Fund - - 2,774 2,774
</TABLE>
There has been no accumulation of units for the Fidelity VIP II Asset
Manager Fund Division during 1997 (see note 1).
<PAGE> 106
Schedule 1
----------
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Schedule of Investments
December 31, 1997
<CAPTION>
Number of Market
shares value
------ -----
<S> <C> <C>
General American Capital Company Money Market Fund 125,732 $2,291,672
Wells Fargo Bank L&A Asset Allocation Fund 1,898 22,753
Wells Fargo Bank L&A US Government Allocation Fund 104,679 1,075,054
Fidelity VIP Growth Fund 116,911 4,337,386
Fidelity VIP II Investment Grade Fund 340,236 4,273,361
Fidelity VIP II Index 500 Fund 64,774 7,409,458
Fidelity VIP Overseas Fund 6,689 128,437
Fidelity VIP High Income Fund 12,667 172,015
Evergreen VA Fund 289,281 4,307,387
Evergreen VA Foundation Fund 251,293 3,402,506
Evergreen VA Growth and Income Fund 283,086 4,328,391
Russell Multi-Style Fund 9,962 127,313
Russell Aggressive Equity Fund 3,384 45,517
Russell Non-US Fund 6,076 60,943
Russell Core Bond Fund 1,898 42,781
</TABLE>
There were no investments in the Fidelity VIP II Asset Manager Fund Division
during 1997 (see note 1).
<PAGE> 107
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, 1997 and 1996, and the related
statements of operations, stockholder's equity, and cash flows for each of
the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
April 10, 1998
<PAGE> 108
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1997 and 1996
<CAPTION>
==============================================================================================================
Assets 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, at fair value $ 58,580,394 58,058,439
Policy loans 4,738,178 5,081,949
Cash and cash equivalents 4,519,584 5,534,380
- --------------------------------------------------------------------------------------------------------------
Total cash and invested assets 67,838,156 68,674,768
Reinsurance benefits recoverable:
Future policy benefits 5,575,381 6,436,700
Policy and contract claims 1,572,069 2,048,247
Accrued investment income 1,264,239 1,230,483
Goodwill 1,269,661 1,349,013
Deferred policy acquisition costs 1,766,875 3,658,233
Value of business acquired 2,467,000 2,461,000
Deferred tax asset 5,671,074 3,403,349
Other assets 665,967 877,289
Separate account assets 290,409,444 116,625,434
- --------------------------------------------------------------------------------------------------------------
Total assets $378,499,866 206,764,516
==============================================================================================================
Liabilities and Stockholder's Equity
- --------------------------------------------------------------------------------------------------------------
Reserve for future policy benefits 3,426,250 4,321,740
Policyholder account balances 47,594,304 50,194,850
Policy and contract claims 320,358 1,494,338
Other policyholders' funds 13,733 21,723
Advance premiums 3,733,433 1,861,279
Other liabilities and accrued expenses 4,643,201 6,622,653
Payable to affiliates 41,307 75,510
Separate account liabilities 290,409,444 116,625,434
- --------------------------------------------------------------------------------------------------------------
Total liabilities 350,182,030 181,217,527
- --------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 10)
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 on investments, net of taxes 1,870,338 59,112
Retained deficit (3,500,394) (4,460,015)
- --------------------------------------------------------------------------------------------------------------
Total stockholder's equity 28,317,836 25,546,989
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $378,499,866 206,764,516
==============================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 109
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Operations
Years ended December 31, 1997, 1996, and 1995
<CAPTION>
=======================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums $ 4,246,718 6,371,662 5,368,563
Net investment income 4,774,386 4,546,544 4,699,713
Other income 9,357,336 3,830,965 1,694,087
Realized investment gains (losses) 93,385 313,185 (179,830)
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 18,471,825 15,062,356 11,582,533
- -----------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits 1,326,460 3,309,410 3,234,062
Policy surrenders, net 4,335,709 1,635,498 1,016,535
Change in reserve for future policy benefits (3,202,870) (1,893,195) (2,791,166)
Interest credited 2,392,355 2,437,432 2,391,220
Commissions, net of capitalized costs 2,370,739 1,403,608 1,283,902
General and administrative expenses 5,412,113 4,795,193 4,966,525
Amortization of goodwill 79,356 79,356 79,356
Accretion of value of business acquired, net (6,000) (20,000) (28,000)
Other expenses 4,256,509 3,598,595 1,302,092
- -----------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 16,964,371 15,345,897 11,454,526
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations before
federal income tax expense (benefit) 1,507,454 (283,541) 128,007
- -----------------------------------------------------------------------------------------------------------------------
Federal income tax expense (benefit):
Current 3,790,833 15,000 -
Deferred (3,243,000) (92,000) 64,286
- -----------------------------------------------------------------------------------------------------------------------
Total Federal income tax expense
(benefit) 547,833 (77,000) 64,286
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 959,621 (206,541) 63,721
=======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 110
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1997, 1996, and 1995
<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, 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
Net loss - - - (206,541) (206,541)
Change in net unrealized gain
(loss) on investments - - (1,931,020) - (1,931,020)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,500,000 27,447,892 59,112 (4,460,015) 25,546,989
Net gain - - - 959,621 959,621
Change in net unrealized gain
(loss) on investments - - 1,811,226 - 1,811,226
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $2,500,000 27,447,892 1,870,338 (3,500,394) 28,317,836
=======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 111
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<CAPTION>
=======================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 959,621 (206,541) 63,721
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Change in:
Reinsurance benefits ceded 1,337,497 441,300 3,844,903
Accrued investment income (33,756) 48,733 (36,253)
Other assets 211,321 372,746 (824,660)
Deferred policy acquisition costs, net 1,891,358 (2,186,479) (1,471,754)
Policy liabilities (3,496,036) (1,004,266) (1,345,723)
Policy and contract claims (1,173,980) (682,499) (2,880,980)
Other policyholders' funds (7,990) (3,341) 2,425
Federal income tax payable 709,833 15,000 -
Advance premiums 1,872,155 804,215 393,064
Other liabilities and accrued expenses (2,669,279) 4,317,546 190,733
Payable to affiliates (34,203) 23,725 (17,141)
Accretion of bond premiums, net 130,011 189,350 221,543
Deferred tax expense (benefit) (3,243,000) (92,000) 64,286
Net (gain) loss on sale of investments (93,385) (313,185) 179,830
Amortization of goodwill 79,356 79,356 79,356
Accretion of value of business acquired (6,000) (20,000) (28,000)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (3,566,477) 1,783,660 (1,564,650)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (6,925,121) (12,790,361) (17,056,300)
Sale or maturity of investments 9,153,009 15,141,063 19,355,372
Increase in policy loans, net 343,771 (557,046) (893,507)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,571,659 1,793,656 1,405,565
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Policyholder account balances:
Deposits on interest-sensitive life contracts 147,698,966 48,448,968 18,382,186
Transfers to separate account for
interest-sensitive life contracts, net (147,718,944) (48,468,986) (27,178,119)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (19,978) (20,018) (8,795,933)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (1,014,796) 3,557,298 (8,955,018)
Cash and cash equivalents at beginning of year 5,534,380 1,977,082 10,932,100
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,519,584 5,534,380 1,977,082
=======================================================================================================================
Supplemental disclosure of cash flow information -
taxes paid $ 3,081,000 - 20,000
=======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 112
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1997 and 1996
================================================================================
(1) General Information and 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 40 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.
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
(Continued)
<PAGE> 113
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
of these 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
At December 31, 1997 and 1996, all long-term securities are
carried at fair 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 fair 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 1997, 1996 and 1995,
amortization of VOBA was $134,000, $121,000 and $112,000, and the
accretion of interest on the unamortized balance was $140,000,
$141,000 and $140,000, respectively. The carrying value of VOBA
is periodically evaluated to ascertain recoverability from future
operations. Impairment would be recognized in current operations
when determined.
(d) Goodwill
Goodwill, representing the excess of purchase price over the fair
value of assets acquired, is amortized on a straight-line basis
over 20 years. The carrying value of goodwill is periodically
evaluated to ascertain recoverability from future operations.
Impairment would be recognized in current operations when
determined.
(e) Reserve for Future Policy Benefits
Liabilities for future benefits on life policies are established
in amounts adequate to meet the estimated future obligations on
policies in force. Liabilities for future policy benefits on
certain life insurance policies are computed using the net level
premium method and are based upon assumptions as to future
investment yield, mortality, and withdrawals. Mortality
(Continued)
<PAGE> 114
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
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.
(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 1997,
consistent with 1996 and 1995.
(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
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
1997, 1996 and 1995, the Company deferred $226 thousand, $2.4
million and $1.5 million, respectively, in acquisition costs
related to interest sensitive products and recognized
amortization of $590,000, $168,000 and $12,000, respectively,
based on the estimated gross profits of the underlying business.
During 1997 a policyholder utilized their "free-look" provision
of their variable life contract written in 1996 which resulted in
the return of approximately $13 million in contract deposits to
the policyholder. Additionally, the Company wrote off $1.5
million of related deferred acquisition costs associated with the
contract which were capitalized in 1996.
(Continued)
<PAGE> 115
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(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 adminis-trative 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 Value 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 (Bonds) 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, 1997 and 1996.
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.
(l) Reclassification
Certain amounts in the 1995 and 1996 financial statements have
been reclassified to conform to the 1997 presentation.
(Continued)
<PAGE> 116
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(2) Investments
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
==============================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $4,161,182 4,291,428 4,458,159
Short-term investments 278,606 75,110 43,781
Policy loans and other 409,406 260,276 294,298
--------------------------------------------------------------------------------------------------------------
4,849,194 4,626,814 4,796,238
Investment expenses 74,808 80,270 96,525
--------------------------------------------------------------------------------------------------------------
Net investment income $4,774,386 4,546,544 4,699,713
==============================================================================================================
</TABLE>
The amortized cost and estimated fair value of bonds at December 31,
1997 and 1996 are shown below. Fair value is based upon market prices
obtained from independent pricing services.
<TABLE>
<CAPTION>
====================================================================================================================
1997
--------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 6,387,244 369,801 148 6,756,897
Corporate securities 36,700,238 2,523,621 153,514 39,070,345
Mortgage-backed securities 12,615,469 323,476 185,793 12,753,152
--------------------------------------------------------------------------------------------------------------------
$55,702,951 3,216,898 339,455 58,580,394
====================================================================================================================
</TABLE>
(Continued)
<PAGE> 117
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================
1996
--------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 3,962,315 127,349 6,292 4,083,372
Corporate securities 40,917,820 1,299,830 902,482 41,315,168
Mortgage-backed securities 13,087,363 29,539 457,003 12,659,899
--------------------------------------------------------------------------------------------------------------------
$57,967,498 1,456,718 1,365,777 58,058,439
====================================================================================================================
</TABLE>
The amortized cost and estimated fair value of bonds at December 31,
1997 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 $ - -
Due after one year through five years 3,096,420 3,117,591
Due after five years through ten years 6,774,376 7,001,455
Due after ten years 33,216,686 35,708,197
Mortgage-backed securities 12,615,469 12,753,151
--------------------------------------------------------------------------------------------------------------
$55,702,951 58,580,394
==============================================================================================================
</TABLE>
Proceeds from the sale, call, and maturity of investments in bonds
during 1997, 1996, and 1995 were $9,153,009, $15,141,063, and
$19,355,372, respectively. Gross gains of $346,842, $381,856, and
$428,522 and gross losses of $253,457, $68,671, and $608,352 were
realized on those sales in 1997, 1996, and 1995, respectively.
The Company has bonds on deposit with various state insurance
departments with an amortized cost of approximately $2,387,000 and
$2,411,000 at December 31, 1997 and 1996, 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)
<PAGE> 118
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
Premiums and related reinsurance amounts for the years ended December
31, 1997, 1996, and 1995 as they relate to transactions with
affiliates are summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded $1,489,006 1,632,262 1,956,568
Policy benefits ceded (23,067) 1,397,188 305,947
====================================================================================================================
</TABLE>
Premiums and related reinsurance amounts for the years ended December
31, 1997, 1996, and 1995 as they relate to transactions with
nonaffiliates are summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with nonaffiliates:
Reinsurance premiums ceded $5,352,578 5,744,060 5,489,407
Policy benefits ceded 463,458 3,824,327 2,682,132
====================================================================================================================
</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>
=====================================================================================================================
1997 1996 1995
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $528 (99) 45
Amortization of intangibles, net 26 21 18
Other, net (6) 1 1
---------------------------------------------------------------------------------------------------------------------
Federal income tax expense (benefit) $548 (77) 64
=====================================================================================================================
</TABLE>
(Continued)
<PAGE> 119
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, 1997
and 1996 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy acquisition costs $4,897 1,746
Reserves 3,380 1,694
Capital loss carryforward 101 148
Other, net 1,307 685
--------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 9,685 4,273
Less valuation allowance - -
--------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 9,685 4,273
--------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 1,023 80
Other, net 2,991 790
--------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 4,014 870
--------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $5,671 3,403
====================================================================================================================
</TABLE>
On December 31, 1993, 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)
<PAGE> 120
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(5) Related-Party Transactions
The Company purchases certain administrative services from General
American. Charges for services performed are based upon personnel and
other costs involved in providing such services. The expenses
incurred for these services were $578,000, $529,000, and $463,200 for
1997, 1996, and 1995, respectively.
Effective January 1, 1994, the Company entered into an administrative
service agreement with Security Mutual. Under the agreement, Security
Mutual provides for the administration of policies issued through
December 31, 1993. The expenses incurred for these services were
$1,467,364, $1,621,268, and $1,842,320 for 1997, 1996, and 1995,
respectively.
On November 18, 1997, General American elected to surrender their
existing VUL policy which was purchased from the Company in November
1996. General American incorporated the cash value from their
surrendered policy of $2,965,211 with an additional contribution of
$37,400,000 to purchase another VUL policy with the Company totaling
$40,365,211.
(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 benefit is accrued are based on the number of years of
service and compensation level of each participant. No pension
expense was recognized in 1997, 1996, and 1995 due to overfunding of
the plan.
In addition, in 1995 SELIC adopted 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 were $302,000 and $144,000 in 1997 and
1996, respectively.
In order to attract and retain highly qualified Non-Employee Directors,
the Company enacted an arrangement under which Non-Employee Directors
may elect to reduce their current Director's Compensation in exchange
for future benefits. This plan, known as the Security Equity Deferred
Compensation Plan for Non-Employee Directors, was adopted and
effective as of April 15, 1995. The deferred liabilities were
$222,000, $117,000, and $43,000 in 1997, 1996, and 1995, respectively.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with Statement of Financial Accounting
Standards No. 106, Employer's Accounting for Postretirement Benefits
Other Than Pensions (SFAS No. 106). 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 postretirement benefit obligation
of approximately $16,427 over a period of 20 years. The unrecognized
initial postretirement benefit obligation was approximately $13,084
and $13,962 at December 31, 1997 and 1996, respectively. The net
periodic post-retirement benefit cost for the years ended December 31,
1997, 1996, and 1995 was $6,600, $8,490, and $6,711, 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
postretirement benefit obligation. The accumulated post-retirement
benefit obligation was approximately $27,564 and $28,981 at December
31, 1997 and 1996, respectively. The discount rate used in
determining the accumulated postretirement benefit obligation was
7.25% for all years. The health care cost trend rates were 8% for the
Indemnity Plan, the HMO Plan, and Dental Plan. These rates were
graded to 5.0% over the next 13 years. A one percentage point
increase in the assumed health care cost trend rates would increase
the
(Continued)
<PAGE> 121
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
December 31, 1997 accumulated postretirement obligation by $4,165, and
the estimated service cost and interest cost components of the net
periodic postretirement benefit cost for 1997 by $908.
(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
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; (7) non-recognition of certain assets as nonadmitted through
a direct charge to surplus; and (8) valuation of investments in bonds
at amortized cost.
The stockholder's equity (surplus) and net gain/(loss) of the Company
at December 31, 1997, 1996, and 1995, as determined using statutory
accounting practices, is summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Surplus as reported to regulatory authorities $13,420,004 12,441,081 15,125,968
Net gain/(loss) as reported to regulatory authorities 1,090,966 (2,778,942) (1,465,539)
====================================================================================================================
</TABLE>
(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 requiring the prior
notice and approval of the State of New York Department of Insurance.
The Company did not pay a dividend in 1997, 1996, or 1995.
(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.
(Continued)
<PAGE> 122
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
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, 1997, the Company's actual total adjusted
capital was well 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:
========================================================
Year ended December 31, 1998 $58,600
--------------------------------------------------------
Rent expense totaled approximately $86,700, $82,700, and $83,900 in
1997, 1996, and 1995, respectively.
<PAGE> 123
PROSPECTUS VERSION B
<PAGE> 124
Prospectus
Flexible Premium Variable Life Insurance Contract
Issued by Security Equity Life Insurance Company
Security Equity Life Insurance Company Separate Account 13
Prospectus dated May 1, 1998
Security Equity Life Insurance Company
84 Business Park Drive
Suite 303
Armonk, NY 10504
Tel: (914) 273-1290
<PAGE> 125
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
<PAGE> 126
portfolios. This Prospectus generally describes only the portion of the
Contracts involving the Available Divisions of the Separate Account. For a
brief summary of the Fixed Fund, see "The Fixed Fund".
It may not be advantageous to purchase a Contract as a replacement for
another type of life insurance or as a means to obtain additional insurance
protection if the purchaser already owns 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 May 1, 1998
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<PAGE> 127
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Definitions 6
Summary of Contract 10
Explanation of a Case 10
Purpose of the Contract 11
The Contract Holder and Beneficiary 11
Availability of the Contract 12
Joint Insureds 12
Contract Values 12
The Separate Account 13
Death Benefit 13
Premiums 13
Charges and Deductions 14
Contract Loans 15
Surrender and Partial Withdrawals 16
Termination 16
Illustrations 16
Replacement of Existing Coverage 16
Tax Considerations 17
Free Look and Conversion Rights 17
Information About SELIC 17
The Separate Account 18
The Contract 20
Availability of Insurance Coverage 20
Evidence of Insurability 21
Premiums 21
Contract Values 24
Transfers 27
Contract Loan Privilege 28
Surrender and Partial Withdrawals 31
Death Benefits Under the Contract 33
Charges and Deductions 39
Premium Load 39
Daily Charges 41
Monthly Charges 41
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<PAGE> 128
TABLE OF CONTENTS
(continued)
Page
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Underwriting Charges 44
Annual Charges 45
Other Charges 45
Termination 46
Maturity Date 46
Termination for Insufficient Net Cash Value 46
Reinstatement of a Contract Terminated for Insufficient Value 47
The Fixed Fund 47
General Description 48
Allocation of Amounts to the Fixed Fund 48
Fixed Fund Benefits 48
Fixed Fund Insurance Account Value 48
Fixed Fund Transfers, Surrenders, Partial Withdrawals and Contract Loans 50
Federal Income Tax Considerations 51
Additional Provisions of the Contract 58
Addition, Deletion, or Substitution of Investments 58
Incontestability 59
Conversion Rights 59
Misstatement of Age or Sex 60
Suicide 60
Availability of Funds 60
Entire Contract 60
Representations in Application 61
Contract Application and Contract Schedules 61
Right to Amend Contract 61
Computation of Contract Values 62
Claims of Creditors 62
Notice 62
Assignments 62
Construction 63
Severability 63
State Variations 63
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<PAGE> 129
TABLE OF CONTENTS
(continued)
Page
----
Unisex Requirements Under Montana Law 63
Records and Reports 63
Sale of the Contract 64
Voting Rights 64
State Regulation of the Company 65
Management of the Company 67-69
Legal Matters 70
Legal Proceedings 70
Experts 70
Additional Information 70
Financial Statements 70
Appendix A - Underlying Portfolios A-1
Appendix B - Contract Riders B1-B7
Appendix C - Illustrations of Death Benefits and Insurance Account Value C1-C11
</TABLE>
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<PAGE> 130
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> 131
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.
-7-
<PAGE> 132
Initial Premium: The first Premium paid under the Contract.
Insurance Account Value: The total amount that a Contract provides for
investment at any time. It is equal to the total of the amounts credited to
the Contract Holder in the Separate Account, the Fixed Fund, and the Borrowed
Fund.
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 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.
-8-
<PAGE> 133
Monthly Charges: The Contract charges that are deducted monthly from
Insurance Account Value. Monthly Charges include the Administration Charge,
the Cost of Insurance Charge, any Monthly Charges for benefits provided by
Contract rider, and any charges for special insurance class rating. (See
"Charges and Deductions").
Net Amount At Risk: The Net Amount at Risk is calculated on any
Monthiversary by subtracting the Insurance Account Value from the Death
Benefit, discounted one month at a 4.00% 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
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.
-9-
<PAGE> 134
Target Premium: An amount of Premium used to determine Premium Loads under
the Contract. The annual Target Premium is based upon the Face Amount and is
shown in the Contract. For Contracts with a Face Amount equal to the Minimum
Face Amount, the Target Premium will be zero (0).
Total Insurance Coverage: Total amount of insurance, including coverage
provided by any Supplemental Term Insurance Rider under the Contract.
Underlying Portfolio: An investment portfolio, managed by one or more
investment managers, the shares or units of which comprise the investment of
an Available Division of the Separate Account.
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
-10-
<PAGE> 135
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.
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. (See "Termination -- Termination for Insufficient Net Cash Value").
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. (See "Termination -- Termination
for Insufficient Net Cash Value"). 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."
-11-
<PAGE> 136
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.
- ------------------------
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.
-12-
<PAGE> 137
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 list of the Available
Divisions --a Division of the Separate Account currently available under the
Contract for allocation of Net Premiums and transfers -- is set forth in
Appendix A of 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 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
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<PAGE> 138
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 12 times the Monthly Charges due under that
Contract in the first Contract Month, plus any applicable Premium Load. SELIC
may, in its sole discretion, require a reduced initial Minimum Premium in
connection with the purchase of certain Contracts. Each subsequent Premium
must be at least $50 per Contract. Subsequent Premiums may be paid at any
time and in any frequency, subject to certain restrictions. (See "The
Contract -- Premiums"). If the Initial Premium and subsequent Premiums prove
to be too low, insurance coverage under the Contract may cease.
The initial Net Premium will be allocated during the Free Look period to the
Money Market Division specified in Appendix A. After the Free Look period,
Separate Account Value will be allocated among the Available Divisions of the
Separate Account and the Fixed Fund according to the Contract Holder's
instructions as specified in the Application or as subsequently changed prior
to the end of the Free Look period.
Insurance Account Value may be transferred among the Available Divisions of
the Separate Account and the Fixed Fund by written request, subject to
certain restrictions. Amounts may be transferred by dollar amounts or by
percentages. (See "The Contract -- Transfers").
Charges and Deductions
Certain charges are deducted from Premiums and from Insurance Account Value
under the Contract. For a more detailed discussion of the charges deducted
under the Contract, see "Charges and Deductions." For additional information
regarding the investment 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, 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.
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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 and thereafter (a maximum of 4% of Premiums paid during
each Contract Year up to a Target Premium 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 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) and a charge for the cost of insurance provided under the
Contract. Monthly Charges also include any charges for additional benefits
provided by Contract rider and charges for a special class rating, if
applicable.
SELIC will deduct an Underwriting Charge, not to exceed $100, on the Issue
Date for Contracts issued on a medically underwritten basis, and on any
Monthiversary following any medical underwriting in connection with certain
Contract changes. This charge changes if a Joint and Last Survivor Rider is
added to the Contract. See Appendix B. SELIC may reduce or waive the
Underwriting Charge under certain circumstances.
On each Contract Anniversary the Insurance Account Value attributable to the
Separate Account and Fixed Fund is: (i) reduced by Contract Loan interest due
and unpaid for the previous Contract Year; and (ii) 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.
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No charges are currently made to the Separate Account for federal, state or
local taxes that SELIC incurs which may be attributable to the Separate
Account. However, SELIC may impose such a charge in the future to provide
for any tax liability of the Separate Account.
Investment advisory fees and operating expenses of each Underlying Portfolio
are paid by such portfolio, and are reflected in the Separate Account Value
of a Contract.
At the Contract Holder's request, SELIC will provide an illustrative report
in addition to the reports it customarily provides. Depending upon the type
and complexity of the requested report, SELIC may charge a reasonable fee not
to exceed $50.
Contract Loans
The Contract Holder may obtain a Contract Loan under the Contract on any
Monthiversary. There is a maximum amount that may be borrowed, and interest
will be charged for any amount borrowed in accordance with the Contract Loan
interest rate option selected by the Contract Holder in the Application or as
subsequently changed. (See "Contract Loan Privilege").
Contract Loans are deducted from the amount payable on surrender of the
Contract and are also deducted from any Death Benefit proceeds. Contract
Loan interest accrues daily, and if it is not repaid each year, it is
capitalized and added to the Contract Loan. Depending upon the investment
performance of the Available Divisions and the amounts borrowed, Contract
Loans may cause a Contract to lapse. If the Contract lapses with a Contract
Loan outstanding, adverse tax consequences may result. A Contract Loan may
also have other Federal income tax consequences. (See "Federal Income Tax
Considerations").
Surrender and Partial Withdrawals
While the Insured is alive, the Contract may be surrendered at any time for
its Net Cash Value upon written request to SELIC's Home Office. To the
extent that the Insurance Account Value is allocated to the Available
Divisions of the Separate Account, SELIC does not guarantee any minimum Net
Cash Value. Partial withdrawals of Net Cash Value 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").
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Termination
The Contract does not automatically terminate for failure to pay subsequent
Premiums. However, the Contract may terminate prior to its Maturity Date if
there is insufficient Net Cash Value to pay Monthly Charges. (See
"Termination").
Illustrations
Illustrations in this prospectus or used in connection with the purchase of a
Contract are based on hypothetical rates of return. These rates are not
guaranteed. They are illustrative only, and should not be deemed to be a
representation of past or potential investment performance. Actual rates of
return may be more or less than those in the illustrations and, therefore,
actual values will be different than those illustrated.
Replacement of Existing Coverage
Before purchasing a Contract, a prospective Contract Holder should consider
whether changing, or adding to, current insurance coverage would be
advantageous. Generally, it is not advisable to purchase another insurance
contract as a replacement for existing coverage. In particular, replacement
should be carefully considered if the decision to replace the coverage is
based solely on a comparison of contract illustrations.
Tax Considerations
SELIC intends for the Contract to satisfy the definition of life insurance
contract under section 7702 of the Internal Revenue Code. Under certain
circumstances, a Contract may be a "modified endowment contract" under
federal tax law, depending upon the amount of payments made in relation to
the death benefit provided under the Contract. SELIC will monitor Contracts
and will attempt to notify a Contract Holder on a timely basis if his or her
Contract is in jeopardy of becoming a modified endowment contract. The status
under the Internal Revenue Code of Contracts issued with a Supplemental Term
Insurance Rider, or a Joint and Last Survivor Rider, is less clear. For
further discussion of the tax status of a Contract and the tax consequences
of being treated as a life insurance contract or a modified endowment
contract, see "Federal Income Tax Considerations."
Free Look and Conversion Rights
In most states, the Contract may be canceled at any time within 10 days after
it is received by the Contract Holder, 10 days after SELIC mails or
personally delivers the Notice of Withdrawal Right to the Contract Holder, or
within 45 days after the date of the Application, whichever is later. The
Contract must be returned to SELIC at its
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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 life insurance company domiciled in Missouri. General American
is, in turn, wholly-owned by GenAmerica Corporation, an intermediate stock
holding company, which is, in turn, wholly-owned by General American Mutual
Holding Company, a mutual holding company organized under Missouri law.
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 49 states, the District of Columbia, and 10 Canadian provinces.
The principal offices of General American are located in St. Louis, Missouri.
SELIC is admitted to sell life insurance and annuities in 40 states and the
District of Columbia. SELIC concentrates on sales of corporate owned life
insurance products in all of these jurisdictions and sales of individual
products to residents of New York.
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THE SEPARATE ACCOUNT
Security Equity Life Insurance Company Separate Account 13 (the "Separate
Account") was established by SELIC as a Separate Investment Account on
December 30, 1994. The Separate Account will receive and invest the Net
Premiums paid under this Contract and allocated to it. In addition, the
Separate Account may receive and invest Net Premiums for other flexible
premium variable life insurance contracts that might be issued by SELIC.
The Separate Account is currently divided into a number of Divisions. Not all
Divisions are available for allocation of Net Premiums and transfers under
the Contract. Each Available Division invests exclusively in shares of an
Underlying Portfolio listed in Appendix A. Both realized and unrealized gains
or losses and income from the assets of each Division of the Separate Account
are credited to or charged against that Division without regard to income,
gains, or losses from any other Division of the Separate Account or from any
other business SELIC may conduct.
Obligations to Contract Holders and Beneficiaries that arise under the
Contract are obligations of SELIC. SELIC owns the assets of the Separate
Account. Those assets will only be used to support variable life insurance
contracts and for any other purposes permitted by applicable laws and
regulations. The portion of the assets of the Separate Account equal to the
reserves and other contract liabilities with respect to the Separate Account
will not be charged with liabilities that arise from any other business SELIC
may conduct. SELIC may, however, transfer from the Separate Account to its
General Account assets that exceed the reserves and other contract
liabilities in respect of the Separate Account.
The Separate Account has been registered with the Securities and Exchange
Commission ("SEC" or "Commission") as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act"). The Separate Account meets
the definition of a "separate account" under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices of the Separate Account, the Contracts, or SELIC by the
Commission.
There is no assurance that the stated objectives of any Underlying Portfolio
will be achieved.
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
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responsible for preparing this information. The Underlying Portfolio
prospectuses should be read carefully before any decision is made concerning
the allocation of Premium payments or transfers among the Available
Divisions.
Not all of the investment portfolios described in the accompanying
prospectuses are necessarily available under the Contract. Moreover, SELIC
cannot guarantee that each Underlying Portfolio will always be available for
the Contract. In the unlikely event that an Underlying Portfolio becomes
unavailable, SELIC will attempt to secure the availability of a comparable
Underlying Portfolio. Shares and units of each Underlying Portfolio are
purchased and redeemed at Net Asset Value, without a sales charge.
One or more of the Underlying Portfolios are available for investment by both
variable life insurance and variable annuity separate accounts. It is
conceivable that in the future it may be disadvantageous for both variable
life and variable annuity separate accounts to invest simultaneously in an
Underlying Portfolio that sells its shares to both types of separate
accounts. The Board of Directors or Trustees of such Underlying Portfolios,
the respective investment advisers of each Underlying Portfolio, and SELIC
are required to monitor events to identify any material irreconcilable
conflicts that may possibly arise, and to determine what action, if any,
should be taken in response to those events of conflicts. Material conflicts
could arise from such things as changes in state insurance laws, changes in
federal income tax laws, changes in the investment management of an
Underlying Portfolio, or differences in the voting instructions given by
variable annuity contract owners and variable life insurance contract owners.
In the event of a material irreconcilable conflict, SELIC will take steps
necessary to protect our Contract Holders. This could include discontinuance
of investment in an Underlying Portfolio.
THE CONTRACT
The Contract is a flexible premium variable life insurance contract that
provides insurance on the life of an Insured. A Contract may be sold
together with other related Contracts forming a Case. See Appendix B for
modifications to this Section in the event that a Joint and Last Survivor
Rider and/or a Supplemental Term Insurance Rider is added to the Contract.
Availability of Insurance Coverage
To be eligible for insurance under the Contract, a prospective Insured must
on the Contract Date:
(1) be at least 20 years of age and no more than 85 years of age;
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(2) have elected or consented to be an Insured (if required by SELIC or the
Governing Jurisdiction); and
(3) have satisfied any necessary underwriting requirements of SELIC (see
"Charges and Deductions -- Monthly Charges -- Cost of Insurance
Charge").
A Contract can be issued if the Contract Holder:
(1) provides SELIC with the data it requires including, but not limited to
the prospective Insured's name, address, social security number,
sex, date of birth, smoker/nonsmoker status, and citizenship
(SELIC may also require submission of related documents that have
been completed by the prospective Insured);
(2) requests Total Insurance Coverage at least equal to the Minimum
Insurance Coverage for an Insured;
(3) designates the Beneficiary under the Contract; and
(4) pays the initial Minimum Premium for the first Contract Year.
Insurance coverage generally begins on the Issue Date for the Contract.
Temporary life insurance coverage may be provided under the terms of a
temporary insurance agreement. In accordance with SELIC's underwriting rules,
temporary life insurance coverage may not exceed the greater of $100,000 or
two times the Premium paid, and may not be in effect for more than 90 days.
This temporary insurance coverage will be issued on a conditional receipt
basis, which means that any Death Benefit under such temporary coverage will
only be paid if the Insured meets SELIC's usual and customary underwriting
standards for the applied-for coverage under the Contract (see "Charges and
Deductions -- Monthly Charges -- Cost of Insurance Charge").
As provided for under state insurance law, a Contract Holder, to preserve
insurance age of the Insured, may be permitted to backdate the Contract. In
no case may the Contract Date be more than six months prior to the date that
the Application was completed. If any Contract in a Case is backdated, then
all Contracts in the Case must be backdated to the same date. Monthly
Charges for the backdated period will be deducted as of the Contract Date,
and each Monthiversary thereafter.
For modifications to this Section for Joint Insureds, see Appendix B --
"Joint and Last Survivor Rider."
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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 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 depends upon the Insured's Issue Age, sex, underwriting class and
Face Amount. The Target Premium for the initial Face Amount is determined to
be the level annual premium payable to age 100 for a level death benefit that
under guaranteed cost of insurance rates and guaranteed policy expense
charges and a 4.00% net interest rate (after the M&E charge) the cash value
will accumulate to equal the initial Face Amount at age 100. The Target
Premium is determined on the Issue Date. It is not recalculated if there is
an increase in the Face Amount. It is recalculated if there is a decrease in
the Face Amount, but only if the new Face Amount is below the initial Face
Amount.
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
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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.
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 Money Market Division of the Separate Account and the
Insurance Account Value will begin to vary with investment experience on the
Valuation Day next following receipt of the initial payment at the Home
Office. However, in situations where SELIC receives the initial payment with
the application and underwriting is required, then the payment will be held
on deposit in SELIC's General Account until underwriting is completed and the
Contract is issued (the Issue Date). Any Net Premiums received during the
Free Look period will be allocated to the Money Market Division. At the end
of such period, Separate Account Value will be allocated to or among any of
the Available Divisions and the Fixed Fund, in accordance with the Contract
Holder's allocation instructions set forth in the Application, or as
subsequently changed prior to the end of the Free Look period. No allocation
or transfer instructions received from the Contract Holder in the Application
or during the Free Look period will be acted upon until the Free Look period
has expired. The duration of the Free Look period depends upon the law of a
Contract's Governing Jurisdiction. The Free Look period under a Contract
will expire after the number of days provided for in the applicable Governing
Jurisdiction's Free Look period has elapsed following the date the Contract
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is delivered to the Contract Holder, as evidenced by a signed delivery
receipt or certified mail return receipt, or if later, 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 and, or the Fixed Fund 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; 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 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 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.
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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 proper
form after the Valuation Time on a Valuation Day, will be effected as of the
Valuation Time of the following Valuation Day.
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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;
(2) Administration Charges;
(3) Any charges that are deducted from the Insurance Account Value for
benefits provided by Contract riders;
(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;
(2) Any amounts transferred to that Available Division from another
Available Division, the Fixed Fund or the Borrowed Fund; and
(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;
(3) The Cost of Insurance Charges allocated to that Available Division
(deducted only on a Monthiversary);
(4) The Administration Charges allocated to that Available Division
(deducted only on a Monthiversary);
(5) Any partial withdrawals taken from such Contract and allocated to that
Available Division;
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(6) Any charges allocated to that Available Division that are deducted from
the Insurance Account Value for benefits provided by Contract
riders;
(7) Any Underwriting Charges allocated to that Available Division;
(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 "The Contract -- Contract Loan Privilege."
For description of the Insurance Account Value in the Fixed Fund and the
Borrowed Fund, see "The Contract -- 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
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 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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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 whole percentage. SELIC will
execute a transfer only upon receipt of a properly executed transfer request.
Written confirmation of each transfer will be sent to the Contract Holder.
Notwithstanding the above limitations, which are set forth in the Contract,
SELIC will, as a matter of administrative practice, allow up to 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.
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The maximum total of Contract Loans for each Contract is equal to the
Insurance Account Value less the sum of the following:
(1) The Minimum Net Premium for the current Contract Year;
(2) The outstanding Contract Loan amount together with interest accrued but
unpaid; 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 90 days nor less than 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 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
4.50%. 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 rate calculated 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
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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 4.00%.
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:
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(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 Withdrawals
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> 156
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 Minimum Net Premium for the current Contract Year;
(2) The outstanding Contract Loan amount together with the unpaid accrued
Contract Loan interest on the Contract Loan amount; 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".)
Split Dollar Exception: Notwithstanding the above limitations, SELIC will,
as a matter of administrative practice, at the time of a split dollar
rollout, allow the owner of a Death Benefit Option 3 Contract, the option of
reducing the accumulated Premiums before reducing the Face Amount. If the
withdrawal is greater than the accumulated
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<PAGE> 157
Premiums, a reduction in Face Amount will occur for the amount in excess of
the accumulated Premiums.
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 of 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; or
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
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<PAGE> 158
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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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 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,
the order in which the Face Amount is reduced is assessed in the same manner
as a decrease in Face Amount (See "Face Amount"). 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
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<PAGE> 160
requested change in Face Amount if the change would result in the Contract
not satisfying the requirements of the Internal Revenue Code of 1986, as
amended.
A change in the Death Benefit Option will not result in an immediate change
in the amount of a Contract's Death Benefit or Insurance Account Value. If a
Contract is changed from Death Benefit Option 1 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 Death Benefit Option 3 to Death Benefit Option 2, then the
Face Amount will equal the Face Amount prior to the change plus the
accumulated Premiums 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
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<PAGE> 161
been provided to SELIC. A partial withdrawal may also reduce the Face
Amount under a Contract. (See "The Contract -- Surrender and Partial
Withdrawals"). Decreases in Face Amount cannot reduce the Total Insurance
Coverage to less than the Minimum Insurance Coverage. No such change will be
effective if the Insured dies before the date of such change. SELIC reserves
the right not to effect a requested change in Face Amount if the change would
result in the Contract not satisfying the requirements of the Internal
Revenue Code of 1986, as amended. The Net Cash Value immediately following
the increase in Face Amount must be sufficient to cover Monthly Charges to be
deducted on the next Monthiversary. If Net Cash Value will not be
sufficient, an additional Premium will be necessary before the increase in
Face Amount will be effected.
If the Face Amount is decreased, and the Contract's Face Amount before the
change in Death Benefit Option reflects previous Face Amount increases, then
the Face Amount reduction will result first in the reduction of the Face
Amount provided by the most recent increase, then the next most recent
increase successively, and finally the Initial Face Amount.
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 "The Contract -- 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.
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<PAGE> 162
A change in Face Amount may have Federal income tax consequences. (See
"Federal Income Tax Considerations").
Payment of Death Benefit: The amount of any Death Benefit payable is
adjusted as follows:
(1) By deducting the amount of any unpaid Monthly Charges against the
Insurance Account Value to the date of death (See "Charges and
Deductions");
(2) By deducting the amount of any Contract Loans outstanding against the
Insurance Account Value on the date of death plus accrued but
unpaid interest on such Contract Loans on the date of death (See
"The Contract -- Contract Loan Privilege"); 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 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 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 1.00% 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.
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CHARGES AND DEDUCTIONS
Certain charges will be deducted by SELIC from Premiums and from Insurance
Account Value as compensation for providing the insurance benefits under the
Contract, for administering the Contract, for assuming certain risks, and for
incurring certain expenses in distributing the Contract. A prospective
purchaser may request personalized hypothetical illustrations of the
Contract's Insurance Account Value and Death Benefits. Such hypothetical
illustrations will reflect the effect of the charges and deductions under the
Contract and may assist a prospective purchaser in understanding the
operation of the Contract.
Premium Load
Before crediting a Premium to the Available Divisions and/or the Fixed Fund,
a Premium Load, consisting of a Distribution Charge, a DAC Tax charge and a
Premium Tax Charge, is deducted from that Premium. Premium Load is expressed
as a percentage of Premium; the percentage depends upon whether the Premium
is Target Premium or Excess Premium, on the Contract Year during which the
Premium is paid, and on the Issue Age of the Insured.
Distribution Charge: The Distribution Charge, which is a sales load, is
comprised of a Premium Expense Load and a Commission Charge.
The Premium Expense Load will be deducted from each Premium and will equal a
percentage of the Premium. The percentage will be determined based on the
sum of the Initial Premiums for all Contracts in a Case, in accordance with
the following table:
<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> 164
<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 2.00% for Year 16 and
thereafter.
For Single Premium Payments, the maximum Commission Charge will be 6.00% 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, 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
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<PAGE> 165
of the state in which the Insured resides. State premium tax rates currently
range from .75% to 5.00%.
DAC Tax Charge: SELIC also deducts from each Premium a charge for federal
income taxes, equal to 1.00%, which compensates SELIC for an increased
federal tax burden resulting from the receipt of Premiums under Section 848
of the Internal Revenue Code. This charge for federal income taxes is
reasonable in relation to SELIC's 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
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Fixed Fund in proportion to the Insurance Account Value attributable to each
Available Division and the Fixed Fund.
Administration Charge: On each Monthiversary, a charge is deducted to
compensate SELIC for administrative expenses. The current amount of this
charge is $4.50 per month per Contract. This charge may change, but is
guaranteed not to exceed $8.00 per month per Contract. The Administration
Charge is assessed to reimburse SELIC for the expenses associated with the
administration and maintenance of the Contract and the Separate Account.
SELIC does not expect to profit from this charge.
Cost of Insurance Charge: A deduction for SELIC's cost of insurance
protection is made on each Monthiversary and, unless otherwise specified by
the Contract Holder, will be based on unisex and unismoke rates. The cost of
insurance rates generally increase as the Insured's Attained Age increases.
SELIC also offers rates, upon a Contract Holder's request, that vary based on
the sex (except Contracts sold in Montana; See "Unisex Requirements Under
Montana Law") and smoker class of the Insured. However, any variation by sex
and/or smoker class must be applied on a consistent basis for all Contracts
in the applicable Case.
The Cost of Insurance Charge is determined by multiplying the applicable cost
of insurance rate by the Net Amount at Risk each Contract Month. Any change
in the Net Amount at Risk will affect the total Cost of Insurance Charges
deducted from the applicable Insurance Account Value. Since the Net Amount at
Risk may not be constant, the charge could vary monthly.
The guaranteed cost of insurance rates will not be greater than the
guaranteed maximum cost of insurance rates set forth in the Contract. Those
rates, as well as the rates used for Federal income tax purposes, are based
on the 1980 Commissioners Standard Ordinary (CSO) Mortality Tables, Age
Nearest Birthday that correspond to the applicable sex and smoker blend under
the Contract. Current Cost of Insurance Charges may be lower and may be
changed. The current Cost of Insurance Charges for the Contract Year are
shown in the Contract Holder's annual statement.
SELIC may offer insurance coverage up to $1 million on a guaranteed issue or
simplified issue basis under Contracts that meet all the following
requirements:
1) The Case to which the Contract belongs has at least 25 Insureds;
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;
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3) 100% of "eligible persons," defined in a manner acceptable to SELIC,
must be named as an Insured under the applicable Case;
4) The Face Amount, and any Supplemental Term Insurance Amount, for each
Contract in the applicable Case must be determined in all years by
a formula acceptable to SELIC;
5) The Face Amount increases, including any increases in Supplemental Term
Insurance Amount, in any given year for any Contract in the
applicable Case cannot exceed 10% and the cumulative increase in
any Face Amount cannot exceed the smaller of the initial Total
Insurance Coverage or $1,000,000;
6) The Contract Holder, Insured and Beneficiary of each Contract in the
applicable Case must be either an entity domiciled in the United
States or a United States citizen; and
7) The Insured under each Contract in the applicable Case must be between
the ages of 20 and 65.
For Simplified Issue Contracts, SELIC requires that certain medical
information regarding the prospective Insured be provided in the Application.
SELIC will also offer Contracts on a medically underwritten basis. In these
situations, the rating of an Insured will affect the cost of insurance rates.
SELIC will offer medically underwritten Contracts on a standard and
substandard rating basis. Standard rates will, in general, be less than
substandard rates.
For 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.
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SELIC may require medical underwriting for any transaction that increases its
Net Amount at Risk. If any medical underwriting has taken place, an
Insured's rate class may affect the guaranteed and current cost of insurance
rate applicable to that Insured, but not the cost of insurance rate
applicable for Federal income tax purposes which for all Contracts will be
equal to 100% of the applicable 1980 CSO table.
Each Insured is placed in a rate class when SELIC issues a Contract, based on
the Case to which the Contract belongs and underwriting information,
including medical underwriting, if any. When an increase in Face Amount is
requested, SELIC reserves the right: (i) to accept or reject the request,
with or without obtaining additional underwriting information; and (ii) to
obtain additional underwriting information, including medical underwriting,
before approving the increase to determine whether a different rate class
would apply to the increase. If the Insured's rate class at the time of the
increase has declined since the last change in coverage, and SELIC approves
the change in coverage, then the lower rate class will be applied to the Face
Amount increase only. If the Insured's rate class at the time of the
increase has improved since the last change in coverage, then the improved
rate class will be applied to the Total Insurance Coverage provided under the
Policy.
Additional Insurance Benefits and Special Insurance Class Ratings: Subject
to certain requirements, one or more riders may be added to a Contract.
These riders and the charges associated therewith are described in Appendix B
to this Prospectus. (See "Additional Provisions of the Contract -- Entire
Contract"). Deductions will be made on each Monthiversary for applicable
charges for any additional benefits provided by Contract rider.
Deductions will also be made on each Monthiversary for any applicable Special
Insurance Class Rating Charges, which are imposed under the Contract if a
Contract is issued on a substandard basis. These charges are set forth in
the Contract.
Underwriting Charges
An Underwriting Charge of up to $100 will be deducted from the Insurance
Account Value on the Issue Date if the Contract is issued on a medically
underwritten basis. Medically underwritten Contracts, for purposes of
deducting this charge, are all Contracts other than those issued on a
guaranteed issue or simplified issue basis (see "Charges and Deductions --
Monthly Charges -- Cost of Insurance Charges"). SELIC also reserves the
right to deduct an Underwriting Charge of up to $100 from the Contract's
Insurance Account Value on any Monthiversary following a Contract Month in
which medical underwriting has taken place due to an increase in SELIC's Net
Amount at Risk with respect to the Contract. The Underwriting Charge is
assessed to
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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.
For modifications to this Section for Joint Insureds see Appendix B -- Joint
and Last Survivor Rider.
Annual Charges
On each Contract Anniversary, the Insurance Account Value attributable to the
Separate Account and Fixed Fund is: (i) reduced by Contract Loan interest due
and unpaid for the previous Contract Year; and (ii) 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.
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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.
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);
(2) The surrender of the Contract by the Contract Holder;
(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
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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 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.
Reinstatement of a Contract Terminated for Insufficient Value
A Contract that has terminated for insufficient Net Cash Value may be
reinstated within five 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 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
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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 4.00%, compounded annually, independent
of the actual investment experience of the General Account.
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 be 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. SELIC, 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
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credited to each Contract Holder's Insurance Account Value in the Fixed Fund
will not be less than a rate of at least 4.00% 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 4.00% 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 4.00% 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 4.00% 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
4.00% per year, plus any excess interest which SELIC credits and any amounts
transferred into the Fixed Fund, less the sum of all Contract charges
allocable to the Fixed Fund and any amounts deducted from the Fixed Fund in
connection with partial withdrawals, surrender charges or transfers to the
Separate Account.
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;
(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;
(2) The Cost of Insurance Charges allocated to the Fixed Fund (deducted
only on a Monthiversary);
(3) The Administration Charges allocated to the Fixed Fund (deducted only
on a Monthiversary);
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(4) Any partial withdrawals taken from such Contract and allocated to the
Fixed Fund;
(5) Any charges allocated to the Fixed Fund that are deducted from the
Insurance Account Value for benefits provided by Contract riders;
(6) Any Underwriting Charges allocated to the Fixed Fund;
(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."
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 Withdrawals").
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 2.50% 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.
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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
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
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treating the Contract as life insurance. If the Contract
does not qualify as life insurance you may be subject to
immediate taxation on the incremental increases in Insurance
Account Value of the Contract. Regulations specifying the
diversification requirements have been issued by the
Department of Treasury, and SELIC believes it complies fully
with such requirements. In connection with the issuance of
the diversification regulations, the Treasury Department
stated that it anticipates the issuance of regulations or
rulings prescribing the circumstances in which an owner's
control of the investments of a separate account may cause
the contract owner rather than the insurance company, to be
treated as the owner of the assets in the separate account.
If a Contract Holder is considered the owner of the assets
of the Separate Account, income and gains from the Account
would be included in the Holder's gross income.
Though no Regulations on the subject of an owner's control
of the investments of a separate account have been issued
since the Regulations specifying the diversification
requirements were issued, informal guidance is available
from certain private letter rulings issued by the Internal
Revenue Service to individual taxpayers. The ownership
rights under the Contract are different in certain respects
from, those described by the Internal Revenue Service in
rulings in which it determined the owners were not owners of
separate account assets. For example, a Contract Holder has
additional flexibility in allocating premium payments and
cash values. These differences could result in the Contract
Holder being treated as the owner of a pro rata share of the
assets of the Separate Accounts. In addition, SELIC does
not know what standards will be set forth 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
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Loan, or a Contract lapse with an outstanding Contract Loan.
In addition, Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or
receipt of Contract proceeds depend on the circumstance of
each Contract Holder or Beneficiary. A competent tax
adviser should be consulted for further information.
Generally, the Contract Holder will not be deemed to be in
constructive receipt of the Insurance Account Value
including increments thereof, under the Contract until there
is a distribution. The tax consequences of distributions
from, and loans taken from or secured by, the Contract(s)
should generally be determined on a Contract by Contract
basis. (See "Multiple Contracts," below.)
Such tax consequences further depend on whether the Contract
from which the distribution is made or Contract Loan is
taken is classified as a "modified endowment contract" under
Section 7702A. However, upon a complete surrender or lapse
of any Contract, if the amount received plus the amount of
Indebtedness exceeds the total investment in the Contract,
the excess will generally be treated as ordinary income
subject to tax.
3. Modified Endowment Contracts: A Contract may be treated as a modified
endowment contract depending upon the amount of premiums paid
in relation to the death benefit provided in respect of such
Contract. The premium limitation rules for determining
whether a Contract is a modified endowment contract are
complex. In general, a Contract will be a modified endowment
contract if the accumulated premiums paid at any time during
the first seven years after the Contract is established
exceeds the sum of the net level premiums which would have
been paid on or before 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.
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(a) Distributions from Contracts Classified as Modified
Endowment Contracts: Contracts classified as modified
endowment contracts will be subject to the following
tax rules: First, all distributions, including
distributions upon lapse or surrender, from such a
Contract are treated as ordinary income subject to tax
up to the amount equal to the excess (if any) of the
Insurance Account Value of the Contract immediately
before the distribution over the investment in the
Contract (described below) at such time. Second, loans
taken from or secured by, the Insurance Account Value
of such a Contract, as well as due but unpaid interest
thereon, are treated as distributions from such
Contract and taxed accordingly. Third, a 10 percent
additional income tax is imposed on the portion of any
distribution from, or loan taken from or secured by,
such a Contract that is included in income except where
the distribution or loan is made on or after the
taxpayer attains age 59 1/2, is attributable to the
taxpayer's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or
life expectancy) of the taxpayer or the joint lives (or
joint life expectancies) of the taxpayer and the
taxpayer's Beneficiary. Contract Holders that are not
natural persons are unlikely to meet these exceptions.
If a Contract becomes a modified endowment
Contract after it is issued, distributions made
during the Contract year in which it becomes a
modified endowment Contract, distributions in any
subsequent Contract year and distributions within
two years before the Contract becomes a modified
endowment Contract will be subject to the tax
treatment described above. This means that a
distribution from a Contract that is not a
modified endowment Contract could later become
taxable as a distribution from a modified
endowment Contract.
(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
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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%
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%
additional income tax.
(c) Classification of Contract: Due to the Contract's
flexibility, classification of a Contract as a
modified endowment contract will depend upon the
circumstances of each Contract. SELIC has adopted
administrative steps designed to protect a
Contract Holder against the possibility that a
Contract might become a modified endowment
contract. SELIC believes the safeguards are
adequate for most situations, but it cannot
provide complete assurance that a Contract will
not be classified as a modified endowment
contract. At the time a Net Premium is credited
which (according to SELIC's calculations) would
cause a Contract to become a modified endowment
contract, SELIC will notify the Contract Holder
that unless a refund of the excess Premium is
requested by the Contract Holder, the Contract
will be a modified endowment contract. The
Contract Holder will have 30 days after receiving
such notification to request the refund. The
excess Premium paid with 4.00% 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
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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 owned by an individual is not deductible. In
addition, interest on any loan under a life insurance contract
owned by a business taxpayer on the life of any individual who is
an officer of or is financially interested in the business carried
on by that taxpayer is deductible only under certain very limited
circumstances. 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. Interest Expense on Unrelated Indebtedness: Under provisions added to
the Code in 1997 applicable to insurance policies issued after
June 8, 1997, if a business taxpayer owns or is the beneficiary
of a Contract on the life of any individual who is not an
officer, director, employee, or 20 percent owner of the
business carried on by that taxpayer and the taxpayer also has
indebtedness unrelated to the Contract, no tax deduction will
be allowed for that portion of the taxpayer's unrelated
interest expense that is "allocable" to the Net Cash Value
(unborrowed Insurance Account Value) of the Contract. The
allocable portion of unrelated interest expense is based on the
ratio of the unborrowed cash surrender values of all life
insurance and annuity contracts issued to the
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taxpayer after June 8, 1997 to the adjusted basis of all other
assets of the taxpayer. A Contract issued before June 9, 1997
will become subject to this pro rata disallowance rule if there
is a material increase in the death benefit or other material
change in the terms of the Contract. No business taxpayer
should purchase, exchange, or increase the death benefit under
a Contract on the life of any individual who is not an officer,
director, employee, or 20 percent owner of the business without
specifically considering the overall tax effect that an
interest in such a Contract would, or could, have.
8. Alternative Minimum Tax: There may also be an indirect tax upon the
inside build-up of the Contract under the corporate alternative
minimum tax.
9. 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.
10. Possible Changes in Taxation: As of the date of this Prospectus, the
President's budget for fiscal year 1999 includes proposals that
would (i) restrict even further the deductibility of policy loan
interest, so that no policy loan interest would be deductible
except for interest on loans under policies insuring 20 percent
owners, (ii) expand the unrelated interest expense pro rata
disallowance rule enacted in 1997 so that the rule would apply
to all policies owned by business entities, except for policies
on 20 percent owners, (iii) tax the inside buildup of variable
life insurance policies whenever policy values were reallocated
among investment options available under a policy, (iv) end the
tax free treatment under Code section 1035 of exchanges of
variable life insurance policies, and (v) decrease the
policyholder's tax basis in an insurance contract by the amount
of mortality and expense charges paid to the insurer over the
life of the contract. Moreover, it is possible that any changes
in the tax treatment of life insurance policies could be
effective prior to the date of any new legislation.
11. 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
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Account. Based on these assumptions, no charge is currently being
made to the Separate Account for federal income taxes, or state or
local taxes. However, SELIC may in the future impose such a charge
if (i) the tax treatment of SELIC is ultimately determined to be
other than what SELIC believes it to be, (ii) there are changes
made in the income tax treatment, or state or local tax treatment,
of variable life insurance at the company level, or of the
separate accounts, or (iii) there is a change in SELIC's status.
Any such charge would be designed to cover the taxes attributable
to the investment results of the Separate Accounts.
ADDITIONAL PROVISIONS OF THE CONTRACT
Addition, Deletion, or Substitution of Investments
SELIC reserves the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares that are held
by the Separate Account or that the Separate Account may purchase. SELIC
reserves the right to eliminate the shares of any of the Underlying
Portfolios and to substitute the shares of another registered open-end
investment company if the shares of an Underlying Portfolio are no longer
available for investment or if, in SELIC's judgment, further investment in
any Underlying Portfolio becomes inappropriate in view of the purposes of the
Separate Account. SELIC will not substitute any shares attributable to a
Contract Holder's interest in a Division of a Separate Account without notice
to the Contract Holder and prior approval of the SEC, to the extent required
by the 1940 Act or other applicable law. Nothing contained in this
Prospectus shall prevent the Separate 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
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notice to the Contract Holder and prior approval of the SEC, to the extent
required by the 1940 Act or other applicable law.
In the event of a substitution or change, SELIC may, if it considers it
necessary, make changes in the Contract by appropriate endorsement. SELIC
will notify Contract Holders of any such changes.
If deemed by SELIC to be in the best interests of persons having voting
rights under the Contracts, and to the extent any necessary SEC approvals or
Contract Holder votes are obtained, the Separate Account may be: (a) operated
as a management company under the 1940 Act; (b) de-registered under that Act
in the event such registration is no longer required; or (c) combined with
other separate accounts of SELIC. To the extent permitted by applicable law,
SELIC may also transfer the assets of the Separate Account associated with
the Contract to another separate account.
Also, subject to the approval of the New York Superintendent of Insurance,
SELIC has the right to change the investment policy of any Separate Account
Division. If required, the process for obtaining approval of a material
change from the New York Superintendent of Insurance will be filed with the
insurance supervisory official of the Governing Jurisdiction. SELIC will
notify the Contract Holder if any material change of investment policy is
approved.
Incontestability
SELIC must bring any legal action to contest the validity of any insurance
coverage under the Contract within two years from the applicable Issue Date
of the Contract, or from the effective date of any change in coverage
requiring medical evidence of insurability, as applicable.
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 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. 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 the Contract's Death Benefit, Contract Loans, Face Amount, Net
Amount at Risk, Issue Age or insurance class. All benefits after a
conversion will be based upon the Fixed Fund.
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Misstatement of Age or Sex
If the age or sex of the Insured has been misstated in the Application and
the misstatement is discovered after the Insured's death, the amount of death
benefit payable by SELIC will be that which the most recent mortality charges
would have purchased for the correct age and sex. If the Insured is still
living at the time of discovery, future amounts payable will be adjusted
based upon the correct facts.
Suicide
Subject to the insurance laws of the Governing Jurisdiction, if the Insured
commits suicide, while sane or insane, within two years from the date
coverage becomes effective with respect to such person under the Contract,
only a limited Death Benefit will be payable. In such case, the amount of
the Death Benefit will be equal to the amount of the Net Premiums paid, less
any partial withdrawals, and less any Contract Loans and any Contract Loan
interest accrued but unpaid.
If, after the expiration of the two year period described above, the Insured
commits suicide within two years from the date of receipt of any subsequent
Premium that increases the amount of the Death Benefit, the amount of the
Death benefit attributable to such increase will be limited to a refund of
the Cost of Insurance Charges made for such increase.
Availability of Funds
Cash payments from the Contract for partial withdrawals, Contract Loans, and
surrenders will usually be made within seven days after a written request is
received at the Home Office of SELIC. Transfers between or among Separate
Account Divisions will usually be effected on the date the transfer request
is received in good order. Payment or transfers may be delayed, however,
during any period that:
(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 six months. If payment is
deferred for 30 days or more, SELIC will pay interest on such amounts at the
rate of 2.50% per year for the period of deferment.
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Entire Contract
The Contract is issued in consideration of the Application and the Initial
Premium. The Contract and Application, a copy of which is attached to the
Contract, together with any Contract Schedules, any riders, and any other
related documents constitute the entire Contract. Any waiver or change of
any provision in the Contract must be in writing and signed by an officer of
SELIC. Additional insurance benefits may be made available under the
Contract by rider. Any such riders selected by the Contract Holder and
agreed to by SELIC will be attached to and made a part of the Contract.
The failure of SELIC to enforce any provision of the Contract does not
constitute and cannot be construed as a waiver of such provision or of the
right to enforce it at a later time, nor does the waiver of any provision by
SELIC on one or more occasions constitute nor can it be construed as a waiver
for all occasions, and SELIC cannot be stopped from enforcing any provision
of the Contract except as may be otherwise agreed to in writing by an officer
of SELIC.
Representations in Application
SELIC deems all statements in the Application to be representations and not
warranties. 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.
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Computation of Contract Values
A detailed statement of the method used to compute the Contract's benefits
and values is filed with the insurance regulatory authority of the Governing
Jurisdiction. These benefits and values are not less than those required by
the laws of the Governing Jurisdiction.
Claims of Creditors
The proceeds of the Contract will be free from creditors' claims to the
extent allowed by law.
Notice
Any written notice required by the Contract to be given by SELIC to the
Contract Holder will be effective five days after it is mailed by first class
mail or 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.
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Construction
In the event of a conflict between the Contract provisions and the
information contained in any Contract Schedule, the provisions of the
Contract will be controlling.
Severability
In the event any provision of the Contract is declared illegal or otherwise
unenforceable, it will be severed from the Contract and the remainder of the
Contract will be valid and enforceable.
State Variations
Certain Contract features, including the "Free Look" provision, are subject
to state variations. The Contract Holder should read his or her Contract
carefully to determine whether any variations apply in the state in which the
Contract is issued.
UNISEX REQUIREMENTS UNDER MONTANA LAW
The state of Montana generally prohibits the use of actuarial tables that
distinguish between men and women in determining premiums and policy benefits
for policies issued on the lives of its residents. Therefore, all Contracts
offered by this Prospectus and issued for delivery in Montana will have
premiums and benefits which are based on actuarial tables that do not
differentiate on the basis of sex.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account Divisions will be
maintained by SELIC. Each year within 30 days after the Contract
Anniversary, SELIC will mail a report to the Contract Holder. The report
will show the Insurance Account Value at the beginning of the previous
Contract Year and all Premiums paid since that time. It will also show the
additions to, and deductions from, the Insurance Account Value during the
Contract Year, and the Insurance Account Value, Death Benefit, Net Cash
Value, any outstanding Contract Loan amount and accrued Contract Loan
interest as of the current Contract Anniversary. The report will also
include any additional information required by applicable law or regulation.
SELIC also will mail the Contract Holder any other reports or documents
required by applicable law or regulation.
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In addition to the periodic reports, the Contract Holder may request an
illustrative report showing projected Contract values. There may be a charge
for providing an illustrative report. (See "Charges and Deductions -- Other
Charges").
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 an indirect 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, however, the
policies issued through the Separate Account may be used to fund nonqualified
deferred obligations of the depositor or its affiliates subject to any
regulatory requirements.
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 5.00% of any Excess Premium.
VOTING RIGHTS
To the extent required by law, SELIC will vote shares of the Underlying
Portfolios held in the Separate Account at regular or special shareholder
meetings of the Underlying Portfolios in accordance with instructions
received from persons having voting interests in the corresponding Divisions
of the Separate Account. If, however, the 1940 Act or any regulation
thereunder should be amended or if the present interpretation thereof should
change, and as a result the Company determines that it is permitted to vote
shares of the Underlying Portfolios in its own right, it may elect to do so.
The number of votes that a Contract Holder has the right to instruct will be
calculated separately for each Division. Voting rights reflect the dollar
value of the total number of units of each Division of the Separate Account
credited to the Contract Holder at the record date rather than the number of
units alone. Fractional shares will be counted. The number of votes of an
Underlying Portfolio that the Contract Holder has the right to instruct will
be determined as of the date established by that Underlying Portfolio for
determining eligibility to vote at the meetings of the Underlying Portfolio.
Voting
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instructions will be solicited by written communications prior to such
meeting in accordance with procedures established by the Underlying
Portfolio.
SELIC 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. SELIC 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: SELIC 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, SELIC 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 SELIC 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 SELIC
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 SELIC 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
SELIC, a stock life insurance company organized under the laws of New York,
is subject to regulation by the New York Department of Insurance. An annual
statement is filed with the Superintendent of Insurance on or before March
1st of each year covering the operations and reporting on the financial
condition of SELIC 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. 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, SELIC 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
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departments of other states apply the laws of the state of domicile in
determining permissible investments.
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<TABLE>
MANAGEMENT OF THE COMPANY
BOARD OF DIRECTORS AND PRINCIPAL OFFICERS
<CAPTION>
Name Principal Occupation(s) During Past Five Years
<C> <S>
Willard N. Archie SELIC Director; Chief Executive Officer, Mitchell, Titus & Company (CPA management
Chief Executive Officer consulting firm). Prior to January 1998, Vice Chairman, Mitchell, Titus & Company. Prior
Mitchell, Titus & Company to January 1996, Managing Partner, Mitchell, Titus & Company.
One Battery Park Plaza
New York, NY 10004-1461
Carson E. Beadle, SELIC Director; Consultant, Carson E. Beadle, Inc. (consulting). Prior to April 1998,
Consultant Managing Director, William M. Mercer Inc. (actuarial, employee benefits, compensation and
Carson E. Beadle, Inc. human resources management consulting firm)
750 Park Avenue, Apt. 14E
New York, NY 10021
James R. Elsesser SELIC Director; Vice President and Chief Financial Officer, Ralston Purina Company (pet food,
Vice President & CFO batteries, and bread business).
Ralston Purina Company
Checkerboard Square
St. Louis, MO 63164
Stanley Goldstein SELIC Director; Partner, Goldstein, Golub, Kessler & Company (accounting services).
Goldstein, Golub, Kessler & Co.
1185 Sixth Avenue
New York, NY 10036
David D. Holbrook SELIC Director; J&H, Marsh & McLennan. Prior to May 1997, Chairman, Marsh & McLennan, Inc.
J&H, Marsh & McLennan, Inc. (insurance and reinsurance brokers, consulting and investment management).
1166 Avenue of the Americas
New York, NY 10036
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Richard A. Liddy SELIC Director; Chairman of the Board; President and Chief Executive Officer, General
Chairman, President and CEO American Life Insurance Co. (life insurance).
General American Life Insurance Co.
700 Market Street
St. Louis, MO 63101
Leonard M. Rubenstein, SELIC Director; Chairman, Chief Executive Officer and Chief Investment Officer - Conning
Chairman, CEO and CIO Conning Asset Asset Management Company (investments). Prior to January 1998, Executive Vice President -
Management Company Investments, General American Life Insurance Co. (life insurance).
700 Market Street
St. Louis, MO 63101
William C. Thater SELIC Director and President; Prior to June 1993, Vice President - Individual
President Life, General American Life Insurance Co. (life insurance).
Security Equity Life Insurance Co.
84 Business Park Drive, Suite #303
Armonk, NY 10504
H. Edwin Trusheim SELIC Director; Retired Chairman, General American Life Insurance Co. (life insurance).
General American Life Insurance Co.
700 Market Street
St. Louis, MO 63101
Virginia V. Weldon, M.D. SELIC Director; Prior to March 1998, Senior Vice President, Monsanto Company (chemicals
242 Carlyle Lake diversified industry, pharmaceuticals, life science products, and food ingredients business).
St. Louis, MO 63141
Ted C. Wetterau SELIC Director; Chairman and Chief Executive Officer, Wetterau &
Chairman and CEO Associates, Inc. (retail and wholesale grocery, manufacturing business).
Wetterau Associates
8112 Maryland Avenue, Suite 250
St. Louis, MO 63105
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Ben H. Wolzenski, SELIC Director; Executive Vice President, General American Life Insurance Co. (life
Executive Vice President - insurance).
Individual
General American Life Insurance Co.
13045 Tesson Ferry Road
St. Louis, MO 63128
A. Greig Woodring SELIC Director; CEO & President, Reinsurance Group of American, Inc. (reinsurace). Prior
CEO & President Executive Vice President - Reinsurance, Genreal American Life Ins. Co.
Reinsurance Group of America, Inc.
660 Mason Ridge Center, Dr.,
Suite 300
St. Louis, MO 63141
</TABLE>
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LEGAL MATTERS
Legal advice relating to certain matters under the federal securities laws
has been provided by Matthew P. McCauley, General Counsel, SELIC.
LEGAL PROCEEDINGS
Neither SELIC nor the Separate Account is involved in any material legal
proceedings.
EXPERTS
The audited financial statements of Security Equity Life Insurance Company
and the Separate Account have been included in this Prospectus in reliance on
the reports of KPMG Peat Marwick LLP, independent certified public
accountants, and on the authority of said firm as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Ralph A.
Gorter of Security Equity Life Insurance Company, whose opinion is filed as
an exhibit to the registration statement for the Contracts.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Contracts. This Prospectus does not contain all the information set forth in
the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, SELIC and the Contracts.
Statements contained in this Prospectus as to the contents of the Contract
and other legal instruments are summaries. For a complete statement of the
terms thereof, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of SELIC which are included in this Prospectus
should be distinguished from the financial statements of the Separate
Account, and should be considered only as bearing on the ability of SELIC to
meet its obligations under the Contract. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account.
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APPENDIX A -- UNDERLYING PORTFOLIOS
The Available Division of the Separate Account invests in shares or units of
an Underlying Portfolio from the following open-end, management investment
companies:
Evergreen Variable Trust
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Growth and Income Fund
Frank Russell Investment Management Company
Aggressive Equity Fund
Core Bond Fund
Multi-Style Equity Fund
Non-U.S. Fund
General American Capital Company
Money Market Fund
Life & Annuity Trust
Asset Allocation Portfolio
U.S. Government Allocation Portfolio
Variable Insurance Products Fund
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
Variable Insurance Product Funds II
Asset Manager Portfolio
Index 500 Portfolio
Investment Grade Bond Portfolio
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.
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This Prospectus must be accompanied by a current prospectus for each
Underlying Portfolio listed.
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.
The prospectus for each Underlying Portfolio also includes investment
strategies, objectives and investment advisor.
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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 Last Insured.
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
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standards for the applied for coverage. (See "The Contract --
Availability of Insurance Coverage").
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
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single life Contract. (See "Charges and Deductions -- Cost of
Insurance Charge").
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 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 Per
Issue Age Per Month Coverage Per Month 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 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> 200
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 "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 to a single life Contract, or a Contract to which a
Joint and Last Survivor 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> 201
Supplemental Term Insurance Rider: A rider added to the Contract described
in this Prospectus, which will increase the Total Insurance Amount under the
Contract.
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 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.
B-5
<PAGE> 202
The cost of insurance rates for the Supplemental Term Insurance Rider will be
equal to the current cost of insurance rates for the Face Amount under
Contract. On each Monthiversary on which the Supplemental Term Insurance
Rider is in force, the Cost of Insurance for the Supplemental Term Insurance
Rider will be added to the Monthly Charges deducted from the Insurance
Account Value.
Termination of the Supplemental Term Insurance Rider
The Supplemental Term Insurance Rider may be terminated as of any
Monthiversary following a written request to the Company. The Supplemental
Term Insurance Rider will terminate automatically when any of the following
events occur:
(a) The lapse of the Contract;
(b) The surrender of the Contract;
(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 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> 203
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 Withdrawals").
(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> 204
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 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 (.44% of
aggregate average daily net assets is assumed) and operating expenses of the
Underlying Portfolio (which are assumed to be .36%). 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
C-1
<PAGE> 205
any of these arrangements are terminated, the above net annual rates of
return would be reduced. The actual investment advisory fee applicable to
each Division is shown in the respective prospectuses for 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
underwriting class, the Face Amount and Premium pattern requested, and any
available riders requested.
C-2
<PAGE> 206
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $1,948
========================================================================================================================
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 15,805 15,805 100,000 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> 207
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $1,948
========================================================================================================================
For Separate Account 13
Hypothetical Gross Annual Rate of Return @ 6%
- ------------------------------------------------------------------------------------------------------------------------
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 6,495 6,495 100,000
- ------------------------------------------------------------------------------------------------------------------------
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 14,221 14,221 100,000 11,164 11,164 100,000
- ------------------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 16,410 16,410 100,000 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 21,501 21,501 100,000
- ------------------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 31,799 31,799 100,000 23,325 23,325 100,000
- ------------------------------------------------------------------------------------------------------------------------
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 68,299 68,299 107,912 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> 208
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 1. Level Annual Premium: $1,948
========================================================================================================================
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 14,792 14,792 100,000
- ------------------------------------------------------------------------------------------------------------------------
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 99,623 99,623 178,324 75,177 75,177 134,568
- ------------------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 172,246 172,246 272,149 125,897 125,897 198,917
- ------------------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 286,898 286,898 410,264 199,437 199,437 285,195
========================================================================================================================
<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> 209
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $1,948
========================================================================================================================
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 1,070 101,070 765 765 100,765
- ------------------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 2,580 2,580 102,580 1,977 1,977 101,977
- ------------------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 4,037 4,037 104,037 3,144 3,144 103,144
- ------------------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 5,452 5,452 105,452 4,265 4,265 104,265
- ------------------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 6,830 6,830 106,830 5,337 5,337 105,337
- ------------------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 8,171 8,171 108,171 6,358 6,358 106,358
- ------------------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 9,476 9,476 109,476 7,322 7,322 107,322
- ------------------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 10,747 10,747 110,747 8,223 8,223 108,223
- ------------------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 11,988 11,988 111,988 9,055 9,055 109,055
- ------------------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 13,181 13,181 113,181 9,811 9,811 109,811
- ------------------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 14,387 14,387 114,387 10,523 10,523 110,523
- ------------------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 15,547 15,547 115,547 11,145 11,145 111,145
- ------------------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 16,659 16,659 116,659 11,673 11,673 111,673
- ------------------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 17,706 17,706 117,706 12,101 12,101 112,101
- ------------------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 18,683 18,683 118,683 12,419 12,419 112,419
- ------------------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 19,650 19,650 119,650 12,693 12,693 112,693
- ------------------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 20,528 20,528 120,528 12,832 12,832 112,832
- ------------------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 21,320 21,320 121,320 12,822 12,822 112,822
- ------------------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 22,026 22,026 122,026 12,642 12,642 112,642
- ------------------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 22,648 22,648 122,648 12,272 12,272 112,272
- ------------------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 24,086 24,086 124,086 6,996 6,996 106,996
- ------------------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 21,707 21,707 121,707 <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 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-6
<PAGE> 210
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $1,948
========================================================================================================================
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 1,139 101,139 824 824 100,824
- ------------------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 2,812 2,812 102,812 2,171 2,171 102,171
- ------------------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 4,531 4,531 104,531 3,552 3,552 103,552
- ------------------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 6,307 6,307 106,307 4,966 4,966 104,966
- ------------------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 8,148 8,148 108,148 6,410 6,410 106,410
- ------------------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 10,056 10,056 110,056 7,885 7,885 107,885
- ------------------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 12,036 12,036 112,036 9,383 9,383 109,383
- ------------------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 14,091 14,091 114,091 10,900 10,900 110,900
- ------------------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 16,231 16,231 116,231 12,430 12,430 112,430
- ------------------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 18,439 18,439 118,439 13,963 13,963 113,963
- ------------------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 20,783 20,783 120,783 15,535 15,535 115,535
- ------------------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 23,209 23,209 123,209 17,097 17,097 117,097
- ------------------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 25,715 25,715 125,715 18,644 18,644 118,644
- ------------------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 28,289 28,289 128,289 20,167 20,167 120,167
- ------------------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 30,929 30,929 130,929 21,654 21,654 121,654
- ------------------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 33,700 33,700 133,700 23,172 23,172 123,172
- ------------------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 36,525 36,525 136,525 24,627 24,627 124,627
- ------------------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 39,409 39,409 139,409 25,997 25,997 125,997
- ------------------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 42,354 42,354 142,354 27,257 27,257 127,257
- ------------------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 45,362 45,362 145,362 28,377 28,377 128,377
- ------------------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 61,003 61,003 161,003 30,925 30,925 130,925
- ------------------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 76,528 76,528 176,528 24,244 24,244 124,244
========================================================================================================================
<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-7
<PAGE> 211
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 2. Return of Account Value Annual Premium: $1,948
========================================================================================================================
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 1,207 101,207 882 882 100,882
- ------------------------------------------------------------------------------------------------------------------------
2 47 4,193 1,948 3,053 3,053 103,053 2,372 2,372 102,372
- ------------------------------------------------------------------------------------------------------------------------
3 48 6,448 1,948 5,062 5,062 105,062 3,991 3,991 103,991
- ------------------------------------------------------------------------------------------------------------------------
4 49 8,816 1,948 7,263 7,263 107,263 5,751 5,751 105,751
- ------------------------------------------------------------------------------------------------------------------------
5 50 11,302 1,948 9,680 9,680 109,680 7,662 7,662 107,662
- ------------------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 12,336 12,336 112,336 9,738 9,738 109,738
- ------------------------------------------------------------------------------------------------------------------------
7 52 16,654 1,948 15,260 15,260 115,260 11,990 11,990 111,990
- ------------------------------------------------------------------------------------------------------------------------
8 53 19,532 1,948 18,480 18,480 118,480 14,428 14,428 114,428
- ------------------------------------------------------------------------------------------------------------------------
9 54 22,554 1,948 22,033 22,033 122,033 17,068 17,068 117,068
- ------------------------------------------------------------------------------------------------------------------------
10 55 25,727 1,948 25,935 25,935 125,935 19,919 19,919 119,919
- ------------------------------------------------------------------------------------------------------------------------
11 56 29,059 1,948 30,292 30,292 130,292 23,042 23,042 123,042
- ------------------------------------------------------------------------------------------------------------------------
12 57 32,557 1,948 35,088 35,088 135,088 26,413 26,413 126,413
- ------------------------------------------------------------------------------------------------------------------------
13 58 36,230 1,948 40,366 40,366 140,366 30,054 30,054 130,054
- ------------------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 46,162 46,162 146,162 33,986 33,986 133,986
- ------------------------------------------------------------------------------------------------------------------------
15 60 44,137 1,948 52,526 52,526 152,526 38,226 38,226 138,226
- ------------------------------------------------------------------------------------------------------------------------
16 61 48,389 1,948 59,585 59,585 159,585 42,883 42,883 142,883
- ------------------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 67,329 67,329 167,329 47,900 47,900 147,900
- ------------------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 75,832 75,832 175,832 53,295 53,295 153,295
- ------------------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 85,176 85,176 185,176 59,088 59,088 159,088
- ------------------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 95,452 95,452 195,452 65,297 65,297 165,297
- ------------------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 164,263 164,263 264,263 103,525 103,525 203,525
- ------------------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 273,993 273,993 391,810 155,798 155,798 255,798
========================================================================================================================
<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-8
<PAGE> 212
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $1,948
========================================================================================================================
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 administrativ 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-9
<PAGE> 213
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $1,948
========================================================================================================================
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 10,042 10,042 111,688 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.
</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-10
<PAGE> 214
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
<CAPTION>
Contract Face Amount: $100,000 Male Nonsmoker Age 45
Death Benefit Option: Option 3. Return of Premium @0.00% Annual Premium: $1,948
========================================================================================================================
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 9,674 9,674 109,740 7,620 7,620 109,740
- ------------------------------------------------------------------------------------------------------------------------
6 51 13,913 1,948 12,330 12,330 111,688 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 40,523 40,523 125,324 29,945 29,945 125,324
- ------------------------------------------------------------------------------------------------------------------------
14 59 40,087 1,948 46,411 46,411 127,272 33,925 33,925 127,272
- ------------------------------------------------------------------------------------------------------------------------
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 43,047 43,047 131,168
- ------------------------------------------------------------------------------------------------------------------------
17 62 52,854 1,948 68,183 68,183 133,116 48,277 48,277 133,116
- ------------------------------------------------------------------------------------------------------------------------
18 63 57,542 1,948 77,043 77,043 144,840 53,987 53,987 135,064
- ------------------------------------------------------------------------------------------------------------------------
19 64 62,464 1,948 86,783 86,783 158,813 60,230 60,230 137,012
- ------------------------------------------------------------------------------------------------------------------------
20 65 67,633 1,948 97,481 97,481 174,491 67,073 67,073 138,960
- ------------------------------------------------------------------------------------------------------------------------
25 70 97,621 1,948 168,798 168,798 266,701 112,715 112,715 178,090
- ------------------------------------------------------------------------------------------------------------------------
30 75 135,894 1,948 281,389 281,389 402,387 179,707 179,707 256,981
========================================================================================================================
<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-11
<PAGE> 215
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Security Equity Life Insurance Company
and Policyholders of Security Equity
Life Insurance Company Separate Account Thirteen:
We have audited the statements of assets and liabilities, including the
schedule of investments, of the General American Capital Company Money Market
Fund, Wells Fargo Bank L&A Asset Allocation Fund, Wells Fargo Bank L&A US
Government Allocation Fund, Fidelity VIP Growth Fund, Fidelity VIP II
Investment Grade Bond Fund, Fidelity VIP II Index 500 Fund, Fidelity VIP
Overseas Fund, Fidelity VIP High Income Fund, Evergreen VA Fund, Evergreen VA
Foundation Fund, Evergreen VA Growth and Income Fund, Russell Multi-Style
Equity Fund, Russell Aggressive Equity Fund, Russell Non-US Fund, and the
Russell Core Bond Fund Divisions of Security Equity Life Insurance Company
Separate Account Thirteen as of December 31, 1997, and the related statements
of operations and changes in net assets for the periods presented. These
financial statements are the responsibility of the management of Security
Equity Life Insurance Company Separate Account Thirteen. 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,
1997 by correspondence with underlying Mutual Funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the General American Capital
Company Money Market Fund, Wells Fargo Bank L&A Asset Allocation Fund, Wells
Fargo Bank L&A US Government Allocation Fund, Fidelity VIP Growth Fund,
Fidelity VIP II Investment Grade Bond Fund, Fidelity VIP II Index 500 Fund,
Fidelity VIP Overseas Fund, Fidelity VIP High Income Fund, Evergreen VA Fund,
Evergreen VA Foundation Fund, Evergreen VA Growth and Income Fund, Russell
Multi-Style Equity Fund, Russell Aggressive Equity Fund, Russell Non-US Fund,
and the Russell Core Bond Fund Divisions of Security Equity Life Insurance
Company Separate Account Thirteen as of December 31, 1997, the results of
their operations and the changes in their net assets for the periods
presented, in conformity with generally accepted accounting principles.
St. Louis, Missouri
February 20, 1998
<PAGE> 216
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Assets and Liabilities
<CAPTION>
December 31, 1997
General Wells Wells
American Fargo Fargo Fidelity
Capital Bank Bank VIP II Fidelity
Company L&A L&A US Fidelity Investment Fidelity Fidelity VIP
Money Asset Government VIP Grade VIP II VIP High
Market Allocation Allocation Growth Bond Index 500 Overseas Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at
market value $2,291,672 22,753 1,075,054 4,337,386 4,273,361 7,409,458 128,437 172,015
Liabilities:
Payable to
Security
EquityLife
Insurance 351 4 165 663 649 1,150 9 22
Company ---------- ------ --------- --------- --------- --------- ------- -------
Total net assets $2,291,321 22,749 1,074,889 4,336,723 4,272,712 7,408,308 128,428 171,993
========== ====== ========= ========= ========= ========= ======= =======
Total units 1,933,223 13,509 886,655 2,180,702 3,306,395 3,313,560 116,002 147,714
========== ====== ========= ========= ========= ========= ======= =======
Unit value $ 1.19 1.68 1.21 1.99 1.29 2.24 1.11 1.16
========== ====== ========= ========= ========= ========= ======= =======
Cost of investments $2,346,299 23,284 1,068,153 3,570,421 4,082,197 6,391,952 131,744 158,094
========== ====== ========= ========= ========= ========= ======= =======
<CAPTION>
Evergreen
VA Russell Russell
Evergreen Growth Multi- Aggres- Russell
Evergreen VA and Style sive Russell Core
VA Foundation Income Equity Equity Non-US Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investments, at
market value $4,307,387 3,402,506 4,328,391 127,313 45,517 60,943 42,781
Liabilities:
Payable to
Security
EquityLife
Insurance 657 519 661 19 7 9 7
Company ---------- --------- --------- ------- ------ ------ ------
Total net assets $4,306,730 3,401,987 4,327,730 127,294 45,510 60,934 42,774
========== ========= ========= ======= ====== ====== ======
Total units 2,843,275 2,334,346 2,874,370 123,323 41,107 68,511 41,107
========== ========= ========= ======= ====== ====== ======
Unit value $ 1.51 1.46 1.51 1.03 1.11 .89 1.04
========== ========= ========= ======= ====== ====== ======
Cost of investments $3,267,615 3,001,733 3,210,397 122,937 41,050 68,234 41,636
========== ========= ========= ======= ====== ====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE> 217
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Operations
Year ended December 31, 1997
<CAPTION>
Wells
General Wells Fargo Fidelity
American Fargo Bank VIP II
Capital Bank L&A Invest- Fidelity Fidelity
Company L&A US Fidelity ment VIP II Fidelity VIP
Money Asset Government VIP Grade Index VIP High
Market Allocation Allocation Growth Bond 500 Overseas Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ - 798 29,147 27,119 225,803 39,357 3,584 -
Expense:
Mortality and expense
charges 8,153 57 1,790 16,100 13,854 20,225 918 322
Net investment income (expense) (8,153) 741 27,357 11,019 211,949 19,132 2,666 (322)
----------- ----- ------ ------- ------- --------- ------- ------
Net realized gain (loss) on
investments:
Proceeds from sales 20,629,339 510 11,595 675,710 235,810 1,153,694 228,191 2,086
Cost of investments sold 21,128,960 503 11,537 522,627 229,902 803,888 224,866 2,056
----------- ----- ------ ------- ------- --------- ------- ------
Net realized gain
(loss) on sales (499,621) 7 58 153,083 5,908 349,806 3,325 30
Realized gain from
distributions 70,508 1,992 1,636 121,391 - 79,863 14,229 -
----------- ----- ------ ------- ------- --------- ------- ------
Net realized gain
(loss) on
investments (429,113) 1,999 1,694 274,474 5,908 429,669 17,554 30
----------- ----- ------ ------- ------- --------- ------- ------
Net unrealized gain (loss)
on investments:
Beginning of period (616,614) (727) - 152,534 72,512 190,361 - -
End of period (54,627) (531) 6,901 766,965 191,164 1,017,506 (3,307) 13,921
----------- ----- ------ ------- ------- --------- ------- ------
Net unrealized gain
(loss) on
investments 561,987 196 6,901 614,431 118,652 827,145 (3,307) 13,921
----------- ----- ------ ------- ------- --------- ------- ------
Net gain (loss)
on investments 132,874 2,195 8,595 888,905 124,560 1,256,814 14,247 13,951
----------- ----- ------ ------- ------- --------- ------- ------
Net increase (decrease)
in net assets
resulting from
operations $ 124,721 2,936 35,952 899,924 336,509 1,275,946 16,913 13,629
=========== ===== ====== ======= ======= ========= ======= ======
<CAPTION>
Evergreen
Evergreen VA Russell Russell
VA Growth Multi- Aggres- Russell
Evergreen Founda- and Style sive Russell Core
VA tion Income Equity Equity Non-US Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 14,086 56,929 19,339 186 - - 628
Expense:
Mortality and expense
charges 15,760 10,793 14,415 193 67 93 65
Net investment income (expense) (1,674) 46,136 4,924 (7) (67) (93) 563
---------- ------- --------- ----- ----- ------ -----
Net realized gain (loss) on
investments:
Proceeds from sales 1,142,113 718,799 510,045 612 215 306 204
Cost of investments sold 830,948 530,813 361,276 603 201 334 202
---------- ------- --------- ----- ----- ------ -----
Net realized gain
(loss) on sales 311,165 187,986 148,769 9 14 (28) 2
Realized gain from
distributions 192,033 159,412 152,804 - - - -
---------- ------- --------- ----- ----- ------ -----
Net realized gain
(loss) on
investments 503,198 347,398 301,573 9 14 (28) 2
---------- ------- --------- ----- ----- ------ -----
Net unrealized gain (loss)
on investments:
Beginning of period 174,857 90,314 218,007 - - - -
End of period 1,039,772 400,773 1,117,994 4,376 4,467 (7,291) 1,144
---------- ------- --------- ----- ----- ------ -----
Net unrealized gain
(loss) on
investments 864,915 310,459 899,987 4,376 4,467 (7,291) 1,144
---------- ------- --------- ----- ----- ------ -----
Net gain (loss)
on investments 1,368,113 657,857 1,201,560 4,385 4,481 (7,319) 1,146
---------- ------- --------- ----- ----- ------ -----
Net increase (decrease)
in net assets
resulting from
operations $1,366,439 703,993 1,206,484 4,378 4,414 (7,412) 1,709
========== ======= ========= ===== ===== ====== =====
See accompanying notes to financial statements.
</TABLE>
<PAGE> 218
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
<TABLE>
Statements of Operations
Year ended December 31, 1996
<CAPTION>
General Wells
American Fargo Fidelity Evergreen
Capital Bank VIP II Evergreen VA
Company L&A Fidelity Investment Fidelity VA Growth
Money Asset VIP Grade VIP II Evergreen Founda- and
Market Allocation Growth Bond Index VA tion Income
Fund Fund Fund Fund 500 Fund Fund Fund Fund
---- ---- ---- ---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Investment income:
Dividend income $ - 348 98 6,207 1,888 14,947 25,649 16,722
Expense:
Mortality and expense charges 8,455 19 9,716 6,971 5,182 2,914 1,512 2,926
---------- ---- --------- ------- ------- ------- ------- -------
Net investment income (expense) (8,455) 329 (9,618) (764) (3,294) 12,033 24,137 13,796
---------- ---- --------- ------- ------- ------- ------- -------
Net realized gain (loss) on
investments:
Proceeds from sales 9,427,292 545 2,657,607 964,149 996,124 34,167 17,279 36,201
Cost of investments sold 9,821,858 577 2,601,002 967,181 961,682 32,848 16,419 34,638
---------- ---- --------- ------- ------- ------- ------- -------
Net realized gain (loss) on
sales (394,566) (32) 56,605 (3,032) 34,442 1,319 860 1,563
Realized gain from
distributions 662,558 565 2,483 - 4,854 8,720 8,970 4,256
---------- ---- --------- ------- ------- ------- ------- -------
Net realized gain (loss) on
investments 267,992 533 59,088 (3,032) 39,296 10,039 9,830 5,819
---------- ---- --------- ------- ------- ------- ------- -------
Net unrealized gain (loss)
on investments:
Beginning of period (477,414) (264) (141) - - - - -
End of period (616,614) (727) 152,534 72,512 190,361 174,857 90,314 218,007
---------- ---- --------- ------- ------- ------- ------- -------
Net unrealized gain
(loss) on investments (139,200) (463) 152,675 72,512 190,361 174,857 90,314 218,007
---------- ---- --------- ------- ------- ------- ------- -------
Net gain on
investments 128,792 70 211,763 69,480 229,657 184,896 100,144 223,826
---------- ---- --------- ------- ------- ------- ------- -------
Net increase in net assets
resulting from
operations $ 120,337 399 202,145 68,716 226,363 196,929 124,281 237,622
========== ==== ========= ======= ======= ======= ======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE> 219
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
<TABLE>
Statements of Operations
Period from September 1, 1995 (inception) to December 31, 1995
<CAPTION>
General Wells
American Fargo
Capital Bank
Company L&A Fidelity
Money Asset VIP
Market Allocation Growth
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Investment income:
Dividend income $ - 46 -
Expense:
Mortality and expense charges 910 1 1
--------- ----- ----
Net investment income (expense) (910) 45 (1)
--------- ----- ----
Net realized gain on investments:
Proceeds from sales 8,244 - -
Cost of investments sold 8,217 - -
--------- ----- ----
Net realized gain (loss) on sales 27 - -
Realized gain from distributions 494,746 224 -
--------- ----- ----
Net realized gain on investments 494,773 224 -
--------- ----- ----
Net unrealized loss on investments:
Beginning of period - - -
End of period (477,414) (264) (141)
--------- ----- ----
Net unrealized loss on investments (477,414) (264) (141)
--------- ----- ----
Net gain (loss) on investments 17,359 (40) (141)
--------- ----- ----
Net increase (decrease) in net assets
resulting from operations $ 16,449 5 (142)
========= ===== ====
See accompanying notes to financial statements.
</TABLE>
<PAGE> 220
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Changes in Net Assets
Year ended December 31, 1997
<CAPTION>
General Wells
American Fargo Fidelity
Capital Wells Bank VIP II Fidelity
Company Fargo Bank L&A US Fidelity Investment Fidelity Fidelity VIP
Money L&A Asset Government VIP Grade VIP II VIP High
Market Allocation Allocation Growth Bond Index 500 Overseas Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment income
(expense) $ (8,153) 741 27,357 11,019 211,949 19,132 2,666 (322)
Net realized gain (loss)
on investments (429,113) 1,999 1,694 274,474 5,908 429,669 17,554 30
Net unrealized gain
(loss) on
investments 561,987 196 6,901 614,431 118,652 827,145 (3,307) 13,921
------------ ------ --------- --------- --------- --------- -------- -------
Net increase
(decrease) in net
assets resulting
from operations 124,721 2,936 35,952 899,924 336,509 1,275,946 16,913 13,629
------------ ------ --------- --------- --------- --------- -------- -------
Deposits into Separate
Account 8,313,213 8,594 - 52,684 187,438 238,135 1,137 1,364
Withdrawals from Separate
Account (12,409,728) - - (521,876) (78,701) (935,770) (212,942) -
Transfers to (from)
Divisions (8,186,180) - 1,047,944 464,587 247,811 4,375,652 337,545 157,274
Policy charges (536,474) (1,267) (9,007) (134,854) (134,974) (186,389) (14,225) (274)
------------ ------ --------- --------- --------- --------- -------- -------
Net deposits into
(withdrawals from)
Separate Account (12,819,169) 7,327 1,038,937 (139,459) 221,574 3,491,628 111,515 158,364
------------ ------ --------- --------- --------- --------- -------- -------
Increase (decrease) in
net assets (12,694,448) 10,263 1,074,889 760,465 558,083 4,767,574 128,428 171,993
Net assets, beginning of
period 14,985,769 12,486 - 3,576,258 3,714,629 2,640,734 - -
------------ ------ --------- --------- --------- --------- -------- -------
Net assets, end of period $ 2,291,321 22,749 1,074,889 4,336,723 4,272,712 7,408,308 128,428 171,993
============ ====== ========= ========= ========= ========= ======== =======
<CAPTION>
Evergreen
Evergreen VA Russell Russell
VA Growth Multi- Aggres- Russell
Evergreen Founda- and Style sive Russell Core
VA tion Income Equity Equity Non-US Bond
Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Net investment income
(expense) $ (1,674) 46,136 4,924 (7) (67) (93) 563
Net realized gain (loss)
on investments 503,198 347,398 301,573 9 14 (28) 2
Net unrealized gain (loss) on
investments 864,915 310,459 899,987 4,376 4,467 (7,291) 1,144
---------- --------- --------- ------- ------ ------ ------
Net increase
(decrease) in net
assets resulting
from operations 1,366,439 703,993 1,206,484 4,378 4,414 (7,412) 1,709
---------- --------- --------- ------- ------ ------ ------
Deposits into Separate
Account - - - - - - -
Withdrawals from Separate
Account (600,093) (615,829) - - - - -
Transfers to (from)
Divisions 90,397 1,589,962 (400,000) 123,754 41,251 68,752 41,251
Policy charges (126,744) (90,084) (96,118) (838) (155) (406) (186)
---------- --------- --------- ------- ------ ------ ------
Net deposits into
(withdrawals from)
Separate Account (636,440) 884,049 (496,118) 122,916 41,096 68,346 41,065
---------- --------- --------- ------- ------ ------ ------
Increase (decrease) in
net assets 729,999 1,588,042 710,366 127,294 45,510 60,934 42,774
Net assets, beginning of
period 3,576,731 1,813,945 3,617,364 - - - -
---------- --------- --------- ------- ------ ------ ------
Net assets, end of period 4,306,730 3,401,987 4,327,730 127,294 45,510 60,934 42,774
========== ========= ========= ======= ====== ====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE> 221
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Changes in Net Assets
Year ended December 31, 1996
<CAPTION>
General Wells
American Fargo Evergreen
Capital Bank Fidelity Evergreen VA
Company L&A Fidelity VIP II Fidelity VA Growth
Money Asset VIP Investment VIP II Evergreen Founda- and
Market Allocation Growth Grade Bond Index 500 VA tion Income
Fund Fund Fund Fund Fund Fund Fund Fund
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (expense) $ (8,455) 329 (9,618) (764) (3,294) 12,033 24,137 13,796
Net realized gain (loss) on
investments 267,992 533 59,088 (3,032) 39,296 10,039 9,830 5,819
Net unrealized gain (loss) on
investments (139,200) (463) 152,675 72,512 190,361 174,857 90,314 218,007
----------- ------ --------- --------- --------- --------- --------- ---------
Net increase in net assets
resulting from operations 120,337 399 202,145 68,716 226,363 196,929 124,281 237,622
----------- ------ --------- --------- --------- --------- --------- ---------
Deposits into Separate Account 16,201,970 6,223 1,854,129 1,992,244 1,139,931 1,799,979 899,908 1,799,969
Transfers to (from) Divisions (9,318,249) 3,087 1,757,397 1,878,412 1,439,294 1,696,024 848,012 1,696,024
Policy charges (864,845) (1,318) (241,335) (224,743) (164,854) (116,201) (58,256) (116,251)
----------- ------ --------- --------- --------- --------- --------- ---------
Net deposits into Separate
Account 6,018,876 7,992 3,370,191 3,645,913 2,414,371 3,379,802 1,689,664 3,379,742
----------- ------ --------- --------- --------- --------- --------- ---------
Increase in net assets 6,139,213 8,391 3,572,336 3,714,629 2,640,734 3,576,731 1,813,945 3,617,364
Net assets, beginning of period 8,846,556 4,095 3,922 - - - - -
----------- ------ --------- --------- --------- --------- --------- ---------
Net assets, end of period $14,985,769 12,486 3,576,258 3,714,629 2,640,734 3,576,731 1,813,945 3,617,364
=========== ====== ========= ========= ========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE> 222
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Statements of Changes in Net Assets
Period from September 1, 1995 (inception) to December 31, 1995
<CAPTION>
General Wells
American Fargo
Capital Bank
Company L&A Fidelity
Money Asset VIP
Market Allocation Growth
Fund Fund Fund
---- ---- ----
<S> <C> <C> <C>
Operations:
Net investment income (expense) $ (910) 45 (1)
Net realized gain on investments 494,773 224 -
Net unrealized loss on investments (477,414) (264) (141)
---------- ----- -----
Net increase (decrease) in net assets
resulting from operations 16,449 5 (142)
---------- ----- -----
Deposits into 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> 223
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
December 31, 1997
(1) Organization
------------
Security Equity Life Insurance Company Separate Account Thirteen (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). Security Equity is a subsidiary of General
American Life insurance Company.
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 Capital Company Money Market Fund, Wells Fargo
Bank L&A Asset Allocation Fund, Wells Fargo Bank L&A US Government
Allocation Fund, Fidelity VIP Growth Fund, Fidelity VIP II
Investment Grade Bond Fund, Fidelity VIP II Index 500 Fund,
Fidelity VIP Overseas Fund, Fidelity VIP High Income Fund, Fidelity
VIP II Asset Manager Fund Division, Evergreen VA Fund, Evergreen VA
Foundation Fund, Evergreen VA Growth and Income Fund, Russell
Multi-Style Equity Fund, Russell Aggressive Equity Fund, Russell
Non-US Fund, and the Russell Core Bond Fund.
Investments in the Fidelity VIP II Investment Grade Bond Fund, Fidelity
VIP II Index 500 Fund, Evergreen VA Fund, Evergreen VA Foundation
Fund, and Evergreen VA Growth and Income Fund Divisions were
initiated in the Separate Account for policyholders during 1996.
Investments in the Fidelity VIP Overseas Fund, Fidelity VIP High
Income Fund, Wells Fargo Bank L&A US Government Allocation Fund,
Russell Multi Style Equity Fund, Russell Aggressive Equity Fund,
Russell Non US Fund, and Russell Core Bond Fund Divisions were
initiated in the Separate Account for policyholders during 1997.
The Fidelity VIP II Asset Manager Fund Division had not commenced
operations at December 31, 1997.
The Bankers Trust Emerging Markets Fund, Bankers Trust Liquid Asset
Fund, and the Bankers Trust Limited Maturity Bond Fund were removed
as investment options from the Separate Account on May 1, 1997.
There had been no activity in these funds.
(2) Summary of 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.
(Continued)
<PAGE> 224
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
(b) Federal Income Taxes
--------------------
Under current federal income tax law, investment income or
realized capital gains from sales of investments of the
Separate Account are not taxable. Therefore, no federal
income tax expense has been provided.
(c) Dividend Reinvestment
---------------------
Dividends are recorded on the ex dividend date and
immediately reinvested on the pay date.
(d) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of increase and decrease in net assets from operations
during the period. Actual results could differ from
those estimates.
(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 policies.
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>
(Continued)
<PAGE> 225
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
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, and optional rider benefit charges.
Administrative Costs: Security Equity has responsibility for the
--------------------
administration of the policies and the Separate Account. As
reimbursement for administrative expenses related to the
maintenance of each policy and the Separate Account, Security
Equity assesses a monthly administrative charge against each
policy. This monthly charge is $4.50 per policy. This cost
may change, but is guaranteed not to exceed $8.00 per month per
policy.
Cost of Insurance: The cost of insurance is deducted on each
-----------------
monthly anniversary for the following policy month. Because
the cost of insurance depends upon a number of variables, the
cost varies for each policy month. The cost of insurance is
determined by multiplying the applicable cost of insurance rate
by the net amount at risk each policy month.
Optional Rider Benefit Charges: This monthly deduction includes
------------------------------
charges for any additional benefits provided by rider.
Mortality and Expense Charges: In addition to the above policy
-----------------------------
charges, a daily charge against the operations of each Division is
made for the mortality and expense risks assumed by Security
Equity. The mortality and expense risk charge assessed against
each Division 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.
(Continued)
<PAGE> 226
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
(4) Purchases and Sales
-------------------
During the period ended December 31, 1997, purchases and proceeds from
the sales pertaining to the Separate Account were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
General American Capital Company Money Market Fund $7,869,875 20,629,339
Wells Fargo Bank L&A Asset Allocation Fund 10,561 510
Wells Fargo Bank L&A US Government Allocation Fund 1,079,690 11,595
Fidelity VIP Growth Fund 663,291 675,710
Fidelity VIP II Investment Grade Bond Fund 662,053 235,810
Fidelity VIP II Index 500 Fund 4,737,485 1,153,694
Fidelity VIP Overseas Fund 356,610 228,191
Fidelity VIP High Income Fund 160,150 2,086
Evergreen VA Fund 696,517 1,142,113
Evergreen VA Foundation Fund 1,808,828 718,799
Evergreen VA Growth and Income Fund 172,142 510,045
Russell Multi-Style Equity Fund 123,540 612
Russell Aggressive Equity Fund 41,251 215
Russell Non-US Fund 68,569 306
Russell Core Bond Fund 41,839 204
</TABLE>
There were no purchases or sales for the Fidelity VIP II Asset Manager
Fund Division during 1997 (see note 1).
(Continued)
<PAGE> 227
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
(5) Accumulation Unit Activity
--------------------------
For the year ended December 31, 1997, transactions in accumulation
units were as follows:
<TABLE>
<CAPTION>
Units, Net Transfers Units,
beginning of deposits between end of
period (withdrawals) Divisions period
------ ------------- --------- ------
<S> <C> <C> <C> <C>
General American Capital Company
Money Market Fund 13,318,334 (4,108,503) (7,276,608) 1,933,223
Wells Fargo Bank L&A Asset Allocation Fund 8,931 4,798 (220) 13,509
Wells Fargo Bank L&A US Government
Allocation Fund - - 886,655 886,655
Fidelity VIP Growth Fund 2,212,740 (236,554) 204,516 2,180,702
Fidelity VIP II Investment Grade Bond Fund 3,124,238 81,752 100,405 3,306,395
Fidelity VIP II Index 500 Fund 1,561,960 (324,326) 2,075,926 3,313,560
Fidelity VIP Overseas Fund - (192,838) 308,840 116,002
Fidelity VIP High Income Fund - 1,205 146,509 147,714
Evergreen VA Fund 3,227,545 (407,318) 23,048 2,843,275
Evergreen VA Foundation Fund 1,585,211 (438,926) 1,188,061 2,334,346
Evergreen VA Growth and Income Fund 3,224,042 - (349,672) 2,874,370
Russell Multi-Style Equity Fund - - 123,323 123,323
Russell Aggressive Equity Fund - - 41,107 41,107
Russell Non-US Fund - - 68,511 68,511
Russell Core Bond Fund - - 41,107 41,107
</TABLE>
For the year ended December 31, 1996, transactions in accumulation
units were as follows:
<TABLE>
<CAPTION>
Units, Net Transfers Units,
beginning deposits between end of
of period (withdrawals) Divisions of period
--------- ------------- --------- ---------
<S> <C> <C> <C> <C>
General American Capital Company
Money Market Fund 8,266,085 13,774,894 (8,722,645) 13,318,334
Wells Fargo Bank L&A Asset Allocation Fund 3,253 5,521 157 8,931
Fidelity VIP Growth Fund 2,774 1,081,685 1,128,281 2,212,740
Fidelity VIP II Investment Grade Bond Fund - 1,607,694 1,516,544 3,124,238
Fidelity VIP II Index 500 Fund - 653,667 908,293 1,561,960
Evergreen VA Fund - 1,569,119 1,658,426 3,227,545
Evergreen VA Foundation Fund - 755,933 829,278 1,585,211
Evergreen VA Growth and
Income Fund - 1,565,607 1,658,435 3,224,042
</TABLE>
(Continued)
<PAGE> 228
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Notes to Financial Statements
For the period September 1, 1995 (inception) to December 31, 1995,
transactions in accumulation units were as follows:
<TABLE>
<CAPTION>
Units, Transfers Units,
beginning Net between end of
of period deposits Divisions of period
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
General American Capital
Company Money
Market Fund - 8,273,816 (7,731) 8,266,085
Wells Fargo Bank L&A
Asset Allocation
Fund - - 3,253 3,253
Fidelity VIP Growth Fund - - 2,774 2,774
</TABLE>
There has been no accumulation of units for the Fidelity VIP II Asset
Manager Fund Division during 1997 (see note 1).
<PAGE> 229
Schedule 1
----------
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT THIRTEEN
Schedule of Investments
December 31, 1997
<CAPTION>
Number of Market
shares value
------ -----
<S> <C> <C>
General American Capital Company Money Market Fund 125,732 $2,291,672
Wells Fargo Bank L&A Asset Allocation Fund 1,898 22,753
Wells Fargo Bank L&A US Government Allocation Fund 104,679 1,075,054
Fidelity VIP Growth Fund 116,911 4,337,386
Fidelity VIP II Investment Grade Fund 340,236 4,273,361
Fidelity VIP II Index 500 Fund 64,774 7,409,458
Fidelity VIP Overseas Fund 6,689 128,437
Fidelity VIP High Income Fund 12,667 172,015
Evergreen VA Fund 289,281 4,307,387
Evergreen VA Foundation Fund 251,293 3,402,506
Evergreen VA Growth and Income Fund 283,086 4,328,391
Russell Multi-Style Fund 9,962 127,313
Russell Aggressive Equity Fund 3,384 45,517
Russell Non-US Fund 6,076 60,943
Russell Core Bond Fund 1,898 42,781
</TABLE>
There were no investments in the Fidelity VIP II Asset Manager Fund Division
during 1997 (see note 1).
<PAGE> 230
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, 1997 and 1996, and the related
statements of operations, stockholder's equity, and cash flows for each of
the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
April 10, 1998
<PAGE> 231
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Balance Sheets
December 31, 1997 and 1996
<CAPTION>
==============================================================================================================
Assets 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bonds, at fair value $ 58,580,394 58,058,439
Policy loans 4,738,178 5,081,949
Cash and cash equivalents 4,519,584 5,534,380
- --------------------------------------------------------------------------------------------------------------
Total cash and invested assets 67,838,156 68,674,768
Reinsurance benefits recoverable:
Future policy benefits 5,575,381 6,436,700
Policy and contract claims 1,572,069 2,048,247
Accrued investment income 1,264,239 1,230,483
Goodwill 1,269,661 1,349,013
Deferred policy acquisition costs 1,766,875 3,658,233
Value of business acquired 2,467,000 2,461,000
Deferred tax asset 5,671,074 3,403,349
Other assets 665,967 877,289
Separate account assets 290,409,444 116,625,434
- --------------------------------------------------------------------------------------------------------------
Total assets $378,499,866 206,764,516
==============================================================================================================
Liabilities and Stockholder's Equity
- --------------------------------------------------------------------------------------------------------------
Reserve for future policy benefits 3,426,250 4,321,740
Policyholder account balances 47,594,304 50,194,850
Policy and contract claims 320,358 1,494,338
Other policyholders' funds 13,733 21,723
Advance premiums 3,733,433 1,861,279
Other liabilities and accrued expenses 4,643,201 6,622,653
Payable to affiliates 41,307 75,510
Separate account liabilities 290,409,444 116,625,434
- --------------------------------------------------------------------------------------------------------------
Total liabilities 350,182,030 181,217,527
- --------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 10)
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 on investments, net of taxes 1,870,338 59,112
Retained deficit (3,500,394) (4,460,015)
- --------------------------------------------------------------------------------------------------------------
Total stockholder's equity 28,317,836 25,546,989
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity $378,499,866 206,764,516
==============================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 232
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Operations
Years ended December 31, 1997, 1996, and 1995
<CAPTION>
=======================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Premiums $ 4,246,718 6,371,662 5,368,563
Net investment income 4,774,386 4,546,544 4,699,713
Other income 9,357,336 3,830,965 1,694,087
Realized investment gains (losses) 93,385 313,185 (179,830)
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 18,471,825 15,062,356 11,582,533
- -----------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Policy benefits 1,326,460 3,309,410 3,234,062
Policy surrenders, net 4,335,709 1,635,498 1,016,535
Change in reserve for future policy benefits (3,202,870) (1,893,195) (2,791,166)
Interest credited 2,392,355 2,437,432 2,391,220
Commissions, net of capitalized costs 2,370,739 1,403,608 1,283,902
General and administrative expenses 5,412,113 4,795,193 4,966,525
Amortization of goodwill 79,356 79,356 79,356
Accretion of value of business acquired, net (6,000) (20,000) (28,000)
Other expenses 4,256,509 3,598,595 1,302,092
- -----------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 16,964,371 15,345,897 11,454,526
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations before
federal income tax expense (benefit) 1,507,454 (283,541) 128,007
- -----------------------------------------------------------------------------------------------------------------------
Federal income tax expense (benefit):
Current 3,790,833 15,000 -
Deferred (3,243,000) (92,000) 64,286
- -----------------------------------------------------------------------------------------------------------------------
Total Federal income tax expense
(benefit) 547,833 (77,000) 64,286
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 959,621 (206,541) 63,721
=======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 233
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Stockholder's Equity
Years ended December 31, 1997, 1996, and 1995
<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, 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
Net loss - - - (206,541) (206,541)
Change in net unrealized gain
(loss) on investments - - (1,931,020) - (1,931,020)
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 2,500,000 27,447,892 59,112 (4,460,015) 25,546,989
Net gain - - - 959,621 959,621
Change in net unrealized gain
(loss) on investments - - 1,811,226 - 1,811,226
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $2,500,000 27,447,892 1,870,338 (3,500,394) 28,317,836
=======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 234
<TABLE>
SECURITY EQUITY LIFE INSURANCE COMPANY
Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
<CAPTION>
=======================================================================================================================
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 959,621 (206,541) 63,721
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Change in:
Reinsurance benefits ceded 1,337,497 441,300 3,844,903
Accrued investment income (33,756) 48,733 (36,253)
Other assets 211,321 372,746 (824,660)
Deferred policy acquisition costs, net 1,891,358 (2,186,479) (1,471,754)
Policy liabilities (3,496,036) (1,004,266) (1,345,723)
Policy and contract claims (1,173,980) (682,499) (2,880,980)
Other policyholders' funds (7,990) (3,341) 2,425
Federal income tax payable 709,833 15,000 -
Advance premiums 1,872,155 804,215 393,064
Other liabilities and accrued expenses (2,669,279) 4,317,546 190,733
Payable to affiliates (34,203) 23,725 (17,141)
Accretion of bond premiums, net 130,011 189,350 221,543
Deferred tax expense (benefit) (3,243,000) (92,000) 64,286
Net (gain) loss on sale of investments (93,385) (313,185) 179,830
Amortization of goodwill 79,356 79,356 79,356
Accretion of value of business acquired (6,000) (20,000) (28,000)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (3,566,477) 1,783,660 (1,564,650)
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investments (6,925,121) (12,790,361) (17,056,300)
Sale or maturity of investments 9,153,009 15,141,063 19,355,372
Increase in policy loans, net 343,771 (557,046) (893,507)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,571,659 1,793,656 1,405,565
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Policyholder account balances:
Deposits on interest-sensitive life contracts 147,698,966 48,448,968 18,382,186
Transfers to separate account for
interest-sensitive life contracts, net (147,718,944) (48,468,986) (27,178,119)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (19,978) (20,018) (8,795,933)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (1,014,796) 3,557,298 (8,955,018)
Cash and cash equivalents at beginning of year 5,534,380 1,977,082 10,932,100
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 4,519,584 5,534,380 1,977,082
=======================================================================================================================
Supplemental disclosure of cash flow information -
taxes paid $ 3,081,000 - 20,000
=======================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE> 235
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
December 31, 1997 and 1996
================================================================================
(1) General Information and 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 40 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.
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
(Continued)
<PAGE> 236
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
of these 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
At December 31, 1997 and 1996, all long-term securities are
carried at fair 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 fair 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 1997, 1996 and 1995,
amortization of VOBA was $134,000, $121,000 and $112,000, and the
accretion of interest on the unamortized balance was $140,000,
$141,000 and $140,000, respectively. The carrying value of VOBA
is periodically evaluated to ascertain recoverability from future
operations. Impairment would be recognized in current operations
when determined.
(d) Goodwill
Goodwill, representing the excess of purchase price over the fair
value of assets acquired, is amortized on a straight-line basis
over 20 years. The carrying value of goodwill is periodically
evaluated to ascertain recoverability from future operations.
Impairment would be recognized in current operations when
determined.
(e) Reserve for Future Policy Benefits
Liabilities for future benefits on life policies are established
in amounts adequate to meet the estimated future obligations on
policies in force. Liabilities for future policy benefits on
certain life insurance policies are computed using the net level
premium method and are based upon assumptions as to future
investment yield, mortality, and withdrawals. Mortality
(Continued)
<PAGE> 237
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
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.
(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 1997,
consistent with 1996 and 1995.
(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
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
1997, 1996 and 1995, the Company deferred $226 thousand, $2.4
million and $1.5 million, respectively, in acquisition costs
related to interest sensitive products and recognized
amortization of $590,000, $168,000 and $12,000, respectively,
based on the estimated gross profits of the underlying business.
During 1997 a policyholder utilized their "free-look" provision
of their variable life contract written in 1996 which resulted in
the return of approximately $13 million in contract deposits to
the policyholder. Additionally, the Company wrote off $1.5
million of related deferred acquisition costs associated with the
contract which were capitalized in 1996.
(Continued)
<PAGE> 238
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(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 adminis-trative 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 Value 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 (Bonds) 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, 1997 and 1996.
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.
(l) Reclassification
Certain amounts in the 1995 and 1996 financial statements have
been reclassified to conform to the 1997 presentation.
(Continued)
<PAGE> 239
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(2) Investments
The sources of net investment income (principally interest) follow:
<TABLE>
<CAPTION>
==============================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds $4,161,182 4,291,428 4,458,159
Short-term investments 278,606 75,110 43,781
Policy loans and other 409,406 260,276 294,298
--------------------------------------------------------------------------------------------------------------
4,849,194 4,626,814 4,796,238
Investment expenses 74,808 80,270 96,525
--------------------------------------------------------------------------------------------------------------
Net investment income $4,774,386 4,546,544 4,699,713
==============================================================================================================
</TABLE>
The amortized cost and estimated fair value of bonds at December 31,
1997 and 1996 are shown below. Fair value is based upon market prices
obtained from independent pricing services.
<TABLE>
<CAPTION>
====================================================================================================================
1997
--------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 6,387,244 369,801 148 6,756,897
Corporate securities 36,700,238 2,523,621 153,514 39,070,345
Mortgage-backed securities 12,615,469 323,476 185,793 12,753,152
--------------------------------------------------------------------------------------------------------------------
$55,702,951 3,216,898 339,455 58,580,394
====================================================================================================================
</TABLE>
(Continued)
<PAGE> 240
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================
1996
--------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government obligations (including
obligations guaranteed by the
U.S. government) $ 3,962,315 127,349 6,292 4,083,372
Corporate securities 40,917,820 1,299,830 902,482 41,315,168
Mortgage-backed securities 13,087,363 29,539 457,003 12,659,899
--------------------------------------------------------------------------------------------------------------------
$57,967,498 1,456,718 1,365,777 58,058,439
====================================================================================================================
</TABLE>
The amortized cost and estimated fair value of bonds at December 31,
1997 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 $ - -
Due after one year through five years 3,096,420 3,117,591
Due after five years through ten years 6,774,376 7,001,455
Due after ten years 33,216,686 35,708,197
Mortgage-backed securities 12,615,469 12,753,151
--------------------------------------------------------------------------------------------------------------
$55,702,951 58,580,394
==============================================================================================================
</TABLE>
Proceeds from the sale, call, and maturity of investments in bonds
during 1997, 1996, and 1995 were $9,153,009, $15,141,063, and
$19,355,372, respectively. Gross gains of $346,842, $381,856, and
$428,522 and gross losses of $253,457, $68,671, and $608,352 were
realized on those sales in 1997, 1996, and 1995, respectively.
The Company has bonds on deposit with various state insurance
departments with an amortized cost of approximately $2,387,000 and
$2,411,000 at December 31, 1997 and 1996, 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)
<PAGE> 241
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
Premiums and related reinsurance amounts for the years ended December
31, 1997, 1996, and 1995 as they relate to transactions with
affiliates are summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with affiliates:
Reinsurance premiums ceded $1,489,006 1,632,262 1,956,568
Policy benefits ceded (23,067) 1,397,188 305,947
====================================================================================================================
</TABLE>
Premiums and related reinsurance amounts for the years ended December
31, 1997, 1996, and 1995 as they relate to transactions with
nonaffiliates are summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reinsurance transactions with nonaffiliates:
Reinsurance premiums ceded $5,352,578 5,744,060 5,489,407
Policy benefits ceded 463,458 3,824,327 2,682,132
====================================================================================================================
</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>
=====================================================================================================================
1997 1996 1995
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $528 (99) 45
Amortization of intangibles, net 26 21 18
Other, net (6) 1 1
---------------------------------------------------------------------------------------------------------------------
Federal income tax expense (benefit) $548 (77) 64
=====================================================================================================================
</TABLE>
(Continued)
<PAGE> 242
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, 1997
and 1996 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy acquisition costs $4,897 1,746
Reserves 3,380 1,694
Capital loss carryforward 101 148
Other, net 1,307 685
--------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 9,685 4,273
Less valuation allowance - -
--------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 9,685 4,273
--------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Investments 1,023 80
Other, net 2,991 790
--------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 4,014 870
--------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $5,671 3,403
====================================================================================================================
</TABLE>
On December 31, 1993, 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)
<PAGE> 243
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
(5) Related-Party Transactions
The Company purchases certain administrative services from General
American. Charges for services performed are based upon personnel and
other costs involved in providing such services. The expenses
incurred for these services were $578,000, $529,000, and $463,200 for
1997, 1996, and 1995, respectively.
Effective January 1, 1994, the Company entered into an administrative
service agreement with Security Mutual. Under the agreement, Security
Mutual provides for the administration of policies issued through
December 31, 1993. The expenses incurred for these services were
$1,467,364, $1,621,268, and $1,842,320 for 1997, 1996, and 1995,
respectively.
On November 18, 1997, General American elected to surrender their
existing VUL policy which was purchased from the Company in November
1996. General American incorporated the cash value from their
surrendered policy of $2,965,211 with an additional contribution of
$37,400,000 to purchase another VUL policy with the Company totaling
$40,365,211.
(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 benefit is accrued are based on the number of years of
service and compensation level of each participant. No pension
expense was recognized in 1997, 1996, and 1995 due to overfunding of
the plan.
In addition, in 1995 SELIC adopted 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 were $302,000 and $144,000 in 1997 and
1996, respectively.
In order to attract and retain highly qualified Non-Employee Directors,
the Company enacted an arrangement under which Non-Employee Directors
may elect to reduce their current Director's Compensation in exchange
for future benefits. This plan, known as the Security Equity Deferred
Compensation Plan for Non-Employee Directors, was adopted and
effective as of April 15, 1995. The deferred liabilities were
$222,000, $117,000, and $43,000 in 1997, 1996, and 1995, respectively.
SELIC provides for certain health care and life insurance benefits for
retired employees in accordance with Statement of Financial Accounting
Standards No. 106, Employer's Accounting for Postretirement Benefits
Other Than Pensions (SFAS No. 106). 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 postretirement benefit obligation
of approximately $16,427 over a period of 20 years. The unrecognized
initial postretirement benefit obligation was approximately $13,084
and $13,962 at December 31, 1997 and 1996, respectively. The net
periodic post-retirement benefit cost for the years ended December 31,
1997, 1996, and 1995 was $6,600, $8,490, and $6,711, 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
postretirement benefit obligation. The accumulated post-retirement
benefit obligation was approximately $27,564 and $28,981 at December
31, 1997 and 1996, respectively. The discount rate used in
determining the accumulated postretirement benefit obligation was
7.25% for all years. The health care cost trend rates were 8% for the
Indemnity Plan, the HMO Plan, and Dental Plan. These rates were
graded to 5.0% over the next 13 years. A one percentage point
increase in the assumed health care cost trend rates would increase
the
(Continued)
<PAGE> 244
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
December 31, 1997 accumulated postretirement obligation by $4,165, and
the estimated service cost and interest cost components of the net
periodic postretirement benefit cost for 1997 by $908.
(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
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; (7) non-recognition of certain assets as nonadmitted through
a direct charge to surplus; and (8) valuation of investments in bonds
at amortized cost.
The stockholder's equity (surplus) and net gain/(loss) of the Company
at December 31, 1997, 1996, and 1995, as determined using statutory
accounting practices, is summarized as follows:
<TABLE>
<CAPTION>
====================================================================================================================
1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Surplus as reported to regulatory authorities $13,420,004 12,441,081 15,125,968
Net gain/(loss) as reported to regulatory authorities 1,090,966 (2,778,942) (1,465,539)
====================================================================================================================
</TABLE>
(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 requiring the prior
notice and approval of the State of New York Department of Insurance.
The Company did not pay a dividend in 1997, 1996, or 1995.
(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.
(Continued)
<PAGE> 245
SECURITY EQUITY LIFE INSURANCE COMPANY
Notes to Financial Statements
================================================================================
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, 1997, the Company's actual total adjusted
capital was well 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:
========================================================
Year ended December 31, 1998 $58,600
--------------------------------------------------------
Rent expense totaled approximately $86,700, $82,700, and $83,900 in
1997, 1996, and 1995, respectively.
<PAGE> 246
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 an 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 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 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 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> 247
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 Registration 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 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.
REASONABLENESS OF FEES AND CHARGES
Security Equity Life Insurance Company, of which Registrant forms a part,
hereby represents that the fees and charges deducted under the terms of the
Contracts are, in the aggregate, reasonable in relationship to the services
rendered, the expenses expected, and the risks assumed by Security Equity
Life Insurance Company.
II-2
<PAGE> 248
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 information
shown in the prospectuses with the items of Form N-8B-2.
* Prospectus Version A consisting of 87 pages and Prospectus Version
B consisting of 91 pages.
* The Undertaking to File Reports.
* The Rule 484 Undertaking.
* Reasonableness of Fees and Charges.
* The signatures.
* The following exhibits:
1. The following exhibits correspond to the numbers under
paragraph A of the instructions for exhibits to Form
N-8B-2:
(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>
(3)(b) Form of Selling Agreement between Walnut Street
Securities, Inc. and Selling Firms.<F1>
(3)(c) Schedule of Sales Commissions.<F2>
(4) None.
(5)(a) Specimen of Contract.<F1>
(5)(b) Riders and Endorsements.<F1>
(6) Certificate of Incorporation and By-Laws of
SELIC.<F1>
(7) None.
(8) None.
(9)(a) Form of Participation Agreement.<F2>
(9)(b) Participation Agreement Among Variable
Insurance Products Fund, Fidelity Distributors
Corporation and Security Equity Life Insurance
Company.<F2>
(9)(c) Participation Agreement Among Variable
Insurance Products Fund II, Fidelity
Distributors Corporation and Security Equity
Life Insurance Company.<F2>
(9)(d) Form of Amendment No. 1 to Participation
Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation and
Security Equity Life Insurance Company.<F3>
II-3
<PAGE> 249
(9)(e) Form of Amendment No. 1 to Participation
Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and
Security Equity Life Insurance Company.<F3>
(9)(f) Form of Participation Agreement between
Evergreen Variable Trust and Security Equity
Life Insurance Company.<F3>
(9)(g) Fund Participation Agreement Among Tomorrow
Funds Retirement Trust, Weiss, Peck & Greer,
L.L.C., and Security Equity Life Insurance
Company.
(9)(h) Form of Participation Agreement Among Security
Equity Life Insurance Company, Russell
Insurance Funds, and Russell Fund Distributors,
Inc.
(9)(i) Form of Participation Agreement Among Life &
Annuity Trust, Stephens, Inc., Wells Fargo
Bank, 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>
3.(ii) Opinion of Victor Bertolozzi, FSA, MAAA and Consent.<F2>
3.(iii) Opinion of Ralph A. Gorter, FSA, and Consent.<F4>
4. None.
5. Inapplicable.
6. Inapplicable.
7. Powers of Attorney.<F1>
8. Form of Notice of Withdrawal Right.<F2>
9. Consent of KPMG Peat Marwick LLP.
NOTES
1. Incorporated by reference to Registrant's registration statement on
Form S-6 (File No. 88524), filed January 13, 1995.
2. 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.
3. Incorporated by reference to Registrant's Post-Effective Amendment No.
1 to registration statement on Form S-6 (file Nos. 33-88524 and
811-8938), filed April 29, 1996.
4. Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to registration statement on Form S-6 (File Nos. 33-8852 and 811-8938),
filed April 28, 1997.
II-4
<PAGE> 250
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 State of New
York, on the 30th day of April, 1998.
SECURITY EQUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT 13 (Registrant)
By: SECURITY EQUITY LIFE INSURANCE COMPANY
(for Registrant and as Depositor)
Attest: /s/ Matthew P. McCauley By: /s/ William C. Thater
---------------------------- -------------------------
Matthew P. McCauley, William C. Thater,
Secretary President
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 4/30/98
- -------------------------------------
William C. Thater President & Director
<F*> 4/30/98
- -------------------------------------
Willard N. Archie Director
<F*> 4/30/98
- -------------------------------------
Carson E. Beadle Director
<F*> 4/30/98
- -------------------------------------
James R. Elsesser Director
II-5
<PAGE> 251
<F*> 4/30/98
- -------------------------------------
Stanley Goldstein Director
<F*> 4/30/98
- -------------------------------------
David D. Holbrook Director
<F*> 4/30/98
- -------------------------------------
Richard A. Liddy Director
<F*> 4/30/98
- -------------------------------------
Leonard M. Rubenstein Director
<F*> 4/30/98
- -------------------------------------
H. Edwin Trusheim Director
<F*> 4/30/98
- -------------------------------------
Virginia V. Weldon, M.D. Director
<F*> 4/30/98
- -------------------------------------
Ted C. Wetterau Director
<F*> 4/30/98
- -------------------------------------
Ben H. Wolzenski Director
<F*> 4/30/98
- -------------------------------------
A. Greig Woodring Director
By: /s/ William C. Thater
---------------------------------------
William C. Thater 4/30/98
<FN>
<F*> Copies of powers of attorney authorizing William C. Thater to sign the
Registration Statement and amendments thereto on behalf of the
Directors of Security Equity Life Insurance Company are on file with
the Securities and Exchange Commission.
</TABLE>
II-6
<PAGE> 252
EXHIBIT INDEX
9. Consent of KPMG Peat Marwick LLP.
<PAGE> 1
EXHIBIT 9
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Security Equity Life Insurance Company
We consent to the use of our reports included herein and to the reference
ofto our firm under the heading "Experts" in the Registration Statement and
Prospectuses for Security Equity Life Insurance Company Separate Account 13.
KPMG Peat Marwick LLP
St. Louis, Missouri
April 29, 1998
CAM:dw
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 27,526
<INVESTMENTS-AT-VALUE> 32,025
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,025
<PAYABLE-FOR-SECURITIES> 5
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32,015
<TOTAL-LIABILITIES> 32,020
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 1,621
<SHARES-COMMON-PRIOR> 2,099
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 32,020
<DIVIDEND-INCOME> 1,140
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 103
<NET-INVESTMENT-INCOME> 1,037
<REALIZED-GAINS-CURRENT> 732
<APPREC-INCREASE-CURRENT> 4,218
<NET-CHANGE-FROM-OPS> 5,987
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33,938
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
