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File No. 333-23723
File No. 811-8836
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post-Effective Amendment No. 1 [ ]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 2 [X]
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(Check appropriate box or boxes)
SBL VARIABLE ANNUITY ACCOUNT VIII
(VARIFLEX SIGNATURE)
(Exact Name of Registrant)
Security Benefit Life Insurance Company
(Name of Depositor)
700 Harrison Street, Topeka, Kansas 66636-0001
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, Including Area Code:
(785) 431-3000
Copies to:
Amy J. Lee, Associate General Counsel Jeffrey S. Puretz, Esq.
Security Benefit Group Building Dechert, Price & Rhoads
700 Harrison Street 1500 K Street, N.W.
Topeka, KS 66636-0001 Washington, DC 20005
(Name and address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on October 15, 1997 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on October 15, 1997, pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on October 15, 1997, pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Pursuant to Regulation 270.24f-2 of the Investment Company Act of 1940, the
Registrant has elected to register an indefinite number of securities. The
Registrant filed the Notice required by 24f-2 on February 26, 1997.
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Cross Reference Sheet
Pursuant to Rule 495(a)
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
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PART A
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Item of Form N-4 Prospectus Caption
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1. Cover Page............................. Cover Page
2. Definitions............................ Definitions
3. Synopsis............................... Summary; Expense Table; Contractual
Expenses; Annual Separate Account Expenses;
Annual Mutual Fund Expenses
4. Condensed Financial Information
(a)Accumulated Unit Values............. N/A
(b)Performance Data.................... Performance Information
(c)Additional Financial Information.... Additional Information; Financial Statements
5. General Description of Registrant,
Depositor, and Portfolio Companies
(a)Depositor........................... Information about Security Benefit, the
Separate Account, and the Mutual Fund;
Security Benefit Life Insurance Company
(b)Registrant.......................... Separate Account; Information about Security
Benefit, the Separate Account, and the
Mutual Fund
(c)Portfolio Company................... Information about Security Benefit, the
Separate Account, and the Mutual Fund; SBL
Fund; The Investment Adviser
(d)Fund Prospectus..................... SBL Fund
(e)Voting Rights....................... Voting of Mutual Fund Shares
</TABLE>
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<TABLE>
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Item of Form N-4 Prospectus Caption
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(f)Administrators...................... Security Benefit Life Insurance Company
6. Deductions and Expenses
(a)General............................. Charges and Deductions; Contingent Deferred
Sales Charge; Mortality and Expense Risk
Charge; Administration Charge; Premium Tax
Charge; Other Charges; Variations in
Charges; Guarantee of Certain Charges;
Mutual Fund Expenses; Contract Charges
(b)Sales Load %........................ Contingent Deferred Sales Charge
(c)Special Purchase Plan............... N/A
(d)Commissions......................... Contingent Deferred Sales Charge
(e)Fund Expenses....................... Mutual Fund Expenses
(f)Organization Expenses............... N/A
7. General Description of Contracts
(a)Persons with Rights................. The Contract; More About the Contract;
Ownership; Joint Owners; Contract Benefits;
The Fixed Account; Reports to Owners
(b) (i)Allocation of Purchase Payments Purchase Payments; Allocation of Purchase
Payments
(ii)......................Transfers Transfers of Contract Value; Telephone
Transfer Privileges; Dollar Cost Averaging
Option; Asset Reallocation Option; Full and
Partial Withdrawals
Exchanges...................... N/A
(c)Changes............................. Substitution of Investments; Changes to
Comply with Law and Amendments
(d)Inquiries........................... Contacting Security Benefit
8. Annuity Period......................... Annuity Period; General; Annuity Options;
Selection of an Option
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Item of Form N-4 Prospectus Caption
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9. Death Benefit.......................... Death Benefit
10. Purchases and Contract Value
(a)Purchases........................... The Contract; General; Application for a
Contract; Purchase Payments; Dollar Cost
Averaging Option; Asset Reallocation Option
(b)Valuation........................... Contract Value; Determination of Contract
Value; Transfers of Contract Value; Interest
(c)Daily Calculation................... Determination of Contract Value
Underwriter......................... Security Benefit Life Insurance Company
11. Redemptions
(a)- By Owners......................... Full and Partial Withdrawals; Systematic
Withdrawals; Payments from the Separate
Account; Payments from the Fixed Account;
Restrictions on Withdrawals from Qualified
Plans; Loans
- By Annuitant...................... Annuity Options
(b)Texas ORP........................... N/A
(c)Check Delay......................... N/A
(d)Lapse............................... Full and Partial Withdrawals
(e)Free Look........................... Free-Look Right
12. Taxes.................................. Federal Tax Matters; Introduction; Tax
Status of Security Benefit and the Separate
Account; Income Taxation of Annuities in
General -- Non-Qualified Plans; Additional
Considerations; Qualified Plans
13. Legal Proceedings...................... Legal Proceedings; Legal Matters
14. Table of Contents for the Statement of
Additional Information................. Statement of Additional Information
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PART B
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Item of Form N-4 Statement of Additional Information Caption
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15. Cover Page............................. Cover Page
16. Table of Contents...................... Table of Contents
17. General Information and History........ General Information and History
18. Services
(a)Fees and Expenses of Registrant..... N/A
(b)Management Contracts................ N/A
(c)Custodian........................... N/A
Independent Public Accountant....... Experts
(d)Assets of Registrant................ N/A
(e)Affiliated Persons.................. N/A
(f)Principal Underwriter............... N/A
19. Purchase of Securities Being Offered... Distribution of the Contract; Limits on
Purchase Payments Paid Under Tax-Qualified
Retirement Plans
20. Underwriters........................... Distribution of the Contract
21. Calculation of Performance Data........ Performance Information
22. Annuity Payments....................... N/A
23. Financial Statements................... Financial Statements
</TABLE>
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VARIFLEX SIGNATURE VARIABLE ANNUITY
INDIVIDUAL AND GROUP FLEXIBLE PURCHASE PAYMENT
DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY:
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY
P.O. BOX 750497
TOPEKA, KANSAS 66675-0497
This Prospectus describes the Variflex Signature Variable Annuity--a flexible
purchase payment deferred variable annuity contract (the "Contract") offered by
Security Benefit Life Insurance Company ("Security Benefit"). The Contract is
available for individuals as a non-tax qualified retirement plan ("Non-Qualified
Plan") or for individuals and groups in connection with a retirement plan
qualified under Section 401, 403(b), 408, or 457 of the Internal Revenue Code
("Qualified Plan"). The Contract is designed to give Contractowners flexibility
in planning for retirement and other financial goals.
During the Accumulation Period, the Contract provides for the accumulation
of a Contractowner's value on either a variable basis, a fixed basis, or both.
The Contract also provides several options for annuity payments on either a
variable basis, a fixed basis, or both to begin on the Annuity Start Date. The
minimum initial purchase payment is $25,000. Subsequent purchase payments are
flexible, though they must be for at least $500. Purchase payments may be
allocated at the Contractowner's discretion to one or more of the Subaccounts
that comprise a separate account of Security Benefit called the Variable Annuity
Account VIII (the "Separate Account"), or to the Fixed Account of Security
Benefit. Each Subaccount of the Separate Account invests in a corresponding
portfolio ("Series") of the SBL Fund (the "Mutual Fund"). The Subaccounts
currently available under the contract are: (1) Growth Series, (2) Growth-Income
Series, (3) Money Market Series, (4) Worldwide Equity Series, (5) High Grade
Income Series, (6) Social Awareness Series, (7) Emerging Growth Series, (8)
Global Aggressive Bond Series, (9) Specialized Asset Allocation Series, (10)
Managed Asset Allocation Series, (11) Equity Income Series, (12) High Yield
Series, (13) Value Series and (14) Small Cap Series. The Contract Value in the
Fixed Account will accrue interest at rates that are paid by Security Benefit as
described in "The Fixed Account" on page 23. Contract Value in the Fixed Account
is guaranteed by Security Benefit.
The Contract Value in the Subaccounts under a Contract will vary based on
investment performance of the Subaccounts to which the Contract Value is
allocated. No minimum amount of Contract Value is guaranteed.
A Contract may be returned according to the terms of its Free-Look Right.
(See "Free-Look Right," page 18.)
This Prospectus concisely sets forth information about the Contract and the
Separate Account that a prospective investor should know before purchasing the
Contract. Certain additional information is contained in a "Statement of
Additional Information," dated October 15, 1997, which has been filed with the
Securities and Exchange Commission (the "SEC"). The Statement of Additional
Information, as it may be supplemented from time to time, is incorporated by
reference into this Prospectus and is available at no charge, by writing
Security Benefit at 700 Harrison Street, Topeka, Kansas 66636 or by calling
1-800-888-2461. The table of contents of the Statement of Additional Information
is set forth on page 36 of this Prospectus.
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.
THIS PROSPECTUS IS ACCOMPANIED BY THE CURRENT PROSPECTUS FOR THE SBL FUND. BOTH
PROSPECTUSES SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THE CONTRACT INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL, AND IS NOT A
DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE CONTRACT
IS NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
DATE: OCTOBER 15, 1997
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TABLE OF CONTENTS
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Page
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DEFINITIONS............................................................................................ 5
SUMMARY ............................................................................................ 6
Purpose of the Contract............................................................................ 6
The Separate Account and the Mutual Fund........................................................... 6
Fixed Account...................................................................................... 6
Purchase Payments.................................................................................. 6
Contract Benefits.................................................................................. 6
Free-Look Right.................................................................................... 6
Charges and Deductions............................................................................. 7
Contingent Deferred Sales Charge............................................................... 7
Mortality and Expense Risk Charge.............................................................. 7
Administration Charge.......................................................................... 7
Premium Tax Charge............................................................................. 7
Other Expenses................................................................................. 7
Contacting Security Benefit........................................................................ 7
EXPENSE TABLE.......................................................................................... 8
Contractual Expenses............................................................................... 8
Annual Separate Account Expenses................................................................... 8
Annual Mutual Fund Expenses........................................................................ 8
Examples........................................................................................... 8
CONDENSED FINANCIAL INFORMATION........................................................................ 9
INFORMATION ABOUT SECURITY BENEFIT, THE SEPARATE ACCOUNT, AND THE MUTUAL FUND.......................... 11
Security Benefit Life Insurance Company............................................................ 11
Published Ratings.................................................................................. 11
Separate Account................................................................................... 11
SBL Fund........................................................................................... 11
Series A (Growth Series)....................................................................... 12
Series B (Growth-Income Series)................................................................ 12
Series C (Money Market Series)................................................................. 12
Series D (Worldwide Equity Series)............................................................. 12
Series E (High Grade Income Series)............................................................ 12
Series J (Emerging Growth Series).............................................................. 12
Series K (Global Aggressive Bond Series)....................................................... 12
Series M (Specialized Asset Allocation Series)................................................. 12
Series N (Managed Asset Allocation Series)..................................................... 13
Series O (Equity Income Series)................................................................ 13
Series P (High Yield Series)................................................................... 13
Series S (Social Awareness Series)............................................................. 13
Series V (Value Series)........................................................................ 13
Series X (Small Cap Series).................................................................... 13
The Investment Adviser......................................................................... 13
THE CONTRACT........................................................................................... 13
General............................................................................................ 13
Application for a Contract......................................................................... 14
Purchase Payments.................................................................................. 14
Allocation of Purchase Payments.................................................................... 14
Dollar Cost Averaging Option....................................................................... 15
Asset Reallocation Option.......................................................................... 15
Transfers of Contract Value........................................................................ 16
Contract Value..................................................................................... 16
Determination of Contract Value.................................................................... 16
Full and Partial Withdrawals....................................................................... 17
</TABLE>
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THE CONTRACT (continued)
Systematic Withdrawals............................................................................. 17
Free-Look Right.................................................................................... 18
Death Benefit...................................................................................... 18
Distribution Requirements.......................................................................... 18
Death of the Annuitant............................................................................. 19
CHARGES AND DEDUCTIONS................................................................................. 19
Contingent Deferred Sales Charge................................................................... 19
Waiver of Withdrawal Charge........................................................................ 19
Mortality and Expense Risk Charge.................................................................. 20
Administration Charge.............................................................................. 20
Premium Tax Charge................................................................................. 20
Other Charges...................................................................................... 20
Variations in Charges.............................................................................. 21
Guarantee of Certain Charges....................................................................... 21
Mutual Fund Expenses............................................................................... 21
ANNUITY PERIOD......................................................................................... 21
General............................................................................................ 21
Annuity Options.................................................................................... 22
Option 1--Life Income.......................................................................... 22
Option 2--Life Income with Guaranteed Payment of 5, 10, 15 or 20 Years......................... 22
Option 3--Life with Installment Refund Option.................................................. 22
Option 4--Joint and Last Survivor.............................................................. 22
Option 5--Payments for a Specified Period...................................................... 22
Option 6--Payments of a Specified Amount....................................................... 22
Option 7--Period Certain....................................................................... 22
Option 8--Joint and Contingent Survivor Option................................................. 22
Value of Variable Annuity Payments: Assumed Interest Rate...................................... 23
Selection of an Option............................................................................. 23
THE FIXED ACCOUNT...................................................................................... 23
Interest........................................................................................... 23
Death Benefit...................................................................................... 24
Contract Charges................................................................................... 24
Transfers and Withdrawals from the Fixed Account................................................... 24
Payments from the Fixed Account.................................................................... 24
MORE ABOUT THE CONTRACT................................................................................ 25
Ownership.......................................................................................... 25
Joint Owners................................................................................... 25
Designation and Change of Beneficiary.............................................................. 25
Participating...................................................................................... 25
Payments from the Separate Account................................................................. 25
Proof of Age and Survival.......................................................................... 25
Misstatements...................................................................................... 25
Loans ............................................................................................ 25
Restrictions on Withdrawals from Qualified Plans................................................... 26
FEDERAL TAX MATTERS.................................................................................... 27
Introduction....................................................................................... 27
Tax Status of Security Benefit and the Separate Account............................................ 27
General........................................................................................ 27
Charge for Security Benefit Taxes.............................................................. 27
Diversification Standards...................................................................... 27
</TABLE>
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TABLE OF CONTENTS (CONTINUED)
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Page
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Income Taxation of Annuities in General--Non-Qualified Plans....................................... 28
Surrenders or Withdrawals Prior to the Annuity Start Date...................................... 28
Surrenders or Withdrawals on or after Annuity Start Date....................................... 28
Penalty Tax on Certain Surrenders and Withdrawals.............................................. 29
Additional Considerations.......................................................................... 29
Distribution-at-Death Rules.................................................................... 29
Gift of Annuity Contracts...................................................................... 29
Contracts Owned by Non-Natural Persons......................................................... 29
Multiple Contract Rule......................................................................... 29
Possible Tax Changes........................................................................... 30
Transfers, Assignments or Exchanges of a Contract.............................................. 30
Qualified Plans.................................................................................... 30
Section 401.................................................................................... 30
Section 403(b)................................................................................. 31
Section 408.................................................................................... 31
Section 457.................................................................................... 32
Rollovers...................................................................................... 32
Tax Penalties.................................................................................. 33
Withholding.................................................................................... 33
OTHER INFORMATION...................................................................................... 33
Voting of Mutual Fund Shares....................................................................... 33
Substitution of Investments........................................................................ 34
Changes to Comply with Law and Amendments.......................................................... 34
Reports to Owners.................................................................................. 34
Telephone Transfer Privileges...................................................................... 34
Legal Proceedings.................................................................................. 35
Legal Matters...................................................................................... 35
PERFORMANCE INFORMATION................................................................................ 35
ADDITIONAL INFORMATION................................................................................. 36
Registration Statement............................................................................. 36
Financial Statements............................................................................... 36
STATEMENT OF ADDITIONAL INFORMATION.................................................................... 36
</TABLE>
IRA Disclosure Statement
THE CONTRACT IS 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 PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION, THE MUTUAL FUND'S PROSPECTUS OR THE STATEMENT OF
ADDITIONAL INFORMATION OF THE MUTUAL FUND, OR ANY SUPPLEMENT THERETO.
4
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DEFINITIONS
Various terms commonly used in this Prospectus are defined as follows:
Accumulation Period -- The period commencing on the Contract Date and ending
on the Annuity Start Date or, if earlier, when the Contract is terminated,
either through a full withdrawal, payment of charges, or payment of the death
benefit proceeds.
Accumulation Unit -- A unit of measure used to calculate the value of a
Contractowner's interest in a Subaccount during the Accumulation Period and
variable annuity payments under Annuity Options 5 and 6.
Annuitant -- The person on whose life annuity payments depend or designated
to receive annuity payments. Annuity -- A series of periodic income payments
made by Security Benefit to an Annuitant, Joint Annuitant, or Beneficiary during
the period specified in the Annuity Option.
Annuity Options -- Options under the Contract that prescribe the provisions
under which a series of annuity payments are made.
Annuity Period -- The period during which annuity payments are made.
Annuity Start Date -- The date when annuity payments are to begin.
Automatic Investment Program -- A program pursuant to which purchase
payments are automatically paid from the Owner's bank account on a specified day
of each month or a salary reduction agreement.
Contract Date -- The date shown as the Contract Date in a Contract. Annual
Contract anniversaries are measured from the Contract Date. It is usually the
date that the initial purchase payment is credited to the Contract.
Contract Debt -- The unpaid loan balance including loan interest.
Contractowner or Owner -- The person entitled to the ownership rights under
the Contract and in whose name the Contract is issued.
Contract Value -- The total value of the amounts in a Contract allocated to
the Subaccounts of the Separate Account and the Fixed Account as well as any
amount set aside in the loan account to secure loans as of any Valuation Date.
Contract Year -- Each twelve-month period measured from the Contract Date.
Designated Beneficiary -- The person having the right to the death benefit,
if any, payable upon the death of the Owner or the Joint Owner during the
Accumulation Period. The Designated Beneficiary is the first person on the
following list who is alive on the date of death of the Owner or the Joint
Owner: the Owner; the Joint Owner; the Primary Beneficiary; the Secondary
Beneficiary; the Annuitant; or if none of the above are alive, the Owner's
Estate.
Fixed Account -- An account that is part of Security Benefit's General
Account in which all or a portion of the Contract Value may be held for
accumulation at fixed rates of interest (which may not be less than 3 percent)
declared by Security Benefit periodically at its discretion.
General Account -- All assets of Security Benefit other than those allocated
to the Separate Account or to any other separate account of Security Benefit.
Group Contract - A Contract issued to a group in connection with a Qualified
Plan under which record of participants' interests in the Contract is not
maintained by Security Benefit.
Home Office -- The Annuity Administration Department of Security Benefit,
P.O. Box 750497, Topeka, Kansas 66675-0497.
Hospital -- An institution that is licensed as such by the Joint Commission
of Accreditation of Hospitals, or any lawfully operated institution that
provides in-patient treatment of sick and injured persons through medical,
diagnostic and surgical facilities directed by physicians and 24 hour nursing
services.
Mutual Fund -- SBL Fund. The Mutual Fund is a diversified, open-end
management investment company commonly referred to as a mutual fund.
Participant - A Participant under a Qualified Plan.
Purchase Payment -- An amount paid to Security Benefit as consideration for
the Contract.
Qualified Skilled Nursing Facility -- A facility licensed by the state to
provide on a daily basis convalescent or chronic care for in-patients who, by
reason of infirmity or illness, are not able to care for themselves.
Separate Account -- The Variable Annuity Account VIII. A separate account of
Security Benefit that consists of accounts, referred to as Subaccounts, each of
which invests in a corresponding Series of the Mutual Fund.
Subaccount -- A division of the Separate Account of Security Benefit which
invests in a corresponding series of the Mutual Fund. Currently, fourteen
Subaccounts are available under the Contract.
Terminal Illness -- An incurable condition that with a degree of medical
certainty will result in death within one year.
Valuation Date -- Each date on which the Separate Account is valued, which
currently includes each day that the New York Stock Exchange is open for
trading. The New York Stock Exchange is closed on weekends and on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Thanksgiving Day, and Christmas
Day.
Valuation Period -- A period used in measuring the investment experience of
each Subaccount of the Separate Account. The Valuation Period begins at the
close of one Valuation Date and ends at the close of the next succeeding
Valuation Date.
Withdrawal Value -- The amount a Contractowner may receive upon full
withdrawal of the Contract, which is equal to Contract Value less any Contract
Debt, any applicable withdrawal charges, and any uncollected premium taxes.
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SUMMARY
This summary is intended to provide a brief overview of the more significant
aspects of the Contract. Further detail is provided in this Prospectus, the
Statement of Additional Information, and the Contract. Unless the context
indicates otherwise, the discussion in this summary and the remainder of the
Prospectus relates to the portion of the Contract involving the Separate
Account. The Fixed Account is briefly described under "The Fixed Account," page
23 and in the Contract.
PURPOSE OF THE CONTRACT
The flexible purchase payment deferred variable annuity contract
("Contract") described in this Prospectus is designed to give Contractowners
flexibility in planning for retirement and other financial goals. The Contract
provides for the accumulation of values on a variable basis, a fixed basis, or
both, during the Accumulation Period and provides several options for annuity
payments on a variable basis, a fixed basis, or both. During the Accumulation
Period, an Owner can pursue various allocation options by allocating purchase
payments to the Subaccounts of the Separate Account or to the Fixed Account. See
"The Contract," page 13.
The Contract is eligible for purchase as a non-tax qualified retirement plan
for an individual ("Non-Qualified Plan"). The Contract is also eligible for an
individual or group in connection with a retirement plan qualified under Section
401, 403(b), 408, or 457 of the Internal Revenue Code of 1986, as amended. These
plans are sometimes referred to in this Prospectus as "Qualified Plans."
THE SEPARATE ACCOUNT AND THE MUTUAL FUND
Purchase payments designated to accumulate on a variable basis are allocated
to the Separate Account. See "Separate Account," page 11. The Separate Account
is currently divided into fourteen accounts referred to as Subaccounts. Each
Subaccount invests exclusively in shares of a corresponding Series of the Mutual
Fund. The Series of the Mutual Fund, each of which has a different investment
objective or objectives, are as follows: Growth Series, Growth-Income Series,
Money Market Series, Worldwide Equity Series, High Grade Income Series, Social
Awareness Series, Emerging Growth Series, Global Aggressive Bond Series,
Specialized Asset Allocation Series, Managed Asset Allocation Series, Equity
Income Series, High Yield Series, Value Series and Small Cap Series. See "SBL
Fund," page 11. Amounts held in a Subaccount will increase or decrease in dollar
value depending on the investment performance of the Series of the Mutual Fund
in which such Subaccount invests. The Contractowner bears the investment risk
for amounts allocated to a Subaccount of the Separate Account.
FIXED ACCOUNT
Purchase payments designated to accumulate on a fixed basis may be allocated
to the Fixed Account, which is part of Security Benefit's General Account.
Amounts allocated to the Fixed Account earn interest at rates determined at the
discretion of Security Benefit and are guaranteed to be at least an effective
annual rate of 3 percent. See "The Fixed Account," page 23.
PURCHASE PAYMENTS
The minimum initial purchase payment is $25,000. Thereafter, the
Contractowner may choose the amount and frequency of purchase payments, except
that the minimum subsequent purchase payment is $500. See "Purchase Payments" on
page 14.
CONTRACT BENEFITS
During the Accumulation Period, Contract Value may be transferred by the
Contractowner among the Subaccounts of the Separate Account and to and from the
Fixed Account, subject to certain restrictions as described in "The Contract" on
page 13 and "The Fixed Account" on page 23.
At any time before the Annuity Start Date, a Contract may be surrendered for
its Withdrawal Value, and partial withdrawals, including systematic withdrawals,
may be taken from the Contract Value, subject to certain restrictions described
in "The Fixed Account" on page 23. See "Full and Partial Withdrawals," page 17
and "Federal Tax Matters," page 27 for more information about withdrawals,
including the 10 percent penalty tax that may be imposed upon full and partial
withdrawals (including systematic withdrawals) made prior to the Owner attaining
age 59 1/2.
The Contract provides for a death benefit upon the death of the Owner during
the Accumulation Period. A death benefit is not available, however, under a
Group Contract. See "Death Benefit," page 18 for more information. The Contract
provides for several Annuity Options on either a variable basis, a fixed basis,
or both. Payments under the fixed Annuity Options will be guaranteed by Security
Benefit. See "Annuity Period," page 21.
FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. In
this event, Security Benefit will refund to the Owner purchase payments
allocated to the Fixed Account plus the Contract Value in the Subaccounts plus
any charges deducted from Contract Value in the Subaccounts. Security Benefit
will refund purchase payments allocated to the Subaccounts rather than the
Contract Value in those states where it is required to do so.
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CHARGES AND DEDUCTIONS
Security Benefit does not make any deductions for sales load from purchase
payments before allocating them to the Contract Value. Certain charges will be
deducted in connection with the Contract as described below.
Contingent Deferred Sales Charge
A contingent deferred sales charge (which may also be referred to as a
withdrawal charge) may be assessed by Security Benefit on a full or partial
withdrawal, including certain systematic withdrawals, depending on the Contract
Year in which the withdrawal is made. The withdrawal charge will be waived on
withdrawals to the extent that total withdrawals, including systematic
withdrawals, that are free of charge in a Contract Year do not exceed the Free
Withdrawal amount defined as follows. The Free Withdrawal amount is equal in the
first Contract Year, to 10 percent of purchase payments made during the year
and, in any subsequent Contract Year, to 10 percent of Contract Value as of the
first day of that Contract Year. The withdrawal charge applies to the amount of
any withdrawal that exceeds the Free Withdrawal amount to the extent the amount
withdrawn is attributable to purchase payments. For the purpose of determining
any withdrawal charge, withdrawals are deemed to be made first from purchase
payments and then from earnings. The amount of the charge will depend on the
Contract Year in which the withdrawal is made according to the following
schedule:
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CONTRACT YEAR WITHDRAWAL CHARGE
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1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
</TABLE>
In no event will the amount of any withdrawal charge, when added to such
charge previously assessed against any amount withdrawn from the Contract,
exceed 6 percent of purchase payments paid under the Contract. In addition, no
withdrawal charge will be imposed upon: (1) payment of death benefit proceeds;
or (2) annuity options that provide for payments for life, or a period of at
least 5 years. Subject to insurance department approval, the withdrawal charge
also will be waived on a full or partial withdrawal if the Owner has been
diagnosed with a medically determinable condition which results in a life
expectancy of one year or less, or upon confinement to a hospital or qualified
skilled nursing facility for 90 consecutive days or more. See "Contingent
Deferred Sales Charge," page 19.
Mortality and Expense Risk Charge
Security Benefit deducts a daily charge from the assets of each Subaccount
for mortality and expense risks assumed by Security Benefit under the Contracts.
The charge is equal to an annual rate of 1.25 percent of each Subaccount's
average daily net assets (1.2 percent with respect to Contract Value applied
under Annuity Options 1 through 4, 7 and 8). See "Mortality and Expense Risk
Charge" on page 20.
Administration Charge
Security Benefit deducts a daily administration charge equal to an annual
rate of 0.15 percent of each Subaccount's average daily net assets. The
Administration Charge is not assessed against Contract Value which has been
applied under Annuity Options 1 through 4, 7 and 8. See "Administration Charge"
on page 20.
Premium Tax Charge
Security Benefit assesses a premium tax charge to reimburse itself for any
premium taxes that it incurs with respect to this Contract. This charge will
usually be deducted on annuitization or upon full withdrawal if a premium tax
was incurred by Security Benefit and is not refundable. Partial withdrawals,
including systematic withdrawals, may be subject to a premium tax charge if a
premium tax is incurred on the withdrawal by Security Benefit and is not
refundable. Security Benefit reserves the right to deduct such taxes when due or
anytime thereafter. Premium tax rates currently range from 0 percent to 3.5
percent. See "Premium Tax Charge" on page 20.
Other Expenses
The operating expenses of the Separate Account are paid by Security Benefit.
Investment advisory fees and operating expenses of the Mutual Fund are paid by
the Mutual Fund and are reflected in the net asset value of the Mutual Fund
shares. For a description of these charges and expenses, see the Prospectus for
the Mutual Fund.
CONTACTING SECURITY BENEFIT
All written requests, notices, and forms required by the Contract, and any
questions or inquiries should be directed to Security Benefit Life Insurance
Company, P.O. Box 750497, Topeka, Kansas 66675-0497 or by phone by calling (785)
431-3112 or 1-800-888-2461, extension 3112.
7
<PAGE> 13
EXPENSE TABLE
The purpose of this table is to assist investors in understanding the
various costs and expenses borne directly and indirectly by Owners of the
Contracts with Contract Value allocated to the Subaccounts. The table reflects
any contractual charges, expenses of the Separate Account, and charges and
expenses of the Mutual Fund. The table does not reflect premium taxes that may
be imposed by various jurisdictions. See "Premium Tax Charge," page 20. The
information contained in the table is not generally applicable to amounts
allocated to the Fixed Account.
For a complete description of a Contract's costs and expenses, see "Charges
and Deductions," page 19. For a more complete description of the Mutual Fund's
costs and expenses, see the SBL Fund Prospectus, which accompanies this
Prospectus.
CONTRACTUAL EXPENSES
<TABLE>
<S> <C>
Sales load on purchase payments................................................................... None
Contingent deferred sales charge (as a percentage of amount withdrawn attributable to Purchase
Payments)......................................................................................... 6%(1)
Transfer Fee (per transfer)....................................................................... None
</TABLE>
ANNUAL SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF EACH SUBACCOUNT'S AVERAGE
DAILY NET ASSETS)
<TABLE>
<S> <C>
Annual Mortality and Expense Risk Charge.......................................................... 1.25%
Annual Administration Charge...................................................................... 0.15%
--------
Total Separate Account Annual Expenses............................................................ 1.40%
</TABLE>
ANNUAL MUTUAL FUND EXPENSES (AS A PERCENTAGE OF EACH SERIES' AVERAGE DAILY NET
ASSETS)
<TABLE>
<CAPTION>
Advisory Fee Other Total Mutual
(after fee waiver)(2) Expenses(3) Fund Expenses
--------------------- ----------- -------------
<S> <C> <C> <C>
Growth (Series A).................................................. 0.75% 0.08% 0.83%
Growth-Income (Series B)........................................... 0.75% 0.09% 0.84%
Money Market (Series C)............................................ 0.50% 0.08% 0.58%
Worldwide Equity (Series D)........................................ 1.00% 0.30% 1.30%
High Grade Income (Series E)....................................... 0.75% 0.08% 0.83%
Social Awareness (Series S)........................................ 0.75% 0.09% 0.84%
Emerging Growth (Series J)......................................... 0.75% 0.09% 0.84%
Global Aggressive Bond (Series K).................................. 0.00% 0.84% 0.84%
Specialized Asset Allocation (Series M)............................ 1.00% 0.34% 1.34%
Managed Asset Allocation (Series N)................................ 1.00% 0.45% 1.45%
Equity Income (Series O)........................................... 1.00% 0.15% 1.15%
High Yield Series (Series P)....................................... 0.00% 0.28% 0.28%
Value Series (Series V)............................................ 0.00% 0.51% 0.51%
Small Cap Series (Series X)........................................ 0.00% 0.48% 0.48%
</TABLE>
1. The amount of the contingent deferred sales charge is determined by
reference to the Contract Year in which the withdrawal is made. Withdrawals
in the first Contract Year are subject to a charge of 6 percent declining to
0 percent in Contract Year 7 and later. A free withdrawal is available in
each Contract Year equal to (1) 10 percent of Purchase Payments in the first
Contract Year, and (2) 10 percent of Contract Value at the beginning of the
Contract Year in each subsequent Contract Year. See "Full and Partial
Withdrawals," page 17 and "Contingent Deferred Sales Charge," page 19 for
more information.
2. During the fiscal year ended December 31, 1996, the Investment Adviser
waived the advisory fee of Series K and Series P and, during the fiscal year
ending December 31, 1997, the Investment adviser will waive the advisory fee
of Series K, Series P, Series V and Series X; absent such waiver, the
advisory fee of each of Series K, Series P and Series V would have been .75
percent and that of Series X would have been 1.00%. There can be no
assurance that the Investment Adviser will continue to waive the Series
advisory fees after December 31,1997.
3. Other Expenses for Series V and Series X are based on estimated amounts for
the current fiscal year.
EXAMPLES
The examples presented below show expenses that a Contractowner would pay at
the end of one, three, five or ten years. The information presented applies if,
at the end of those time periods, the Contract is (1) surrendered, or (2)
annuitized or otherwise not surrendered. The examples show expenses based upon
an allocation of $1,000 to each of the Subaccounts.
8
<PAGE> 14
THE EXAMPLES BELOW SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
5 PERCENT RETURN ASSUMED IN THE EXAMPLES IS HYPOTHETICAL AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE ACTUAL RETURNS, WHICH MAY BE
GREATER OR LESSER THAN THE ASSUMED AMOUNT.
Example -- The Owner would pay the expenses shown below on a $1,000
investment, assuming 5 percent annual return on assets and surrender of the
Contract at the end of the applicable time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Subaccount.......................................... $77 $114 $146 $256
Growth-Income Subaccount................................... 77 115 147 257
Money Market Subaccount.................................... 74 107 133 231
Worldwide Equity Subaccount................................ 81 129 170 303
High Grade Income Subaccount............................... 77 114 146 256
Emerging Growth Subaccount................................. 77 115 147 257
Global Aggressive Bond Subaccount.......................... 77 115 147 257
Specialized Asset Allocation Subaccount.................... 82 130 172 307
Managed Asset Allocation Subaccount........................ 83 133 177 318
Equity Income Subaccount................................... 80 124 162 289
High Yield Subaccount...................................... 71 98 118 199
Social Awareness Subaccount................................ 77 115 147 257
Value Subaccount........................................... 73 105 130 223
Small Cap Subaccount....................................... 73 104 128 220
</TABLE>
Example-- The Owner would pay the expenses shown below on a $1,000
investment, assuming 5 percent annual return on assets and no surrenders:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Subaccount.......................................... $23 $ 70 $119 $256
Growth-Income Subaccount................................... 23 70 120 257
Money Market Subaccount.................................... 20 62 107 231
Worldwide Equity Subaccount................................ 27 84 143 303
High Grade Income Subaccount............................... 23 70 119 256
Emerging Growth Subaccount................................. 23 70 120 257
Global Aggressive Bond Subaccount.......................... 23 70 120 257
Specialized Asset Allocation Subaccount.................... 28 85 145 307
Managed Asset Allocation Subaccount........................ 29 88 150 318
Equity Income Subaccount................................... 26 79 136 289
High Yield Subaccount...................................... 17 53 91 199
Social Awareness Subaccount................................ 23 70 120 257
Value Subaccount........................................... 19 60 103 223
Small Cap Subaccount....................................... 19 59 102 220
</TABLE>
CONDENSED FINANCIAL INFORMATION
The following condensed financial information presents accumulation unit
values for the year ended December 31, 1996 and for the period April 1, 1995
(date of inception) through December 31, 1995, as well as ending accumulation
units outstanding under each Subaccount, except the High Yield, Value and Small
Company Subaccounts.
<TABLE>
Growth Subaccount 1995(1) 1996
- ----------------- ------------- -------------
<S> <C> <C>
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 13.20
End of period ................................. 13.20 15.96
Accumulation units outstanding at the end of period 289,693 1,987,463
</TABLE>
9
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C>
1995(1) 1996
------------- -------------
Growth-Income Subaccount
- ------------------------
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 12.70
End of period ................................. 12.70 14.80
Accumulation units outstanding at the end of period 248,974 1,388,519
Money Market Subaccount
- -----------------------
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 10.35
End of period ................................. 10.35 10.72
Accumulation units outstanding at the end of period 288,907 1,520,180
Worldwide Equity Subaccount
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 11.42
End of period ................................. 11.42 13.21
Accumulation units outstanding at the end of period 126,206 1,183,160
High Grade Income Subaccount
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 11.56
End of period ................................. 11.56 11.31
Accumulation units outstanding at the end of period 240,306 1,631,708
Emerging Growth Subaccount
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 11.89
End of period ................................. 11.89 13.84
Accumulation units outstanding at the end of period 133,581 772,390
Global Aggressive Bond Subaccount
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 10.67
End of period ................................. 10.67 11.96
Accumulation units outstanding at the end of period 86,477 328,077
Specialized Asset Allocation Subaccount
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 10.62
End of period ................................. 10.62 11.96
Accumulation units outstanding at the end of period 471,091 1,361,078
Managed Asset Allocation Subaccount
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 10.64
End of period ................................. 10.64 11.84
Accumulation units outstanding at the end of period 231,852 715,033
Equity Income Subaccount
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 11.61
End of period ................................. 11.61 13.73
Accumulation units outstanding at the end of period 267,317 1,764,015
Social Awareness Subaccount
- ---------------------------
Accumulation unit value:
Beginning of period ........................... $ 10.00 $ 12.56
End of period ................................. 12.56 14.69
Accumulation units outstanding at the end of period 37,149 220,549
</TABLE>
1. Global Aggressive Bond Subaccount, Specialized Asset Allocation Subaccount,
Managed Asset Allocation Subaccount and Equity Income Subaccount for the
period June 1, 1995 (inception) through December 31, 1995.
10
<PAGE> 16
INFORMATION ABOUT SECURITY BENEFIT,
THE SEPARATE ACCOUNT, AND THE
MUTUAL FUND
SECURITY BENEFIT LIFE INSURANCE COMPANY
Security Benefit is a mutual life insurance company organized under the laws
of the State of Kansas. It was organized originally as a fraternal benefit
society and commenced business February 22, 1892. It became a mutual life
insurance company under its present name on January 2, 1950.
Security Benefit offers variable life insurance policies, fixed and variable
annuity contracts, as well as financial and retirement services. It is admitted
to do business in the District of Columbia, and in all states except New York.
As of December 31, 1996, Security Benefit had total assets of approximately $5.5
billion. Together with its subsidiaries, Security Benefit has total funds under
management of over $6.6 billion.
The Principal Underwriter for the Contracts is Security Distributors, Inc.
("SDI"), 700 SW Harrison Street, Topeka, Kansas 66636-0001. SDI is registered as
a broker/dealer with the SEC and is a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company wholly owned by
Security Benefit.
PUBLISHED RATINGS
Security Benefit may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A. M. Best Company
and Standard & Poor's. The purpose of the ratings is to reflect the financial
strength and/or claims-paying ability of Security Benefit and should not be
considered as bearing on the investment performance of assets held in the
Separate Account. Each year A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of
Security Benefit as measured by Standard & Poor's Insurance Ratings Services may
be referred to in advertisements or sales literature or in reports to Owners.
These ratings are opinions of an operating insurance company's financial
capacity to meet the obligations of its insurance and annuity policies in
accordance with their terms. Such ratings do not reflect the investment
performance of the Separate Account or the degree of risk associated with an
investment in the Separate Account.
SEPARATE ACCOUNT
The Separate Account was established by Security Benefit on September 12,
1994, under procedures established under Kansas law. The income, gains, or
losses of the Separate Account, whether or not realized, are, in accordance with
the Contracts, credited to or charged against the assets of the Separate Account
without regard to other income, gains, or losses of Security Benefit. K.S.A.
40-436 provides that assets in a separate account attributable to the reserves
and other liabilities under the contracts are not chargeable with liabilities
arising from any other business that the insurance company conducts if, and to
the extent the contracts so provide, the Contract contains such a provision.
Security Benefit owns the assets in the Separate Account and is required to
maintain sufficient assets in the Separate Account to meet all Separate Account
obligations under the Contracts. Security Benefit may transfer to its General
Account assets that exceed anticipated obligations of the Separate Account. All
obligations arising under the Contracts are general corporate obligations of
Security Benefit. Security Benefit may invest its own assets in the Separate
Account for other purposes, but not to support contracts other than variable
annuity contracts, and may accumulate in the Separate Account proceeds from
Contract charges and investment results applicable to those assets.
The Separate Account is currently divided into fourteen Subaccounts. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to, or charged against, the assets of each Subaccount
without regard to the income, gains or losses in the other Subaccounts. Each
Subaccount invests exclusively in shares of a specific Series of the Mutual
Fund. Security Benefit may in the future establish additional Subaccounts of the
Separate Account, which may invest in other Series of the Mutual Fund or in
other securities, mutual funds, or investment vehicles.
The Separate Account is registered with the SEC as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"). Registration with the
SEC does not involve supervision by the SEC of the administration or investment
practices of the Separate Account or of Security Benefit.
SBL FUND
SBL Fund (the "Mutual Fund") is a diversified, open-end management
investment company of the series type. The Mutual Fund is registered with the
SEC under the 1940 Act. Such registration does not involve supervision by the
SEC of the investments or investment policy of the Mutual Fund. The Mutual Fund
currently has fourteen separate portfolios ("Series"), each of which pursues
different investment objectives and policies.
Shares of the Mutual Fund currently are offered only for purchase by
separate accounts of Security Benefit to serve as an investment medium for
variable life insurance policies
11
<PAGE> 17
and variable annuity contracts issued by Security Benefit. Thus, the Mutual Fund
serves as an investment medium for both variable life insurance policies and
variable annuity contracts. This is called "mixed funding." Shares of the Mutual
Fund also may be sold in the future to separate accounts of other insurance
companies, both affiliated and not affiliated with Security Benefit. This is
called "shared funding." Security Benefit currently does not foresee any
disadvantages to Contractowners arising from either mixed or shared funding;
however, due to differences in tax treatment or other considerations, it is
theoretically possible that the interests of owners of various contracts for
which the Mutual Fund serves as an investment medium might at some time be in
conflict. However, Security Benefit, the Mutual Fund's Board of Directors, and
any other insurance companies that participate in the Mutual Fund in the future
are required to monitor events in order to identify any material conflicts that
arise from the use of the Mutual Fund for mixed and/or shared funding. The
Mutual Fund's Board of Directors is required to determine what action, if any,
should be taken in the event of such a conflict. If such a conflict were to
occur, Security Benefit might be required to withdraw the investment of one or
more of its separate accounts from the Mutual Fund. This might force the Mutual
Fund to sell securities at disadvantageous prices.
A summary of the investment objective of each Series of the Mutual Fund is
described below. There can be no assurance that any Series will achieve its
objective. More detailed information is contained in the accompanying prospectus
of the Mutual Fund, including information on the risks associated with the
investments and investment techniques of each Series.
THE MUTUAL FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
SERIES A (GROWTH SERIES)
Amounts allocated to the Growth Subaccount are invested in Series A. The
investment objective of Series A is to seek long-term capital growth by
investing in a broadly diversified portfolio of common stocks, securities
convertible into common stocks, preferred stocks, bonds and other debt
securities.
SERIES B (GROWTH-INCOME SERIES)
Amounts allocated to the Growth-Income Subaccount are invested in Series B.
Series B seeks long-term growth of capital with secondary emphasis on income by
investing in various types of securities, including common stocks, convertible
securities, preferred stocks and debt securities. Series B's investments in debt
securities may include securities rated below investment grade. Series B may
also temporarily invest in government bonds or commercial paper.
SERIES C (MONEY MARKET SERIES)
Amounts allocated to the Money Market Subaccount are invested in Series C.
The investment objective of Series C is to provide as high a level of current
income as is consistent with preserving capital. It invests in high quality
money market instruments with maturities of not longer than thirteen months.
SERIES D (WORLDWIDE EQUITY SERIES)
Amounts allocated to the Worldwide Equity Subaccount are invested in Series
D. The investment objective of Series D is to seek long-term growth of capital
primarily through investment in common stocks and equivalents of companies
domiciled in foreign countries and the United States.
SERIES E (HIGH GRADE INCOME SERIES)
Amounts allocated to the High Grade Income Subaccount are invested in Series
E. The investment objective of Series E is to provide current income with
security of principal. Series E seeks to achieve this investment objective by
investing in a broad range of debt securities, including U.S. and foreign
corporate debt securities and securities issued by the U.S. and foreign
governments.
SERIES J (EMERGING GROWTH SERIES)
Amounts allocated to the Emerging Growth Subaccount are invested in Series
J. The investment objective of Series J is to seek capital appreciation through
investment in a broadly diversified portfolio of securities which may include
common stocks, preferred stocks, debt securities and securities convertible into
common stocks.
SERIES K (GLOBAL AGGRESSIVE BOND SERIES)
Amounts allocated to the Global Aggressive Bond Subaccount are invested in
Series K. The investment objective of Series K is to seek high current income
and, as a secondary objective, capital appreciation by investing in a
combination of foreign and domestic high-yield, lower rated debt securities
(commonly known as "junk bonds").
SERIES M (SPECIALIZED ASSET ALLOCATION SERIES)
Amounts allocated to the Specialized Asset Allocation Subaccount are
invested in Series M. The investment objective of Series M is to seek high total
return consisting of capital appreciation and current income. Series M seeks
this objective by following an asset allocation strategy that contemplates
shifts among a wide range of investment categories and market sectors, including
equity and debt securities of domestic and foreign issues.
12
<PAGE> 18
SERIES N (MANAGED ASSET ALLOCATION SERIES)
Amounts allocated to the Managed Asset Allocation Subaccount are invested in
Series N. The investment objective of Series N is to seek a high level of total
return by investing primarily in a diversified portfolio of debt and equity
securities.
SERIES O (EQUITY INCOME SERIES)
Amounts allocated to the Equity Income Subaccount are invested in Series O.
The investment objective of Series O is to seek to provide substantial dividend
income and also capital appreciation by investing primarily in dividend-paying
common stocks of established companies.
SERIES P (HIGH YIELD SERIES)
Amounts allocated to the High Yield Subaccount are invested in Series P. The
investment objective of Series P is to seek high current income. Capital
appreciation is a secondary objective. Series P seeks its objectives by
investing primarily in higher yielding, higher risk debt securities (commonly
referred to as "junk bonds").
SERIES S (SOCIAL AWARENESS SERIES)
Amounts allocated to the Social Awareness Subaccount are invested in Series
S. The investment objective of Series S is to seek capital appreciation by
investing in various types of securities which meet certain social criteria
established for the Series. Series S will invest in a diversified portfolio of
common stocks, convertible securities, preferred stocks and debt securities.
Series S may temporarily invest in government bonds or commercial paper.
SERIES V (VALUE SERIES)
Amounts allocated to the Value Subaccount are invested in Series V. The
investment objective of Series V is to seek long-term growth of capital by
investing in a diversified portfolio consisting primarily of common stocks. The
Series will invest in stocks that the Investment Adviser believes are
undervalued relative to assets, earnings, growth potential or cash flow.
SERIES X (SMALL CAP SERIES)
Amounts allocated to the Small Cap Subaccount are invested in Series X. The
investment objective of Series X is to seek long-term growth of capital by
investing primarily in domestic and foreign equity securities of small
capitalization companies (defined as companies with a market capitalization of
less than $1 billion at the time of purchase).
THE INVESTMENT ADVISER
Security Management Company, LLC (the "Investment Adviser"), located at 700
SW Harrison Street, Topeka, Kansas 66636 serves as investment adviser to each
Series of the Mutual Fund. The Investment Adviser is registered with the SEC as
an investment adviser. The Investment Adviser formulates and implements
continuing programs for the purchase and sale of securities in compliance with
the investment objectives, policies, and restrictions of each Series, and is
responsible for the day to day decisions to buy and sell securities for the
Series except Series D, K, N, O and X. With respect to Series M, the foregoing
responsibilities are divided between the Investment Adviser and a Sub-Adviser.
See the accompanying SBL Fund Prospectus for details. The Investment Adviser has
engaged Lexington Management Corporation, Park 80 West, Plaza Two, Saddle Brook,
New Jersey 07662 to provide investment advisory services to Series D and K of
the Fund and Lexington has entered into an agreement with MFR Advisors, Inc.,
One Liberty Plaza, 46th Floor, New York, New York 10006, to provide investment
advisory services to Series K of the Fund. The Investment Adviser has engaged T.
Rowe Price Associates, Inc., 100 E. Pratt St., Baltimore, Maryland 21202 to
provide investment advisory services to Series N and O, and has engaged Meridian
Investment Management Corporation, 12835 East Arapahoe Road, Tower II, 7th
Floor, Englewood, Colorado 80112, to provide investment advisory and analytic
research services to Series M. The Investment Adviser has engaged Strong Capital
Management Corporation, 900 Heritage Reserve, Menomonee, Wisconsin 53051 to
provide investment advisory services to Series X.
THE CONTRACT
GENERAL
The Contract offered by this Prospectus is a flexible purchase payment
deferred variable annuity that is issued by Security Benefit. To the extent that
all or a portion of purchase payments are allocated to the Subaccounts, the
Contract is significantly different from a fixed annuity contract in that it is
the Owner under a Contract who assumes the risk of investment gain or loss
rather than Security Benefit. Upon the maturity of a Contract, the Contract
provides several Annuity Options on a variable basis, a fixed basis or both,
under which Security Benefit will pay periodic annuity payments beginning on the
Annuity Start Date. The amount that will be available for annuity payments will
depend on the investment performance of the Subaccounts to which purchase
payments have been allocated and the amount of interest credited on Contract
Value that has been allocated to the Fixed Account.
The Group Contract offered by this Prospectus is identical to the individual
form of the Contract in all material respects except the death benefit and
annuity
13
<PAGE> 19
option provisions. The Group Contract does not provide a death benefit and makes
annuity options available to Participants only upon receipt of certain
distributions from the Qualified Plan. The annuity rates available to
Participants are guaranteed in the Group Contract. An individual annuity
contract will be issued to a Participant who elects to apply a distribution from
the Plan to purchase an annuity from Security Benefit.
The Contract is available for purchase as a non-tax qualified retirement
plan ("Non-Qualified Plan") by an individual. The Contract is also eligible for
use in connection with certain tax qualified retirement plans that meet the
requirements of Section 401, 403(b), 408, or 457 of the Internal Revenue Code
("Qualified Plan"). Certain federal tax advantages are currently available to
retirement plans that qualify as (1) self-employed individuals' retirement plans
under Section 401, such as HR-10 and Keogh plans, (2) pension or profit-sharing
plans established by an employer for the benefit of its employees under Section
401, (3) individual retirement accounts or annuities, including those
established by an employer as a simplified employee pension plan, under Section
408, (4) annuity purchase plans of public school systems and certain tax-exempt
organizations under Section 403(b) or (5) deferred compensation plans for
employees established by a unit of a state or local government or by a
tax-exempt organization under Section 457. Joint Owners are permitted only on a
Contract issued pursuant to a Non-Qualified Plan.
APPLICATION FOR A CONTRACT
Any person wishing to purchase a Contract may submit an application and an
initial purchase payment to Security Benefit, as well as any other form or
information that Security Benefit may require. Security Benefit reserves the
right to reject an application or purchase payment for any reason, subject to
Security Benefit's underwriting standards and guidelines and any applicable
state or federal law relating to nondiscrimination.
The maximum age of an Owner or Annuitant for which a Contract will be issued
is age 90 (age 75 for Contracts issued in Florida). If there are Joint Owners or
Annuitants, the maximum issue age will be determined by reference to the older
Owner or Annuitant.
PURCHASE PAYMENTS
The minimum initial purchase payment for the purchase of a Contract is
$25,000 for both Non-Qualified and Qualified Plans. Thereafter, the
Contractowner may choose the amount and frequency of purchase payments, except
that the minimum subsequent purchase payment is $500 for both Non-Qualified and
Qualified Plans. The minimum subsequent purchase payment pursuant to an
Automatic Investment Program is $50. Security Benefit may reduce the minimum
purchase payment requirement under certain circumstances. Any purchase payment
exceeding $1 million will not be accepted without prior approval of Security
Benefit.
An initial purchase payment will be applied not later than the end of the
second Valuation Date after the Valuation Date it is received by Security
Benefit at its Home Office if the purchase payment is preceded or accompanied by
an application that contains sufficient information necessary to establish an
account and properly credit such purchase payment. The application form will be
provided by Security Benefit. If Security Benefit does not receive a complete
application, the applicant will be notified by Security Benefit that it does not
have the necessary information to issue a Contract. If the necessary information
is not provided to Security Benefit within five Valuation Dates after the
Valuation Date on which Security Benefit first receives the initial purchase
payment or if Security Benefit determines it cannot otherwise issue the
Contract, Security Benefit will return the initial purchase payment to the
applicant unless the applicant consents to Security Benefit retaining the
purchase payment until the application is made complete.
Subsequent purchase payments will be credited as of the end of the Valuation
Period in which they are received by Security Benefit at its Home Office.
Purchase payments after the initial purchase payment may be made at any time
prior to the Annuity Start Date, so long as the Owner is living. Subsequent
purchase payments under a Qualified Plan may be limited by the terms of the plan
and provisions of the Internal Revenue Code. Subsequent purchase payments may be
paid under an Automatic Investment Program. The initial purchase payment
required must be paid before the Automatic Investment Program will be accepted
by Security Benefit.
ALLOCATION OF PURCHASE PAYMENTS
In an application for a Contract, the Contractowner selects the Subaccounts
or the Fixed Account to which purchase payments will be allocated. Purchase
payments will be allocated according to the Contractowner's instructions
contained in the application or more recent instructions received, if any,
except that no purchase payment allocation is permitted that would result in
less than 1 percent of any payment being allocated to any one Subaccount or the
Fixed Account. The allocations must be whole percentages and must total 100
percent. Available allocation alternatives include the fourteen Subaccounts and
the Fixed Account.
A Contractowner may change the purchase payment allocation instructions by
submitting a proper written request to Security Benefit's Home Office. A proper
change in allocation instructions will be effective upon receipt by Security
Benefit at its Home Office and will continue in effect until subsequently
changed. Changes in purchase payment allocation and changes to an existing
Dollar Cost Averaging or Asset Reallocation Option may be made by telephone
provided the Telephone Transfer Section of the
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<PAGE> 20
application or an Authorization for Telephone Requests form is properly
completed, signed, and filed at Security Benefit's Home Office. Changes in the
allocation of future purchase payments have no effect on existing Contract
Value. Such Contract Value, however, may be transferred among the Subaccounts of
the Separate Account or the Fixed Account in the manner described in "Transfers
of Contract Value" on page 16.
DOLLAR COST AVERAGING OPTION
Security Benefit currently offers an option under which Contractowners may
dollar cost average their allocations in the Subaccounts under the Contract by
authorizing Security Benefit to make periodic allocations of Contract Value from
any one Subaccount to one or more of the other Subaccounts. Dollar cost
averaging is a systematic method of investing in which securities are purchased
at regular intervals in fixed dollar amounts so that the cost of the securities
gets averaged over time and possibly over various market cycles. The option will
result in the allocation of Contract Value to one or more Subaccounts, and these
amounts will be credited at the Accumulation Unit value as of the end of the
Valuation Dates on which the transfers are effected. Since the value of
Accumulation Units will vary, the amounts allocated to a Subaccount will result
in the crediting of a greater number of units when the Accumulation Unit value
is low and a lesser number of units when the Accumulation Unit value is high.
Similarly, the amounts transferred from a Subaccount will result in a debiting
of a greater number of units when the Accumulation Unit value is low and a
lesser number of units when the Accumulation Unit value is high. Dollar cost
averaging does not guarantee profits, nor does it assure that a Contractowner
will not have losses.
A Dollar Cost Averaging Request form is available upon request. On the form,
the Contractowner must designate whether a specific dollar amount, fixed period
or earnings only are to be transferred, the Subaccount or Subaccounts from and
to which the transfers will be made, the desired frequency of the transfers,
which may be on a monthly or quarterly basis, and the length of time during
which the transfers shall continue or the total amount to be transferred over
time.
After Security Benefit has received a Dollar Cost Averaging Request in
proper form at its Home Office, Security Benefit will transfer Contract Value in
amounts designated by the Contractowner from the Subaccount from which transfers
are to be made to the Subaccount or Subaccounts chosen by the Contractowner.
Each transfer will be effected on the monthly or quarterly anniversary,
whichever corresponds to the period selected by the Contractowner, of the date
of receipt at Security Benefit's Home Office of a Dollar Cost Averaging Request
in proper form. Transfers will be made until the total amount elected has been
transferred, or until Contract Value in the Subaccount from which transfers are
made has been depleted. Amounts periodically transferred under this option are
not included in the 14 transfers per Contract Year that are allowed as discussed
under "Transfers of Contract Value," page 16.
A Contractowner may instruct Security Benefit at any time to terminate the
option by written request to Security Benefit's Home Office. In that event, the
Contract Value in the Subaccount from which transfers were being made that has
not been transferred will remain in that Subaccount unless the Contractowner
instructs otherwise. If a Contractowner wishes to continue transferring on a
dollar cost averaging basis after the expiration of the applicable period, the
total amount elected has been transferred, or the Subaccount has been depleted,
or after the Dollar Cost Averaging Option has been canceled, a new Dollar Cost
Averaging Request must be completed and sent to Security Benefit's Home Office.
Security Benefit requires that a Contractowner wait at least a month (or a
quarter if transfers were made on a quarterly basis) before reinstating Dollar
Cost Averaging after it has been terminated for any reason. Security Benefit may
discontinue, modify, or suspend the Dollar Cost Averaging Option at any time.
Contract Value also may be dollar cost averaged to or from the Fixed
Account, subject to certain restrictions described under "The Fixed Account,"
page 23.
ASSET REALLOCATION OPTION
Security Benefit currently offers an option under which Contractowners
authorize Security Benefit to automatically transfer their Contract Value each
quarter to maintain a particular percentage allocation among the Subaccounts as
selected by the Contractowner. The Contract Value allocated to each Subaccount
will grow or decline in value at different rates during the quarter, and Asset
Reallocation automatically reallocates the Contract Value in the Subaccounts
each quarter to the allocation selected by the Contractowner. Asset Reallocation
is intended to transfer Contract Value from those Subaccounts that have
increased in value to those Subaccounts that have declined in value. Over time,
this method of investing may help a Contractowner buy low and sell high. This
investment method does not guarantee profits, nor does it assure that a
Contractowner will not have losses.
To elect this option an Asset Reallocation Request in proper form must be
received by Security Benefit at its Home Office. An Asset Reallocation Request
form is available upon request. On the form, the Contractowner must indicate the
applicable Subaccounts and the percentage of Contract Value to be allocated on a
quarterly basis to each Subaccount ("Asset Reallocation Program").
Upon receipt of the Asset Reallocation Request, Security Benefit will effect
a transfer or, in the case of a new Contract, an initial allocation of Contract
Value to the allocation among the Subaccounts selected by the Contractowner.
Thereafter, transfers to maintain that allocation will occur on each quarterly
anniversary of the
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<PAGE> 21
date of Security Benefit's receipt of the Asset Reallocation Request in proper
form. The amounts transferred will be credited at the Accumulation Unit value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 14 transfers
per Contract Year that are allowed as discussed under "Transfers of Contract
Value," page 16.
A Contractowner may instruct Security Benefit at any time to terminate this
option by written request to Security Benefit's Home Office. In that event, the
Contract Value in the Subaccounts that has not been transferred will remain in
those Subaccounts regardless of the percentage allocation unless the
Contractowner instructs otherwise. If a Contractowner wishes to continue Asset
Reallocation after it has been canceled, a new Asset Reallocation Request form
must be completed and sent to Security Benefit's Home Office. Security Benefit
may discontinue, modify, or suspend, and reserves the right to charge a fee for
the Asset Reallocation Option at any time.
Contract Value allocated to the Fixed Account may be included in the Asset
Reallocation Program, subject to certain restrictions described in "Transfers
and Withdrawals from the Fixed Account," page 24.
TRANSFERS OF CONTRACT VALUE
During the Accumulation Period, Contract Value may be transferred among the
Subaccounts by the Contractowner upon proper written request to Security
Benefit's Home Office. Transfers (other than transfers pursuant to the Dollar
Cost Averaging and Asset Reallocation Options) may be made by telephone if the
Telephone Transfer section of the application or an Authorization for Telephone
Requests form has been properly completed, signed and filed at Security
Benefit's Home Office. The minimum transfer amount is $500, or the amount
remaining in a given Subaccount. The minimum transfer amount does not apply to
transfers under the Dollar Cost Averaging or Asset Reallocation Options.
Contract Value also may be transferred from the Subaccounts to the Fixed
Account; however, transfers from the Fixed Account to the Subaccounts are
restricted as described in "The Fixed Account" on page 23.
The frequency of transfers generally is not limited, although Security
Benefit reserves the right at a future date to limit the number of transfers to
14 in a Contract Year. Security Benefit also reserves the right to limit the
size and frequency of such transfers, and to discontinue telephone transfers.
CONTRACT VALUE
The Contract Value is the sum of the amounts under the Contract held in each
Subaccount of the Separate Account and Fixed Account as well as any amount set
aside in the loan account to secure loans as of any Valuation Date.
On each Valuation Date, the portion of the Contract Value allocated to any
particular Subaccount will be adjusted to reflect the investment experience of
that Subaccount. See "Determination of Contract Value," below. No minimum amount
of Contract Value is guaranteed. A Contractowner bears the entire investment
risk relating to the investment performance of Contract Value allocated to the
Subaccounts.
DETERMINATION OF CONTRACT VALUE
The Contract Value will vary to a degree that depends upon several factors,
including investment performance of the Subaccounts to which Contract Value has
been allocated, payment of purchase payments, the amount of any outstanding
Contract Debt, partial withdrawals, and the charges assessed in connection with
the Contract. The amounts allocated to the Subaccounts will be invested in
shares of the corresponding Series of the Mutual Fund. The investment
performance of the Subaccounts will reflect increases or decreases in the net
asset value per share of the corresponding Series and any dividends or
distributions declared by a Series. Any dividends or distributions from any
Series of the Mutual Fund will be automatically reinvested in shares of the same
Series, unless Security Benefit, on behalf of the Separate Account, elects
otherwise.
Assets in the Subaccounts are divided into Accumulation Units, which are
accounting units of measure used to calculate the value of a Contractowner's
interest in a Subaccount. When a Contractowner allocates purchase payments to a
Subaccount, the Contract is credited with Accumulation Units. The number of
Accumulation Units to be credited is determined by dividing the dollar amount
allocated to the particular Subaccount by the Accumulation Unit value for the
Subaccount at the end of the Valuation Period in which the purchase payment is
credited. In addition, other transactions including loans, full or partial
withdrawals, transfers, and assessment of certain charges against the Contract
affect the number of Accumulation Units credited to a Contract. The number of
units credited or debited in connection with any such transaction is determined
by dividing the dollar amount of such transaction by the unit value of the
affected Subaccount. The Accumulation Unit value of each Subaccount is
determined on each Valuation Date. The number of Accumulation Units credited to
a Contract shall not be changed by any subsequent change in the value of an
Accumulation Unit, but the dollar value of an Accumulation Unit may vary from
Valuation Date to Valuation Date depending upon the investment experience of the
Subaccount and charges against the Subaccount.
The Accumulation Unit value of each Subaccount's unit initially was $10. The
unit value of a Subaccount on any Valuation Date is calculated by dividing the
value of each Subaccount's net assets by the number of Accumulation Units
credited to the Subaccount on that date. Determination of the value of the net
assets of a Subaccount
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<PAGE> 22
takes into account the following: (1) the investment performance of the
Subaccount, which is based upon the investment performance of the corresponding
Series of the Mutual Fund, (2) any dividends or distributions paid by the
corresponding Series, (3) the charges, if any, that may be assessed by Security
Benefit for taxes attributable to the operation of the Subaccount, (4) the
mortality and expense risk charge under the Contract, and (5) the administration
charge under the Contract.
FULL AND PARTIAL WITHDRAWALS
A Contractowner may obtain proceeds from a Contract by surrendering the
Contract for its Withdrawal Value or by making a partial withdrawal. A full or
partial withdrawal, including a systematic withdrawal, may be taken from the
Contract Value at any time while the Owner is living and before the Annuity
Start Date, subject to limitations under the applicable plan for Qualified Plans
and applicable law. A full or partial withdrawal request will be effective as of
the end of the Valuation Period that a proper written request is received by
Security Benefit at its Home Office. A proper written request must include the
written consent of any effective assignee or irrevocable Beneficiary, if
applicable.
The proceeds received upon a full withdrawal will be the Contract's
Withdrawal Value. The Withdrawal Value is equal to the Contract Value as of the
end of the Valuation Period during which a proper withdrawal request is received
by Security Benefit at its Home Office, less any outstanding Contract Debt, any
applicable withdrawal charges and any uncollected premium taxes. A partial
withdrawal may be requested for a specified percentage or dollar amount of
Contract Value. Each partial withdrawal must be at least $500 except systematic
withdrawals discussed below. A request for a partial withdrawal will result in a
payment by Security Benefit of the amount specified in the partial withdrawal
request provided there is sufficient Contract Value to meet the request. Upon
payment, the Contract Value will be reduced by an amount equal to the payment
and any applicable withdrawal charge and premium tax. If a partial withdrawal is
requested after the first Contract Year that would leave the Withdrawal Value in
the Contract less than $5,000, Security Benefit reserves the right to treat the
partial withdrawal as a request for a full withdrawal.
The amount of a partial withdrawal will be allocated from the Contract Value
in the Subaccounts and the Fixed Account, according to the Contractowner's
instructions to Security Benefit. If a Contractowner does not specify the
allocation, the withdrawal will be allocated from the Contract Value in the
Subaccounts and the Fixed Account in the following order: Money Market
Subaccount, High Grade Income Subaccount, High Yield Subaccount, Global
Aggressive Bond Subaccount, Growth-Income Subaccount, Equity Income Subaccount,
Managed Asset Allocation Subaccount, Specialized Asset Allocation Subaccount,
Growth Subaccount, Value Subaccount, Worldwide Equity Subaccount, Social
Awareness Subaccount, Emerging Growth Subaccount, and Small Cap Subaccount and
then from the Fixed Account. The value of each account will be depleted before
the next account is charged.
A full or partial withdrawal, including a systematic withdrawal, may be
subject to a withdrawal charge if a withdrawal is made during the first Six
Contract Years and may be subject to a premium tax charge to reimburse Security
Benefit for any tax on premiums on a Contract that may be imposed by various
states and municipalities. See "Contingent Deferred Sales Charge," page 19, and
"Premium Tax Charge," page 20.
A full or partial withdrawal, including a systematic withdrawal, may result
in receipt of taxable income to the Owner and, if made prior to the Owner
attaining age 59 1/2, may be subject to a 10 percent penalty tax. In the case of
Contracts issued in connection with retirement plans that meet the requirements
of Section 401(a), 403(b), 408 or 457 of the Internal Revenue Code, reference
should be made to the terms of the particular Qualified Plan for any limitations
or restrictions on withdrawals. For more information, see "Restrictions on
Withdrawals from Qualified Plans" on page 26. The tax consequences of a
withdrawal under the Contract should be carefully considered. See "Federal Tax
Matters" on page 27.
SYSTEMATIC WITHDRAWALS
Security Benefit currently offers a feature under which systematic
withdrawals may be elected. Under this feature, a Contractowner may elect to
receive systematic withdrawals while the Owner is living and before the Annuity
Start Date by sending a properly completed Systematic Withdrawal Request form to
Security Benefit at its Home Office. This option may be elected at any time. A
Contractowner may designate the systematic withdrawal amount as a percentage of
Contract Value allocated to the Subaccounts and/or Fixed Account, as a fixed
period, as a specified dollar amount, as all earnings in the Contract, or based
upon the life expectancy of the Owner or the Owner and a Beneficiary. A
Contractowner also may designate the desired frequency of the systematic
withdrawals, which may be monthly, quarterly, semiannually or annually.
Systematic withdrawals may be stopped or modified upon proper written request by
the Contractowner received by Security Benefit at its Home Office at least 30
days in advance of the requested date of termination or modification. A proper
request must include the written consent of any effective assignee or
irrevocable Beneficiary, if applicable.
Each systematic withdrawal must be at least $100. Upon payment, the
Contractowner's Contract Value will be reduced by an amount equal to the payment
proceeds plus any applicable withdrawal charge and premium tax. Any systematic
withdrawal that equals or exceeds the Withdrawal Value will be treated as a full
withdrawal. In no event will payment of a systematic withdrawal exceed the
Withdrawal Value. The Contract will automatically
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<PAGE> 23
terminate if a systematic withdrawal causes the Contract's Withdrawal Value to
equal zero.
Each systematic withdrawal will be effected as of the end of the Valuation
Period during which the withdrawal is scheduled. The deduction caused by the
systematic withdrawal, including any applicable withdrawal charge, will be
allocated from the Contractowner's Contract Value in the Subaccounts and the
Fixed Account, as directed by the Contractowner. If a Contractowner does not
specify the allocation, the systematic withdrawal will be allocated from the
Contract Value in the Subaccounts and the Fixed Account in the following order:
Money Market Subaccount, High Grade Income Subaccount, High Yield Subaccount,
Global Aggressive Bond Subaccount, Growth-Income Subaccount, Equity Income
Subaccount, Managed Asset Allocation Subaccount, Specialized Asset Allocation
Subaccount, Growth Subaccount, Value Subaccount, Worldwide Equity Subaccount,
Social Awareness Subaccount, Emerging Growth Subaccount, and Small Cap
Subaccount and then from the Fixed Account. The value of each account will be
depleted before the next account is charged.
Security Benefit may, at any time, discontinue, modify, suspend or charge a
fee for systematic withdrawals. The tax consequences of a systematic withdrawal,
including the 10 percent penalty tax which may be imposed on withdrawals made
prior to the Owner attaining age 59 1/2, should be carefully considered. See
"Federal Tax Matters" on page 27.
FREE-LOOK RIGHT
An Owner may return a Contract within the Free-Look Period, which is
generally a ten-day period beginning when the Owner receives the Contract. The
returned Contract will then be deemed void and Security Benefit will refund any
purchase payments allocated to the Fixed Account plus the Contract Value in the
Subaccounts as of the end of the Valuation Period during which the returned
Contract is received by Security Benefit. Security Benefit will refund purchase
payments allocated to the Subaccounts rather than Contract Value in those states
that require it to do so.
DEATH BENEFIT
If the Owner dies during the Accumulation Period, Security Benefit will pay
the death benefit proceeds to the Designated Beneficiary upon receipt of due
proof of the Owner's death and instructions regarding payment to the Designated
Beneficiary. If there are Joint Owners, the death benefit proceeds will be
payable upon receipt of due proof of death of either Owner during the
Accumulation Period and instructions regarding payment. If the surviving spouse
of the deceased Owner is the sole Designated Beneficiary, such spouse may elect
to continue the Contract in force, subject to certain limitations. See
"Distribution Requirements" below. If the Owner is not a natural person, the
death benefit proceeds will be payable upon receipt of due proof of death of the
Annuitant during the Accumulation Period and instructions regarding payment.
Additionally, if the Owner is not a natural person, the amount of the death
benefit will be based on the age of the oldest Annuitant on the date the
Contract was issued. If the death of the Owner occurs on or after the Annuity
Start Date, no death benefit proceeds will be payable under the Contract, except
that any guaranteed payments remaining unpaid will continue to be paid to the
Annuitant pursuant to the Annuity Option in force at the date of death.
The death benefit proceeds will be the death benefit reduced by any
outstanding Contract Debt. If an Owner dies during the Accumulation Period and
the age of each Owner was 75 or younger on the date the Contract was issued, the
amount of the death benefit will be the greatest of (1) the sum of all Purchase
Payments, less any reductions caused by previous withdrawals and any uncollected
premium tax, (2) the Contract Value on the date due proof of death is received
by Security Benefit, less any uncollected premium tax, or (3) the stepped-up
death benefit. The stepped-up death benefit is: (a) the largest death benefit on
any Contract anniversary that is both an exact multiple of four and occurs prior
to the oldest Owner attaining 76, plus (b) any Purchase Payments made since the
applicable anniversary, less (c) any reductions caused by previous withdrawals
since the applicable anniversary.
If an Owner dies during the Accumulation Period and the age of any Owner was
76 or greater on the date the Contract was issued, or if due proof of death
(regardless of the age of any Owner on the date the Contract was issued) and
instructions regarding payment are not received by Security Benefit at its Home
Office within six months of the date of the Owner's death, the death benefit
will be the Contract Value on the date due proof of death is received by
Security Benefit at its Home Office, less any uncollected premium tax.
The death benefit proceeds will be paid to the Designated Beneficiary in a
single sum or under one of the Annuity Options, as elected by the Designated
Beneficiary. If the Designated Beneficiary is to receive annuity payments under
an Annuity Option, there may be limits under applicable law on the amount and
duration of payments that the Beneficiary may receive, and requirements
respecting timing of payments. A tax adviser should be consulted in considering
Annuity Options. See "Federal Tax Matters," page 27 and "Distribution
Requirements," below for a discussion of the tax consequences in the event of
death.
A death benefit is not available under a Group Contract.
DISTRIBUTION REQUIREMENTS
For Contracts issued in connection with Non-Qualified Plans, if the
surviving spouse of the deceased Owner is the sole Designated Beneficiary, such
spouse may elect to continue this Contract in force until the earliest of the
spouse's death or the Annuity Start Date or receive the death benefit proceeds.
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<PAGE> 24
For any Designated Beneficiary other than a surviving spouse, only those
options may be chosen that provide for complete distribution of such Owner's
interest in the Contract within five years of the death of the Owner. If the
Designated Beneficiary is a natural person, that person alternatively can elect
to begin receiving annuity payments within one year of the Owner's death over a
period not extending beyond his or her life or life expectancy. If the Owner of
the Contract is not a natural person, these distribution rules are applicable
upon the death of or a change in the primary Annuitant.
For Contracts issued in connection with Qualified Plans, the terms of the
particular Qualified Plan and the Internal Revenue Code should be reviewed with
respect to limitations or restrictions on distributions following the death of
the Owner or Annuitant. Because the rules applicable to Qualified Plans are
extremely complex, a competent tax adviser should be consulted.
DEATH OF THE ANNUITANT
If the Annuitant dies prior to the Annuity Start Date, and the Owner is a
natural person and is not the Annuitant, no death benefit proceeds will be
payable under the Contract. The Owner may name a new Annuitant within 30 days of
the Annuitant's death. If a new Annuitant is not named, Security Benefit will
designate the Owner as Annuitant. On the death of the Annuitant after the
Annuity Start Date, any guaranteed payments remaining unpaid will continue to be
paid to the Designated Beneficiary pursuant to the Annuity Option in force at
the date of death.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE
Security Benefit does not make any deductions for sales charges from
purchase payments paid for a Contract before allocating them to a
Contractowner's Contract Value. However, except as set forth below, a contingent
deferred sales charge (which may also be referred to as a withdrawal charge) may
be assessed by Security Benefit on a full or partial withdrawal, including
systematic withdrawals, depending upon the Contract Year in which the withdrawal
is made. The withdrawal charge will be waived on withdrawals to the extent that
total withdrawals, including systematic withdrawals, that are free of charge in
a Contract Year do not exceed the Free Withdrawal amount defined as follows. The
Free Withdrawal amount is equal in the first Contract Year, to 10 percent of
purchase payments made during the year and for any subsequent Contract Year, to
10 percent of Contract Value as of the first day of that Contract Year. The
withdrawal charge applies to the amount of any withdrawal that exceeds the Free
Withdrawal amount to the extent the amount withdrawn is attributable to purchase
payments. For the purpose of determining any withdrawal charge, withdrawals are
deemed to be made first from purchase payments and then from earnings. The
amount of the charge will depend on the Contract Year in which the withdrawal is
made according to the following schedule:
<TABLE>
<CAPTION>
CONTRACT YEAR WITHDRAWAL CHARGE
------------- -----------------
<S> <C>
1 6%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and later 0%
</TABLE>
In no event will the amount of any withdrawal charge, when added to such
charge previously assessed against any amount withdrawn from the Contract,
exceed 6 percent of purchase payments paid under the Contract. In addition, no
withdrawal charge will be imposed upon: (1) payment of death benefit proceeds;
or (2) annuity options that provide for payments for life, or a period of at
least 5 years. Subject to insurance department approval, the withdrawal charge
also will be waived on a full or partial withdrawal if the Owner has been
diagnosed with a terminal illness, or upon confinement to a hospital or
qualified skilled nursing facility for 90 consecutive days or more. See "Waiver
of Withdrawal Charge," below. The withdrawal charge will be assessed against the
Subaccounts and the Fixed Account in the same proportion as the withdrawal
proceeds are allocated.
Security Benefit pays sales commissions to broker-dealers and other expenses
associated with the promotion and sales of the Contracts. The withdrawal charge
is designed to reimburse Security Benefit for these costs, although it is
expected that actual expenses will be greater than the amount of the charge. To
the extent that all sales expenses are not recovered from the charge, such
expenses may be recovered from other charges, including amounts derived
indirectly from the charge for mortality and expense risk. Broker-dealers may
receive aggregate commissions of up to 6 percent of aggregate purchase payments
and an annual trail commission of up to 1.0 percent of Contract Value considered
in connection with the trail commission. Security Benefit also may pay override
payments, expense allowances, bonuses, wholesaler fees and training allowances.
Registered representatives earn commissions from the broker-dealers with which
they are affiliated and such arrangements will vary. In addition, registered
representatives who meet specified production levels may qualify, under sales
incentive programs adopted by Security Benefit to receive non-cash compensation
such as expense-paid trips and educational seminars and merchandise.
WAIVER OF WITHDRAWAL CHARGE
Security Benefit will waive the withdrawal charge on any full or partial
withdrawal in the event of confinement of
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<PAGE> 25
the Owner to a hospital or nursing facility or diagnosis of a terminal illness,
as discussed below.
Security Benefit will waive the withdrawal charge in the event of
confinement to a hospital or nursing facility, provided the following conditions
are met: (1) the Contractowner has been confined to a "hospital" or "qualified
skilled nursing facility" (as defined on page 5) for at least 90 consecutive
days prior to the date of the withdrawal; (2) the Contractowner is so confined
when Security Benefit receives the waiver request and became so confined after
the date the Contract was issued; and (3) the request for waiver submitted to
Security Benefit is accompanied by a properly completed claim form which may be
obtained from Security Benefit and a written physician's statement acceptable to
Security Benefit certifying that such confinement is a medical necessity and is
due to illness or infirmity.
Security Benefit will waive the surrender charge due to terminal illness
provided the following conditions are met: (1) the Contractowner has been
diagnosed by a licensed physician with a "terminal illness" (as defined on page
5); (2) such illness was first diagnosed after the Contract was issued; and (3)
a request for waiver is submitted to Security Benefit accompanied by a properly
completed claim form that may be obtained from Security Benefit and a written
statement by a licensed physician certifying that the Owner has been diagnosed
with a terminal illness and the date such diagnosis was first made.
Security Benefit reserves the right to have the Contractowner examined by a
physician of its choice and at its expense to determine if the Contractowner is
eligible for a waiver. The waivers are not available in certain states pending
department of insurance approval. If a waiver is later approved by the insurance
department of a state, Security Benefit intends to make the waiver available to
all Contractowners in that state at that time, but there can be no assurance
that the waiver will be approved. The terminal illness waiver is not available
to Contractholders residing in the State of New Jersey. Prospective
Contractowners should contact their agent concerning availability of the waivers
in their state.
MORTALITY AND EXPENSE RISK CHARGE
Security Benefit deducts a daily charge from the assets of each Subaccount
for mortality and expense risks assumed by Security Benefit under the Contracts.
The charge is equal to an annual rate of 1.25 percent of each Subaccount's
average daily net assets (1.2 percent with respect to Contract Value applied
under Annuity Options 1 through 4, 7 and 8). This amount is intended to
compensate Security Benefit for certain mortality and expense risks Security
Benefit assumes in offering and administering the Contracts and in operating the
Subaccounts.
The expense risk is the risk that Security Benefit's actual expenses in
issuing and administering the Contracts and operating the Subaccounts will be
more than the charges assessed for such expenses. The mortality risk borne by
Security Benefit is the risk that Annuitants, as a group, will live longer than
Security Benefit's actuarial tables predict. In this event, Security Benefit
guarantees that annuity payments will not be affected by a change in mortality
experience that results in the payment of greater annuity income than assumed
under the Annuity Options in the Contract. Security Benefit also assumes a
mortality risk in connection with the death benefit under the Contract.
Security Benefit may ultimately realize a profit from this charge to the
extent it is not needed to cover mortality and administrative expenses, but
Security Benefit may realize a loss to the extent the charge is not sufficient.
Security Benefit may use any profit derived from this charge for any lawful
purpose, including distribution expenses.
ADMINISTRATION CHARGE
Security Benefit deducts a daily administration charge equal to an annual
rate of .15 percent of each Subaccount's average daily net assets. The
administration charge is not assessed against Contract Value which has been
applied under Annuity Options 1 through 4, 7 and 8. The purpose of this charge
is to reimburse Security Benefit for the expenses associated with administration
of the Contracts and operation of the Subaccounts. Security Benefit does not
expect to profit from this charge.
PREMIUM TAX CHARGE
Various states and municipalities impose a tax on premiums on annuity
contracts received by insurance companies. Whether or not a premium tax is
imposed will depend upon, among other things, the Owner's state of residence,
the Annuitant's state of residence, and the insurance tax laws and Security
Benefit's status in a particular state. Security Benefit assesses a premium tax
charge to reimburse itself for premium taxes that it incurs in connection with a
Contract. This charge is currently deducted upon annuitization or upon full or
partial withdrawal if a premium tax was incurred and is not refundable. Security
Benefit reserves the right to deduct premium taxes when due or any time
thereafter. Premium tax rates currently range from 0 percent to 3.5 percent, but
are subject to change by a governmental entity.
OTHER CHARGES
Security Benefit may charge the Separate Account or the Subaccounts for the
federal, state, or local taxes incurred by Security Benefit that are
attributable to the Separate Account or the Subaccounts, or to the operations of
Security Benefit with respect to the Contracts, or that are attributable to
payment of premiums or acquisition costs under the Contracts. No such charge is
currently assessed. See "Tax Status of Security Benefit and the Separate
Account" and "Charge for Security Benefit Taxes."
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VARIATIONS IN CHARGES
Security Benefit may reduce or waive the amount of the contingent deferred
sales charge and administrative charge for a Contract where the expenses
associated with the sale of the Contract or the administrative and maintenance
costs associated with the Contract are reduced for reasons such as the amount of
the initial purchase payment or projected purchase payments or the Contract is
sold in connection with a group or sponsored arrangement.
GUARANTEE OF CERTAIN CHARGES
Security Benefit guarantees that the charge for mortality and expense risks
will not exceed an annual rate of 1.25 percent of each Subaccount's average
daily net assets and the administration charge will not exceed an annual rate of
.15 percent of each Subaccount's average daily net assets.
MUTUAL FUND EXPENSES
Each Subaccount of the Separate Account purchases shares at the net asset
value of the corresponding Series of the Mutual Fund. Each Series' net asset
value reflects the investment advisory fee and other expenses that are deducted
from the assets of the Series. These fees and expenses are not deducted from the
Subaccounts, but are paid from the assets of the corresponding Series. As a
result, the Owner indirectly bears a pro rata portion of such fees and expenses.
The advisory fees and other expenses, if any, which are more fully described in
the Mutual Fund's prospectus, are not specified or fixed under the terms of the
Contract.
ANNUITY PERIOD
GENERAL
The Contractowner of an individual Contract selects the Annuity Start Date
at the time of application. The Annuity Start Date may not be prior to the third
annual Contract anniversary and may not be deferred beyond the Annuitant's 95th
birthday, although the terms of a Qualified Plan and the laws of certain states
may require annuitization at an earlier age. If the Contractowner does not
select an Annuity Start Date, the Annuity Start Date will be the later of the
Annuitant's 70th birthday or the tenth annual Contract Anniversary. See
"Selection of an Option," page 23. If there are Joint Annuitants, the birthdate
of the older Annuitant will be used to determine the latest Annuity Start Date.
A Participant under a Qualified Plan in connection with which a Group
Contract is issued may elect to use an eligible rollover distribution (or with
respect to a Section 457 Plan, any distribution) from the Plan to purchase an
annuity contract from Security Benefit that offers the annuity options and rates
set forth in the Contract. The Participant's purchase payment and application
must be acceptable to Security Benefit under its rules and practices and the
provisions of the Contract. On the Annuity Start Date, the proceeds under the
Contract (or in the case of a Group Contract, the distribution from the Plan)
will be applied to provide an annuity under one of the options described below.
Each option is available in two forms--either as a variable annuity for use with
the Subaccounts or as a fixed annuity for use with the Fixed Account. A
combination variable and fixed annuity is also available. Variable annuity
payments will fluctuate with the investment performance of the applicable
Subaccounts while fixed annuity payments will not. Unless the Owner directs
otherwise, proceeds derived from Contract Value allocated to the Subaccounts
will be applied to purchase a variable annuity and proceeds derived from
Contract Value allocated to the Fixed Account will be applied to purchase a
fixed annuity. The proceeds under the Contract will be equal to the
Contractowner's Contract Value in the Subaccounts and the Fixed Account as of
the Annuity Start Date, reduced by any applicable premium taxes and withdrawal
charges and any outstanding Contract Debt.
The Contracts provide for eight Annuity Options. Other Annuity Options may
be available upon request at the discretion of Security Benefit. Annuity
payments under Annuity Options 1 through 4, 7 and 8 are based upon annuity rates
that vary with the Annuity Option selected. In the case of Options 1 through 4
and 8, the annuity rates will vary based on the age and sex of the Annuitant,
except that unisex rates are available where required by law. The annuity rates
are based upon an assumed interest rate of 3.5 percent, compounded annually. In
the case of Options 5 and 6 as described below, annuity rates are not used to
calculate annuity payments. If no Annuity Option has been selected, annuity
payments will be made to the Annuitant under an automatic option which shall be
an annuity payable during the lifetime of the Annuitant with payments guaranteed
to be made for 120 months under Option 2.
Annuity Options 1 through 4 and 8 provide for payments to be made during the
lifetime of the Annuitant. Annuity payments under such options cease in the
event of the Annuitant's death, unless the option provides for a guaranteed
minimum number of payments, for example a life income with guaranteed payments
of 5, 10, 15 or 20 years. The level of annuity payments will be greater for
shorter guaranteed periods and less for longer guaranteed periods. Similarly,
payments will be greater for life annuities than for joint and survivor
annuities, because payments for life annuities are expected to be made for a
shorter period. The Annuitant's age and sex (unless unisex rates apply) will
also affect the level of annuity payments as life expectancy and gender are used
to predict the period of time over which payments will be made.
Annuity payments can be made on a monthly, quarterly, semiannual, or annual
basis, although no payments will be made for less than $100. If the frequency of
payments selected would result in payments of less than $100, Security Benefit
reserves the right to change the frequency.
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An Owner may designate or change an Annuity Start Date, Annuity Option, and
Annuitant, provided proper written notice is received by Security Benefit at its
Home Office at least 30 days prior to the Annuity Start Date set forth in the
Contract. The date selected as the new Annuity Start Date must be at least 30
days after the date written notice requesting a change of Annuity Start Date is
received at Security Benefit's Home Office.
Once annuity payments have commenced under Annuity Options 1 through 4 and
8, an Annuitant or Owner cannot change the Annuity Option and cannot surrender
his or her annuity and receive a lump-sum settlement in lieu thereof. Under
Annuity Options 5 through 7, full or partial withdrawals may be made after the
Annuity Start Date, subject to any applicable withdrawal charge. The Contract
specifies annuity tables for Annuity Options 1 through 4, 7 and 8, described
below. The tables contain the guaranteed minimum dollar amount (per $1,000
applied) of the first annuity payment for a variable annuity and each annuity
payment for a fixed annuity.
ANNUITY OPTIONS
Option 1 -- Life Income
Periodic annuity payments will be made during the lifetime of the Annuitant.
It is possible under this Option for any Annuitant to receive only one annuity
payment if the Annuitant's death occurred prior to the due date of the second
annuity payment, two if death occurred prior to the third annuity payment due
date, etc. THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE ANNUITANT, REGARDLESS OF THE NUMBER OF
PAYMENTS RECEIVED.
Option 2 -- Life Income with Guaranteed Payments of 5, 10, 15 or 20 Years
Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that if, at the death of the Annuitant, payments have been made
for less than a stated period, which may be five, ten, fifteen or twenty years,
as elected, annuity payments will be continued during the remainder of such
period to the Designated Beneficiary.
Option 3 -- Life with Installment Refund Option
Periodic annuity payments will be made during the lifetime of the Annuitant
with the promise that, if at the death of the Annuitant, the number of payments
that has been made is less than the number determined by dividing the amount
applied under this Option by the amount of the first payment, annuity payments
will be continued to the Designated Beneficiary until that number of payments
has been made.
Option 4 -- Joint and Last Survivor
Periodic annuity payments will be made during the lifetime of either
Annuitant. It is possible under this Option for only one annuity payment to be
made if both Annuitants died prior to the second annuity payment due date, two
if both died prior to the third annuity payment due date, etc. AS IN THE CASE OF
OPTION 1, THERE IS NO MINIMUM NUMBER OF PAYMENTS GUARANTEED UNDER THIS OPTION.
PAYMENTS CEASE UPON THE DEATH OF THE LAST SURVIVING ANNUITANT, REGARDLESS OF THE
NUMBER OF PAYMENTS RECEIVED.
Option 5 -- Payments for Specified Period
Periodic annuity payments will be made for a fixed period, which may be from
five to twenty years, as elected, with the guarantee that, if, at the death of
all Annuitants, payments have been made for less than the selected fixed period,
the remaining unpaid payments will be paid to the Designated Beneficiary.
Option 6 -- Payments of a Specified Amount
Periodic payments of the amount elected will be made until the amount
applied and interest thereon are exhausted, with the guarantee that, if, at the
death of all Annuitants, all guaranteed payments have not yet been made, the
remaining unpaid payments will be paid to the Designated Beneficiary.
Option 7 -- Period Certain
Periodic annuity payments will be made for a stated period which may be
five, ten, fifteen or twenty years, as elected. If the Annuitant dies prior to
the end of the period, the remaining payments will be made to the Designated
Beneficiary.
Option 8 -- Joint and Contingent Survivor Option
Periodic annuity payments will be made during the life of the primary
Annuitant. Upon the death of the primary Annuitant, payments will be made to the
contingent Annuitant during his or her life. If the contingent Annuitant is not
living upon the death of the Primary Annuitant, no payments will be made to the
contingent Annuitant. It is possible under this Option for only one annuity
payment to be made if both Annuitants died prior to the second annuity payment
due date, two if both died prior to the third annuity payment due date, etc. AS
IN THE CASE OF OPTIONS 1 AND 4, THERE IS NO MINIMUM NUMBER OF PAYMENTS
GUARANTEED UNDER THIS OPTION. PAYMENTS CEASE UPON THE DEATH OF THE LAST
SURVIVING ANNUITANT REGARDLESS OF THE NUMBER OF PAYMENTS RECEIVED.
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Value of Variable Annuity Payments:
Assumed Interest Rate
The annuity tables in the Contract which are used to calculate variable
annuity payments for Annuity Options 1 through 4, 7 and 8 are based on an
"assumed interest rate" of 3 1/2 percent. If the actual investment performance
of the Subaccount selected is such that the net investment return is 3 1/2
percent per annum, payments under one of those options will remain constant. If
the net investment return exceeds 3 1/2 percent, the payments will increase and
if the return is less than 3 1/2 percent, the payments will decline. Use of a
higher assumed interest rate would mean a higher initial payment but a more
slowly rising series of subsequent payments in a rising market (or a more
rapidly falling series of subsequent payments in a declining market). A lower
assumption would have the opposite effect.
SELECTION OF AN OPTION
Contractowners should carefully review the Annuity Options with their
financial or tax advisers, and, for Contracts used in connection with a
Qualified Plan, reference should be made to the terms of the particular plan and
the requirements of the Internal Revenue Code for pertinent limitations
respecting annuity payments and other matters. For instance, Qualified Plans
generally require that annuity payments begin no later than April 1 of the
calendar year following the year in which the Annuitant reaches age 70 1/2. In
addition, under Qualified Plans, the period elected for receipt of annuity
payments under Annuity Options generally may be no longer than the joint life
expectancy of the Annuitant and Beneficiary in the year that the Annuitant
reaches age 70 1/2, and must be shorter than such joint life expectancy if the
Beneficiary is not the Annuitant's spouse and is more than ten years younger
than the Annuitant. For Non-Qualified Plans, SBL does not allow annuity payments
to be deferred beyond the Annuitant's 95th birthday.
THE FIXED ACCOUNT
Contractowners may allocate all or a portion of their purchase payments and
transfer Contract Value to the Fixed Account. Amounts allocated to the Fixed
Account become part of Security Benefit's General Account, which supports
Security Benefit's insurance and annuity obligations. The General Account is
subject to regulation and supervision by the Kansas Department of Insurance as
well as the insurance laws and regulations of other jurisdictions in which the
Contract is distributed. In reliance on certain exemptive and exclusionary
provisions, interests in the Fixed Account have not been registered as
securities under the Securities Act of 1933 (the "1933 Act") and the Fixed
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "1940 Act"). Accordingly, neither the Fixed Account nor
any interests therein are generally subject to the provisions of the 1933 Act or
the 1940 Act. Security Benefit has been advised that the staff of the SEC has
not reviewed the disclosure in this Prospectus relating to the Fixed Account.
This disclosure, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in the Prospectus. This Prospectus is generally
intended to serve as a disclosure document only for aspects of a Contract
involving the Separate Account and contains only selected information regarding
the Fixed Account. For more information regarding the Fixed Account, see "The
Contract," page 13.
Amounts allocated to the Fixed Account become part of the General Account of
Security Benefit, which consists of all assets owned by Security Benefit other
than those in the Separate Account and other separate accounts of Security
Benefit. Subject to applicable law, Security Benefit has sole discretion over
investment of the assets of its General Account.
INTEREST
Amounts allocated to the Fixed Account earn interest at a fixed rate or
rates that are paid by Security Benefit. The Contract Value in the Fixed Account
earns interest at an interest rate that is guaranteed to be at least an annual
effective rate of 3 percent which will accrue daily ("Guaranteed Rate"). Such
interest will be paid regardless of the actual investment experience of the
Fixed Account. In addition, Security Benefit may in its discretion pay interest
at a rate ("Current Rate") that exceeds the Guaranteed Rate. Security Benefit
will determine the Current Rate, if any, from time to time.
Contract Value allocated or transferred to the Fixed Account will earn
interest at the Current Rate, if any, in effect on the date such portion of
Contract Value is allocated or transferred to the Fixed Account. The Current
Rate paid on any such portion of Contract Value allocated or transferred to the
Fixed Account will be guaranteed for rolling periods of one or more years (each
a "Guarantee Period"). Security Benefit currently offers only Guarantee Periods
of one year. Upon expiration of any Guarantee Period, a new Guarantee Period of
the same duration begins with respect to that portion of Contract Value which
will earn interest at the Current Rate, if any, declared on the first day of the
new Guarantee Period.
Contract Value allocated or transferred to the Fixed Account at one point in
time may be credited with a different Current Rate than amounts allocated or
transferred to the Fixed Account at another point in time. For example, amounts
allocated to the Fixed Account in June may be credited with a different current
rate than amounts allocated to the Fixed Account in July. In addition, if
Guarantee Periods of different durations are offered, Contract Value allocated
or transferred to the Fixed Account for a Guarantee Period of one duration may
be credited with a different Current Rate than amounts allocated or transferred
to the Fixed Account for a Guarantee Period of a different
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duration. Therefore, at any time, various portions of a Contractowner's Contract
Value in the Fixed Account may be earning interest at different Current Rates
depending upon the point in time such portions were allocated or transferred to
the Fixed Account and the duration of the Guarantee Period. Security Benefit
bears the investment risk for the Contract Value allocated to the Fixed Account
and for paying interest at the Guaranteed Rate on amounts allocated to the Fixed
Account.
For purposes of determining the interest rates to be credited on Contract
Value in the Fixed Account, withdrawals, or transfers from the Fixed Account
will be deemed to be taken first from any portion of Contract Value allocated to
the Fixed Account for which the Guarantee Period expires during the calendar
month in which the withdrawal, loan, or transfer is effected, then in the order
beginning with that portion of such Contract Value which has the longest amount
of time remaining before the end of its Guarantee Period and ending with that
portion which has the least amount of time remaining before the end of its
Guarantee Period. For more information about transfers and withdrawals from the
Fixed Account, see "Transfers and Withdrawals From the Fixed Account," below.
DEATH BENEFIT
The death benefit under the Contract will be determined in the same fashion
for a Contract that has Contract Value in the Fixed Account as for a Contract
that has Contract Value allocated to the Subaccounts. See "Death Benefit" on
page 18.
CONTRACT CHARGES
Premium taxes will be the same for Contractowners who allocate purchase
payments or transfer Contract Value to the Fixed Account as for those who
allocate purchase payments to the Subaccounts. The charges for mortality and
expense risks and the administration charge will not be assessed against the
Fixed Account, and any amounts that Security Benefit pays for income taxes
allocable to the Subaccounts will not be charged against the Fixed Account. In
addition, the investment advisory fees and operating expenses paid by the Mutual
Fund will not be paid directly or indirectly by Contractowners to the extent the
Contract Value is allocated to the Fixed Account; however, such Contractowners
will not participate in the investment experience of the Subaccounts.
TRANSFERS AND WITHDRAWALS FROM THE FIXED ACCOUNT
Amounts may be transferred from the Subaccounts to the Fixed Account and
from the Fixed Account to the Subaccounts, subject to the following limitations.
Transfers from the Fixed Account are allowed only (1) from Contract Value, the
Guarantee Period of which expires during the calendar month in which the
transfer is effected, (2) pursuant to the Dollar Cost Averaging Option, provided
that such transfers are scheduled to be made over a period of not less than one
year, and (3) pursuant to the Asset Reallocation Option, provided that, upon
receipt of the Asset Reallocation Request, Contract Value is allocated among the
Fixed Account and the Subaccounts in the percentages selected by the
Contractowner without violating the restrictions on transfers from the Fixed
Account set forth in (1) above. Accordingly, a Contractowner who desires to
implement the Asset Reallocation Option should do so at a time when Contract
Value may be transferred from the Fixed Account to the Subaccounts in the
percentages selected by the Contractowner without violating the restrictions on
transfers from the Fixed Account. Once an Asset Reallocation Option is
implemented, the restrictions on transfers will not apply to transfers made
pursuant to the Option.
The minimum amount that may be transferred from the Fixed Account to the
Subaccounts is the lesser of (i) $500 or (ii) the amount of Contract Value for
which the Guarantee Period expires in the calendar month that the transfer is
effected. Transfers of Contract Value pursuant to the Dollar Cost Averaging and
Asset Reallocation Options are not currently subject to any minimums. The
Company reserves the right to limit the number of transfers permitted each
Contract Year to 14 transfers, to suspend transfers and to limit the amount that
may be subject to transfers.
If purchase payments are allocated (except purchase payments made pursuant
to an Automatic Investment Program), or Contract Value is transferred, to the
Fixed Account, any transfers from the Fixed Account in connection with the
Dollar Cost Averaging or Asset Reallocation Options will automatically terminate
as of the date of such purchase payment or transfer. A Contractowner may
reestablish Dollar Cost Averaging or Asset Reallocation by submitting a written
request to Security Benefit. However, if for any reason a Dollar Cost Averaging
option is canceled, a Contractowner may only reestablish the option after the
expiration of the next monthly or quarterly anniversary that corresponds to the
period selected by the Owner in establishing the option.
The Contractowner may also make full or partial withdrawals to the same
extent as a Contractowner who has allocated Contract Value to the Subaccounts.
However, no partial withdrawal request will be processed which would result in
the withdrawal of Contract Value from the Loan Account. See "Full and Partial
Withdrawals," on page 16 and "Systematic Withdrawals," page 17. In addition, to
the same extent as Contractowners with Contract Value in the Subaccounts, the
Owner of a Contract used in connection with a Qualified Plan may obtain a loan
if so permitted under the terms of the Qualified Plan. See "Loans," page 25.
PAYMENTS FROM THE FIXED ACCOUNT
Full and partial withdrawals, loans, and transfers from the Fixed Account
may be delayed for up to six months after
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a written request in proper form is received by Security Benefit at its Home
Office. During the period of deferral, interest at the applicable interest rate
or rates will continue to be credited to the amounts allocated to the Fixed
Account. However, payment of any amounts will not be deferred if they are to be
used to pay premiums on any policies or contracts issued by Security Benefit.
MORE ABOUT THE CONTRACT
OWNERSHIP
The Contractowner is the person named as such in the application or in any
later change shown in Security Benefit's records. While living, the
Contractowner alone has the right to receive all benefits and exercise all
rights that the Contract grants or Security Benefit allows. The Owner may be an
entity that is not a living person such as a trust or corporation referred to
herein as "Non-natural Persons." See "Federal Tax Matters," page 27.
Joint Owners. The Joint Owners will be joint tenants with rights of
survivorship and upon the death of an Owner, the surviving Owner shall be the
sole Owner. Any Contract transaction requires the signature of all persons named
jointly.
DESIGNATION AND CHANGE OF BENEFICIARY
The Designated Beneficiary is the person having the right to the death
benefit, if any, payable upon the death of the Owner or Joint Owner during the
Accumulation Period. The Designated Beneficiary is the first person on the
following list who is alive on the date of death of the Owner or the Joint
Owner: the Owner; the Joint Owner; the Primary Beneficiary; the Secondary
Beneficiary; the Annuitant; or if none of the above are alive, the Owner's
estate. The Primary Beneficiary is the individual named as such in the
application or any later change shown in Security Benefit's records. The Primary
Beneficiary will receive the death benefit of the Contract only if he or she is
alive on the date of death of both the Owner and any Joint Owner during the
Accumulation Period. Because the death benefit of the Contract goes to the first
person on the above list who is alive on the date of death of any Owner, careful
consideration should be given to the manner in which the Contract is registered,
as well as the designation of the Primary Beneficiary. The Contractowner may
change the Primary Beneficiary at any time while the Contract is in force by
written request on forms provided by Security Benefit and received by Security
Benefit at its Home Office. The change will not be binding on Security Benefit
until it is received and recorded at its Home Office. The change will be
effective as of the date this form is signed subject to any payments made or
other actions taken by Security Benefit before the change is received and
recorded. A Secondary Beneficiary may be designated. The Owner may designate a
permanent Beneficiary whose rights under the Contract cannot be changed without
his or her consent.
Reference should be made to the terms of a particular Qualified Plan and any
applicable law for any restrictions or limitations on the designation of a
Beneficiary.
PARTICIPATING
The Contract is participating and will share in the surplus earnings of
Security Benefit. However, the current dividend scale is zero and Security
Benefit does not anticipate that dividends will be paid.
PAYMENTS FROM THE SEPARATE ACCOUNT
Security Benefit will pay any full or partial withdrawal benefit or death
benefit proceeds from Contract Value allocated to the Subaccounts, and will
effect a transfer between Subaccounts or from a Subaccount to the Fixed Account
on the Valuation Date a proper request is received at Security Benefit's Home
Office. However, Security Benefit can postpone the calculation or payment of
such a payment or transfer of amounts from the Subaccounts to the extent
permitted under applicable law, which is currently permissible only for any
period: (a) during which the New York Stock Exchange is closed other than
customary weekend and holiday closings, (b) during which trading on the New York
Stock Exchange is restricted as determined by the SEC, (c) during which an
emergency, as determined by the SEC, exists as a result of which (i) disposal of
securities held by the Separate Account is not reasonably practicable, or (ii)
it is not reasonably practicable to determine the value of the assets of the
Separate Account, or (d) for such other periods as the SEC may by order permit
for the protection of investors.
PROOF OF AGE AND SURVIVAL
Security Benefit may require proof of age or survival of any person on whose
life annuity payments depend.
MISSTATEMENTS
If the age or sex of an Annuitant or age of an Owner has been misstated, the
correct amount paid or payable by Security Benefit under the Contract shall be
such as the Contract Value would have provided for the correct age or sex
(unless unisex rates apply).
LOANS
An Owner of a Contract issued in connection with a retirement plan that is
qualified under Section 403(b) of the Internal Revenue Code may borrow money
from Security Benefit using his or her Contract Value as the only security for
the loan by submitting a proper written request to Security Benefit. A loan may
be taken prior to the Annuity
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Start Date. The minimum loan that may be taken is $1,000. The maximum loan that
can be taken is generally equal to the lesser of: (1) $50,000 reduced by the
excess of: (a) the highest outstanding loan balance within the preceding
12-month period ending on the day before the date the loan is made; over (b) the
outstanding loan balance on the date the loan is made; or (2) 50 percent of the
Contract Value or $10,000, whichever is greater. The Internal Revenue Code
requires aggregation of all loans made to an individual employee under a single
employer plan. However, since Security Benefit has no information concerning
outstanding loans with other providers, we will only use information available
under annuity contracts issued by us. Reference should be made to the terms of
the particular Qualified Plan for any additional loan restrictions.
When an eligible contractowner takes a loan, Contract Value in an amount
equal to the loan amount is transferred from the Subaccounts and/or the Fixed
Account into an account called the "Loan Account" as security for the loan.
Amounts allocated to the Loan Account earn 3 percent, the minimum rate of
interest guaranteed under the Fixed Account.
Interest will be charged for the loan and will accrue on the loan balance
from the effective date of any loan. The loan interest rate will be 5.5
percent. Because the Contract Value maintained in the Loan Account will always
be equal in amount to the outstanding loan balance, the net cost of a loan is
2.5 percent.
Loans must be repaid within five years, unless Security Benefit determines
that the loan is to be used to acquire a principal residence of the Owner, in
which case the loan must be repaid within 30 years. Loan repayments must be made
at least quarterly and may be prepaid at any time. Upon receipt of a loan
payment, Security Benefit will transfer contract value from the Loan Account to
the Fixed Account and/or the Subaccounts according to the Owner's current
instructions with respect to purchase payments in an amount equal to the amount
by which the payment reduces the amount of the loan outstanding.
If any required loan payment is not made, within 30 days of the due date for
loans with a monthly repayment schedule or within 90 days of the due date for
loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN BALANCE
will be deemed to be in default, and the entire loan balance, with any accrued
interest, will be reported as income to the Internal Revenue Service ("IRS").
Once a loan has gone into default, regularly scheduled payments will not be
accepted, and no new loans will be allowed while a loan is in default. Interest
will continue to accrue on a loan in default and if such interest is not paid by
December 31 of each year, it will be added to the outstanding balance of the
loan and will be reported to the IRS. Contract Value equal to the amount of the
accrued interest will be transferred to the Loan Account. If a loan continues to
be in default, the total outstanding balance will be deducted from Contract
Value upon the Contractowner's attaining age 50 1/2. The Contract will be
automatically terminated if the outstanding loan balance on a loan in default
equals or exceeds the Withdrawal Value. The proceeds from the Contract will be
used to repay the debt and any applicable withdrawal charge. Contractowners
should consult with their tax advisers before requesting a loan.
While the amount to secure the loan is held in the Loan Account, the Owner
forgoes the investment experience of the Subaccounts and the Current Rate of
interest on the Fixed Account. Outstanding Contract Debt will reduce the amount
of proceeds paid upon full withdrawal, upon payment of the death benefit, and
upon annuitization. In addition, no partial withdrawal will be processed which
would result in the withdrawal of Contract Value from the Loan Account.
A Contractowner should consult with his or her tax adviser on the effect of
a loan.
Loans are not available in certain states pending department of insurance
approval. If loans are later approved by the insurance department of a state,
Security Benefit intends to make loans available to all Owners of 403(b)
contracts in that state at that time, but there can be no assurance that loans
will be approved. Prospective Contractowners should contact their agent
concerning availability of loans in their state.
RESTRICTIONS ON WITHDRAWALS FROM QUALIFIED PLANS
Generally, a Qualified Plan may not provide for the distribution or
withdrawal of amounts accumulated under such Qualified Plan until after a fixed
number of years, the attainment of a stated age or upon the occurrence of a
specific event such as hardship, disability, retirement, death or termination of
employment. Therefore, the Owner of a Contract purchased in connection with a
Qualified Plan may not be entitled to make a full or partial withdrawal, as
described in this Prospectus, unless one of the above-described conditions has
been satisfied. For this reason reference should be made to the terms of the
particular Qualified Plan, the Internal Revenue Code and other applicable law
for any limitation or restriction on distributions and withdrawals, including
the 10 percent penalty tax that may be imposed in the event of a distribution
from a Qualified Plan before the participant reaches age 59 1/2. See the
discussion under "Tax Penalties" on page 33.
Section 403(b) imposes restrictions on certain distributions from
tax-sheltered annuity contracts meeting the requirements of Section 403(b) that
apply to tax years beginning on or after January 1, 1989. Section 403(b)
requires that distributions from Section 403(b) tax-sheltered annuities that are
attributable to employee contributions made after December 31, 1988 under a
salary reduction agreement begin only after the employee reaches age 59 1/2,
separates from service, dies, becomes disabled, or incurs a hardship.
Furthermore, distributions of gains attributable to such contributions accrued
after December 31, 1988 may
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not be made on account of hardship. Hardship, for this purpose, is generally
defined as an immediate and heavy financial need, such as paying for medical
expenses, the purchase of a residence, or paying certain tuition expenses, that
may only be met by the distribution.
An Owner of a Contract purchased as a tax-sheltered Section 403(b) annuity
contract will not, therefore, be entitled to make a full or partial withdrawal,
as described in this Prospectus, in order to receive proceeds from the Contract
attributable to contributions under a salary reduction agreement or any gains
credited to such Contract after December 31, 1988 unless one of the
above-described conditions has been satisfied. In the case of transfers of
amounts accumulated in a different Section 403(b) contract to this Contract
under a Section 403(b) program, the withdrawal constraints described above would
not apply to the amount transferred to the Contract attributable to the Owner's
December 31, 1988 account balance under the old contract, provided the amounts
transferred between contracts qualified as a tax-free exchange under the
Internal Revenue Code. An Owner of a Contract may be able to transfer the
Contract's Full Withdrawal Value to certain other investment alternatives
meeting the requirements of Section 403(b) that are available under an
employer's Section 403(b) arrangement.
The distribution or withdrawal of amounts under a Contract purchased in
connection with a Qualified Plan may result in the receipt of taxable income to
the Owner or Annuitant and in some instances may also result in a penalty tax.
Therefore, the tax consequences of a distribution or withdrawal under a Contract
should be carefully considered and a competent tax adviser should be consulted.
See "Federal Tax Matters" below.
FEDERAL TAX MATTERS
INTRODUCTION
The Contract described in this Prospectus is designed for use by individuals
as a non-tax qualified retirement plan and for individuals and groups which are
Qualified Plans under the provisions of the Internal Revenue Code ("Code"). The
ultimate effect of federal income taxes on the amounts held under a Contract, on
annuity payments, and on the economic benefits to the Owner, the Annuitant, and
the Beneficiary or other payee will depend upon the type of retirement plan, if
any, for which the Contract is purchased, the tax and employment status of the
individuals involved and a number of other factors. The discussion contained
herein and in the Statement of Additional Information is general in nature and
is not intended to be an exhaustive discussion of all questions that might arise
in connection with a Contract. It is based upon Security Benefit's understanding
of the present federal income tax laws as currently interpreted by the Internal
Revenue Service ("IRS"), and is not intended as tax advice. No representation is
made regarding the likelihood of continuation of the present federal income tax
laws or of the current interpretations by the IRS or the courts. Future
legislation may affect annuity contracts adversely. Moreover, no attempt has
been made to consider any applicable state or other laws. Because of the
inherent complexity of the tax laws and the fact that tax results will vary
according to the particular circumstances of the individual involved and, if
applicable, the Qualified Plan, a person should consult with a qualified tax
adviser regarding the purchase of a Contract, the selection of an Annuity Option
under a Contract, the receipt of annuity payments under a Contract or any other
transaction involving a Contract. SECURITY BENEFIT DOES NOT MAKE ANY GUARANTEE
REGARDING THE TAX STATUS OF, OR TAX CONSEQUENCES ARISING FROM, ANY CONTRACT OR
ANY TRANSACTION INVOLVING THE CONTRACTS.
TAX STATUS OF SECURITY BENEFIT AND THE SEPARATE ACCOUNT
General
Security Benefit intends to be taxed as a life insurance company under Part
I, Subchapter L of the Code. Because the operations of the Separate Account form
a part of Security Benefit, Security Benefit will be responsible for any federal
income taxes that become payable with respect to the income of the Separate
Account and its Subaccounts.
Charge for Security Benefit Taxes
A charge may be made for any federal taxes incurred by Security Benefit that
are attributable to the Separate Account, the Subaccounts or to the operations
of Security Benefit with respect to the Contracts or attributable to payments,
premiums, or acquisition costs under the Contracts. Security Benefit will review
the question of a charge to the Separate Account, the Subaccounts or the
Contracts for Security Benefit's federal taxes periodically. Charges may become
necessary if, among other reasons, the tax treatment of Security Benefit or of
income and expenses under the Contracts is ultimately determined to be other
than what Security Benefit currently believes it to be, if there are changes
made in the federal income tax treatment of variable annuities at the insurance
company level, or if there is a change in Security Benefit's tax status.
Under current laws, Security Benefit may incur state and local taxes (in
addition to premium taxes) in several states. At present, these taxes are not
significant. If there is a material change in applicable state or local tax
laws, Security Benefit reserves the right to charge the Separate Account or the
Subaccounts for such taxes, if any, attributable to the Separate Account or
Subaccounts.
Diversification Standards
Each Series of the Mutual Fund will be required to adhere to regulations
adopted by the Treasury Department pursuant to Section 817(h) of the Code
prescribing asset
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diversification requirements for investment companies whose shares are sold to
insurance company separate accounts funding variable contracts. Pursuant to
these regulations, on the last day of each calendar quarter (or on any day
within 30 days thereafter), no more than 55 percent of the total assets of a
Series may be represented by any one investment, no more than 70 percent may be
represented by any two investments, no more than 80 percent may be represented
by any three investments, and no more than 90 percent may be represented by any
four investments. For purposes of Section 817(h), securities of a single issuer
generally are treated as one investment but obligations of the U.S. Treasury and
each U.S. Governmental agency or instrumentality generally are treated as
securities of separate issuers. The Separate Account, through the Series,
intends to comply with the diversification requirements of Section 817(h).
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contractowner's gross income. The IRS has stated in published rulings that a
variable contractowner will be considered the owner of separate account assets
if the contractowner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning diversification, that those regulations "do not provide guidance
concerning the circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the Contractowner),
rather than the insurance company, to be treated as the owner of the assets in
the account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets." As of the date of this Prospectus, no such guidance has been
issued.
The ownership rights under the Contract are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policyowners were not owners of separate account assets. For
example, the Contractowner has additional flexibility in allocating purchase
payments and Contract Values. These differences could result in a Contractowner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, Security Benefit does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Security Benefit therefore reserves the right to
modify the Contract, as it deems appropriate, to attempt to prevent a
Contractowner from being considered the owner of a pro rata share of the assets
of the Separate Account. Moreover, in the event that regulations or rulings are
adopted, there can be no assurance that the Series will be able to operate as
currently described in the Prospectus, or that the Mutual Fund will not have to
change any Series' investment objective or investment policies.
INCOME TAXATION OF ANNUITIES IN GENERAL--
NON-QUALIFIED PLANS
Section 72 of the Code governs the taxation of annuities. In general, a
Contractowner is not taxed on increases in value under an annuity contract until
some form of distribution is made under the contract. However, the increase in
value may be subject to tax currently under certain circumstances. See
"Contracts Owned by Non-Natural Persons" on page 29 and "Diversification
Standards" above. Withholding of federal income taxes on all distributions may
be required unless a recipient who is eligible elects not to have any amounts
withheld and properly notifies Security Benefit of that election.
1. Surrenders or Withdrawals Prior to the Annuity Start Date
Code Section 72 provides that amounts received upon a total or partial
withdrawal (including systematic withdrawals) from a Contract prior to the
Annuity Start Date generally will be treated as gross income to the extent that
the cash value of the Contract immediately before the withdrawal (determined
without regard to any surrender charge in the case of a partial withdrawal)
exceeds the "investment in the contract." The "investment in the contract" is
that portion, if any, of purchase payments paid under a Contract less any
distributions received previously under the Contract that are excluded from the
recipient's gross income. The taxable portion is taxed at ordinary income tax
rates. For purposes of this rule, a pledge or assignment of a contract is
treated as a payment received on account of a partial withdrawal of a Contract.
2. Surrenders or Withdrawals on or after the Annuity Start Date
Upon a complete surrender, the receipt is taxable to the extent that the
cash value of the Contract exceeds the investment in the Contract. The taxable
portion of such payments will be taxed at ordinary income tax rates.
For fixed annuity payments, the taxable portion of each payment generally is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected amount
of annuity payments for the term of the Contract. That ratio is then applied to
each payment to determine the non-taxable portion of the payment. The remaining
portion of each payment is taxed at ordinary income rates. For variable annuity
payments, the taxable portion of each payment is determined by using a formula
known as the "excludable amount," which establishes the non-taxable portion of
each payment. The non-taxable portion is a fixed dollar amount for each payment,
determined by dividing the investment in the Contract by the number of payments
to be
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made. The remainder of each variable annuity payment is taxable. Once the
excludable portion of annuity payments to date equals the investment in the
Contract, the balance of the annuity payments will be fully taxable.
3. Penalty Tax on Certain Surrenders and Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10 percent of the portion of such
amount which is includable in gross income. However, the penalty tax is not
applicable to withdrawals: (i) made on or after the death of the owner (or where
the owner is not an individual, the death of the "primary annuitant," who is
defined as the individual the events in whose life are of primary importance in
affecting the timing and amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the meaning of
Code Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies) of
the taxpayer and his or her beneficiary; (iv) from certain qualified plans; (v)
under a so-called qualified funding asset (as defined in Code Section 130(d));
(vi) under an immediate annuity contract; or (vii) which are purchased by an
employer on termination of certain types of qualified plans and which are held
by the employer until the employee separates from service.
If the penalty tax does not apply to a surrender or withdrawal as a result
of the application of item (iii) above, and the series of payments are
subsequently modified (other than by reason of death or disability), the tax for
the first year in which the modification occurs will be increased by an amount
(determined by the regulations) equal to the tax that would have been imposed
but for item (iii) above, plus interest for the deferral period, if the
modification takes place (a) before the close of the period which is five years
from the date of the first payment and after the taxpayer attains age 59 1/2, or
(b) before the taxpayer reaches age 59 1/2.
ADDITIONAL CONSIDERATIONS
1. Distribution-at-Death Rules
In order to be treated as an annuity contract, a contract must provide the
following two distribution rules: (a) if any owner dies on or after the Annuity
Start Date, and before the entire interest in the Contract has been distributed,
the remainder of the owner's interest will be distributed at least as quickly as
the method in effect on the owner's death; and (b) if any owner dies before the
Annuity Start Date, the entire interest in the Contract must generally be
distributed within five years after the date of death, or, if payable to a
designated beneficiary, must be annuitized over the life of that designated
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, commencing within one year after the date of death of the owner. If
the sole designated beneficiary is the spouse of the deceased owner, the
Contract (together with the deferral of tax on the accrued and future income
thereunder) may be continued in the name of the spouse as owner.
Generally, for purposes of determining when distributions must begin under
the foregoing rules, where an owner is not an individual, the primary annuitant
is considered the owner. In that case, a change in the primary annuitant will be
treated as the death of the owner. Finally, in the case of joint owners, the
distribution-at-death rules will be applied by treating the death of the first
owner as the one to be taken into account in determining generally when
distributions must commence, unless the sole Designated Beneficiary is the
deceased owner's spouse.
2. Gift of Annuity Contracts
Generally, gifts of non-tax qualified Contracts prior to the Annuity Start
Date will trigger tax on the gain on the Contract, with the donee getting a
stepped-up basis for the amount included in the donor's income. The 10 percent
penalty tax and gift tax also may be applicable. This provision does not apply
to transfers between spouses or incident to a divorce.
3. Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation)
the income on that Contract (generally the increase in net surrender value less
the purchase payments) is includable in taxable income each year. The rule does
not apply where the Contract is acquired by the estate of a decedent, where the
Contract is held by certain types of retirement plans, where the Contract is a
qualified funding asset for structured settlements, where the Contract is
purchased on behalf of an employee upon termination of a qualified plan, and in
the case of an immediate annuity. An annuity contract held by a trust or other
entity as agent for a natural person is considered held by a natural person.
4. Multiple Contract Rule
For purposes of determining the amount of any distribution under Code
Section 72(e) (amounts not received as annuities) that is includable in gross
income, all Non-Qualified annuity contracts issued by the same insurer to the
same Contractowner during any calendar year are to be aggregated and treated as
one contract. Thus, any amount received under any such contract prior to the
contract's Annuity Start Date, such as a partial surrender, dividend, or loan,
will be taxable (and possibly subject to the 10 percent penalty tax) to the
extent of the combined income in all such contracts.
In addition, the Treasury Department has broad regulatory authority in
applying this provision to prevent avoidance of the purposes of this rule. It is
possible that, under this authority, the Treasury Department may apply this rule
to amounts that are paid as annuities (on and after the Annuity Start Date)
under annuity contracts issued by the same company to the same owner during any
calendar year.
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In this case, annuity payments could be fully taxable (and possibly subject to
the 10 percent penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income because of the "exclusion ratio" under the contract.
5. Possible Tax Changes
In recent years, legislation has been proposed that would have adversely
modified the federal taxation of certain annuities. Although as of the date of
this prospectus, it does not appear that Congress is considering any legislation
regarding the taxation of annuities, there is always the possibility that the
tax treatment of annuities could change by legislation or other means (such as
IRS regulations, revenue rulings, and judicial decisions). Moreover, although
unlikely, it is also possible that any legislative change could be retroactive
(that is, effective prior to the date of such change).
6. Transfers, Assignments or Exchanges of a Contract
A transfer of ownership of a Contract, the designation of an Annuitant,
Payee or other Beneficiary who is not also the Owner, the selection of certain
Annuity Start Dates or the exchange of a Contract may result in certain tax
consequences to the Owner that are not discussed herein. An Owner contemplating
any such transfer, assignment, selection or exchange should contact a competent
tax adviser with respect to the potential effects of such a transaction.
QUALIFIED PLANS
The Contract may be used with Qualified Plans that meet the requirements of
Section 401, 403(b), 408 or 457 of the Code. The tax rules applicable to
participants in such Qualified Plans vary according to the type of plan and the
terms and conditions of the plan itself. No attempt is made herein to provide
more than general information about the use of the Contract with the various
types of Qualified Plans. These Qualified Plans may permit the purchase of the
Contracts to accumulate retirement savings under the plans. Adverse tax or other
legal consequences to the plan, to the participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits prior to transfer of the Contract. Contractowners,
Annuitants, and Beneficiaries, are cautioned that the rights of any person to
any benefits under such Qualified Plans may be subject to the terms and
conditions of the plans themselves or limited by applicable law, regardless of
the terms and conditions of the Contract issued in connection therewith. For
example, Security Benefit may accept beneficiary designations and payment
instructions under the terms of the Contract without regard to any spousal
consents that may be required under the Employee Retirement Income Security Act
of 1974 (ERISA). Consequently, a Contractowner's Beneficiary designation or
elected payment option may not be enforceable.
The amounts that may be contributed to Qualified Plans are subject to
limitations that vary depending on the type of Plan. In addition, early
distributions from most Qualified Plans may be subject to penalty taxes, or in
the case of distributions of amounts contributed under salary reduction
agreements, could cause the Plan to be disqualified. Furthermore, distributions
from most Qualified Plans are subject to certain minimum distribution rules.
Failure to comply with these rules could result in disqualification of the Plan
or subject the Owner or Annuitant to penalty taxes. As a result, the minimum
distribution rules may limit the availability of certain Annuity Options to
certain Annuitants and their beneficiaries. These requirements may not be
incorporated into Security Benefit's Contract administration procedures. Owners,
participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the
Contracts comply with applicable law.
The following are brief descriptions of the various types of Qualified Plans
and the use of the Contract therewith:
1. Section 401
Code Section 401 permits employers to establish various types of retirement
plans (e.g., pension, profit sharing and 401(k) plans) for their employees. For
this purpose, self-employed individuals (proprietors or partners operating a
trade or business) are treated as employees and therefore eligible to
participate in such plans. Retirement plans established in accordance with
Section 401 may permit the purchase of Contracts to provide benefits thereunder.
In order for a retirement plan to be "qualified" under Code Section 401, it
must: (i) meet certain minimum standards with respect to participation, coverage
and vesting; (ii) not discriminate in favor of "highly compensated" employees;
(iii) provide contributions or benefits that do not exceed certain limitations;
(iv) prohibit the use of plan assets for purposes other than the exclusive
benefit of the employees and their beneficiaries covered by the plan; (v)
provide for distributions that comply with certain minimum distribution
requirements; (vi) provide for certain spousal survivor benefits; and (vii)
comply with numerous other qualification requirements.
A retirement plan qualified under Code Section 401 may be funded by employer
contributions, employee contributions or a combination of both. Plan
participants are not subject to tax on employer contributions until such amounts
are actually distributed from the plan. Depending upon the terms of the
particular plan, employee contributions may be made on a pre-tax or after-tax
basis. In addition, plan participants are not taxed on plan earnings derived
from either employer or employee contributions until such earnings are
distributed.
Each employee's interest in a retirement plan qualified under Code Section
401 must generally be distributed or
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begin to be distributed not later than April 1 of the calendar year following
the later of the calendar year in which the employee reaches age 70 1/2 or
retires ("required beginning date"). Periodic distributions must not extend
beyond the life of the employee or the lives of the employee and a designated
beneficiary (or over a period extending beyond the life expectancy of the
employee or the joint life expectancy of the employee and a designated
beneficiary).
If an employee dies before reaching his or her required beginning date, the
employee's entire interest in the plan must generally be distributed within five
years of the employee's death. However, the five-year rule will be deemed
satisfied, if distributions begin before the close of the calendar year
following the year of the employee's death to a designated beneficiary and are
made over the life of the beneficiary (or over a period not extending beyond the
life expectancy of the beneficiary). If the designated beneficiary is the
employee's surviving spouse, distributions may be delayed until the employee
would have reached age 70 1/2.
If an employee dies after reaching his or her required beginning date, the
employee's interest in the plan must generally be distributed at least as
rapidly as under the method of distribution in effect at the time of the
employee's death.
Annuity payments distributed from a retirement plan qualified under Code
Section 401 are taxable under Section 72 of the Code. Section 72 provides that
the portion of each payment attributable to contributions that were taxable to
the employee in the year made, if any, is excluded from gross income as a return
of the employee's investment. The portion so excluded is determined by dividing
the employee's investment in the plan by (1) the number of anticipated payments
determined under a table set forth in Section 72 of the Code or (2) in the case
of a contract calling for installment payments, the number of monthly annuity
payments under such contract. The portion of each payment in excess of the
exclusion amount is taxable as ordinary income. Once the employee's investment
has been recovered, the full annuity payment will be taxable. If the employee
should die prior to recovering his entire investment, the unrecovered investment
will be allowed as a deduction on his final return. If the employee made no
contributions that were taxable when made, the full amount of each annuity
payment is taxable to him as ordinary income.
A "lump-sum" distribution from a retirement plan qualified under Code
Section 401 is eligible for favorable tax treatment. A "lump-sum" distribution
means the distribution within one taxable year of the balance to the credit of
the employee which becomes payable: (i) on account of the employee's death, (ii)
after the employee attains age 59 1/2, (iii) on account of the employee's
termination of employment (in the case of a common law employee only) or (iv)
after the employee has become disabled (in the case of a self-employed person
only).
As a general rule, a lump-sum distribution is fully taxable as ordinary
income except for an amount equal to the employee's investment, if any, which is
recovered tax-free. However, special five-year averaging may be available,
provided the employee has reached age 59 1/2 and has not previously elected to
use income averaging. Special ten-year averaging and capital-gains treatment may
be available to an employee who reached age 50 before 1986.
Distributions from a retirement plan qualified under Code Section 401 may be
eligible for a tax-free rollover to either another qualified retirement plan or
to an individual retirement account or annuity (IRA). See "Rollovers" on page
32.
2. Section 403(b)
Code Section 403(b) permits public school employees and employees of certain
types of charitable, educational and scientific organizations specified in
Section 501(c)(3) of the Code to purchase annuity contracts, and, subject to
certain limitations, to exclude the amount of purchase payments from gross
income for tax purposes. The Contract may be purchased in connection with a
Section 403(b) annuity program.
Section 403(b) annuities must generally be provided under a plan which meets
certain minimum participation, coverage, and nondiscrimination requirements.
Section 403(b) annuities are generally subject to minimum distribution
requirements similar to those applicable to retirement plans qualified under
Section 401 of the Code. See "Section 401" on page 30.
A Section 403(b) annuity contract may be purchased with employer
contributions, employee contributions or a combination of both. An employee's
rights under a Section 403(b) contract must be nonforfeitable. Numerous
limitations apply to the amount of contributions that may be made to a Section
403(b) annuity contract. The applicable limit will depend upon, among other
things, whether the annuity contract is purchased with employer or employee
contributions.
Amounts used to purchase Section 403(b) annuities generally are excludable
from the taxable income of the employee. As a result, all distributions from
such annuities are normally taxable in full as ordinary income to the employee.
A Section 403(b) annuity contract must prohibit the distribution of employee
contributions (including earnings thereon) until the employee: (i) attains age
59 1/2, (ii) terminates employment; (iii) dies; (iv) becomes disabled; or (v)
incurs a financial hardship (earnings may not be distributed in the event of
hardship).
Distributions from a Section 403(b) annuity contract may be eligible for a
tax-free rollover to either another Section 403(b) annuity contract or to an
individual retirement account or annuity (IRA). See "Rollovers" page 32.
3. Section 408
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to establish individual
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retirement programs through the purchase of Individual Retirement Annuities
("IRAs"). The Contract may be purchased as an IRA.
IRAs are subject to limitations on the amount that may be contributed, the
persons who may be eligible and on the time when distributions must commence.
Depending upon the circumstances of the individual, contributions to an IRA may
be made on a deductible or non-deductible basis. IRAs may not be transferred,
sold, assigned, discounted or pledged as collateral for a loan or other
obligation. The annual premium for an IRA may not be fixed and may not exceed
$2,000 (except in the case of a rollover contribution). Any refund of premium
must be applied to the payment of future premiums or the purchase of additional
benefits.
Sale of the Contract for use with IRAs may be subject to special
requirements imposed by the Internal Revenue Service. Purchasers of the Contract
for such purposes will be provided with such supplementary information as may be
required by the Internal Revenue Service or other appropriate agency, and will
have the right to revoke the Contract under certain circumstances. See the IRA
Disclosure Statement that accompanies this Prospectus.
In general, IRAs are subject to minimum distribution requirements similar to
those applicable to retirement plans qualified under Section 401 of the Code;
however, the required beginning date for IRAs is generally the date that the
Contractowner reaches age 70 1/2--the Contractowner's retirement date, if any,
will not affect his or her required beginning date. See "Section 401" on page
30. Distributions from IRAs are generally taxed under Code Section 72. Under
these rules, a portion of each distribution may be excludable from income. The
amount excludable from the individual's income is the amount of the distribution
which bears the same ratio as the individual's nondeductible contributions bears
to the expected return under the IRA.
Distributions from an IRA may be eligible for a tax-free rollover to another
IRA. In certain cases, a distribution from an IRA may be eligible to be rolled
over to a retirement plan qualified under Code Section 401(a) or a Section
403(b) annuity contract. See "Rollovers" below.
The Internal Revenue Service has not reviewed the Contract for qualification
as an IRA, and has not addressed in a ruling of general applicability whether a
death benefit provision such as the provision in the Contract comports with IRA
qualification requirements.
4. Section 457
Section 457 of the Code permits employees of state and local governments and
units and agencies of state and local governments as well as tax-exempt
organizations described in Section 501(c)(3) of the Code to defer a portion of
their compensation without paying current taxes if those employees are
participants in an eligible deferred compensation plan. A Section 457 plan may
permit the purchase of Contracts to provide benefits thereunder.
Although a participant under a Section 457 plan may be permitted to direct
or choose methods of investment in the case of a tax-exempt employer sponsor,
all amounts deferred under the plan, and any income thereon, remain solely the
property of the employer and subject to the claims of its general creditors,
until paid to the participant. The assets of a Section 457 plan maintained by a
state or local government employer must be held in trust (or custodial account
or an annuity contract) for the exclusive benefit of plan participants, who will
be responsible for taxes upon distribution. A Section 457 plan must not permit
the distribution of a participant's benefits until the participant attains age
70 1/2, terminates employment or incurs an "unforeseeable emergency."
Section 457 plans are generally subject to minimum distribution requirements
similar to those applicable to retirement plans qualified under Section 401 of
the Code. See "Section 401" on page 30. Since under a Section 457 plan,
contributions are generally excludable from the taxable income of the employee,
the full amount received will usually be taxable as ordinary income when annuity
payments commence or other distributions are made. Distributions from a Section
457 plan are not eligible for tax-free rollovers.
5. Rollovers
A "rollover" is the tax-free transfer of a distribution from one Qualified
Plan to another. Distributions which are rolled over are not included in the
employee's gross income until some future time.
If any portion of the balance to the credit of an employee in a Section 401
plan or Section 403(b) plan is paid to the employee in an "eligible rollover
distribution" and the employee transfers any portion of the amount received to
an "eligible retirement plan," then the amount so transferred is not includable
in income. An "eligible rollover distribution" generally means any distribution
that is not one of a series of periodic payments made for the life of the
distributee or for a specified period of at least ten years. In addition, a
required minimum distribution will not qualify as an eligible rollover
distribution. A rollover must be completed within 60 days after receipt of the
distribution.
In the case of a Section 401 plan, an "eligible retirement plan" will be
another retirement plan qualified under Code Section 401 or an individual
retirement account or annuity under Code Section 408. With respect to a Section
403(b) plan, an "eligible retirement plan" will be another Section 403(b) plan
or an individual retirement account or annuity described in Code Section 408.
A Section 401 plan and a Section 403(b) plan must generally provide a
participant receiving an eligible rollover distribution, the option to have the
distribution transferred directly to another eligible retirement plan.
The owner of an IRA may make a tax-free rollover of any portion of the IRA.
The rollover must be completed within 60 days of the distribution and generally
may only be made to another IRA. However, an individual may receive a
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distribution from his or her IRA and within 60 days roll it over into a
retirement plan qualified under Code Section 401(a) if all of the funds in the
IRA are attributable to a rollover from a Section 401(a) plan. Similarly, a
distribution from an IRA may be rolled over to a Section 403(b) plan only if all
of the funds in the IRA are attributable to a rollover from a Section 403(b)
annuity.
6. Tax Penalties
Premature Distribution Tax. Distributions from a Qualified Plan before the
participant reaches age 59 1/2 are generally subject to an additional tax equal
to 10 percent of the taxable portion of the distribution. The 10 percent penalty
tax does not apply to distributions: (i) made on or after the death of the
employee; (ii) attributable to the employee's disability; (iii) which are part
of a series of substantially equal periodic payments made (at least annually)
for the life (or life expectancy) of the employee or the joint lives (or joint
life expectancies) of the employee and a designated beneficiary and which begin
after the employee terminates employment; (iv) made to an employee after
termination of employment after reaching age 55; (v) made to pay for certain
medical expenses; (vi) that are exempt withdrawals of an excess contribution;
(vii) that is rolled over or transferred in accordance with Code requirements;
or (viii) that is transferred pursuant to a decree of divorce or separate
maintenance or written instrument incident to such a decree.
The exception to the 10 percent penalty tax described in item (iv) above is
not applicable to IRAs. However, distributions from an IRA to unemployed
individuals can be made without application of the 10 percent penalty tax to pay
health insurance premiums in certain cases. In addition, the 10 percent penalty
tax is generally not applicable to distributions from a Section 457 plan.
Minimum Distribution Tax. If the amount distributed from a Qualified Plan is
less than the minimum required distribution for the year, the participant is
subject to a 50 percent tax on the amount that was not properly distributed.
7. Withholding
Periodic distributions (e.g., annuities and installment payments) from a
Qualified Plan that will last for a period of ten or more years are generally
subject to voluntary income tax withholding. The amount withheld on such
periodic distributions is determined at the rate applicable to wages. The
recipient of a periodic distribution may generally elect not to have withholding
apply.
Nonperiodic distributions (e.g., lump sums and annuities or installment
payments of less than ten years) from a Qualified Plan (other than IRA and
Section 457 plans) are generally subject to mandatory 20 percent income tax
withholding. However, no withholding is imposed if the distribution is
transferred directly to another eligible Qualified Plan. Nonperiodic
distributions from an IRA are subject to income tax withholding at a flat 10
percent rate. The recipient of such a distribution may elect not to have
withholding apply.
The above description of the federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contract offered
by this Prospectus is only a brief summary and is not intended as tax advice.
The rules governing the provisions of Qualified Plans are extremely complex and
often difficult to comprehend. Anything less than full compliance with the
applicable rules, all of which are subject to change, may have adverse tax
consequences. A prospective Contractowner considering adoption of a Qualified
Plan and purchase of a Contract in connection therewith should first consult a
qualified and competent tax adviser, with regard to the suitability of the
Contract as an investment vehicle for the Qualified Plan.
OTHER INFORMATION
VOTING OF MUTUAL FUND SHARES
Security Benefit is the legal owner of the shares of the Mutual Fund held by
the Subaccounts of the Separate Account. Security Benefit will exercise voting
rights attributable to the shares of each Series of the Mutual Fund held in the
Subaccounts at any regular and special meetings of the shareholders of the
Mutual Fund on matters requiring shareholder voting under the 1940 Act. In
accordance with its view of presently applicable law, Security Benefit will
exercise these voting rights based on instructions received from persons having
the voting interest in corresponding Subaccounts of the Separate Account.
However, if the 1940 Act or any regulations thereunder should be amended, or if
the present interpretation thereof should change, and as a result Security
Benefit determines that it is permitted to vote the shares of the Mutual Fund in
its own right, it may elect to do so.
The person having the voting interest under a Contract is the Owner. Unless
otherwise required by applicable law, the number of shares of a particular
Series as to which voting instructions may be given to Security Benefit is
determined by dividing a Contractowner's Contract Value in a Subaccount on a
particular date by the net asset value per share of that Series as of the same
date. Fractional votes will be counted. The number of votes as to which voting
instructions may be given will be determined as of the date coincident with the
date established by the Mutual Fund for determining shareholders eligible to
vote at the meeting of the Mutual Fund. If required by the SEC, Security Benefit
reserves the right to determine in a different fashion the voting rights
attributable to the shares of the Mutual Fund. Voting instructions may be cast
in person or by proxy.
Voting rights attributable to the Contractowner's Contract Value in a
Subaccount for which no timely voting instructions are received will be voted by
Security Benefit in the same proportion as the voting instructions that are
received in a timely manner for all Contracts participating in that Subaccount.
Security Benefit will also exercise the
33
<PAGE> 39
voting rights from assets in each Subaccount that are not otherwise attributable
to Contractowners, if any, in the same proportion as the voting instructions
that are received in a timely manner for all Contracts participating in that
Subaccount and generally will exercise voting rights attributable to shares of
the Series of the Mutual Fund held in its General Account, if any, in the same
proportion as votes cast with respect to shares of the Series of the Mutual Fund
held by the Separate Account and other separate accounts of Security Benefit, in
the aggregate.
SUBSTITUTION OF INVESTMENTS
Security Benefit reserves the right, subject to compliance with the law as
then in effect, to make additions to, deletions from, substitutions for, or
combinations of the securities that are held by the Separate Account or any
Subaccount or that the Separate Account or any Subaccount may purchase. If
shares of any or all of the Series of the Mutual Fund should no longer be
available for investment, or if, in the judgment of Security Benefit management,
further investment in shares of any or all of the Series of the Mutual Fund
should become inappropriate in view of the purposes of the Contract, Security
Benefit may substitute shares of another Series of the Mutual Fund or of a
different fund for shares already purchased, or to be purchased in the future
under the Contract. Security Benefit may also purchase, through the Subaccount,
other securities for other classes or contracts, or permit a conversion between
classes of contracts on the basis of requests made by Owners.
In connection with a substitution of any shares attributable to an Owner's
interest in a Subaccount or the Separate Account, Security Benefit will, to the
extent required under applicable law, provide notice, seek Owner approval, seek
prior approval of the SEC, and comply with the filing or other procedures
established by applicable state insurance regulators.
Security Benefit also reserves the right to establish additional Subaccounts
of the Separate Account that would invest in a new Series of the Mutual Fund or
in shares of another investment company, a series thereof, or other suitable
investment vehicle. New Subaccounts may be established in the sole discretion of
Security Benefit, and any new Subaccount will be made available to existing
Owners on a basis to be determined by Security Benefit. Security Benefit may
also eliminate or combine one or more Subaccounts if, in its sole discretion,
marketing, tax, or investment conditions so warrant.
Subject to compliance with applicable law, Security Benefit may transfer
assets to the General Account. Security Benefit also reserves the right, subject
to any required regulatory approvals, to transfer assets of any Subaccount of
the Separate Account to another separate account or Subaccount.
In the event of any such substitution or change, Security Benefit may, by
appropriate endorsement, make such changes in these and other contracts as may
be necessary or appropriate to reflect such substitution or change. If deemed by
Security Benefit to be in the best interests of persons having voting rights
under the Contracts, the Separate Account may be operated as a management
investment company under the 1940 Act or any other form permitted by law; it may
be deregistered under that Act in the event such registration is no longer
required; or it may be combined with other separate accounts of Security Benefit
or an affiliate thereof. Subject to compliance with applicable law, Security
Benefit also may combine one or more Subaccounts and may establish a committee,
board, or other group to manage one or more aspects of the operation of the
Separate Account.
CHANGES TO COMPLY WITH LAW AND AMENDMENTS
Security Benefit reserves the right, without the consent of Owners, to
suspend sales of the Contract as presently offered and to make any change to the
provisions of the Contracts to comply with, or give Owners the benefit of, any
federal or state statute, rule, or regulation, including but not limited to
requirements for annuity contracts and retirement plans under the Internal
Revenue Code and regulations thereunder or any state statute or regulation.
REPORTS TO OWNERS
A statement will be sent annually to each Contractowner setting forth a
summary of the transactions that occurred during the year, and indicating the
Contract Value as of the end of each year. In addition, the statement will
indicate the allocation of Contract Value among the Fixed Account and the
Subaccounts and any other information required by law. Confirmations will also
be sent out upon purchase payments, transfers, loans, loan repayments, and full
and partial withdrawals. Certain transactions may be confirmed on a quarterly
basis. These transactions include purchases under an Automatic Investment
Program, transfers under the Dollar Cost Averaging and Asset Reallocation
Options, systematic withdrawals and annuity payments.
Each Contractowner will also receive an annual and semiannual report
containing financial statements for the Mutual Fund, which will include a list
of the portfolio securities of the Mutual Fund, as required by the 1940 Act,
and/or such other reports as may be required by federal securities laws.
TELEPHONE TRANSFER PRIVILEGES
A Contractowner may request a transfer of Contract Value and may make
changes to an existing Dollar Cost Averaging or Asset Reallocation option by
telephone if the Telephone Transfer section of the application or an
Authorization for Telephone Requests form ("Telephone Authorization") has been
completed, signed, and filed at Security Benefit's Home Office. Security Benefit
has
34
<PAGE> 40
established procedures to confirm that instructions communicated by telephone
are genuine and will not be liable for any losses due to fraudulent or
unauthorized instructions provided it complies with its procedures. Security
Benefit's procedures require that any person requesting a transfer by telephone
provide the account number and the Owner's tax identification number and such
instructions must be received on a recorded line. Security Benefit reserves the
right to deny any telephone transfer request. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), Contractowners might not be able to request transfers by
telephone and would have to submit written requests.
By authorizing telephone transfers, a Contractowner authorizes Security
Benefit to accept and act upon telephonic instructions for transfers involving
the Contractowner's Contract, and agrees that neither Security Benefit, nor any
of its affiliates, nor the Mutual Fund, will be liable for any loss, damages,
cost, or expense (including attorneys' fees) arising out of any requests
effected in accordance with the Telephone Authorization and believed by Security
Benefit to be genuine, provided that Security Benefit has complied with its
procedures. As a result of this policy on telephone requests, the Contractowner
may bear the risk of loss arising from the telephone transfer privileges.
Security Benefit may discontinue, modify, or suspend the telephone transfer
privilege at any time.
LEGAL PROCEEDINGS
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
LEGAL MATTERS
Legal matters in connection with the issue and sale of the Contracts
described in this Prospectus, Security Benefit's authority to issue the
Contracts under Kansas law, and the validity of the forms of the Contracts under
Kansas law have been passed upon by Amy J. Lee, Esq., Associate General Counsel,
Security Benefit.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account,
including the yield and effective yield of the Subaccount investing in the Money
Market Series ("Money Market Subaccount"), the yield of the remaining
Subaccounts, and the total return of all Subaccounts may appear in
advertisements, reports, and promotional literature to current or prospective
Owners.
Current yield for the Money Market Subaccount will be based on income
received by a hypothetical investment over a given 7-day period (less expenses
accrued during the period), and then "annualized" (i.e., assuming that the 7-day
yield would be received for 52 weeks, stated in terms of an annual percentage
return on the investment). "Effective yield" for the Money Market Subaccount is
calculated in a manner similar to that used to calculate yield, but reflects the
compounding effect of earnings.
For the remaining Subaccounts, quotations of yield will be based on all
investment income per Accumulation Unit earned during a given 30-day period,
less expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of an Accumulation Unit
on the last day of the period. Quotations of average annual total return for any
Subaccount will be expressed in terms of the average annual compounded rate of
return on a hypothetical investment in a Contract over a period of one, five,
and ten years (or, if less, up to the life of the Subaccount), and will reflect
the deduction of the administrative charge, mortality and expense risk charge
and contingent deferred sales charge and may simultaneously be shown for other
periods.
Quotations of yield and effective yield do not reflect deduction of the
contingent deferred sales charge, and total return figures may be quoted that do
not reflect deduction of the charge. If reflected, the performance figures
quoted would be lower. Such performance information will be accompanied by total
return figures that reflect deduction of the contingent deferred sales charge
that would be imposed if Contract Value were withdrawn at the end of the period
for which total return is quoted.
Although the Contracts were not available for purchase until July 1, 1997,
the underlying investment vehicle of the Separate Account, SBL Fund, has been in
existence since May 26, 1977. Performance information for the Subaccounts may
also include quotations of total return for periods beginning prior to the
availability of the Contracts that incorporate the performance of SBL Fund.
Performance information for a Subaccount may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donaghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices measuring
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security: (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; and (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract.
Unmanaged indices may assume the reinvestment
35
<PAGE> 41
of dividends but generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Subaccount reflects only the performance of
a hypothetical Contract under which Contract Value is allocated to a Subaccount
during a particular time period on which the calculations are based. Performance
information should be considered in light of the investment objectives and
policies, characteristics, and quality of the Series in which the Subaccount
invests, and the market conditions during the given time period, and should not
be considered as a representation of what may be achieved in the future. For a
description of the methods used to determine yield and total return for the
Subaccounts, see the Statement of Additional Information.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts or other investment products tracked by Lipper
Analytical Services or by other rating services, companies, publications, or
other persons who rank separate accounts or other investment products on overall
performance or other criteria, (ii) the effect of tax-deferred compounding on a
Subaccount's investment returns, or returns in general, which may be illustrated
by graphs, charts, or otherwise, and which may include a comparison, at various
points in time, of the return from an investment in a Contract (or returns in
general) on a tax-deferred basis (assuming one or more tax rates) with the
return on a taxable basis, and (iii) Security Benefit's rating or a rating of
Security Benefit's claim-paying ability as determined by firms that analyze and
rate insurance companies and by nationally recognized statistical rating
organizations.
ADDITIONAL INFORMATION
REGISTRATION STATEMENT
A Registration Statement under the 1933 Act has been filed with the SEC
relating to the offering described in this Prospectus. This Prospectus does not
include all the information included in the Registration Statement, certain
portions of which, including the Statement of Additional Information, have been
omitted pursuant to the rules and regulations of the SEC. The omitted
information may be obtained at the SEC's principal office in Washington, DC,
upon payment of the SEC's prescribed fees.
FINANCIAL STATEMENTS
Financial statements of Security Benefit Life Insurance Company at
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, and the financial statements of the Separate Account for the
year ended December 31, 1996, and the period from April 1, 1995 to December 31,
1995 are contained in the Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information contains more specific information
and financial statements relating to Security Benefit. The Table of Contents of
the Statement of Additional Information is set forth below:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL INFORMATION AND HISTORY .......................................... 1
DISTRIBUTION OF THE CONTRACT ............................................. 1
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS .... 1
EXPERTS .................................................................. 3
PERFORMANCE INFORMATION .................................................. 3
FINANCIAL STATEMENTS ..................................................... 6
</TABLE>
<PAGE> 42
VARIFLEX SIGNATURE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
DATE: OCTOBER 15, 1997
INDIVIDUAL AND GROUP FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE
ANNUITY CONTRACT
ISSUED BY
SECURITY BENEFIT LIFE INSURANCE COMPANY
700 SW HARRISON STREET
TOPEKA, KANSAS 66636-0001
1-800-888-2461
MAILING ADDRESS:
SECURITY BENEFIT LIFE INSURANCE COMPANY
P.O. BOX 750497
TOPEKA, KANSAS 66675-0497
1-800-888-2461
This Statement of Additional Information is not a prospectus and should
be read in conjunction with the current Prospectus for the Variflex Signature
Variable Annuity dated October 15, 1997, as it may be supplemented from time to
time. A copy of the Prospectus may be obtained from Security Benefit by calling
1-800-888-2461 or by writing P.O. Box 750497, Topeka, Kansas 66675-0497.
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
GENERAL INFORMATION AND HISTORY................................................... 1
DISTRIBUTION OF THE CONTRACT...................................................... 1
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED RETIREMENT PLANS............. 1
EXPERTS........................................................................... 3
PERFORMANCE INFORMATION........................................................... 3
FINANCIAL STATEMENTS.............................................................. 6
</TABLE>
i
<PAGE> 44
GENERAL INFORMATION AND HISTORY
For a description of the Flexible Purchase Payment Deferred Variable
Annuity Contract (the "Contract"), Security Benefit Life Insurance Company
("Security Benefit"), and the Variable Annuity Account VIII (the "Separate
Account"), see the Prospectus. This Statement of Additional Information contains
information that supplements the information in the Prospectus. Defined terms
used in this Statement of Additional Information have the same meaning as terms
defined in the section entitled "Definitions" in the Prospectus.
SAFEKEEPING OF ASSETS
Security Benefit is responsible for the safekeeping of the assets of
the Subaccounts. These assets, which consist of shares of the Series of the
Mutual Fund in non-certificated form, are held separate and apart from the
assets of the Security Benefit's General Account and its other separate
accounts.
DISTRIBUTION OF THE CONTRACT
Security Distributors, Inc. ("SDI") is Principal Underwriter of the
Contract. SDI is registered as a broker/dealer with the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934 and is a member of
the National Association of Securities Dealers, Inc. ("NASD"). The offering of
the Contracts is continuous.
Subject to arrangements with Security Benefit, the Contract is sold by
independent broker/dealers who are members of the NASD and who become licensed
to sell variable annuities for SBL, and by certain financial institutions. SDI
acts as principal underwriter on behalf of Security Benefit for the distribution
of the Contract. SDI is not compensated under its Distribution Agreement with
Security Benefit.
The compensation payable by SDI under these arrangements may vary, but
is not expected to exceed in the aggregate 6% of purchase payments and 1% of
contract value on an annualized basis.
LIMITS ON PURCHASE PAYMENTS PAID UNDER TAX-QUALIFIED
RETIREMENT PLANS
SECTION 401
The applicable annual limits on purchase payments for a Contract used
in connection with a retirement plan that is qualified under Section 401 of the
Internal Revenue Code depend upon the type of plan. Total purchase payments on
behalf of a participant to all defined contribution plans maintained by an
employer are limited under Section 415(c) of the Internal Revenue Code to the
lesser of (a) $30,000, or (b) 25% of the participant's annual compensation.
Salary reduction contributions to a cash-or-deferred arrangement under a profit
sharing plan are subject to additional annual limits. Contributions to a defined
benefit pension plan are actuarially determined based upon the amount of
benefits the participants will receive under the plan formula. The maximum
annual benefit any individual may receive under an employer's defined benefit
plan is limited under Section 415(b) of the Internal Revenue Code. The limits
determined under Section 415(b) and (c) of the Internal Revenue Code are further
reduced for an individual who participates in a defined contribution plan and a
defined benefit plan maintained by the same employer. Rollover contributions are
not subject to the annual limitations described above.
SECTION 403(B)
Contributions to 403(b) annuities are excludable from an employee's
gross income if they do not exceed the smallest of the limits calculated under
Sections 402(g), 403(b)(2), and 415 of the Code. The applicable limit will
depend upon whether the annuities are purchased with employer or employee
contributions. Rollover contributions are not subject to these annual limits.
1
<PAGE> 45
Section 402(g) generally limits an employee's salary reduction
contributions to a 403(b) annuity to $9,500 a year. The $9,500 limit will be
reduced by salary reduction contributions to other types of retirement plans. An
employee with at least 15 years of service for a "qualified employer" (i.e., an
educational organization, hospital, home health service agency, health and
welfare service agency, church or convention or association of churches)
generally may exceed the $9,500 limit by $3,000 per year, subject to an
aggregate limit of $15,000 for all years.
Section 403(b)(2) provides an overall limit on employer and employee
salary reduction contributions that may be made to a 403(b) annuity. Section
403(b)(2) generally provides that the maximum amount of contributions an
employee may exclude from his or her gross income in any taxable year is equal
to the excess, if any, of:
(i) the amount determined by multiplying 20% of the employee's
includable compensation by the number of his or her years of
service with the employer, over
(ii) the total amount contributed to retirement plans sponsored by
the employer, that were excludable from his or her gross income
in prior years.
Section 415(c) also provides an overall limit on the amount of employer
and employee salary reduction contributions to a Section 403(b) annuity that
will be excludable from an employee's gross income in a given year. The Section
415(c) limit is the lesser of (i) $30,000, or (ii) 25% of the employee's annual
compensation.
SECTION 408
Premiums (other than rollover contributions) paid under a Contract used
in connection with an individual retirement annuity (IRA) that is described in
Section 408 of the Internal Revenue Code are subject to the limits on
contributions to IRA's under Section 219(b) of the Internal Revenue Code. Under
Section 219(b) of the Code, contributions (other than rollover contributions) to
an IRA are limited to the lesser of $2,000 per year or the Owner's annual
compensation. Spousal IRAs allow an owner and his or her spouse to contribute up
to $2,000 to their respective IRAs so long as joint tax return is filed and
joint income is $4,000 or more. The maximum amount the higher compensated spouse
may contribute for the year is the lesser of $2,000 or 100% of that spouse's
compensation. The maximum the lower compensated spouse may contribute is the
lesser of (i) $2,000 or (ii) 100% of that spouse's compensation plus the amount
by which the higher compensated spouse's compensation exceeds the amount the
higher compensated spouse contributes to his or her IRA. The extent to which an
Owner may deduct contributions to an IRA depends on the gross income of the
Owner and his or her spouse for the year and whether either participate in an
employer-sponsored retirement plan.
Premiums under a Contract used in connection with a simplified employee
pension plan described in Section 408 of the Internal Revenue Code are subject
to limits under Section 402(h) of the Internal Revenue Code. Section 402(h)
currently limits employer contributions and salary reduction contributions (if
permitted) under a simplified employee pension plan to the lesser of (a) 15% of
the compensation of the participant in the Plan, or (b) $30,000. Salary
reduction contributions, if any, are subject to additional annual limits.
SECTION 457
Contributions on behalf of an employee to a Section 457 plan generally
are limited to the lesser of (i) $7,500 or (ii) 33 1/3% of the employee's
includable compensation. The current $7,500 limit will be indexed for inflation
(in $500 increments) for tax years beginning after December 31, 1996. If the
employee participates in more than one Section 457 plan, the $7,500 limit
applies to contributions to all such programs. The $7,500 limit is reduced by
the amount of any salary reduction contribution the employee makes to a 403(b)
annuity, an IRA or a retirement plan qualified under Section 401. The Section
457 limit may be increased during the last three years ending before the
employee reaches his or her normal retirement age. In each of these last three
years, the plan may permit a "catch-up" amount in addition to the regular amount
to be deferred. The maximum combined amount which may be deferred in each of
these three years is $15,000 reduced by any amount excluded from the employee's
income for the taxable year as a contribution to another plan.
2
<PAGE> 46
EXPERTS
The consolidated financial statements for Security Benefit at December
31, 1996, and 1995 and for each of the three years in the period ended December
31, 1996, and for the Separate Account for the year ended December 31, 1996, and
the period from April 1, 1995 to December 31, 1995, appearing in this Statement
of Additional Information have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing on page 6 herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
PERFORMANCE INFORMATION
Performance information for the Subaccounts of the Separate Account,
including the yield and total return of all Subaccounts, may appear in
advertisements, reports, and promotional literature provided to current or
prospective Owners.
Quotations of yield for the Money Market Subaccount will be based on
the change in the value, exclusive of capital changes, of a hypothetical
investment in a Contract over a particular seven day period, less a hypothetical
charge reflecting deductions from the Contract during the period (the "base
period") and stated as a percentage of the investment at the start of the base
period (the "base period return"). The base period return is then annualized by
multiplying by 365/7, with the resulting yield figure carried to at least the
nearest one hundredth of one percent. Any quotations of effective yield for the
Money Market Subaccount assume that all dividends received during an annual
period have been reinvested. Calculation of "effective yield" begins with the
same "base period return" used in the yield calculation, which is then
annualized to reflect weekly compounding pursuant to the following formula:
365/7
-----
Effective Yield = [(Base Period Return + 1) ] - 1
For the seven-day period ended December 31, 1996, the yield for the
Money Market Series was 5.90% and the effective yield was 6.08%.
Quotations of yield for the Subaccounts, other than the Money Market
Subaccount, will be based on all investment income per Accumulation Unit earned
during a particular 30-day period, less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income by
the value of the Accumulation Unit on the last day of the period, according to
the following formula:
6
YIELD = 2[(a-b + 1) - 1]
---
cd
where a = net investment income earned during the period by the
Series attributable to shares owned by the Subaccount,
b = expenses accrued for the period (net of any
reimbursements),
c = the average daily number of Accumulation Units
outstanding during the period that were entitled to
receive dividends, and
d = the maximum offering price per Accumulation Unit on the
last day of the period.
Quotations of average annual total return for any Subaccount will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in a Contract over a period of one, five and ten years
(or, if less, up to the life of the underlying Series of the Mutual Fund),
calculated pursuant to the following formula: P(1 + T)n = ERV (where P = a
hypothetical initial payment of $1,000, T = the average annual total return, n =
the number of years, and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). Quotations of total return
may simultaneously be shown for other periods and will include total return for
periods beginning prior to availability of the Contract. Such total return
figures are based upon the performance of the respective Series of the Mutual
Fund, adjusted to reflect the charges imposed under the Contract.
3
<PAGE> 47
Average annual total return figures reflect the deduction of the
mortality and expense risk and administration charges and the contingent
deferred sales charge. Total return figures may be quoted that do not reflect
deduction of the contingent deferred sales charge. Such charges if reflected
would lower the level of return quoted. Total return figures that do not reflect
deduction of the contingent deferred sales charge will be accompanied by total
return figures that reflect such charge. The performance figures herein for the
Global Aggressive Bond Subaccount and the High Yield Subaccount reflect the
reimbursement of certain expenses by the Investment Adviser. In the absence of
such reimbursement, the performance figures would be reduced.
For the 1-, 5- and 10-year periods ended December 31, 1996,
respectively, the average annual total return was 15.51%, 13.70% and 13.37% for
the Growth Subaccount; 11.14%, 9.6% and 12.18% for the Growth-Income Subaccount;
10.45%, 9.34% and 1.57% for the Worldwide Equity Subaccount; and -7.56%, 3.75%
and 5.84% for the High Grade Income Subaccount. For the 1- and 5-year periods
ended December 31, 1996, and the period between May 1, 1991 (Series date of
inception) and December 31, 1996, respectively, the average annual total return
was 11.72%, 11.60% and 11.49% for the Social Awareness Subaccount. For the
1-year period ended December 31, 1996, and the period between October 1, 1992
(Series date of inception) and December 31, 1996, respectively, the average
annual total return was 11.00% and 14.02% for the Emerging Growth Subaccount.
For the 1-year period ended December 31, 1996, and the period between June 1,
1995 (Series date of inception) and December 31, 1996, respectively, the average
annual total return was 6.69% and 8.49% for the Global Aggressive Bond
Subaccount; 7.22% and 8.51% for the Specialized Asset Allocation Subaccount;
5.88% and 7.78% for the Managed Asset Allocation Subaccount; and 12.95% and
18.58% for the Equity Income Subaccount. For the period between August 5, 1996
(Series date of inception) and December 31, 1996, the average annual total
return on an annualized basis is 1.51% for the High Yield Subaccount.
Performance information is not yet available for the Value and Small Cap
Subaccounts as they did not begin operations until May 1997 and October 1997,
respectively.
Absent deduction of the contingent deferred sales charge, the average
annual total return for the stated periods above would be 20.91%, 14.22% and
13.37% for the Growth Subaccount; 16.54%, 10.12% and 12.18% for the
Growth-Income Subaccount; 15.85%, 9.85% and 1.57% for the Worldwide Equity
Subaccount; and -2.16%, 4.33% and 5.84% for the High Grade Income Subaccount.
For the 1- and 5-year periods ended December 31, 1996, and the period between
May 1, 1991 (Series date of inception) and December 31, 1996, respectively, the
average annual total return would be 17.12%, 12.13% and 11.49% for the Social
Awareness Subaccount. For the 1-year period ended December 31, 1996 and the
period between October 1, 1992 (Series date of inception) and December 31, 1996,
respectively, the average annual total return would be 16.4% and 14.65% for the
Emerging Growth Subaccount. For the 1-year period ended December 31, 1996 and
the period between June 1, 1995 (Series date of inception) and December 31,
1996, respectively, the average annual total return would be 12.09% and 11.91%
for the Global Aggressive Bond Subaccount; 12.62% and 11.91% for the Specialized
Asset Allocation Subaccount; 11.28% and 11.21% for the Managed Asset Allocation
Subaccount; and 18.35% and 22.12% for the Equity Income Subaccount. For the
period between August 5, 1996 (Series date of inception) and December 31, 1996,
the average annual total return on an annualized basis is 15.68% for the High
Yield Subaccount. The total return figures set forth above would be lower if the
contingent deferred sales charge was deducted.
Quotations of total return for any Subaccount of the Separate Account
will be based on a hypothetical investment in an Account over a certain period
and will be computed by subtracting the initial value of the investment from the
ending value and dividing the remainder by the initial value of the investment.
Such quotations of total return will reflect the deduction of all applicable
charges to the contract and the separate account (on an annual basis) except the
applicable contingent deferred sales charge. The total return figures set forth
below would be lower if the contingent deferred sales charge was deducted.
4
<PAGE> 48
For the fiscal years ended 1996 through 1986, the total return for each
Subaccount was the following:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Growth Subaccount 20.96% 34.91% (3.02%) 12.12% 9.61%
Growth-Income Subaccount 16.59% 28.26% (4.33%) 8.08% 4.78%
Money Market Subaccount 3.59% 3.90% 2.28% 1.15% 1.80%
Worldwide Equity Subaccount 15.81% 9.34% 1.31% 29.80% (3.98%)
High Grade Income (2.11%) 16.92% (8.23%) 11.06% 5.95%
Subaccount
Emerging Growth Subaccount 16.38% 17.82% (6.42%) 12.07% 24.34%(2)
Global Aggressive
Bond Subaccount 12.09% 6.74%(3) -- -- --
Specialized Asset
Allocation Subaccount 12.63% 6.23%(3) -- -- --
Managed Asset
Allocation Subaccount 11.21% 6.43%(3) -- -- --
Equity Income Subaccount 18.35% 16.05%(3) -- -- --
High Yield Subaccount 6.00%(4) -- -- -- --
Social Awareness Subaccount 17.15% 26.02% (5.15%) 10.33% 14.76%
</TABLE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Growth Subaccount 34.18% (11.80%) 33.05% 8.58% 4.80% 4.85%
Growth-Income Subaccount 35.89% (5.79%) 26.61% 17.66% 2.21% 17.23%
Money Market Subaccount 4.18% 6.35% 7.53% 5.68% 4.98% 4.89%
Worldwide Equity Subaccount 2.96%(1) -- -- -- -- --
High Grade Income 15.34% 5.19% 10.32% 5.70% 1.00% 8.15%
Subaccount
Emerging Growth Subaccount -- -- -- -- -- --
Global Aggressive
Bond Subaccount -- -- -- -- -- --
Specialized Asset
Allocation Subaccount -- -- -- -- -- --
Managed Asset
Allocation Subaccount -- -- -- -- -- --
Equity Income Subaccount -- -- -- -- -- --
High Yield Subaccount -- -- -- -- -- --
Social Awareness Subaccount 4.56%(5) -- -- -- -- --
</TABLE>
1. On May 1, 1991 the Worldwide Equity Subaccount changed its investment
objective from high current income to long-term capital growth through
investment in common stocks and equivalents of companies domiciled in
foreign countries and the United States. The performance information set
forth above reflects performance after the change in investment objective.
2. From October 1, 1992 to December 31, 1992.
3. From June 1, 1995 to December 31, 1995.
4. From August 5, 1996 to December 31, 1996.
5. From May 1, 1991 to December 31, 1991.
Performance information for a Subaccount may be compared, in reports
and promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional Averages, the Lehman Brothers Government Corporate Index, the
Morgan Stanley Capital International's EAFE Index or other indices that measure
performance of a pertinent group of securities so that investors may compare a
Subaccount's results with those of a group of securities widely regarded by
investors as representative of the securities markets in general or
representative of a particular type of security; (ii) other variable annuity
separate accounts, insurance products funds, or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by The Variable Annuity Research
and Data Service ("VARDS"), an independent service which monitors and ranks the
performance of variable annuity issues by investment objectives on an
industry-wide basis or tracked by other services, companies, publications or
persons who rank such investment companies on overall performance or other
criteria; and (iii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from an investment in the Contract. Unmanaged indices
may assume the reinvestment of dividends but generally do not reflect deductions
for administrative and management costs and expenses.
Performance information for any Subaccount reflects only the
performance of a hypothetical Contract under which an Owner's Contract Value is
allocated to a Subaccount during a particular time period on which the
calculations are based. Performance information should be considered in light of
the investment objectives and policies, characteristics and quality of the
Series of the Mutual Fund in which the Subaccount invests, and the market
conditions during the given time period, and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other information
including (i) the ranking of any Subaccount derived from rankings of variable
annuity separate accounts, insurance products funds, or other investment
products tracked by Lipper Analytical Services or by other rating services,
companies, publications, or other persons who rank separate accounts or other
investment products on overall performance or other criteria, and (ii) the
effect of a tax-deferred compounding on a Subaccount's investment returns, or
returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
5
<PAGE> 49
FINANCIAL STATEMENTS
Security Benefit Life Insurance Company's consolidated balance sheets
as of December 31, 1996, and 1995 and the related consolidated statements of
income, changes in equity, and cash flows for each of the three years in the
period ended December 31, 1996, and the financial statements of the Separate
Account for the year ended December 31, 1996, and the period April 1, 1995 to
December 31, 1995, are set forth herein, starting on page 7.
The consolidated financial statements of Security Benefit Life
Insurance Company, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account.
The following disclosure should be read in conjunction with the
financial statements of Security Benefit Life Insurance Company. On September 4,
1997, Security Benefit Life Insurance Company entered into a 100% coinsurance
agreement with a third party relating to all of Security Benefit Life Insurance
Company's traditional and interest sensitive life insurance business. This life
insurance business comprised approximately 5% of total assets and total
liabilities of Security Benefit Life Insurance Company as of December 31, 1996.
6
<PAGE> 50
Variable Annuity Account VIII
Financial Statements
Year ended December 31, 1996 and
the period from April 1, 1995
(inception) to December 31, 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................. 8
Audited Financial Statements
Balance Sheet......................................................... 9
Statements of Operations and Changes in Net Assets.................... 11
Notes to Financial Statements......................................... 13
</TABLE>
7
<PAGE> 51
Report of Independent Auditors
The Contract Owners of Variable Annuity Account VIII and
The Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Variable Annuity Account VIII
(the Company) as of December 31, 1996, and the related statements of operations
and changes in net assets for the year ended December 31, 1996 and for the
period from April 1, 1995 (inception) to December 31, 1995. 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. Our procedures included
confirmation of investments owned as of December 31, 1996, by correspondence
with the custodian. 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 Variable Annuity Account VIII
at December 31, 1996, and the results of its operations and changes in its net
assets for the year ended December 31, 1996 and for the period from April 1,
1995 (inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 7, 1997
8
<PAGE> 52
Variable Annuity Account VIII
Balance Sheet
December 31, 1996
(Dollars In Thousands)
ASSETS
Investments:
<TABLE>
<S> <C>
SBL Fund:
Series A (Growth Series) - 1,304,751 shares at net asset value of $24.31 per share
(cost, $30,692).................................................................. $ 31,719
Series B (Growth-Income Series) - 580,561 shares at net asset value of $35.40 per
share (cost, $20,771)............................................................ 20,552
Series C (Money Market Series) - 1,297,710 shares at net asset value of $12.56 per
share (cost, $16,204)............................................................ 16,299
Series D (Worldwide Equity Series) - 2,545,572 shares at net asset value of $6.14
per share (cost, $15,488)........................................................ 15,630
Series E (High Grade Income Series) - 1,538,241 shares at net asset value of
$12.00 per share (cost, $18,684)................................................. 18,459
Series J (Emerging Growth Series) - 585,572 shares at net asset value of $18.25
per share (cost, $10,498)........................................................ 10,687
Series K (Global Aggressive Bond Series) - 366,144 shares at net asset value of
$10.72 per share (cost, $4,032).................................................. 3,925
Series M (Specialized Asset Allocation Series) - 1,351,411 shares at net asset
value of $12.05 per share (cost, $15,180)........................................ 16,285
Series N (Managed Asset Allocation Series) - 704,076 shares at net asset value of
$12.02 per share (cost, $7,861).................................................. 8,463
Series O (Equity Income Series) - 1,728,336 shares at net asset value of $14.01
per share (cost, $21,854)........................................................ 24,214
Series S (Social Awareness Series) - 169,763 shares at net asset value of $19.08
per share (cost, $3,169)......................................................... 3,239
---------
Total assets............................................................................ $ 169,472
=========
</TABLE>
9
<PAGE> 53
NET ASSETS
Net assets are represented by (Note 3):
<TABLE>
<CAPTION>
NUMBER
OF UNITS UNIT VALUE AMOUNT
--------- ---------- ----------
<S> <C> <C> <C>
Growth Series:
Accumulation units....................................... 1,987,463 $15.96 $ 31,719
Growth-Income Series:
Accumulation units....................................... 1,388,519 14.80 20,552
Money Market Series:
Accumulation units....................................... 1,520,180 10.72 16,299
Worldwide Equity Series:
Accumulation units....................................... 1,183,160 13.21 15,630
High Grade Income Series:
Accumulation units....................................... 1,631,708 11.31 18,459
Emerging Growth Series:
Accumulation units....................................... 772,390 13.84 10,687
Global Aggressive Bond Series:
Accumulation units....................................... 328,077 11.96 3,925
Specialized Asset Allocation Series:
Accumulation units....................................... 1,361,078 11.96 16,285
Managed Asset Allocation Series:
Accumulation units....................................... 715,033 11.84 8,463
Equity Income Series:
Accumulation units....................................... 1,764,015 13.73 24,214
Social Awareness Series:
Accumulation units....................................... 220,549 14.69 3,239
---------
Total net assets.............................................. $ 169,472
=========
</TABLE>
See accompanying notes.
10
<PAGE> 54
Variable Annuity Account VIII
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE GRADE
GROWTH INCOME MARKET EQUITY INCOME
SERIES SERIES SERIES SERIES SERIES
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Dividend distributions ....................... $ 167 $ 299 $ 619 $ 328 $ 651
Expenses (Note 2):
Mortality and expense risk fee ............ (202) (144) (198) (100) (110)
Administrative fee ........................ (24) (17) (23) (12) (13)
---------- ---------- ---------- ---------- ----------
Net investment income (loss) ................. (59) 138 398 216 528
Capital gains distributions .................. 1,038 1,447 -- 309 --
Realized gain (loss) on investments .......... 861 338 62 270 (215)
Unrealized appreciation (depreciation) on
investments ............................... 899 (325) 117 105 (298)
---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments ............................... 2,798 1,460 179 684 (513)
---------- ---------- ---------- ---------- ----------
Net increase in net assets resulting from
operations ................................ 2,739 1,598 577 900 15
Net assets at beginning of year .............. 3,825 3,162 2,991 1,441 2,777
Variable annuity deposits (Notes 2 and 3) .... 36,931 19,038 52,927 16,001 20,763
Terminations and withdrawals (Notes 2 and 3) . (11,776) (3,246) (40,196) (2,712) (5,096)
---------- ---------- ---------- ---------- ----------
Net assets at end of year .................... $ 31,719 $ 20,552 $ 16,299 $ 15,630 $ 18,459
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SPECIALIZED MANAGED
EMERGING GLOBAL ASSET ASSET EQUITY SOCIAL
GROWTH AGGRESSIVE ALLOCATION ALLOCATION INCOME AWARENESS
SERIES BOND SERIES SERIES SERIES SERIES SERIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions ....................... $ 13 $ 260 $ 144 $ 39 $ 42 $ 8
Expenses (Note 2):
Mortality and expense risk fee ............ (76) (30) (145) (72) (189) (20)
Administrative fee ........................ (9) (4) (18) (8) (22) (3)
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss) ................. (72) 226 (19) (41) (169) (15)
Capital gains distributions .................. 297 44 67 8 3 41
Realized gain (loss) on investments .......... 138 156 285 155 622 78
Unrealized appreciation (depreciation) on
investments ............................... 182 (114) 998 536 2,141 53
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments ............................... 617 86 1,350 699 2,766 172
---------- ---------- ---------- ---------- ---------- ----------
Net increase in net assets resulting from
operations ................................ 545 312 1,331 658 2,597 157
Net assets at beginning of year .............. 1,589 923 5,004 2,468 3,102 467
Variable annuity deposits (Notes 2 and 3) .... 13,962 4,266 12,169 6,890 21,963 3,033
Terminations and withdrawals (Notes 2 and 3) . (5,409) (1,576) (2,219) (1,553) (3,448) (418)
---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of year .................... $ 10,687 $ 3,925 $ 16,285 $ 8,463 $ 24,214 $ 3,239
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
11
<PAGE> 55
Variable Annuity Account VIII
Statement of Operations and Changes in Net Assets
Period from April 1, 1995 (inception) to December 31, 1995
(In Thousands)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE GRADE
GROWTH INCOME MARKET EQUITY INCOME
SERIES SERIES SERIES SERIES SERIES
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Dividend distributions .......................... $ 8 $ 18 $ 55 $ -- $ 35
Expenses (Note 2):
Mortality and expense risk fee ............... (10) (10) (10) (4) (7)
Administrative fee ........................... (1) (1) (1) (1) (1)
--------- --------- --------- --------- ---------
Net investment income (loss) .................... (3) 7 44 (5) 27
Capital gains distributions ..................... 34 -- -- 6 --
Realized gain (loss) on investments ............. 49 55 (33) 15 (4)
Unrealized appreciation (depreciation) on
investments .................................. 128 106 (22) 37 73
--------- --------- --------- --------- ---------
Net realized and unrealized gain (loss) on
investments .................................. 211 161 (55) 58 69
--------- --------- --------- --------- ---------
Net increase (decrease) in net assets resulting
from operations .............................. 208 168 (11) 53 96
Net assets at beginning of period ............... -- -- -- -- --
Variable annuity deposits (Notes 2 and 3) ....... 3,949 3,079 5,045 1,419 2,894
Terminations and withdrawals (Notes 2 and 3) .... (332) (85) (2,043) (31) (213)
--------- --------- --------- --------- ---------
Net assets at end of period ..................... $ 3,825 $ 3,162 $ 2,991 $ 1,441 $ 2,777
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
SPECIALIZED MANAGED
EMERGING GLOBAL ASSET ASSET EQUITY SOCIAL
GROWTH AGGRESSIVE ALLOCATION ALLOCATION INCOME AWARENESS
SERIES BOND SERIES SERIES SERIES SERIES SERIES
-------- ----------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions ........................ $ -- $ 42 $ -- $ -- $ -- $ 1
Expenses (Note 2):
Mortality and expense risk fee ............. (5) (4) (20) (7) (11) (2)
Administrative fee ......................... (1) (1) (2) (1) (1) --
-------- ----------- ----------- ---------- --------- ----------
Net investment income (loss) .................. (6) 37 (22) (8) (12) (1)
Capital gains distributions ................... -- 4 -- -- -- --
Realized gain (loss) on investments ........... 35 1 92 14 48 16
Unrealized appreciation (depreciation) on
investments ................................ 7 7 107 66 219 17
-------- ----------- ----------- ---------- --------- ----------
Net realized and unrealized gain (loss) on
investments ................................ 42 12 199 80 267 33
-------- ----------- ----------- ---------- --------- ----------
Net increase (decrease) in net assets resulting
from operations ............................ 36 49 177 72 255 32
Net assets at beginning of period ............. -- -- -- -- -- --
Variable annuity deposits (Notes 2 and 3) ..... 1,769 887 5,116 2,556 2,966 436
Terminations and withdrawals (Notes 2 and 3) .. (216) (13) (289) (160) (119) (1)
-------- ----------- ----------- ---------- --------- ----------
Net assets at end of period ................... $ 1,589 $ 923 $ 5,004 $ 2,468 $ 3,102 $ 467
======== =========== =========== ========== ========= ==========
</TABLE>
See accompanying notes.
12
<PAGE> 56
Variable Annuity Account VIII
Notes to Financial Statements
December 31, 1996 and 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Variable Annuity Account VIII (the Account) is a separate account of Security
Benefit Life Insurance Company (SBL). The Account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended. Deposits
received by the Account are invested in the SBL Fund, a mutual fund not
otherwise available to the public. As directed by the owners, amounts deposited
may be invested in shares of Series A (Growth Series - emphasis on capital
appreciation), Series B (Growth-Income Series emphasis on capital appreciation
with secondary emphasis on income), Series C (Money Market Series - emphasis on
capital preservation while generating interest income), Series D (Worldwide
Equity Series - emphasis on long-term capital growth through investment in
foreign and domestic common stocks and equivalents), Series E (High Grade Income
Series - emphasis on current income with security of principal), Series J
(Emerging Growth Series - emphasis on capital appreciation), Series K (Global
Aggressive Bond Series - emphasis on high current income with secondary emphasis
on capital appreciation), Series M (Specialized Asset Allocation Series -
emphasis on high total return consisting of capital appreciation and current
income), Series N (Managed Asset Allocation Series - emphasis on high level of
total return), Series O (Equity Income Series - emphasis on substantial dividend
income and capital appreciation) and Series S (Social Awareness Series -
emphasis on high total return).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC),
which is owned 50% by SBL and 50% by Security Benefit Group, Inc. (SBG), a
wholly-owned subsidiary of SBL. SMC has engaged Lexington Management Corporation
to provide sub-advisory services for the Worldwide Equity Series and Global
Aggressive Bond Series and has engaged T. Rowe Price Associates, Inc. to provide
sub-advisory services for the Managed Asset Allocation Series and the Equity
Income Series. SMC has also entered into agreements with Templeton Quantitative
Advisors, Inc. and Meridian Investment Management Corporation to provide certain
quantitative research services with respect to the Specialized Asset Allocation
Series.
INVESTMENT VALUATION
Investments in mutual fund shares are carried in the balance sheet at market
value (net asset value of the underlying mutual fund). The first-in, first-out
cost method is used to determine gains and losses. Security transactions are
accounted for on the trade date.
13
<PAGE> 57
Variable Annuity Account VIII
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of investments purchased and proceeds from investments sold were as
follows:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------- -----------------------------
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Growth Series ..................... $ 40,767 $ 14,633 $ 4,914 $ 1,266
Growth-Income Series .............. 22,294 4,917 3,964 963
Money Market Series ............... 57,357 44,228 5,704 2,658
Worldwide Equity Series ........... 17,845 4,031 1,854 465
High Grade Income Series .......... 23,119 6,924 3,733 1,025
Emerging Growth Series ............ 15,884 7,106 2,237 690
Global Aggressive Bond Series ..... 5,138 2,178 936 21
Specialized Asset Allocation Series 13,727 3,729 8,733 3,928
Managed Asset Allocation Series ... 7,768 2,464 2,963 575
Equity Income Series .............. 23,567 5,218 3,264 429
Social Awareness Series ........... 3,333 692 549 115
</TABLE>
SBG's investment in the subaccounts represented the following number of units
and contract value of Variable Annuity Account VIII contracts owned at December
31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
NUMBER OF UNITS CONTRACT VALUE
--------------- --------------
<S> <C> <C>
Global Aggressive Bond Series................... 50,000 $598
Managed Asset Allocation Series................. 40,000 474
</TABLE>
ANNUITY RESERVES
As of December 31, 1996, annuity reserves have not been established because
there are no contracts that have matured and are in the payout stage. Such
reserves would be computed on the basis of published mortality tables using
assumed interest rates that will provide reserves as prescribed by law. In cases
where the payout option selected is life contingent, SBL periodically
recalculates the required annuity reserves, and any resulting adjustment is
either charged or credited to SBL and not to the Account.
14
<PAGE> 58
Variable Annuity Account VIII
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective Series. Dividend income
and capital gains distributions are recorded as income on the ex-dividend date.
FEDERAL INCOME TAXES
Under current law, no federal income taxes are payable with respect to the
Account.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts an administrative fee equivalent to an annual rate of 0.15% of the
average daily net asset value of each account. Mortality and expense risks
assumed by SBL are compensated for by a fee equivalent to an annual rate of
1.25% of the asset value of each contract, of which 0.7% is for assuming
mortality risks and the remainder is for assuming expense risks.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law, either from the purchase payments or from the amount
applied to effect an annuity at the time annuity payments commence.
15
<PAGE> 59
Variable Annuity Account VIII
Notes to Financial Statements (continued)
December 31, 1996 and 1995
3. SUMMARY OF UNIT TRANSACTIONS
<TABLE>
<CAPTION>
UNITS
------------------------------------------------
PERIOD FROM APRIL 1, 1995
YEAR ENDED (INCEPTION) TO
DECEMBER 31 1996 DECEMBER 31, 1995
---------------- -------------------------
(In Thousands)
<S> <C> <C>
Growth Series:
Variable annuity deposits............................. 2,499 316
Terminations and withdrawals.......................... 802 26
Growth-Income Series:
Variable annuity deposits............................. 1,372 256
Terminations and withdrawals.......................... 232 7
Money Market Series:
Variable annuity deposits............................. 5,023 491
Terminations and withdrawals.......................... 3,792 202
Worldwide Equity Series:
Variable annuity deposits............................. 1,273 129
Terminations and withdrawals.......................... 216 3
High Grade Income Series:
Variable annuity deposits............................. 1,846 259
Terminations and withdrawals.......................... 454 19
Emerging Growth Series:
Variable annuity deposits............................. 1,048 151
Terminations and withdrawals.......................... 410 18
Global Aggressive Bond Series:
Variable annuity deposits............................. 380 88
Terminations and withdrawals.......................... 138 1
Specialized Asset Allocation Series:
Variable annuity deposits............................. 1,089 782
Terminations and withdrawals.......................... 199 310
Managed Asset Allocation Series:
Variable annuity deposits............................. 625 247
Terminations and withdrawals.......................... 142 16
Equity Income Series:
Variable annuity deposits............................. 1,772 278
Terminations and withdrawals.......................... 275 11
Social Awareness Series:
Variable annuity deposits............................. 215 37
Terminations and withdrawals.......................... 32 --
</TABLE>
16
<PAGE> 60
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................... 18
Audited Consolidated Financial Statements
Consolidated Balance Sheets......................................... 19
Consolidated Statements of Income................................... 21
Consolidated Statements of Changes in Equity........................ 22
Consolidated Statements of Cash Flows............................... 23
Notes to Consolidated Financial Statements.......................... 25
</TABLE>
17
<PAGE> 61
Report of Independent Auditors
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying consolidated balance sheets of Security Benefit
Life Insurance Company and Subsidiaries (the Company) as of December 31, 1996
and 1995, and the related consolidated statements of income, changes in equity
and cash flows for each of the three years in the period ended December 31,
1996. 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 consolidated financial position of Security Benefit
Life Insurance Company and Subsidiaries at December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1996, the
Company adopted certain accounting changes to conform with generally accepted
accounting principles for mutual life insurance enterprises and retroactively
restated the 1994 and 1995 financial statements for the change. Also, as
discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for debt securities as of January 1, 1994.
Ernst & Young LLP
Kansas City, Missouri
February 7, 1997
18
<PAGE> 62
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995*
------------ ------------
(In Thousands)
<S> <C> <C>
ASSETS
Investments:
Securities available-for-sale, at fair value (Notes 2 and 9):
Fixed maturities ..................................................... $ 1,805,066 $ 1,778,370
Equity securities .................................................... 89,188 21,880
Fixed maturities held-to-maturity, at amortized cost (Note 2) .......... 528,045 536,137
Mortgage loans ......................................................... 66,611 74,342
Real estate ............................................................ 4,000 5,864
Policy loans ........................................................... 106,822 100,452
Short-term investments ................................................. -- 992
Cash and cash equivalents .............................................. 8,310 16,788
Other invested assets .................................................. 40,531 37,769
------------ ------------
Total investments ......................................................... 2,648,573 2,572,594
Premiums deferred and uncollected ......................................... 149 574
Accrued investment income ................................................. 32,161 30,623
Accounts receivable ....................................................... 4,256 3,064
Reinsurance recoverable (Note 4) .......................................... 92,197 78,877
Notes receivable .......................................................... 110 147
Property and equipment, net ............................................... 18,592 18,884
Deferred policy acquisition costs (Note 1) ................................ 216,918 186,940
Other assets .............................................................. 24,680 36,221
Separate account assets (Note 10) ......................................... 2,802,927 2,065,306
------------ ------------
$ 5,840,563 $ 4,993,230
============ ============
</TABLE>
19
<PAGE> 63
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995*
------------ ------------
(In Thousands)
<S> <C> <C>
LIABILITIES AND EQUITY
Liabilities:
Policy reserves and annuity account values ............................. $ 2,497,998 $ 2,495,113
Policy and contract claims ............................................. 10,607 10,571
Other policyholder funds ............................................... 24,073 21,305
Accounts payable and accrued expenses .................................. 18,003 13,609
Income taxes payable (Note 5):
Current .............................................................. 6,686 10,371
Deferred ............................................................. 54,847 53,659
Long-term debt (Note 8) ................................................ 65,000 --
Other liabilities ...................................................... 11,990 11,619
Separate account liabilities ........................................... 2,793,911 2,051,292
------------ ------------
Total liabilities ......................................................... 5,483,115 4,667,539
Equity:
Retained earnings ...................................................... 357,927 314,084
Unrealized appreciation (depreciation) of securities
available-for-sale, net .............................................. (479) 11,607
------------ ------------
Total equity .............................................................. 357,448 325,691
------------ ------------
$ 5,840,563 $ 4,993,230
============ ============
</TABLE>
*As restated
See accompanying notes to consolidated financial statements.
20
<PAGE> 64
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Insurance premiums and other considerations ............................ $ 28,848 $ 49,608 $ 55,148
Net investment income .................................................. 192,636 179,940 166,857
Asset based fees ....................................................... 55,977 40,652 33,809
Other product charges .................................................. 10,470 10,412 7,335
Realized gains (losses) on investments ................................. (244) 3,876 134
Other revenues ......................................................... 20,033 22,164 27,241
------------ ------------ ------------
Total revenues ............................................................ 307,720 306,652 290,524
Benefits and expenses:
Annuity and interest sensitive life benefits:
Interest credited to account balances ................................ 108,705 113,700 103,087
Benefit claims in excess of account balances ......................... 7,541 6,808 7,145
Traditional life insurance benefits .................................... 6,474 7,460 6,203
Supplementary contract payments ........................................ 11,121 11,508 11,286
Increase in traditional life reserves .................................. 8,580 13,212 12,977
Dividends to policyholders ............................................. 2,374 2,499 2,669
Other benefits ......................................................... 20,790 22,379 29,924
------------ ------------ ------------
Total benefits ............................................................ 165,585 177,566 173,291
Commissions and other operating expenses .................................. 45,539 46,233 39,998
Amortization of deferred policy acquisition costs ......................... 25,930 26,628 24,674
Other expenses ............................................................ 1,667 1,099 785
Interest expense .......................................................... 4,285 7 630
------------ ------------ ------------
Total benefits and expenses ............................................... 243,006 251,533 239,378
------------ ------------ ------------
Income before income taxes ................................................ 64,714 55,119 51,146
Income taxes (Note 5) ..................................................... 20,871 17,927 17,129
------------ ------------ ------------
Net income ................................................................ $ 43,843 $ 37,192 $ 34,017
============ ============ ============
</TABLE>
*As restated
See accompanying notes to consolidated financial statements.
21
<PAGE> 65
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Equity
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
Retained earnings:
Beginning of year, as previously reported .............................. $ 207,669 $ 150,726 $ 128,785
Cumulative effect of change in accounting principle .................... 106,415 126,166 114,090
------------ ------------ ------------
Beginning of year, as restated ......................................... 314,084 276,892 242,875
Net income ............................................................. 43,843 37,192 34,017
------------ ------------ ------------
End of year ............................................................ 357,927 314,084 276,892
Unrealized appreciation (depreciation) of
securities available-for-sale, net:
Beginning of year .................................................... 11,607 (48,466) (10,034)
Cumulative effect of change in accounting principle
(Note 1) ........................................................... -- -- 10,733
Change in unrealized appreciation (depreciation) of
securities available-for-sale, net ................................. (12,086) 60,073 (49,165)
------------ ------------ ------------
End of year .......................................................... (479) 11,607 (48,466)
------------ ------------ ------------
Total equity .............................................................. $ 357,448 $ 325,691 $ 228,426
============ ============ ============
</TABLE>
*As restated
See accompanying notes to consolidated financial statements.
22
<PAGE> 66
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................ $ 43,843 $ 37,192 $ 34,017
Adjustments to reconcile net income to net cash provided
by operating activities:
Annuity and interest sensitive life products:
Interest credited to account balances .............................. 108,705 113,700 103,087
Charges for mortality and administration ........................... (13,115) (16,585) (17,000)
Decrease (increase) in traditional life policy
reserves ........................................................... 10,697 2,142 (5,950)
Increase in accrued investment income ................................ (1,538) (4,573) (567)
Policy acquisition costs deferred .................................... (36,865) (33,021) (38,737)
Policy acquisition costs amortized ................................... 25,930 26,628 24,674
Accrual of discounts on investments .................................. (3,905) (3,421) (3,588)
Amortization of premiums on investments .............................. 11,284 9,782 15,726
Provision for depreciation and amortization .......................... 3,748 3,750 3,201
Other ................................................................ (3,379) (4,225) 2,511
------------ ------------ ------------
Net cash provided by operating activities ................................. 145,405 131,369 117,374
INVESTING ACTIVITIES
Sale, maturity or repayment of investments:
Fixed maturities available-for-sale .................................... 870,240 517,480 318,252
Fixed maturities held-to-maturity ...................................... 58,874 59,873 147,043
Equity securities available-for-sale ................................... 8,857 10,242 3,830
Mortgage loans ......................................................... 12,545 23,248 21,096
Real estate ............................................................ 2,935 3,173 2,782
Short-term investments ................................................. 20,069 229,871 834,082
Other invested assets .................................................. 6,224 22,839 6,748
------------ ------------ ------------
979,744 866,726 1,333,833
Acquisition of investments:
Fixed maturities available-for-sale .................................... (936,376) (591,121) (552,433)
Fixed maturities held-to-maturity ...................................... (52,422) (125,276) (56,398)
Equity securities available-for-sale ................................... (68,222) (19,500) (4,627)
Mortgage loans ......................................................... (4,538) (4,179) (34,260)
Real estate ............................................................ (2,637) (1,511) (554)
Short-term investments ................................................. (19,070) (180,259) (854,833)
Other invested assets .................................................. (3,712) (31,861) (18,581)
------------ ------------ ------------
(1,086,977) (953,707) (1,521,686)
============ ============ ============
</TABLE>
23
<PAGE> 67
Security Benefit Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995* 1994*
------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Other investing activities:
Purchase of property and equipment ..................................... $ (1,879) $ (2,036) $ (2,932)
Net increase in policy loans ........................................... (6,370) (8,058) (5,569)
Net cash transferred per coinsurance agreement ......................... -- (16,295) --
------------ ------------ ------------
Net cash used in investing activities ..................................... (115,482) (113,370) (196,354)
FINANCING ACTIVITIES
Issuance of long-term debt ................................................ 65,000 -- --
Annuity and interest sensitive life products:
Deposits credited to account balances .................................. 705,118 509,183 553,542
Withdrawals from account balances ...................................... (808,519) (526,509) (466,760)
------------ ------------ ------------
Net cash provided by (used in) financing activities ....................... (38,401) (17,326) 86,782
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents .......................... (8,478) 673 7,802
Cash and cash equivalents at beginning of year ............................ 16,788 16,115 8,313
============ ============ ============
Cash and cash equivalents at end of year .................................. $ 8,310 $ 16,788 $ 16,115
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest ............................................................... $ 2,966 $ 120 $ 157
============ ============ ============
Income taxes ........................................................... $ 16,213 $ 11,551 $ 14,634
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Conversion of mortgage loans to real estate owned ......................... $ 844 $ -- $ 2,350
============ ============ ============
</TABLE>
*As restated
See accompanying notes to consolidated financial statements.
24
<PAGE> 68
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Benefit Life Insurance Company (SBL or the Company) is a
Kansas-domiciled mutual life insurance company whose insurance operations are
licensed to sell insurance products in 50 states. The Company offers a
diversified portfolio of individual and group annuities, ordinary life and
mutual fund products through multiple distribution channels. In recent years,
the Company's new business activities have increasingly been concentrated in the
individual flexible premium variable annuity markets.
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared on the
basis of generally accepted accounting principles (GAAP). Prior to 1996, the
Company prepared its financial statements in conformity with accounting
practices prescribed or permitted by the Kansas Insurance Department, which
practices were considered GAAP for mutual life insurance companies and their
stock life insurance subsidiaries. Financial Accounting Standards Board (FASB)
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises," as amended, which is
effective for 1996 annual financial statements and thereafter, no longer permits
statutory-basis financial statements to be described as being prepared in
conformity with GAAP. Accordingly, the Company has adopted GAAP, including
Statement of Financial Accounting Standards (SFAS) No. 120, "Accounting and
Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for
Certain Long-Duration Participating Contracts," and Statement of Position 95-1,
"Accounting for Certain Insurance Activities of Mutual Life Insurance
Enterprises," which address the accounting for long-duration and short-duration
insurance and reinsurance contracts, including all participating business.
Pursuant to the requirements of FASB Interpretation No. 40 and SFAS No. 120, the
effect of the changes in accounting have been applied retroactively, and the
previously issued 1995 and 1994 financial statements have been restated for the
change. The effect of the changes applicable to years prior to January 1, 1994
has been presented as a restatement of retained earnings as of that date. The
adoption had the effect of increasing net income for 1996, 1995 and 1994 by
approximately $5,897,000, $8,436,000 and $6,663,000, respectively.
The consolidated financial statements include the operations and accounts of
Security Benefit Life Insurance Company and the following wholly-owned
subsidiaries: Security Benefit Group, Inc., First Security Benefit Life
Insurance and Annuity Company of New York, Security
25
<PAGE> 69
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management Company, LLC, Security Distributors, Inc., Security Benefit Academy,
Inc., First Advantage Insurance Agency, Inc. and Creative Impressions, Inc.
Significant intercompany transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ACCOUNTING CHANGE
Prior to January 1, 1994, fixed maturities were reported at cost, adjusted for
amortization of premiums and accrual of discounts. Effective January 1, 1994,
the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115 requires that fixed maturities are to be
classified as either held-to-maturity, trading or available-for-sale. Equity
securities are to be classified as either available-for-sale or trading. The
adoption had no effect on net income and resulted in an increase in equity at
January 1, 1994 of $10,733,000, net of the related effect of deferred policy
acquisition costs and deferred income taxes.
INVESTMENTS
Fixed maturities have been classified as either held-to-maturity or
available-for-sale. Fixed maturities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accrual of discounts. Such amortization and accrual
on these securities are included in investment income. Fixed maturities not
classified as held-to-maturity are classified as available-for-sale.
Available-for-sale fixed maturities are stated at fair value with the unrealized
appreciation or depreciation, net of adjustment of deferred policy acquisition
costs and deferred income taxes, reported in a separate component of equity and,
accordingly, have no effect on net income. The DPAC offsets to the unrealized
appreciation or depreciation represent valuation adjustments or restatements of
DPAC that would have been required as a charge or credit to operations had such
unrealized amounts been realized. The amortized cost of fixed maturities
classified as available-for-sale is adjusted for amortization of premiums and
accrual of discounts. Premiums and discounts are recognized over the estimated
lives of the assets adjusted for prepayment activity.
Equity securities consisting of common stocks, mutual funds and nonredeemable
preferred stock are carried at fair value and are reported in accordance with
SFAS No. 115. Mortgage loans and short-term investments are reported at cost,
adjusted for amortization of premiums and accrual of
26
<PAGE> 70
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
discounts. Real estate investments are carried at the lower of depreciated cost
or estimated realizable value. Policy loans are reported at unpaid principal.
Investments accounted for by the equity method include investments in, and
advances to, various joint ventures and partnerships. Realized gains and losses
on sales of investments are recognized in revenues on the specific
identification method.
The carrying amounts of all the Company's investments are reviewed on an ongoing
basis. If this review indicates a decline in value that is other than temporary
for any investment, the amortized cost of the investment is reduced to its fair
value. Such reductions in carrying amount are recognized as realized losses in
the determination of net income.
The Company's principal objective in holding derivatives for purposes other than
trading is asset-liability management. The operations of the Company are subject
to risk of interest rate fluctuations to the extent that there is a difference
between the amount of the Company's interest-earning assets and interest-bearing
liabilities that reprice or mature in specified periods. The principal objective
of the Company's asset-liability management activities is to provide maximum
levels of net interest income while maintaining acceptable levels of interest
rate and liquidity risk and facilitating the funding needs of the Company. To
achieve that objective, the Company uses financial futures instruments and
interest rate exchange agreements. Financial futures contracts are commitments
to either purchase or sell a financial instrument at a specific future date for
a specified price and may be settled in cash or through delivery of the
financial instrument. Interest rate exchange agreements generally involve the
exchange of fixed and floating rate interest payments without an exchange of the
underlying principal.
Interest rate exchange agreements are used to convert the interest rate
characteristics (fixed or variable) of certain investments to match those of the
related insurance liabilities that the investments are supporting. The net
interest effect of such swap transactions is reported as an adjustment of
interest income as incurred.
Gains and losses on those instruments are included in the carrying amount of the
underlying hedged investments, or anticipated investment transactions, and are
amortized over the remaining lives of the hedged investments as adjustments to
investment income. Any unamortized gains or losses are recognized when the
underlying investments are sold.
DEFERRED POLICY ACQUISITION COSTS
To the extent recoverable from future policy revenues and gross profits,
commissions and other policy-issue, underwriting and marketing costs incurred to
acquire or renew traditional life insurance, interest sensitive life and
deferred annuity business that vary with and are primarily related to the
production of new and renewal business have been deferred.
27
<PAGE> 71
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Traditional life insurance deferred policy acquisition costs are being amortized
in proportion to premium revenues over the premium-paying period of the related
policies using assumptions consistent with those used in computing policy
benefit reserves.
For interest sensitive life and deferred annuity business, deferred policy
acquisition costs are amortized in proportion to the present value (discounted
at the crediting rate) of expected gross profits from investment, mortality and
expense margins. That amortization is adjusted retrospectively when estimates of
current or future gross profits to be realized from a group of products are
revised.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers certificates
of deposits with original maturities of 90 days or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment, including real estate, furniture and fixtures, and data
processing hardware and related systems, are recorded at cost, less accumulated
depreciation. The provision for depreciation of property and equipment is
computed using the straight-line method over the estimated lives of the related
assets.
SEPARATE ACCOUNTS
The separate account assets and liabilities reported in the accompanying balance
sheets represent funds that are separately administered for the benefit of
contractholders who bear the investment risk. The separate account assets and
liabilities are carried at fair value. Revenues and expenses related to separate
account assets and liabilities, to the extent of benefits paid or provided to
the separate account contractholders, are excluded from the amounts reported in
the consolidated statements of income. Investment income and gains or losses
arising from separate accounts accrue directly to the contractholders and are,
therefore, not included in investment earnings in the accompanying statements of
income. Revenues to the Company from separate accounts consist principally of
contract maintenance charges, administrative fees, and mortality and expense
risk charges.
POLICY RESERVES AND ANNUITY ACCOUNT VALUES
The liabilities for future policy benefits for traditional life and reinsurance
products are computed using a net level premium method, including assumptions as
to investment yields, mortality, withdrawals, and other assumptions that
approximate expected experience.
28
<PAGE> 72
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Liabilities for future policy benefits for interest sensitive life and deferred
annuity products represent accumulated contract values without reduction for
potential surrender charges and deferred front-end contract charges that are
amortized over the life of the policy. Interest on accumulated contract values
is credited to contracts as earned. Crediting rates ranged from 3.5% to 7.25%
during 1996, 4.0% to 7.75% during 1995, and 4.5% to 7.75% during 1994.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under that method, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and income tax bases of assets and liabilities and are measured using
the enacted tax rates and laws. Deferred income tax expenses or credits
reflected in the Company's statements of income are based on the changes in
deferred tax assets or liabilities from period to period (excluding the SFAS No.
115 adjustment, which is charged or credited directly to equity).
RECOGNITION OF REVENUES
Traditional life insurance products include whole life insurance, term life
insurance and certain annuities. Premiums for these traditional products are
recognized as revenues when due. Revenues from interest sensitive life insurance
products and deferred annuities consist of policy charges for the cost of
insurance, policy administration charges and surrender charges assessed against
contractholder account balances during the period.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, certificates of deposits and short-term investments: The carrying
amounts reported in the balance sheet for these instruments approximate
their fair values.
Investment securities: Fair values for fixed maturities are based on quoted
market prices, where available. For fixed maturities not actively traded,
fair values are estimated using values obtained from independent pricing
services or estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and maturity of
the investments. The fair values for equity securities are based on quoted
market prices.
Mortgage loans and policy loans: Fair values for mortgage loans and policy
loans are estimated using discounted cash flow analyses based on interest
rates currently being offered
29
<PAGE> 73
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
for similar loans to borrowers with similar credit ratings. Loans with
similar characteristics are aggregated for purposes of the calculations.
Investment-type contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using the assumption
reinsurance method, whereby the amount of statutory profit the assuming
company would realize from the business is calculated. Those amounts are
then discounted at a rate of return commensurate with the rate presently
offered by the Company on similar contracts.
Long-term debt: Fair values for long-term debt are estimated using
discounted cash flow analyses based on current borrowing rates available
for similar types of borrowing arrangements.
2. INVESTMENTS
Information as to the amortized cost, gross unrealized gains and losses, and
fair values of the Company's portfolio of fixed maturities and equity securities
at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S. ...........
government corporations and agencies .................... $ 173,884 $ 414 $ 1,431 $ 172,867
Obligations of states and political subdivisions ...........
23,244 361 705 22,900
Special revenue and assessment ............................. 330 -- -- 330
Corporate securities ....................................... 863,124 13,758 18,651 858,231
Mortgage-backed securities ................................. 627,875 9,091 9,308 627,658
Asset-backed securities .................................... 122,523 832 275 123,080
------------ ------------ ------------ ------------
Total fixed maturities ..................................... $ 1,810,980 $ 24,456 $ 30,370 $ 1,805,066
============ ============ ============ ============
Equity securities .......................................... $ 86,991 $ 2,422 $ 225 $ 89,188
============ ============ ============ ============
</TABLE>
30
<PAGE> 74
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
Obligations of states and political subdivisions ...........
$ 81,791 $ 463 $ 1,036 $ 81,218
Special revenue and assessment ............................. 420 -- -- 420
Corporate securities ....................................... 128,487 2,003 1,830 128,660
Mortgage-backed securities ................................. 264,155 2,121 1,347 264,929
Asset-backed securities .................................... 53,192 382 97 53,477
------------ ------------ ------------ ------------
Total fixed maturities ..................................... $ 528,045 $ 4,969 $ 4,310 $ 528,704
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of U.S. ...........
government corporations and agencies .................... $ 5,746 $ 522 $ -- $ 6,268
Obligations of states and political subdivisions ...........
23,304 510 139 23,675
Special revenue and assessment ............................. 330 2 -- 332
Corporate securities ....................................... 857,926 29,671 13,146 874,451
Mortgage-backed securities ................................. 857,685 17,838 1,879 873,644
------------ ------------ ------------ ------------
Total fixed securities ..................................... $ 1,744,991 $ 48,543 $ 15,164 $ 1,778,370
============ ============ ============ ============
Equity securities .......................................... $ 21,278 $ 687 $ 85 $ 21,880
============ ============ ============ ============
HELD-TO-MATURITY
Obligations of states and political subdivisions ...........
$ 67,160 $ 1,221 $ -- $ 68,381
Special revenue and assessment ............................. 870 -- -- 870
Corporate securities ....................................... 163,032 6,426 43 169,415
Mortgage-backed securities ................................. 305,075 5,539 4 310,610
------------ ------------ ------------ ------------
Totals ..................................................... $ 536,137 $ 13,186 $ 47 $ 549,276
============ ============ ============ ============
</TABLE>
The change in the Company's unrealized appreciation (depreciation) on fixed
maturities was $(51,773,000), $220,048,000 and $(219,496,000) during 1996, 1995
and 1994, respectively; the corresponding amounts for equity securities were
$1,595,000, $1,034,000 and $(1,702,000) during 1996, 1995 and 1994,
respectively.
31
<PAGE> 75
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1996, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
----------------------------- ---------------------------
AMORTIZED AMORTIZED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less........................ $ 17,711 $ 17,764 $ 320 $ 320
Due after one year through five years.......... 197,414 197,267 12,184 12,240
Due after five years through 10 years.......... 469,394 471,099 47,804 48,193
Due after 10 years............................. 376,063 368,198 150,390 149,545
Mortgage-backed securities..................... 627,875 627,658 264,155 264,929
Asset-backed securities........................ 122,523 123,080 53,192 53,477
------------ ------------ ----------- -----------
$ 1,810,980 $ 1,805,066 $ 528,045 $ 528,704
============ ============ =========== ===========
</TABLE>
Late in 1995, the FASB issued a special report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." This report provided companies with an opportunity for a one-time
reassessment and reclassification of securities as of a single measurement date
without tainting the held-to-maturity debt securities classification. On
December 8, 1995, the Company reclassified securities with an amortized cost of
$202,417,000 from held-to-maturity to available-for-sale. The transfer resulted
in an increase to unrealized gains on securities of approximately $2,162,000 net
of related adjustments for deferred policy acquisition costs and deferred income
taxes.
The Company did not hold any investments that individually exceeded 10% of
equity at December 31, 1996 except for securities guaranteed by the U.S.
government or an agency of the U.S. government.
32
<PAGE> 76
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of net investment income are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Interest on fixed maturities ......... $ 174,592 $ 165,684 $ 154,739
Dividends on equity securities ....... 5,817 1,309 712
Interest on mortgage loans ........... 6,680 7,876 7,746
Real estate income ................... 781 1,287 1,326
Interest on policy loans ............. 6,372 5,927 5,462
Interest on short-term investments ... 1,487 2,625 2,272
Other ................................ 3,418 1,453 525
--------- --------- ---------
Total investment income .............. 199,147 186,161 172,782
Investment expenses .................. 6,511 6,221 5,925
--------- --------- ---------
Net investment income ................ $ 192,636 $ 179,940 $ 166,857
========= ========= =========
</TABLE>
Proceeds from sales of fixed maturities and equity securities and related
realized gains and losses, including valuation adjustments, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Proceeds from sales .................. $ 393,189 $ 310,590 $ 128,533
Gross realized gains ................. 9,407 5,901 5,814
Gross realized losses ................ 9,723 3,361 4,889
</TABLE>
The composition of the Company's portfolio of fixed maturities by quality rating
at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
QUALITY RATING CARRYING AMOUNT %
- ------------------------------ -------------- ------------
(In Thousands)
<S> <C> <C>
AAA.......................... $1,199,762 51.4%
AA........................... 158,785 6.8
A............................ 361,008 15.5
BBB.......................... 416,589 17.9
Noninvestment grade.......... 196,967 8.4
------------- ------------
$2,333,111 100.0%
============= ============
</TABLE>
The Company has a diversified portfolio of commercial and residential mortgage
loans outstanding in 14 states. The loans are somewhat geographically
concentrated in the midwestern
33
<PAGE> 77
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
and southwestern United States with the largest outstanding balances at December
31, 1996 being in the states of Kansas (34%), Iowa (15%) and Texas (14%).
Net realized gains (losses) consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities ...................... $(1,329) $ 1,805 $ 397
Equity securities ..................... 1,013 735 528
Other ................................. 72 1,336 (791)
------- ------- -------
Total realized gains (losses) ......... $ (244) $ 3,876 $ 134
======= ======= =======
</TABLE>
Deferred losses totaling $2.2 million and $3.9 million at December 31, 1996 and
1995, respectively, resulting from terminated and expired futures contracts are
included in fixed maturities and will be amortized as an adjustment to net
investment income. The notional amount of outstanding agreements to sell
securities was $79 million at December 31, 1995. There were no outstanding
agreements at December 31, 1996.
For interest rate exchange agreements, one agreement was terminated during 1996
resulting in a deferred gain of $1.1 million. The notional amount of the
remaining outstanding agreements was $30 million at December 31, 1996. Also, as
of December 31, 1996, these agreements have maturities ranging from March 1997
to May 2005. Under these agreements, the Company receives variable rates based
on the one- and three-month LIBOR and pays fixed rates ranging from 6.875% to
7.215%.
3. EMPLOYEE BENEFIT PLANS
Substantially all Company employees are covered by a qualified, noncontributory
defined benefit pension plan sponsored by the Company and certain of its
affiliates. Benefits are based on years of service and an employee's highest
average compensation over a period of five consecutive years during the last 10
years of service. The Company's policy has been to contribute funds to the plan
in amounts required to maintain sufficient plan assets to provide for accrued
benefits. In applying this general policy, the Company considers, among other
factors, the recommendations of its independent consulting actuaries, the
requirements of federal pension law and the limitations on deductibility imposed
by federal income tax law. The Company records pension cost in accordance with
the provisions of SFAS No. 87, "Employers' Accounting for Pensions."
34
<PAGE> 78
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Pension cost for the plan for 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Service cost ......................... $ 670 $ 528 $ 679
Interest cost ........................ 587 508 535
Actual return on plan assets ......... (1,064) (1,568) 310
Net amortization and deferral ........ 284 900 (949)
------- ------- -------
Net pension cost ..................... $ 477 $ 368 $ 575
======= ======= =======
</TABLE>
The funded status of the plan as of December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------ ------------
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation .............................................. $ (6,059) $ (5,243)
Non-vested benefit obligation .......................................... (202) (165)
------------ ------------
Accumulated benefit obligation ......................................... (6,261) (5,408)
Excess of projected benefit obligation
over accumulated benefit obligation ................................ (2,961) (2,865)
------------ ------------
Projected benefit obligation ........................................... (9,222) (8,273)
Plan assets, at fair market value ......................................... 10,085 8,342
------------ ------------
Plan assets greater than projected benefit obligation ..................... 863 69
Unrecognized net loss ..................................................... 1,007 1,560
Unrecognized prior service cost ........................................... 700 758
Unrecognized net asset established at the date of initial application ..... (1,841) (2,025)
------------ ------------
Net prepaid pension cost .................................................. $ 729 $ 362
============ ============
</TABLE>
Assumptions were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average discount rate ............................................ 7.75% 7.5% 8.5%
Weighted average rate of increase in compensation for
participants age 45 and older ......................................... 4.5 4.5 4.5
Weighted average expected long-term return on plan assets ................. 9.0 9.0 9.0
</TABLE>
35
<PAGE> 79
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
Compensation rates that vary by age for participants under age 45 were used in
determining the actuarial present value of the projected benefit obligation in
1996. Plan assets are invested in a diversified portfolio of affiliated mutual
funds that invest in equity and debt securities.
In addition to the Company's defined benefit pension plan, the Company provides
certain medical and life insurance benefits to full-time employees who have
retired after the age of 55 with five years of service. The plan is
contributory, with retiree contributions adjusted annually and contains other
cost-sharing features such as deductibles and coinsurance. Contributions vary
based on the employee's years of service earned after age 40. The Company's
portion of the costs is frozen after 1996 with all future cost increases passed
on to the retirees. Retirees in the plan prior to July 1, 1993 are covered 100%
by the Company.
Retiree medical care and life insurance cost for the total plan for 1996, 1995
and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Service cost ............................ $ 157 $ 151 $ 116
Interest cost ........................... 280 305 275
-------- -------- --------
$ 437 $ 456 $ 391
======== ======== ========
</TABLE>
The funded status of the plan as of December 31, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ........................................ $ (2,498) $ (2,514)
Active participants:
Retirement eligible ............................. (568) (632)
Others .......................................... (1,023) (1,035)
-------- --------
(4,089) (4,181)
Unrecognized net (gain) loss ....................... (348) 67
-------- --------
Accrued postretirement benefit cost ................ $ (4,437) $ (4,114)
======== ========
</TABLE>
The annual assumed rate of increase in the per capita cost of covered benefits
is 10% for 1996 and is assumed to decrease gradually to 5% for 2001 and remain
at that level thereafter. The health care cost trend rate has a significant
effect on the amount reported. For example, increasing the assumed health care
cost trend rates by one percentage point each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by
$191,000
36
<PAGE> 80
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. EMPLOYEE BENEFIT PLANS (CONTINUED)
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1996 by $54,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75%, 7.5% and 8.5% at December 31, 1996, 1995 and 1994,
respectively.
The Company has a profit-sharing and savings plan for which substantially all
employees are eligible after one year of employment with the Company.
Contributions for profit sharing are based on a formula established by the Board
of Directors with pro rata allocation among employees based on salaries. The
savings plan is a tax-deferred, 401(k) retirement plan. Employees may contribute
up to 10% of their eligible compensation. The Company matches 50% of the first
6% of the employee contributions. Employee contributions are fully vested, and
Company contributions are vested over a five-year period. Company contributions
to the profit-sharing and savings plan charged to operations were $1,783,000,
$1,567,000 and $1,075,000 for 1996, 1995 and 1994, respectively.
4. REINSURANCE
The Company assumes and cedes reinsurance with other companies to provide for
greater diversification of business, allow management to control exposure to
potential losses arising from large risks, and provide additional capacity for
growth. The Company's maximum retention on any one life is $500,000. The Company
does not use financial or surplus relief reinsurance. Life insurance in force
ceded at December 31, 1996 and 1995 was $4.0 and $3.9 billion, respectively.
Principal reinsurance transactions are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Reinsurance ceded:
Premiums paid ........................ $ 25,442 $ 5,305 $ 3,980
======== ======== ========
Commissions received ................. $ 4,669 $ 230 $ 1,443
======== ======== ========
Claim recoveries ..................... $ 5,235 $ 3,089 $ 2,485
======== ======== ========
</TABLE>
In the accompanying financial statements, premiums, benefits, settlement
expenses and deferred policy acquisition costs are reported net of reinsurance
ceded; policy liabilities and accruals are reported gross of reinsurance ceded.
The Company remains liable to policyholders if the reinsurers are unable to meet
their contractual obligations under the applicable reinsurance agreements. To
minimize its exposure to significant losses from reinsurance insolvencies, the
37
<PAGE> 81
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. REINSURANCE (CONTINUED)
Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of reinsurers. At December 31, 1996 and
1995, the Company had established a receivable totaling $92,197,000 and
$78,877,000 for reserve credits, reinsurance claims and other receivables from
its reinsurers. The amount of reinsurance assumed is not significant.
In 1995, the Company transferred, through a 100% coinsurance agreement, $66.9
million in policy reserves and claim liabilities. The agreement related to a
block of whole life and decreasing term life insurance business.
In prior years, the Company was involved in litigation arising out of its
participation from 1986 to 1990 in a reinsurance pool. The litigation related to
the pool manager and a reinsurance intermediary placing major medical business
in the pool without authorization. During 1993, the Company settled the major
medical portion of the pool's activity with no significantly adverse effect on
the Company. The nonmajor medical business placed in the pool has experienced
significant losses. At December 31, 1996, the Company believes adequate
provision has been made for such losses.
5. INCOME TAXES
The Company files a life/nonlife consolidated federal income tax return. The
provision for income taxes includes current federal income tax expense or
benefit and deferred income tax expense or benefit due to temporary differences
between the financial reporting and income tax bases of assets and liabilities.
Such differences relate principally to liabilities for future policy benefits
and accumulated contract values, deferred compensation, deferred policy
acquisition costs, postretirement benefits, deferred selling commissions,
depreciation expense and unrealized appreciation (depreciation) on securities
available-for-sale.
Income tax expense consists of the following for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Current ........................... $ 12,528 $ 15,200 $ 11,361
Deferred .......................... 8,343 2,727 5,768
-------- -------- --------
$ 20,871 $ 17,927 $ 17,129
======== ======== ========
</TABLE>
The provision for income taxes differs from the amount computed at the statutory
federal income tax rate due primarily to dividends received deductions and tax
credits.
38
<PAGE> 82
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Income taxes paid by the Company were $16,213,000, $11,551,000, and $14,634,000
during 1996, 1995, and 1994, respectively.
Net deferred tax assets or liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Future policy benefits ................................................. $ 20,487 $ 17,780
Net unrealized depreciation on securities available-for-sale ........... 1,409 --
Guaranty fund assessments .............................................. 1,400 1,260
Employee benefits ...................................................... 4,852 3,836
Other .................................................................. 4,620 3,662
---------- ----------
Total deferred tax assets ................................................. 32,768 26,538
Deferred tax liabilities:
Deferred policy acquisition costs ...................................... 69,647 50,580
Net unrealized appreciation on securities available-for-sale ........... -- 12,539
Deferred gain on investments ........................................... 10,446 8,681
Depreciation ........................................................... 2,061 988
Other .................................................................. 5,461 7,409
---------- ----------
Tax deferred tax liabilities .............................................. 87,615 80,197
---------- ----------
Net deferred tax liabilities .............................................. $ 54,847 $ 53,659
========== ==========
</TABLE>
6. CONDENSED FAIR VALUE INFORMATION
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether
recognized or not recognized in a company's balance sheet, for which it is
practicable to estimate that value. The methods and assumptions used by the
Company to estimate the following fair value disclosures for financial
instruments are set forth in Note 1.
SFAS No. 107 excludes certain insurance liabilities and other nonfinancial
instruments from its disclosure requirements. However, the liabilities under all
insurance contracts are taken into consideration in the Company's overall
management of interest rate risk that minimizes exposure to changing interest
rates through the matching of investment maturities with amounts due under
insurance contracts. The fair value amounts presented herein do not include an
amount for the value associated with customer or agent relationships, the
expected interest margin (interest earnings in excess of interest credited) to
be earned in the future on investment-type products or other intangible items.
Accordingly, the aggregate fair value amounts presented herein do not
necessarily represent the underlying value of the Company; likewise, care should
be exercised in
39
<PAGE> 83
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. CONDENSED FAIR VALUE INFORMATION (CONTINUED)
deriving conclusions about the Company's business or financial condition based
on the fair value information presented herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------- -----------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2) ................... $ 2,333,111 $ 2,333,770 $ 2,314,507 $ 2,327,646
Equity securities (Note 2) .................. 89,188 89,188 21,880 21,880
Mortgage loans .............................. 66,611 69,004 74,342 80,175
Policy loans ................................ 106,822 108,685 100,452 104,077
Short-term investments ...................... -- -- 992 992
Cash and cash equivalents ................... 8,310 8,310 16,788 16,788
Accrued investment income ................... 32,161 32,161 30,623 30,623
Futures contracts ........................... -- -- -- (737)
Interest rate exchange agreements ........... -- (282) -- (2,291)
Liabilities:
Supplementary contracts without life
contingencies ............................. 33,225 33,803 34,363 35,387
Individual and group annuities .............. 1,942,697 1,767,692 1,922,901 1,774,642
Long-term debt .............................. 65,000 67,683 -- --
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases various equipment under several operating lease agreements.
Total expense for all operating leases amounted to $1,904,000, $1,302,000 and
$1,450,000 for 1996, 1995 and 1994, respectively. The Company has aggregate
future lease commitments at December 31, 1996 of $4,337,000 for noncancelable
operating leases consisting of $992,000 in 1997, $941,000 in 1998, $829,000 in
1999, $818,000 in 2000 and $757,000 in 2001 and thereafter.
In addition, in 2001, under the terms of an operating lease for an airplane, the
Company has the option to renew the lease for another five years, purchase the
airplane for approximately $4.7 million, or return the airplane to the lessor
and pay a termination charge of approximately $3.7 million. If the option to
renew the lease for five years is selected, at the end of the five-year period
(2006), the Company has the option to purchase the airplane for approximately
$3.4 million or return the airplane to the lessor and pay a termination charge
of approximately $2.7 million.
40
<PAGE> 84
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The economy and other factors have caused an increase in the number of insurance
companies that have required regulatory supervision. Guaranty fund assessments
are levied on the Company by life and health guaranty associations in most
states in which it is licensed to cover losses of policyholders of insolvent or
rehabilitated insurers. In some states, these assessments can be partially
recovered through a reduction in future premium taxes. The Company cannot
predict whether and to what extent legislative initiatives may affect the right
to offset. Based on information from the National Organization of Life and
Health Guaranty Association and information from the various state guaranty
associations, the Company believes that it is probable that these insolvencies
will result in future assessments. The Company regularly evaluates its reserve
for these insolvencies and updates its reserve based on the Company's
interpretation of information recently received. The associated costs for a
particular insurance company can vary significantly based on its premium volume
by line of business in a particular state and its potential for premium tax
offset. The Company accrued and charged to expense $1,574,000, $2,302,000 and
$237,000 for 1996, 1995 and 1994, respectively. At December 31, 1996, the
Company has reserved $4,000,000 to cover current and estimated future
assessments net of related premium tax credits.
8. LONG-TERM DEBT
The Company has a $75.5 million line of credit facility from the Federal Home
Loan Bank of Topeka. Any borrowings in connection with this facility bear
interest at .1% over the Federal Funds rate. No amounts were outstanding at
December 31, 1996.
In February 1996, the Company negotiated three separate $5,000,000 advances with
the Federal Home Loan Bank of Topeka. The advances are due February 27, 1998,
February 26, 1999 and February 28, 2001 and carry interest rates of 5.59%, 5.76%
and 6.04%, respectively.
In May 1996, the Company issued $50 million of 8.75% surplus notes maturing on
May 15, 2016. The surplus notes were issued pursuant to Rule 144A under the
Securities Act of 1933. The surplus notes have repayment conditions and
restrictions whereby each payment of interest on or principal of the surplus
notes may be made only with the prior approval of the Kansas Insurance
Commissioner and only out of surplus funds that the Kansas Insurance
Commissioner determines to be available for such payment under the Kansas
Insurance Code.
9. RELATED-PARTY TRANSACTIONS
The Company owns shares of mutual funds managed by Security Management Company,
LLC with a net asset value totaling $60,559,000 and $5,364,000 at December 31,
1996 and 1995, respectively.
41
<PAGE> 85
Security Benefit Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. ASSETS HELD IN SEPARATE ACCOUNTS
Separate account assets were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(In Thousands)
<S> <C> <C>
Premium and annuity considerations for the
variable annuity products and
variable universal life product
for which the contractholder, rather
than the Company, bears the
investment risk ..................................... $ 2,793,911 $ 2,051,292
Assets of the separate accounts owned by the Company, at
fair value .......................................... 9,016 14,014
----------- -----------
$ 2,802,927 $ 2,065,306
=========== ===========
</TABLE>
11. STATUTORY INFORMATION
The Company and its insurance subsidiary prepare statutory-basis financial
statements in accordance with accounting practices prescribed or permitted by
the Kansas and New York Insurance regulatory authorities, respectively.
Accounting practices used to prepare statutory-basis financial statements for
regulatory filings of life insurance companies differ in certain instances from
GAAP. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners (NAIC), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed; such practices may differ from state to state, may differ from
company to company within a state and may change in the future. Statutory
capital and surplus of the insurance operations are $286,689,000 and
$207,669,000 at December 31, 1996 and 1995, respectively.
42
<PAGE> 86
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<PAGE> 87
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<PAGE> 88
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<PAGE> 89
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Part B of
this Registration Statement.
(b) Exhibits
(1) Certified Resolution of the Board of Directors of
Security Benefit Life Insurance Company ("SBL")
authorizing establishment of the Separate Account(a)
(2) Not Applicable
(3) (a) Service Facilities Agreement
(b) Variable Annuity Sales Agreement
(4) (a) Individual Contract (Form V6025)
(b) Group Unallocated Contract (Form V6320)
(c) Tax-Sheltered Annuity Endorsement (Form 6832A)(a)
(d) Withdrawal Charge Waiver Endorsement (Form
V6051)(a)
(e) Waiver of Withdrawal Charge for Terminal Illness
Endorsement (Form V6051 TI)(a)
(f) Simple Individual Retirement Annuity Endorsement
(Form 4453C-5S)(a)
(g) Individual Retirement Annuity Endorsement (Form
V6842A)(a)
(h) Annuity Loan Provisions (Form V6846-1 7/97)
(5) Form of Application
(6) (a) Composite of Articles of Incorporation of SBL(a)
(b) Bylaws of SBL
(7) Not Applicable
(8) Not Applicable
(9) Opinion of Counsel(a)
(10) Consent of Independent Auditors
(11) Not Applicable
(12) Not Applicable
(13) Schedules of Computation of Performance(b)
(14) Powers of Attorneys of Howard R. Fricke, Thomas R.
Clevenger, Sister Loretto Marie Colwell, John C.
Dicus, William W. Hanna, John E. Hayes, Jr., Laird G.
Noller, Frank C. Sabatini and Robert C. Wheeler(a)
(15) Financial Data Schedules
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Initial Registration Statement No. 333-23723 (March 21, 1997)
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Pre-Effective Amendment No. 1 under the Securities Act of
1933 and Amendment No. 1 under the Investment Company Act of 1940 to
Registration Statement No. 333-23723 (July 2, 1997).
<PAGE> 90
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Offices with Depositor
- ----------------------------------- ------------------------------------
<S> <C>
Howard R. Fricke* Chairman of the Board, President, Chief Executive
Officer and Director
Thomas R. Clevenger Director
P.O. Box 8514
Wichita, Kansas 67208
Sister Loretto Marie Colwell Director
1700 SW 7th Street
Topeka, Kansas 66044
John C. Dicus Director
700 Kansas Avenue
Topeka, Kansas 66603
Steven J. Douglass Director
3231 East 6th Street
Topeka, KS 66607
William W. Hanna Director
P.O. Box 2256
Wichita, Kansas 67201
John E. Hayes, Jr. Director
818 Kansas Avenue
Topeka, Kansas 66612
Laird G. Noller Director
2245 Topeka Boulevard
Topeka, Kansas 66611
Frank C. Sabatini Director
120 SW 6th Street
Topeka, Kansas 66603
Robert C. Wheeler Director
P.O. Box 148
Topeka, Kansas 66601
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Offices with Depositor
- ----------------------------------- ------------------------------------
<S> <C>
Kris A. Robbins* Executive Vice President
Donald J. Schepker* Senior Vice President, Chief Financial Officer and
Treasurer
Roger K. Viola* Senior Vice President, General Counsel and
Secretary
T. Gerald Lee* Senior Vice President - Administration
Malcolm E. Robinson* Senior Vice President and Assistant to the
President
Donald E. Caum* Senior Vice President and Chief Marketing Officer
Richard K Ryan* Senior Vice President
Amy J. Lee* Associate General Counsel, Vice President and
Assistant Secretary
James R. Schmank* Vice President
Kathleen R. Blum* Vice President - Administration
</TABLE>
*Located at 700 Harrison Street, Topeka, Kansas 66636.
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
The Depositor, Security Benefit Life Insurance Company ("SBL"), is
controlled by its policy owners. No one person holds more than approximately
0.0004% of the voting power of SBL. The Registrant is a segregated asset account
of SBL.
The following chart indicates the persons controlled by or under common
control with SBL Variable Annuity Account VIII or SBL:
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting Securities
Name Incorporation Owned or controlled by SBL
---- ------------- --------------------------
<S> <C> <C>
Security Benefit Life Insurance Company Kansas -----
(Mutual Life Insurance Company)
Security Benefit Group, Inc. Kansas 100%
(Holding Company)
Security Management Company, LLC Kansas 100%
(Investment Adviser)
Security Distributors, Inc. Kansas 100%
(Broker/Dealer, Principal Underwriter of
Mutual Funds)
Security Benefit Academy, Inc. Kansas 100%
(Daycare Company)
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting Securities
Name Incorporation Owned or controlled by SBL
---- ------------- --------------------------
<S> <C> <C>
Creative Impressions, Inc. Kansas 100%
(Advertising Agency)
Security Benefit Clinic and Hospital Kansas 100%
(Nonprofit provider of hospital
benevolences for fraternal certificate
holders)
First Advantage Insurance Agency, Inc. Kansas 100%
(Insurance Agency)
First Security Benefit Life Insurance and New York 100%
Annuity Company of New York
</TABLE>
SBL is also the depositor of the following separate accounts: SBL
Variable Annuity Accounts I, III, IV, and Variflex, SBL Variable Life Insurance
Account Varilife, Security Varilife Separate Account, Parkstone Variable Annuity
Separate Account and T. Rowe Price Variable Annuity Account.
Through the above-referenced separate accounts, SBL might be deemed to
control the open-end management investment companies listed below. The
approximate percentage of ownership by the separate accounts for each company is
as follows:
<TABLE>
<S> <C> <C> <C>
Security Equity Fund 16.0% Security Income Fund 7.0%
Corporate Bond Series
Security Growth and Income Fund 60.5% SBL Fund 100%
</TABLE>
Item 27. Number of Contract Owners
As of September 30, 1997, there were 65 owners of the Qualified
Contracts and 124 owners of the Non-Qualified Contracts.
Item 28. Indemnification
The bylaws of Security Benefit Life Insurance Company provide that the
Company shall, to the extent authorized by the laws of the State of Kansas,
indemnify officers and directors for certain liabilities threatened or incurred
in connection with such person's capacity as director or officer.
<PAGE> 93
The Articles of Incorporation include the following provision:
A Director shall not be personally liable to the Corporation or to its
policyholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director
A. for any breach of his or her duty of loyalty to the
Corporation or its policyholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. under the provisions of K.S.A. 17-6424 and amendments
thereto; or
D. for any transaction from which the director derived an
improper personal benefit.
This Article Eighth shall not eliminate or limit the liability of a
director for any act or omission occurring prior to the date this
Article Eighth becomes effective.
Insofar as indemnification for a 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 Depositor
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the Securities being registered, the
Depositor will, unless in the opinion of its counsel the matter has been settled
by a controlling precedent, submit to a court of appropriate jurisdiction the
question of 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.
Item 29. Principal Underwriter
(a) Security Distributors, Inc. ("SDI"), a subsidiary of SBL, acts as
distributor of the SBL Variable Annuity Account VIII contracts. SDI receives no
compensation for its distribution function in excess of the commissions it pays
to selling broker/dealers. SDI performs similar functions for SBL Variable
Annuity Accounts I, III and IV, Variflex, SBL Variable Life Insurance Account
Varilife, Security Varilife Separate Account and Parkstone Variable Annuity
Separate
<PAGE> 94
Account. SDI also acts as principal underwriter for the following management
investment companies for which Security Management Company, LLC acts as
investment adviser: Security Equity Fund, Security Income Fund, Security Growth
and Income Fund, Security Tax-Exempt Fund and Security Ultra Fund.
(b)
<TABLE>
<CAPTION>
Name and Principal Position and Offices
Business Address* with Underwriter
- ------------------ ------------------
<S> <C>
Richard K Ryan President and Director
John D. Cleland Vice President and Director
James R. Schmank Vice President and Director
Mark E. Young Vice President
Amy J. Lee Secretary
Brenda M. Harwood Treasurer
Daniel J. McNichol Vice President
Jennifer A. Zaat Regional Vice President
Kent N. Spillman Regional Vice President
Carla D. Griffin Regional Vice President
Anthony Hammock Regional Vice President
William G. Mancuso Regional Vice President
Clark A. Anderson Regional Vice President
Paul A. Richardson Regional Vice President
Marek E. Lakotko Regional Vice President
Susan L. Tully Regional Vice President
Eric M. Aanes Regional Vice President
</TABLE>
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by SBL at its administrative
offices--700 Harrison Street, Topeka, Kansas 66636-0001.
<PAGE> 95
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
Registration Statement as frequently as necessary to ensure that the audited
financial statements in the Registration Statement are never more than sixteen
(16) months old for so long as payments under the Variable Annuity contracts may
be accepted.
(b) Registrant undertakes that it will include as part of the SBL Variable
Annuity Account VIII contract application a space that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information and
any financial statements required to be made available under this Form promptly
upon written or oral request to SBL at the address or phone number listed in the
prospectus.
(d) Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that Section.
(e) SBL, sponsor of the unit investment trust, SBL Variable Annuity Account
VIII, hereby represents that it is relying upon the Securities and Exchange
Commission's No-Action Letter Ref. No. IP-6-88, American Council of Life
Insurance, and that it has complied with the provisions of paragraphs (1)-(4) of
such no-action letter which are incorporated herein by reference.
(f) Depositor represents that the fees and charges deducted under the contract,
in the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by the Depositor.
<PAGE> 96
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Topeka, and
State of Kansas on this 1st day of October, 1997.
SIGNATURES AND TITLES
<TABLE>
<S> <C>
Howard R. Fricke SECURITY BENEFIT LIFE INSURANCE COMPANY
Director, Chairman of the Board, (The Depositor)
President and Chief Executive
Officer
By: Roger K. Viola
------------------------------------------------------
Thomas R. Clevenger Roger K. Viola, Senior Vice President, General
Director Counsel and Secretary as Attorney-In-Fact for the
Officers and Directors Whose Names Appear Opposite
Sister Loretto Marie Colwell
Director
SBL VARIABLE ANNUITY ACCOUNT VIII
John C. Dicus (The Registrant)
Director
By: SECURITY BENEFIT LIFE INSURANCE COMPANY
William W. Hanna (The Depositor)
Director
John E. Hayes, Jr. By: Howard R. Fricke
------------------------------------------------------
Director Howard R. Fricke, President and Chief Executive
Officer
Laird G. Noller
Director By: Donald J. Schepker
------------------------------------------------------
Donald J. Schepker, Senior Vice President, Chief
Frank C. Sabatini Financial Officer and Treasurer
Director
(ATTEST): Roger K. Viola
-----------------------------------------------------
Robert C. Wheeler Roger K. Viola, Senior Vice President,
Director General Counsel and Secretary
</TABLE>
Date: October 1, 1997
<PAGE> 97
EXHIBIT INDEX
(1) None
(2) None
(3) (a) Service Facilities Agreement
(b) Variable Annuity Sales Agreement
(4) (a) Individual Contract
(b) Group Unallocated Contract
(h) Annuity Loan Provisions
(5) Form of Application
(6) (a) None
(b) Bylaws
(7) None
(8) None
(9) None
(10) Consent of Independent Auditors
(11) None
(12) None
(13) None
(14) None
(15) Financial Data Schedules
<PAGE> 1
SERVICE FACILITIES AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of April, 1987, by and
between Security Distributors, Inc., and Security Benefit Life Insurance
Company, both Kansas corporations.
WITNESSETH:
WHEREAS, Security Distributors, Inc. is a wholly-owned subsidiary of Security
Management Company, which is a wholly-owned subsidiary of Security Benefit
Group, Inc., which in turn is a wholly-owned subsidiary of Security Benefit Life
Insurance Company; and
WHEREAS, one of the purposes of Security Distributors, Inc., is to act as a
broker/dealer and principal underwriter pursuant to the requirements of the
Securities Act of 1934 for the offering and selling of Variable Annuity
Contracts and Variable Life Insurance Policies to be issued by Security Benefit
Life Insurance Company for investment in the various SBL Variable Annuity and
Variable Life Separate Accounts; and
WHEREAS, because Security Benefit Life Insurance Company has facilities for the
handling of the recordkeeping and other related administrative duties of
Security Distributors, Inc. pertaining to the sale of Variable Annuity Contracts
and Variable Life Insurance Policies;
NOW, THEREFORE, IT IS MUTUALLY AGREED between Security Distributors, Inc. and
Security Benefit Life Insurance Company, both Kansas corporations, that for and
in consideration of the principal underwriting and broker/dealer services
rendered and to be rendered by Security Distributors, Inc. relating to Security
Benefit Life Insurance Company's Variable Annuity and Variable Life operations,
Security Benefit Life Insurance Company convenants and agrees that it will
furnish services and facilities to Security Distributors, Inc. as hereinafter
set forth:
1. Administrative and clerical personnel as may be needed from time to time to
properly carry out the functions and duties of Security Distributors, Inc.
relating to the Variable Annuity and Variable Life operations.
2. Maintain all books and records of Security Distributors, Inc. in connection
with persons offering and selling Variable Annuity Contracts and Variable
Life Insurance Policies funded by various separate accounts of Security
Benefit Life Insurance Company who are licensed as insurance agents of
Security Benefit Life Insurance Company and are also Registered
Representatives of independent broker/dealers which have Selling Agreements
with Security Distributors, Inc. Such books and records to be maintained
and preserved in conformity with the requirements of Rule 17(a)-3 and
17(a)-4 of the Securities Act of 1934 to the extent that such requirements
are applicable to Variable Annuity Contracts and Variable Life Insurance
Policies.
3. All such books and records are to be maintained and held by Security
Benefit Life Insurance Company on behalf of and as agent for Security
Distributors, Inc. and such books and records shall remain the sole
property of Security Distributors, Inc.
1
<PAGE> 2
4. Such books and records shall at all times be subject to inspection by the
Securities and Exchange Commission in accordance with Section 17(a) of the
Securities Act of 1934 and the National Association of Securities Dealers,
Inc.
5. It is further understood and agreed that the making of any payments by
Security Benefit Life Insurance Company to registered representatives of
independent broker/dealers which have Selling Agreements with Security
Distributors, Inc. are performed as purely as administerial service and
that the records in respect thereof are properly reflected on the books and
records maintained by or for Security Distributors, Inc.
6. Since the crediting of a payment made by a participant (applicant of owner)
of a Variable Annuity Contract or by an owner of a Variable Life Insurance
Policy on the books and records maintained by or for Security Distributors,
Inc. constitutes the sale of a security, and, therefore, a "transaction" as
that term is used in Rule 15(c) 1-4 under the Securities Act of 1934, a
confirmation for each such transaction will be sent to the participant at
or before the completion of the transaction, and such confirmation shall
reflect the facts of the transaction, and the form thereof will show that
it is being sent on behalf of Security Distributors, Inc. and acting in the
capacity of agent for Security Benefit Life Insurance Company.
7. Security Distributors, Inc. has and does assume full responsibility for the
securities activities of all persons associated with it who are engaged
directly or indirectly in the Variable Annuity and/or Variable Life
operation of Security Benefit Life Insurance Company, each such person
being a "person associate" of Security Distributors, Inc. as defined in
Section 3(a)-18 of the Securities Act of 1934, and, therefore, a person for
whom Security Distributors, Inc. has full responsibility in connection with
training, supervision and control as contemplated by Section 15(b)(5)(E) of
the Securities Act of 1934, provided, however, Security Distributors, Inc.
shall not be responsible for persons not associated with it that are
registered broker/dealers or who are offering or selling Variable Annuity
Contracts or Variable Life Policies and are affiliated and registered with
a broker/dealer for such purposes.
ANY CHANGES in this Agreement shall be mutually agreed to by both parties and
shall be in writing.
THIS AGREEMENT shall be in effect as of April 1, 1987, and shall remain in
effect until otherwise terminated by either party upon thirty (30) days written
notice to the other party at that party's last known address as reflected on the
records of the terminating party.
2
<PAGE> 1
[SBL Logo]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
- --------------------------------------------------------------------------------
A MEMBER OF THE SECURITY 700 SW HARRISON ST.
BENEFIT GROUP OF COMPANIES TOPEKA, KANSAS 66636-0001
(785) 431-3000
SBL VARIABLE PRODUCTS
BROKER/DEALER
SALES AGREEMENT
BROKER/DEALER:
EFFECTIVE DATE:
1. Security Benefit Life Insurance Company, of Topeka, Kansas, and its
affiliated company, Security Distributors, Inc., hereinafter jointly
called "SBL", hereby authorize the above-designated Broker/Dealer to
solicit and service (1) variable annuities issued under Security Benefit
Life Insurance Company's several Variable Annuity Accounts and (2)
variable life insurance policies issued under Security Benefit Life
Insurance Company's variable life accounts, each of which has been
registered as securities under the Securities Act of 1933 with Security
Distributors, Inc. (a member of the National Association of Securities
Dealers, Inc.) having been designated Principal Underwriter thereof. Said
variable annuity contracts and variable life insurance policies are
referred to herein as "Variable products."
2. Broker/Dealer hereby accepts such authorization to solicit and service
such SBL variable products and confirms that it is properly licensed to
solicit and service such variable products for SBL and is a member in
good standing of the National Association of Securities Dealers, Inc.,
hereinafter called "NASD", and further agrees to notify SBL if it ceases
to be a member of NASD.
3. Broker/Dealer shall have the authority to recruit, train and supervise
registered representatives for the sale of variable products of SBL.
Appointment of any registered representative shall be subject to prior
approval of SBL. SBL reserves the right to require termination of any
registered representative's right to sell SBL variable products.
Broker/Dealer shall be responsible for any registered representative
appointed hereunder complying with the terms, conditions and limitations
as set forth in this Agreement. All registered representatives recruited
by Broker/Dealer to sell SBL's variable products shall be duly licensed
as annuity producers and/or insurance producers pursuant to applicable
state laws and regulations. Broker/Dealer shall be responsible for any
registered representative becoming so licensed.
4. Commissions on stipulated payments or premiums accepted by SBL on behalf
of an annuitant, participant, or policyholder of a variable product
covered by this Agreement will be in accordance with the Schedule of
Commissions made part of this Agreement, and are in full consideration of
all services rendered and expenses incurred hereunder by the
Broker/Dealer or its representatives. First year commissions are payable
when an individual variable annuity contract, group variable annuity
certificate or variable life insurance policy is issued and paid for upon
an application submitted through Broker/Dealer and accepted by the
applicant thereof. Broker/Dealer is not authorized to deduct commissions
prior to forwarding any remittance received to SBL. All checks or drafts
received by the Broker/Dealer in regards to any variable product shall be
made payable to Security Benefit Life Insurance Company. All compensation
payable hereunder shall be subject to a first lien and may be reduced or
set off as to any indebtedness owed by the Broker/Dealer to SBL. Any
commissions paid to a third party at the request of the Broker/Dealer
shall be deducted from the commissions payable hereunder.
5. Broker/Dealer agrees to be bound by the terms, conditions and limitations
set forth in this Agreement and the rules and practices of SBL that are
now and hereafter in force. Broker/Dealer agrees not to solicit or submit
applications for variable products to SBL unless it and its registered
representatives are properly licensed, and further agrees that it will
conform to all applicable state, federal and local laws and regulations
in conducting business under this Agreement. Both parties hereby agree to
abide by the applicable Rules of Fair Practice of the NASD which Rules
are incorporated herein as set forth in full. The signing of this
Agreement and the purchase of variable products pursuant thereto is a
representation of SBL that Broker/Dealer is a properly registered
Broker/Dealer under the Securities and Exchange Act of 1934.
6. Neither the Broker/Dealer nor its representatives are authorized to make
any representations concerning the variable products, its sponsor (SBL),
the principal underwriter (Security Distributors, Inc.) or the underlying
mutual funds except those contained in the applicable current
prospectuses and in the printed information furnished by SBL.
Broker/Dealer agrees not to use any other advertising or sales material
relating to the variable products unless specifically approved in writing
by SBL.
<PAGE> 2
7. Broker/Dealer is not authorized and has no authority (a) to make, alter
or discharge any contract for or on behalf of SBL, (b) endorse any check
or draft payable to SBL, (c) to accept any variable product consideration
after the initial remittance, (d) to waive or modify any prospectus,
contract, policy or application provision, condition or obligation, and
(e) to extend the time for payment of any variable product consideration
or accept payment of any past due variable product consideration.
8. This Agreement shall not create or be construed as creating an
Employer-Employee or Master-Servant relationship between Broker/Dealer
and SBL.
9. Broker/Dealer agrees to keep accurate records on all business written and
moneys received under this Agreement. Such records may be examined by SBL
or its representatives at any reasonable time. All moneys and documents
belonging to SBL in possession of Broker/Dealer shall be held in trust
and shall not be used or commingled with funds or property belonging to
Broker/Dealer and shall be promptly remitted to SBL. Broker/Dealer agrees
to be responsible for any county or municipal occupational or privilege
fee, tax or license which may be required of Broker/Dealer or its
representatives as a result of business submitted under this Agreement.
10. Neither this Agreement nor the compensation payable hereunder shall be
assigned or pledged without the written consent of SBL. SBL reserves the
right to reject any assignment or pledge.
11. No consent or change in this agreement shall be binding upon SBL unless
in writing and signed by the president, vice president, secretary or an
assistant secretary of SBL. Any failure of SBL to insist upon strict
compliance with the provisions of this Agreement shall not constitute or
be construed as a waiver thereof.
12. SBL shall have the right to decline or modify any application or to
refund any variable product consideration or any portion thereof, and
Broker/Dealer shall refund immediately upon request any commissions
received in connection therewith. All applications for variable products
are subject to acceptance by SBL and become effective only upon
confirmation by SBL. Broker/Dealer agrees to return to SBL without delay
any commissions received on a variable product, contract or policy if
such contract or policy is tendered for redemption within seven (7)
business days after acceptance of the application by SBL.
13. Variable products, contracts and policies will be offered to the public
at the price as outlined in the applicable variable product's current
prospectus. All cash surrenders require the written request and consent
of the contract or policy owner and such surrenders will conform to the
provisions set forth in the applicable contract or policy.
14. SBL has been and is designated Administrative Agent of Security
Distributors, Inc. to perform duties, including recordkeeping and payment
of commissions, necessary under this Agreement in connection with the
solicitation, sales and servicing of variable annuity contracts sold and
solicited hereunder.
15. SBL reserves the right to amend or terminate this Agreement at any time.
In the event Broker/Dealer ceases to be a member in good standing of the
NASD, this Agreement shall terminate automatically without notice. After
termination Broker/Dealer upon request, shall without delay pay in full
any indebtedness owed to SBL and return all SBL property to their home
office. In the event Broker/Dealer ceases doing business in such manner
that servicing would be impossible, SBL reserves the right to reassign
the business and service fees to another Broker/Dealer. Should
Broker/Dealer fail to comply with any of the terms of this Agreement, SBL
reserves the right to terminate this Agreement and terminate vesting as
to all commissions payable thereunder.
16. This Agreement is effective as of the Effective Date set forth above and
replaces any previous agreement between the parties relating to variable
products of SBL except as to any commissions payable thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date set forth above.
SECURITY DISTRIBUTORS, INC. BROKER/DEALER
By
-------------------------------- ------------------------------------
Title: (Signature of Principal)
------------------------------------
(Name of Principal)
SECURITY BENEFIT LIFE INSURANCE COMPANY
By
-------------------------------- ------------------------------------
Title: Title:
[ ] Individual [ ] Corporation [ ] Partnership
Tax Identification No.
------------------------
<PAGE> 3
[SBL Logo]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
- --------------------------------------------------------------------------------
A MEMBER OF THE SECURITY 700 SW HARRISON ST.
BENEFIT GROUP OF COMPANIES TOPEKA, KANSAS 66636-0001
(785) 431-3000
SBL VARIABLE PRODUCTS
COMMISSION SCHEDULE
VARIFLEX SIGNATURE VARIABLE ANNUITY
Individual and Group Unallocated
Broker/Dealer:
EFFECTIVE DATE OF COMMISSION SCHEDULE:
COMMISSIONS - This Commission Schedule is hereby made a part of and amends the
SBL Variable Products Agreement (the "Agreement") with Security Benefit Life
Insurance Company and Security Distributors, Inc., (hereinafter jointly called
"SBL") and commissions payable hereunder are subject to the provisions contained
in the Agreement and this Commission Schedule. Minimum Purchase Payments are as
set out in the applicable prospectus and contract. Commissions to a
Broker/Dealer are equal to the percentage of Purchase Payments written by that
Broker/Dealer, as follows:
1. The rate of commissions paid on Purchase Payments made with respect to each
particular Variflex Signature Contract will be based on the length of time
since the Contract Date that the Purchase Payment was received by SBL and
the issue age of the Owner (or of the Annuitant if the contract is owned by
a non-natural person) as set forth in the Tables below. For group
unallocated contracts, commissions shall be paid using Table A without
reference to the age of the Owner or any Participant.
<TABLE>
<CAPTION>
TABLE A TABLE B
NUMBER OF YEARS SINCE THE ISSUE AGE 0 - 80 ISSUE AGE 81 - 90
CONTRACT DATE COMMISSION RATE* COMMISSION RATE*
<S> <C> <C>
1 5.00% 3.00%
2 5.00% 3.00%
3 4.00% 2.00%
4 3.00% 1.00%
5 2.00% 0.00%
6 and thereafter 0.00% 0.00%
</TABLE>
*No Commission will be paid on Purchase Payments made which are less than
the minimum specified in the prospectus.
2. ASSET BASED COMMISSIONS: SBL will pay an asset based commission at the end
of each calendar month on the aggregate Contract Value of Variflex
Signature Contracts for which the initial Purchase Payment is more than 12
months old. On an annual basis, the asset based commission will be equal to
the amounts set forth in the Tables below. The amount of the asset based
commission is dependent on the Contract Year and the issue age of the Owner
(or of the Annuitant if the Contract is owned by a non-natural person). For
group unallocated contracts, asset based commission shall be paid using
Table A without reference to the age of the Owner or any Participant. No
asset based commission will be paid on Contracts which have annuitized
under a life contingent annuity option. An Annuitization Fee may be
available as discussed in paragraph 5.
<TABLE>
<CAPTION>
TABLE A TABLE B
ISSUE AGE 0 - 80 ISSUE AGE 81 - 90
CONTRACT YEAR ANNUAL RATE ANNUAL RATE
<S> <C> <C>
1 0% 0%
2 .25% .25%
3 .25% .25%
4 .25% .25%
5 .25% .25%
6 and thereafter 1.00% .80%
</TABLE>
3. CONTRACT YEAR: For the purpose of this Commission Schedule, the term
"Contract Year" shall be measured from the date the first Purchase Payment
is credited to the Contract.
<PAGE> 4
4. TRANSFER OF SBL CONTRACT VALUES: No commission (including asset based
commission) is paid on the transfer of cash, loan or surrender value of a
life insurance or annuity contract issued by SBL or other members of The
Security Benefit Group of Companies applied to a Variflex Signature
Contract under this Commission Schedule.
Death Benefit Applied to an Annuity Option: In the event that a beneficiary
under a Variflex Signature Contract under this Commission Schedule applies
the death benefit to one of the annuity forms under the Contract, no
commission will be payable upon such application. An Annuitization Fee may
be available as discussed in paragraph 5.
5. ANNUITIZATION: An Annuitization Fee will be paid to Broker/Dealers who
secure from the Contract Owner (or his or her beneficiary) the proper forms
and information to commence an immediate life contingent annuity option and
has significantly assisted the client and SBL in such settlement. The
Annuitization Fee will be equal to 4% of the amount applied to a fixed life
contingent annuity option and 2% of the amount applied to a variable life
contingent annuity option. This provision relating to the payment of an
annuitization fee is inapplicable to group unallocated contracts.
6. COMMISSION CHARGEBACK PROVISIONS:
Full Withdrawals from the Contract: Any commissions paid on Purchase
Payments received will be charged back to the Broker/Dealer in the event of
a full withdrawal within the first Contract Year.
Partial Withdrawals in the First Contract Year: Commission chargebacks will
be made in the first Contract Year on partial withdrawals which exceed the
Free Amount. The amount of the chargeback will be equal to the amount of
the withdrawal which exceeds the Free Amount, multiplied by the average
commission rate paid. The Free Amount is 10% of the Purchase Payments made
as of the date of the partial withdrawal, reduced by any previous
withdrawals that were not subject to a chargeback. The average commission
rate paid is equal to the total commission paid on the Contract divided by
the total Purchase Payments made as of the date of the partial withdrawal.
Death Benefit Paid in First Contract Year: Any Commission paid on a
Contract under which a death benefit is paid during the first Contract Year
shall be charged back to the Broker/Dealer if the age of any Contract Owner
(or Annuitant if the Owner is a non-natural person) on the Contract Date
was 76 or older. This provision relating to commission chargeback for Death
Benefits paid in the first Contract Year is inapplicable to group
unallocated contracts.
7. CHANGE OF COMMISSION SCHEDULE: Notwithstanding any other provision of the
Agreement to the contrary, the following provisions shall apply. SBL
reserves the right at any time, with or without notice, to change, modify
or discontinue the commissions, asset based commissions or any other
compensation payable under this Commission Schedule. However, any such
change will not apply to the commissions or asset based commissions
applicable to Contracts issued before the effective date of such change.
8. CHANGE OF DEALER: A Contract Owner shall have the right to designate a new
broker/dealer, or terminate a broker/dealer without designating a
replacement, by sending written notice of such designation to SBL. Upon
written notice to SBL by the owner of the designation of a new
broker/dealer, all the commissions and asset based commissions shall be
payable to the new broker/dealer. Upon written notice to SBL by the owner
of termination of Broker/Dealer, without designating a new broker/dealer,
SBL shall cease paying commissions and asset based commissions to
Broker/Dealer.
9. TERMINATION OF THE AGREEMENT/VESTING: In the event of termination of the
Agreement for any reason, all rights to receive commissions, asset based
commissions or other compensation under this Commission Schedule shall be
terminated, unless each of the following requirements is met: (i) the
Agreement has been in force for at least one year; (ii) Broker/Dealer is at
the time such commissions are payable properly licensed to receive such
commissions; (iii) Broker/Dealer is providing service to the Contract Owner
and performing its duties in a manner satisfactory to SBL; (iv) commissions
paid to Broker/Dealer in the previous calendar year amounted to at least
$500; and (v) Broker/Dealer has not been terminated, nor a new
broker/dealer designated, by the Contract Owner as set forth in paragraph 8
above.
THIS COMMISSION SCHEDULE replaces any previous Commission Schedule for the
Variable Annuity Contract listed above as of the Effective Date set forth above.
SECURITY DISTRIBUTORS, INC. SECURITY BENEFIT LIFE INSURANCE COMPANY
By: RICHARD K RYAN By: RICHARD K RYAN
---------------------- ------------------------------
Title: PRESIDENT Title: SENIOR VICE PRESIDENT - SALES
---------------------- ------------------------------
<PAGE> 1
SECURITY BENEFIT LIFE INSURANCE COMPANY
A MUTUAL COMPANY/FOUNDED IN 1892/TOPEKA, KS
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration for the Purchase Payments and the attached application,
Security Benefit Life Insurance Company (the "Company") will pay the benefits of
this Contract according to its provisions.
LEGAL CONTRACT
PLEASE READ YOUR CONTRACT CAREFULLY. It is a legal Contract between the Owner
and the Company. The Contract's table of contents is on page 2.
FREE LOOK PERIOD-RIGHT TO CANCEL
IF FOR ANY REASON THE OWNER IS NOT SATISFIED WITH THIS CONTRACT, HE OR SHE MAY
RETURN IT TO THE COMPANY WITHIN 10 DAYS FROM THE DATE OF RECEIPT. IT MAY BE
RETURNED BY DELIVERING OR MAILING IT TO THE COMPANY. IF RETURNED, THIS CONTRACT
SHALL BE DEEMED VOID FROM THE CONTRACT DATE. THE COMPANY WILL REFUND ANY
PURCHASE PAYMENTS MADE AND ALLOCATED TO THE FIXED ACCOUNT AND WILL REFUND
SEPARATE ACCOUNT CONTRACT VALUE AS OF THE DATE THE RETURNED POLICY IS RECEIVED
BY THE COMPANY.
Signed for Security Benefit Life Insurance Company on the Contract Date.
ROGER K. VIOLA HOWARD R. FRICKE
Secretary President
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.
*Purchase Payments may be made until the earlier of the Annuity Start Date or
termination of the Contract.
*A Death Benefit may be paid prior to the Annuity Start Date according to the
Contract provisions.
*Annuity Payments begin on the Annuity Start Date using the method specified in
this Contract.
*This Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
FORM V6025 (1-97)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CONTRACT SPECIFICATIONS .............................................. 3
DEFINITIONS .......................................................... 4-6
GENERAL PROVISIONS ................................................... 7,8
The Contract ....................................................... 7
Compliance ......................................................... 7
Misstatement of Age and Sex ........................................ 7
Evidence of Survival ............................................... 7
Incontestability ................................................... 7
Assignment ......................................................... 7
Transfers .......................................................... 8
Claims of Creditors ................................................ 8
Nonforfeiture Values ............................................... 8
Participation ...................................................... 8
Statements ......................................................... 8
OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS ...................... 9
Ownership .......................................................... 9
Joint Ownership .................................................... 9
Annuitant .......................................................... 9
Primary and Secondary Beneficiaries ................................ 9
Ownership and Beneficiary Changes .................................. 9
PURCHASE PAYMENT PROVISIONS .......................................... 9, 10
Flexible Purchase Payments ......................................... 9
Purchase Payment Limitations ....................................... 9
Purchase Payment Allocation ........................................ 10
Place of Payment ................................................... 10
CONTRACT VALUE AND EXPENSE PROVISIONS ................................ 10-12
Contract Value ..................................................... 10
Fixed Account Contract Value ....................................... 10
Fixed Account Interest Crediting ................................... 10
Separate Account Contract Value .................................... 11
Accumulation Unit Value ............................................ 11
Net Investment Factor .............................................. 11
Determining Accumulation Units ..................................... 11
Mortality and Expense Risk Charge .................................. 12
Premium Tax Expense ................................................ 12
Administration Charge .............................................. 12
Mutual Fund Expenses ............................................... 12
WITHDRAWAL PROVISIONS ................................................ 12-14
Withdrawals ........................................................ 12
Withdrawal Value ................................................... 12
Withdrawal Charges ................................................. 13
Free Withdrawals ................................................... 13
Systematic Withdrawals ............................................. 13
Free Systematic Withdrawals ........................................ 13
Date of Request .................................................... 13
Payment of Withdrawal Benefits ..................................... 14
DEATH BENEFIT PROVISIONS ............................................. 14, 15
Death Benefit ...................................................... 14, 15
Proof of Death ..................................................... 15
Distribution Rules ................................................. 15
ANNUITY PAYMENT PROVISIONS ........................................... 15-18
Annuity Start Date ................................................. 15
Change of Annuity Start Date ....................................... 16
Annuity Start Amount ............................................... 16
Withdrawal Charges ................................................. 16
Annuity Tables ..................................................... 16
Annuity Payments ................................................... 16
Change of Annuity Option ........................................... 16
Fixed Annuity Payments ............................................. 17
Variable Annuity Payments .......................................... 17
Annuity Units ...................................................... 17
Net Investment Factor .............................................. 17
Alternate Annuity Option Rates ..................................... 17
Annuity Options .................................................... 18
ANNUITY TABLES ....................................................... 19, 20
</TABLE>
AMENDMENTS OR ENDORSEMENTS, IF ANY
2
<PAGE> 3
VARIABLE ANNUITY CONTRACT SPECIFICATIONS
<TABLE>
<S> <C>
OWNER NAME: John A Doe CONTRACT NUMBER: Specimen
OWNER DATE OF BIRTH: 10-30-1953 CONTRACT DATE: 6-30-1997
JOINT OWNER NAME: Mary K Doe ISSUE DATE: 6-30-1997
JOINT OWNER DATE OF BIRTH: 7-18-1981 ANNUITY STATE DATE: 7-1-2052*
ANNUITANT NAME: Betty M. Doe PLAN: Non-Qualified
ANNUITANT DATE OF BIRTH: 5-13-1987 ASSIGNMENT: This Policy may be
assigned. See Assignment Provision
ANNUITANT'S SEX: Female of your Policy.
PRIMARY BENEFICIARY NAME: Linda L. Doe
INITIAL PURCHASE PAYMENT $25,000
MINIMUM SUBSEQUENT PURCHASE PAYMENTS $500 ($50 pursuant to an automatic
investment program)
MINIMUM SYSTEMATIC WITHDRAWAL $100
MORTALITY AND EXPENSE RISK CHARGE 1.25% Annually (1.2% annually during
Annuity Options 1-4, 7 and 8.)
ADMINISTRATION CHARGE .15% Annually (0% annually during
Annuity Options 1-4, 7 and 8.)
</TABLE>
WITHDRAWAL CHARGES:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Contract Year of Withdrawal 1 2 3 4 5 6 7+
Withdrawal Charge 6% 6% 5% 4% 3% 2% 0%
</TABLE>
<TABLE>
<S> <C>
FREE WITHDRAWAL PERCENTAGE 10%
GUARANTEED RATE 3.00%
ANNUITY OPTION Life with 10-Year Fixed Period Option*
</TABLE>
SUBACCOUNTS:
Money Market Subaccount
High Grade Income Subaccount
High Yield Subaccount
Global Aggressive Bond Subaccount
Growth-Income Subaccount
Equity Income Subaccount
Managed Asset Allocation Subaccount
Specialized Asset Allocation Subaccount
Growth Subaccount
Value Subaccount
Worldwide Equity Subaccount
Social Awareness Subaccount
Emerging Growth Subaccount
Small Cap Subaccount
METHOD FOR DEDUCTIONS:
Deductions for Premium Taxes, and any unallocated partial withdrawals,
including Systematic Withdrawals, will be made sequentially from the
Contract Value in descending order of the Subaccounts listed above. The
Fixed Account is the last Account charged. The value of each Account will
be depleted before the next is charged.
* The Owner may select the Annuity Start Date and the Annuity Option. If no
Annuity Start Date or Annuity Option is selected by the Owner, they will be
assigned automatically.
3
V6025 A(1-97)
<PAGE> 4
DEFINITIONS
ACCOUNT
An Account is one of the Subaccounts or the Fixed Account.
ACCUMULATION UNIT
The Accumulation Unit is a unit of measure. It is used to compute the Separate
Account Contract Value prior to the Annuity Start Date. It is also used to
compute the Variable Annuity Payments for Annuity Options 5 and 6.
ANNUITANT
The Annuitant is the person named by the Owner on whose life the Annuity
Payments depend for Annuity Options 1 through 4 and 8. The Annuitant receives
Annuity Payments under this Contract. Please see "Annuitant" provisions on page
9.
ANNUITY OPTION
An Annuity Option is a set of provisions that form the basis for making Annuity
Payments. The Annuity Option is set prior to the Annuity Start Date. Please see
"Annuity Options" on page 18.
ANNUITY START DATE
The Annuity Start Date is the date on which Annuity Payments are scheduled to
begin. This date may be changed by the Owner. The Annuity Start Date is shown on
Page 3. Please see "Annuity Start Date" on page 15.
ANNUITY UNIT
The Annuity Unit is a unit of measure used to compute Variable Annuity Payments
for Annuity Options 1 through 4, 7 and 8.
AUTOMATIC INVESTMENT PROGRAM
A program pursuant to which Purchase Payments are automatically paid from the
Owner's bank account on a specified day of the month, on a monthly, quarterly,
semiannual or annual basis.
AUTOMATIC TRANSFERS
Automatic Transfers are Transfers among the Subaccounts and the Fixed Account.
Such Transfers are made automatically on a periodic basis by the Company at the
written request of the Owner. The Company reserves the right to discontinue,
modify or suspend Automatic Transfers.
COMPANY
The Company is Security Benefit Life Insurance Company, 700 SW Harrison Street,
Topeka, Kansas 66636-0001.
CONTRACT ANNIVERSARY
A Contract Anniversary is a 12-month anniversary of the Contract Date.
CONTRACT DATE
The Contract Date is the date the Contract begins. The Contract Date is shown on
page 3.
CONTRACT YEAR
Contract Years are measured from the Contract Date.
CURRENT INTEREST
The Company may in its discretion pay Current Interest on the Fixed Account at a
rate that exceeds the Guaranteed Rate shown on page 3. The Company will declare
the rate of Current Interest, if any, from time to time.
DESIGNATED BENEFICIARY
Upon the death of the Owner or Joint Owner, the Designated Beneficiary will be
the first person on the following list who is alive on the date of death:
1. Owner;
2. Joint Owner;
3. Primary Beneficiary;
4. Secondary Beneficiary;
5. Annuitant; and
6. the Owner's estate if no one listed above alive.
4
V6025 B (1-97)
<PAGE> 5
DEFINITIONS (Continued)
DESIGNATED BENEFICIARY (Continued)
The Designated Beneficiary receives a death benefit upon the death of the Owner
prior to the Annuity Start Date. Please see "Ownership, Annuitant, and
Beneficiary Provisions" on page 9 and "Death Benefit Provisions" on pages 14 and
15.
FIXED ACCOUNT
The Fixed Account is part of the Company's general account. The Company manages
the general account and guarantees that it will credit interest on Fixed Account
Contract Value at an annual rate at least equal to the Guaranteed Rate. This
Rate is shown on page 3.
GUARANTEE PERIOD
Current Interest, if declared, is fixed for rolling periods of one or more
years, referred to as Guarantee Periods. The Company may offer Guarantee Periods
of different durations. The Guarantee Period that applies to any Fixed Account
Contract Value: 1) starts on the date that such Contract Value is allocated to
the Fixed Account pursuant to: (a) a Purchase Payment Received by the Company;
or (b) a Transfer to the Fixed Account; and 2) ends on the last day of the same
month in the year in which the Guarantee Period expires. When any Guarantee
Period expires, a new Guarantee Period shall start for such Contract Value on
the date that follows such expiration date. Such period shall end on the
immediately preceding date in the year in which the Guarantee Period expires.
For example, assuming a one-year Guarantee Period, Contract Value transferred to
the Fixed Account on June 1 would have a Guarantee Period starting on that date
and ending on June 30 of the following year. A new Guarantee Period for such
Contract Value would start on July 1 of that year and end on June 30 of the
following year.
HOME OFFICE
The address of the Company's Home Office is Security Benefit Life Insurance
Company, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
ISSUE DATE
The Issue Date is the date the Company uses to determine the date the Contract
becomes incontestable. The Issue Date is shown on Page 3. Please see
"Incontestability" on page 7.
JOINT OWNER
The Joint Owner, if any, shares an undivided interest in the entire Contract
with the Owner. The Joint Owner, if any, is named on page 3. Please see "Joint
Ownership" provisions on page 9.
NONNATURAL PERSON
Any group or entity that is not a living person, such as a trust or corporation.
OWNER
The Owner is the person who possesses all rights under the Contract. The Owner
is named on page 3. Please see "Ownership" provisions on page 9.
PREMIUM TAX
Any Premium Taxes levied by a state or other governmental entity will be charged
against this Contract. When Premium Tax is assessed after the Purchase Payment
is applied, it will be deducted as described on page 3.
PURCHASE PAYMENT
A Purchase Payment is money Received by the Company and applied to the Contract.
RECEIVED BY THE COMPANY
The phrase "Received by the Company" means receipt by the Company in good order
at its Home Office, (700) SW Harrison Street, Topeka, Kansas 66636-0001.
5
V6025 C (1-97)
<PAGE> 6
DEFINITIONS (Continued)
SEPARATE ACCOUNT
Variable Annuity Account VIII (the "Separate Account") is a separate account
established and maintained by the Company under Kansas law. The Separate Account
is registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a Unit Investment Trust. It was established by the
Company to support variable annuity contracts. The Company owns the assets of
the Separate Account and maintains them apart from the assets of its general
account and its other separate accounts. The assets held in the Separate Account
equal to the reserves and other Contract liabilities with respect to the
Separate Account may not be charged with liabilities arising from any other
business the Company may conduct.
Income and realized and unrealized gains and losses from assets in the Separate
Account are credited to, or charged against, the Separate Account without regard
to the income, gains or losses from the Company's general account or its other
separate accounts. The Separate Account is divided into Subaccounts shown on
page 3. Income and realized and unrealized gains and losses from assets in each
Subaccount are credited to, or charged against, the Subaccount without regard to
income, gains or losses in the other Subaccounts. The Company has the right to
transfer to its general account any assets of the Separate Account that are in
excess of the reserves and other Contract liabilities with respect to the
Separate Account. The value of the assets in the Separate Account on each
Valuation Date are determined at the end of each Valuation Date.
SUBACCOUNT NET ASSET VALUE
The Subaccount Net Asset Value is equal to: 1) the net asset value of all shares
of the underlying mutual fund held by the Subaccount; plus 2) any cash or other
assets; less 3) all liabilities of the Subaccount.
SUBACCOUNTS
The Separate Account is divided into Subaccounts which invest in shares of
mutual funds. Each Subaccount may invest its assets in a separate class or
series of a designated mutual fund or funds. The Subaccounts are shown on page
3. Subject to the regulatory requirements then in force, the Company reserves
the right to:
1. change or add designated mutual fund or other investment vehicles.
2. add, remove or combine Subaccounts.
3. add, delete or make substitutions for securities that are held or purchased
by the Separate Account or any Subaccount.
4. operate the Separate Account as a management investment company.
5. combine the assets of the Separate Account with other Separate Accounts of
the Company or an affiliate thereof.
6. restrict or eliminate any voting rights of the Owner with respect to the
Separate Account or other persons who have voting rights as to the Separate
Account; and
7. terminate and liquidate any Subaccount.
If any of these changes result in a material change to the Separate Account or a
Subaccount, the Company will notify the Owner of the change. The Company will
not change the investment policy of any Subaccount in any material respect
without complying with the filing and other procedures of the insurance
regulators of the state of issue.
VALUATION DATE
A Valuation Date is each day the New York Stock Exchange and the Company's Home
Office are open for business.
VALUATION PERIOD
A Valuation Period is the interval of time from one Valuation Date to the next
Valuation Date.
V6025 C(1-97)
6
<PAGE> 7
GENERAL PROVISIONS
THE CONTRACT
The entire Contract between the Owner and the Company consists of this Contract,
the attached Application, and any Amendments, Endorsements or Riders to the
Contract. All statements made in the Application will, in the absence of fraud,
as ruled by a court of competent jurisdiction, be deemed representations and not
warranties. The Company will use no statement made by or on behalf of the Owner
or the Annuitant to void this Contract unless it is in the written Application.
Any change in the Contract can be made only with the written consent of the
President, a Vice President, or the Secretary of the Company.
The Purchase Payment(s) and the Application must be acceptable to the Company
under its rules and practices. If they are not, the Company's liability shall be
limited to a return of the Purchase Payment(s).
COMPLIANCE
The Company reserves the right to make any change to the provisions of this
Contract to comply with or give the Owner the benefit of any federal or state
statute, rule or regulation. This includes, but is not limited to, requirements
for annuity contracts under the Internal Revenue Code or the laws of any state.
The Company will provide the Owner with a copy of any such change and will also
file such a change with the insurance regulatory officials of the state in which
the Contract is delivered.
MISSTATEMENT OF AGE AND SEX
If the age or sex of the Annuitant has been misstated, payments shall be
adjusted, when allowed by law, to the amount which would have been provided for
the correct age or sex. Proof of the age of an Annuitant may be required at any
time, in a form suitable to the Company. If payments have already commenced and
the misstatement has caused an underpayment, the full amount due will be paid
with the next scheduled payment. If the misstatement has caused an overpayment,
the amount due will be deducted from one or more future payments.
EVIDENCE OF SURVIVAL
When any payments under this Contract depend on the payee being alive on a given
date, proof that the payee is living may be required by the Company. Such proof
must be in a form accepted by the Company, and may be required prior to making
the payments.
INCONTESTABILITY
This Contract will not be contested after it has been in force for two years
from the Issue Date during the life of the Owner.
ASSIGNMENT
Please refer to page 3 to see if this Contract may be assigned. If it may be
assigned, no Assignment under this Contract is binding unless Received by the
Company in writing. The Company assumes no responsibility for the validity,
legality, or tax status of any Assignment. The Assignment will be subject to any
payment made or other action taken by the Company before the Assignment is
Received by the Company. Once filed, the rights of the Owner, Annuitant and
Beneficiary are subject to the Assignment. Any claim is subject to proof of
interest of the assignee.
7
<PAGE> 8
GENERAL PROVISIONS (Continued
TRANSFERS
The Owner may Transfer Contract Value among the Fixed Account and Subaccounts
subject to the following.
Transfers are not allowed within 30 days of the Annuity Start Date. After the
Annuity Start Date, for Annuity Options 1 through 4, 7 and 8, the Owner may
Transfer Contract Value only among Subaccounts.
The Company reserves the right to: 1) limit the amount that may be subject to
Transfer to $1,000,000 per Transfer without Home Office approval; 2) limit the
number of Transfers allowed each Contract Year to 14; and 3) suspend Transfers.
Transfers must be at least $500.00 or, if less: (i) the remaining balance in a
Subaccount, or (ii) the amount of Fixed Account Contract Value the Guarantee
Period of which expires in the calendar month in which the Transfer is effected.
Contract Value may be transferred from the Fixed Account only: 1) during the
calendar month in which the applicable Guarantee Period expires; 2) pursuant to
an Automatic Transfer. Transfers of Fixed Account Contract Value shall be made:
1) first from Fixed Account Contract Value for which the Guarantee Period
expires during the calendar month in which the Transfer is effected; 2) then in
the order that starts with Fixed Account Contract Value which has the longest
amount of time before its Guarantee Period expires; and 3) ends with that which
has the least amount of time before its Guarantee Period expires.
The Company will effect a Transfer to or from a Subaccount on the basis of
Accumulation Unit Value (or Annuity Unit Value) determined at the end of the
Valuation Period in which the Transfer is effected. The Company will effect a
Transfer from the Fixed Account on the basis of Fixed Account Contract Value at
the end of the Valuation Period in which the Transfer is effected.
The Company reserves the right to delay Transfers from the Fixed Account for up
to 6 months as required by most states. The Company will notify you if there
will be a delay.
CLAIMS OF CREDITORS
The Contract Value and other benefits under this Contract are exempt from the
claims of creditors of the Owner to the extent allowed by law.
NONFORFEITURE VALUES
The Death Benefits, Withdrawal Values and Annuity Payout Values will at least
equal the minimum required by law.
PARTICIPATION
The Company is a mutual life insurance company. Therefore, it pays dividends on
some of its contracts. However, the Company does not expect dividends to become
payable on this Contract. At the end of each Contract Year the Company will
determine the Contract's dividend, if any. The Owner may choose to have it: 1)
added to the Contract Value; or 2) paid in cash. If no choice is made, any
dividend will be added to the Contract Value.
STATEMENTS
At least once each Contract Year the Owner shall be sent a statement including
the current Contract Value and any other information required by law. The Owner
may send a written request for a statement at other intervals. The Company may
charge a reasonable fee for such statements.
8
V6025 D (1-97)
<PAGE> 9
OWNERSHIP, ANNUITANT AND BENEFICIARY PROVISIONS
OWNERSHIP
During the Owner's lifetime, all rights and privileges under the Contract may be
exercised only by the Owner. If the purchaser names someone other than himself
or herself as Owner, the purchaser has no rights in the Contract. No Owner may
be older than age 90 on the Contract Date.
JOINT OWNERSHIP
If a Joint Owner is named in the application, then the Owner and Joint Owner
share an undivided interest in the entire Contract as joint tenants with rights
of survivorship. When an Owner and Joint Owner have been named, the Company will
honor only requests for changes and the exercise of other Ownership rights made
by both the Owner and Joint Owner. When a Joint Owner is named, all references
to "Owner" throughout this Contract should be construed to mean both the Owner
and Joint Owner, except for the "Statements" provision on page 8 and the "Death
Benefit Provisions" on pages 14 and 15.
ANNUITANT
The Annuitant is named on page 3. The Owner may change the Annuitant prior to
the Annuity Start Date. The request for this change must be made in writing and
Received by the Company at least 30 days prior to the Annuity Start Date. No
Annuitant may be named who is more than 90 years old on the Contract Date. When
the Annuitant dies prior to the Annuity Start Date, the Owner must name a new
Annuitant within 30 days or, if sooner, by the Annuity Start Date, except where
the Owner is a Nonnatural Person. If a new Annuitant is not named, the Owner
becomes the Annuitant.
PRIMARY AND SECONDARY BENEFICIAIRES
The Primary Beneficiary is named on page 3. The Owner may change any Beneficiary
as described in "Ownership and Beneficiary Changes" below. If the Primary
Beneficiary dies prior to the Owner, the Secondary Beneficiary becomes the
Primary Beneficiary. Unless the Owner directs otherwise, when there are two or
more Primary Beneficiaries, they will receive equal shares.
OWNERSHIP AND BENEFICIARY CHANGES
Subject to the terms of any existing Assignment, the Owner may name a new Owner,
a new Primary Beneficiary or a new Secondary Beneficiary. Any new choice of
Owner, Primary Beneficiary or Secondary Beneficiary will revoke any prior
choice. Any change must be made in writing and recorded at the Home Office. The
change will become effective as of the date the written request is signed,
whether or not the Owner is living at the time the change is recorded. A new
choice of Primary Beneficiary or Secondary Beneficiary will not apply to any
payment made or action taken by the Company prior to the time it was recorded.
The Company may require the Contract be returned so these changes may be made.
PURCHASE PAYMENT PROVISIONS
FLEXIBLE PURCHASE PAYMENTS
The Contract becomes in force when the initial Purchase Payment is applied. The
Owner is not required to continue Purchase Payments in the amount or frequency
originally planned. The Owner may: 1) increase or decrease the amount of
Purchase Payments, subject to any Contract limits; or 2) change the frequency of
Purchase Payments. A change in frequency or amount of Purchase Payments does not
require a written request.
PURCHASE PAYMENT LIMITATIONS
Purchase Payments exceeding $1,000,000 will not be accepted without prior
approval by the Company. The Minimum Subsequent Purchase Payment amount is shown
on page 3.
9
<PAGE> 10
PURCHASE PAYMENT PROVISIONS (Continued)
PURCHASE PAYMENT ALLOCATION
Purchase Payments may be allocated among the Fixed Account and the Subaccounts.
Purchase Payments will be allocated according to the Owner's instructions in the
Application or more recent instructions, if any. Each allocation to the Fixed
Account and the Subaccounts must be at least 1% of the Purchase Payment. The
allocations must be whole percentage amounts and must total 100%. The Owner may
change the allocations by written notice to the Company.
PLACE OF PAYMENT
All Purchase Payments under this Contract are to be paid to the Company at its
Home Office. Purchase Payments after the initial Purchase Payment are applied as
of the end of the Valuation Period during which they are Received by the
Company.
CONTRACT VALUE AND EXPENSE PROVISIONS
CONTRACT VALUE
On any Valuation Date, the Contract Value is the sum of: (1) the Separate
Account Contract Value; and (2) the Fixed Account Contract Value. At any time
after the first Contract Year and before the Annuity Start Date, the Company
reserves the right to pay to the Owner the Contract Value as a lump sum if it is
below $5,000.
FIXED ACCOUNT CONTRACT VALUE
On any Valuation Date, the Fixed Account Contract Value is equal to the first
Purchase Payment allocated under the Contract to the Fixed Account.
PLUS:
1. any other Purchase Payments allocated under the Contract to the Fixed
Account.
2. any Transfers from the Separate Account to the Fixed Account; and
3. any interest credited to the Fixed Account.
LESS:
1. any Withdrawals and applicable Withdrawal Charges deducted from the Fixed
Account;
2. any Transfers from the Fixed Account to the Separate Account;
3. any applicable Premium Taxes;
4. any Fixed Account Contract Value which is applied to any of Annuity Options 1
through 4, 7 and 8; and
5. any Annuity Payments made under Annuity Options 5 and 6.
FIXED ACCOUNT INTEREST CREDITING
The Company shall credit interest on Fixed Account Contract Value at an annual
rate at least equal to the Guaranteed Rate shown on page 3. Also, the Company
may in its sole judgment credit Current Interest at a rate in excess of the
Guaranteed Rate. The rate of Current Interest, if declared, shall be fixed
during the Guarantee Period. Fixed Account Contract Value shall earn Current
Interest during each Guarantee Period at the rate, if any, declared by the
Company on the first day of the Guarantee Period.
The Company may credit Current Interest on Contract Value that was allocated or
transferred to the Fixed Account during one period at a different rate than
amounts allocated or transferred to the Fixed Account in another period. Also,
the Company may credit Current Interest on Fixed Account Contract Value at
different rates based upon the length of the Guarantee Period. Therefore, at any
time, portions of Fixed Account Contract Value may be earning Current Interest
at different rates based upon the period during which such portions were
allocated or transferred to the Fixed Account and the length of the Guarantee
Period.
10
V6025 E (1-97)
<PAGE> 11
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
SEPARATE ACCOUNT CONTRACT VALUE
On any Valuation Date, the Separate Account Contract Value is the sum of the
then current value of the Accumulation Units allocated to each Subaccount for
this Contract.
ACCUMULATION UNIT VALUE
The initial Accumulation Unit Value for each Subaccount was set at ($10). The
Accumulation Unit Value for any subsequent Valuation Date is equal to (1) times
(2) where:
1. is Accumulation Unit Value determined on the immediately preceding Valuation
Date; and
2. is the Net Investment Factor on the Valuation Date with respect to which the
Accumulation Unit Value is being determined.
NET INVESTMENT FACTOR
The Net Investment Factor for any Subaccount as of the end of any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Subaccount,
found as of the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions paid by
the Subaccount's underlying mutual fund that is not included in the net
asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the Company
deems to have resulted from the operation of the Separate Account or the
Subaccounts; operations of the Company with respect to the Contract; or
the payment of premiums or acquisition costs under the Contract.
2. is the net asset value per share of the Subaccount's underlying mutual fund
as of the end of the prior Valuation Period.
3. is a daily factor representing the Mortality and Expense Risk Charge and
Administration Charge which are deducted from the Separate Account.
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and losses
from each Subaccount are credited to or charged against the Subaccounts without
regard to the gains or losses in the Company or other Subaccounts.
The Accumulation Unit Value may increase or decrease from one Valuation Period
to the next.
DETERMINING ACCUMULATION UNITS
The number of Accumulation Units allocated to a Subaccount under this Contract
is found by dividing: (1) the amount allocated to the Subaccount; by (2) the
Accumulation Unit Value for the Subaccount as of the end of the Valuation Period
during which the amount is applied under the Contract. The number of
Accumulation Units allocated to a Subaccount under the Contract will not change
as a result of investment experience. Events that change the number of
Accumulation Units are:
1. Purchase Payments that are applied to the Subaccount.
2. Contract Value that is Transferred into or out of the Subaccount.
3. Withdrawals and any applicable Withdrawal Charges that are deducted from
the Subaccount; and
4. Premium Taxes that are deducted from the Subaccount.
11
<PAGE> 12
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct the Mortality and Expense Risk Charge shown on page 3.
This charge will be computed and deducted from each Subaccount on each Valuation
Date. This charge is factored into the Accumulation Unit and Annuity Unit Values
on each Valuation Date.
PREMIUM TAX EXPENSE
The Company reserves the right to deduct Premium Tax when due or any time
thereafter. Any applicable Premium Taxes will be allocated as described on page
3.
ADMINISTRATION CHARGE
The Company will deduct the Administration Charge shown on page 3. This charge
will be computed and deducted from each Subaccount on each Valuation Date. This
charge is factored into the Accumulation Unit Value on each Valuation Date.
MUTUAL FUND EXPENSES
Each Subaccount invests in shares of a mutual fund. The net asset value per
share of each underlying fund reflects the deduction of any investment advisory
and administration fees and other expenses of the fund. These fees and expenses
are not deducted from the assets of a Subaccount, but are paid by the underlying
funds. The Owner indirectly bears a pro rata share of such fees and expenses. An
underlying fund's fees and expenses are not specified or fixed under the terms
of this Contract.
WITHDRAWAL PROVISIONS
WITHDRAWALS
A full or partial Withdrawal of Contract Value is allowed at any time while the
Owner is living. This provision is subject to any federal or state Withdrawal
restrictions.
Upon the Owner's request for a full Withdrawal, the Company will pay the
Withdrawal Value in a lump sum, and the Contract will terminate.
All Withdrawals must meet the following conditions.
1. The request for Withdrawal must be Received by the Company in writing or
under other methods allowed by the Company, if any.
2. The Owner must apply: (a) while this Contract is in force; and (b) prior to
the Annuity Start Date.
3. The amount Withdrawn must be at least SCORE ($500.00) except that a
Withdrawal of less than $500.00 is allowed: (i) for Systematic Withdrawals,
as discussed on page 13, (ii) for Fixed Account Contract Value the
Guarantee Period of which expires during the calendar month of the
Withdrawal, or (iii) when terminating the Contract.
A partial Withdrawal request must state the allocations for deducting the
Withdrawal from each Account. If no allocation is specified, the partial
Withdrawal will be deducted from the Accounts in the order described on page 3,
"Method for Deductions." Withdrawals of Fixed Account Contract Value shall be
made: (1) first from Fixed Account Contract Value for which the Guarantee Period
expires during the calendar month in which the Withdrawal is effected; (2) then
in the order that starts with Fixed Account Contract Value which has the longest
amount of time before its Guarantee Period expires; and (3) ends with that which
has the least amount of time before its Guarantee Period expires.
WITHDRAWAL VALUE
The Withdrawal Value as of any Valuation Date will be: (1) the Contract Value on
that date; less (2) any Premium Taxes due or paid by the Company; and (3) any
Withdrawal Charges.
12
V6025 F (1-97)
<PAGE> 13
XXX
WITHDRAWAL PROVISIONS (Continued)
WITHDRAWAL CHARGES
If part or all of the Contract Value is Withdrawn, Withdrawal Charges may be
applied at the time of Withdrawal. The Withdrawal Charge is applied to Purchase
Payments withdrawn. The amount of the charge is based on the Contract Year in
which the Withdrawal is made. See the Withdrawal Charges shown on page 3. For
the purpose of determining the Withdrawal Charges, Purchase Payments are
withdrawn before Earnings. The Withdrawal Charge will not be assessed against:
1. any Free Withdrawal amounts;
2. any Free Systematic Withdrawal amounts;
3. any amounts remaining after all Purchase Payments are withdrawn;
4. any Death Benefit;
5. payments under Annuity Options 1 through 4, 7 and 8; or
6. payments under Annuity Options 5 and 6 provided that Annuity Payments are
made for at least 5 years.
The Withdrawal Charge will be assessed against Contract Value allocated to the
Subaccounts and the Fixed Account in the same proportion as the Withdrawal is
allocated.
FREE WITHDRAWALS
A Free Withdrawal is a Withdrawal amount that is not subject to Withdrawal
Charges. The amount of Free Withdrawal available in a Contract Year is
determined as follows. In the first Contract Year, it is equal to: (1)cumulative
Purchase Payments made under the Contract; times (2) the Free Withdrawal
Percentage set forth on page 3; less (3) any Free Withdrawals, including any
Free Systematic Withdrawals, made during the Contract Year. The amount of Free
Withdrawal available in subsequent Contract Years is equal to (1) Contract Value
as of the first day of the current Contract Year; times (2) the Free Withdrawal
Percentage; less (3) any Free Withdrawals, including any Free Systematic
Withdrawals, made during the Contract Year. Unused Free Withdrawal amounts are
not carried from one Contract Year to the next.
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals are automatic periodic Withdrawals from the Contract in
substantially equal amounts made while the Owner is living prior to the Annuity
Start Date. In order to start Systematic Withdrawals, the Owner must make the
request in writing. Systematic Withdrawals are subject to any applicable
Withdrawal Charges, except as discussed under "Free Systematic Withdrawals"
below. The Minimum Systematic Withdrawal is shown on page 3. The Owner must
choose the type of payment and its frequency. The Systematic Withdrawal request
must state the allocations for deducting the Withdrawals from each Account. If
no allocation is specified, the Withdrawals will be deducted from the Accounts
in the order described on page 3, "Method for Deductions." The payment type may
be: (1) a percentage of Contract Value; (2) a specified dollar amount; (3) all
earnings in the Contract; (4) over a fixed period of time; or (5) based upon the
life expectancy of the Owner or the Owner and a Beneficiary. The payment
frequency may be: (1) monthly; (2) quarterly; (3) semiannually; or (4) annually.
Systematic Withdrawals may be stopped or changed by the Owner upon proper
written request Received by the Company at least 30 days in advance of the
requested date of termination or change. The Company reserves the right to stop,
modify, suspend or charge a fee for Systematic Withdrawals at any time.
FREE SYSTEMATIC WITHDRAWALS
Free Systematic Withdrawals are not subject to a Withdrawal Charge. The amount
of Free Systematic Withdrawals available in a Contract Year is determined as
follows: the amount of Systematic Withdrawals that, when combined with any Free
Withdrawals in the current Contract Year, does not exceed the Free Withdrawal
amount available in that Contract Year.
DATE OF REQUEST
The Company will effect a Withdrawal of Separate Account Contract Value on the
basis of Accumulation Unit Value determined as of the end of the Valuation
Period in which all the required information is Received by the Company. The
Company will effect Systematic Withdrawals of Separate Account Contract Value on
the basis of Accumulation Unit Value determined as of the end of the Valuation
Period in which such Withdrawal is scheduled.
13
<PAGE> 14
WITHDRAWAL PROVISIONS (continued)
PAYMENT OF WITHDRAWAL BENEFITS
The Company reserves the right to suspend a Transfer or delay payment of a
Withdrawal from the Separate Account for any period:
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchange is restricted; or
3. when an emergency exists as a result of which: (a) disposal of securities
held in the Separate Account is not reasonably practicable; or (b) it is not
reasonably practicable to fairly value the net assets of the Separate
Account; or
4. during any other period when the Securities and Exchange Commission, by
order, so permits to protect owners of securities.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth above exist.
The Company further reserves the right to delay payment of a Withdrawal from the
Fixed Account for up to six months as required by most states. The Company will
notify you if there will be a delay.
DEATH BENEFIT PROVISIONS
DEATH BENEFIT
If any Owner dies prior to the Annuity Start Date, a Death Benefit will be paid
to the Designated Beneficiary when due Proof of Death and instructions regarding
payment are Received by the Company. If an Owner is a Nonnatural Person, then
the Death Benefit will be paid in the event of the death of the Annuitant or any
joint Owner that is a natural person prior to the Annuity Start Date. Further,
if an Owner is a Nonnatural Person, the amount of the death benefit is based on
the age of the Annuitant or any joint Owner that is a natural person on the
Issue Date.
If the age of each Owner was 75 or younger on the Issue Date, the Death Benefit
will be the greatest of: (1) the sum of all Purchase Payments, less any Premium
Taxes due or paid by the Company and less the sum of all partial Withdrawals;
(2) the Contract Value on the date due Proof of Death and instructions regarding
payment are Received by the Company, less any Premium Taxes due or paid by the
Company; or (3) the Stepped-Up Death Benefit described below.
The Stepped-Up Death Benefit is:
1. the largest Death Benefit on any Contract Anniversary that is both an exact
multiple of four and occurs prior to the oldest Owner reaching age 76; plus
2. any Purchase Payments received since the applicable fourth Contract
Anniversary; less
3. any reductions caused by Withdrawals since the applicable fourth Contract
Anniversary; less
4. any Premium Taxes due or paid by the Company.
If the age of any Owner on the Issue Date was 76 or older, or if due proof of
death (regardless of the age of any Owner on the Issue Date) and instructions
regarding payment are not Received by the Company within six months of the date
of the Owner's death, the Death Benefit will be: (1) the Contract Value as of
the end of the Valuation Period during which due Proof of Death and instructions
regarding payment are Received by the Company; less (2) any Premium Taxes due or
paid by the Company.
14
V6025 G (1-97)
<PAGE> 15
DEATH BENEFIT PROVISIONS (Continued)
DEATH BENEFIT (continued)
If a lump sum payment is requested, the payment will be made in accordance with
any laws and regulations that govern the payment of Death Benefits. The
Designated Beneficiary may elect to receive the Death Benefit in the form of
annuity payments under one of the Annuity Options, subject to any requirements
under applicable law.
PROOF OF DEATH
Any of the following will serve as Proof of Death.
1. certified copy of the death certificate
2. certified decree of a court of competent jurisdiction as to the finding of
death.
3. written statement by a medical doctor who attended the deceased Owner; or
4. any proof accepted by the Company.
DISTRIBUTION RULES
The entire Death Benefit with any interest shall be paid within 5 years after
the death of any Owner, except as provided below. In the event that the
Designated Beneficiary elects an Annuity Option, the length of time for the
payment period may be longer than 5 years if: (1) the Designated Beneficiary is
a natural person; (2) the Death Benefit is paid out under Annuity Options 1
through 8; (3) payments are made over a period that does not exceed the life or
life expectancy of the Designated Beneficiary; and (4) Annuity Payments begin
within one year of the death of the Owner. If the deceased Owner's spouse is the
sole Designated Beneficiary, the spouse shall become the sole Owner of the
Contract. He or she may elect to: (1) keep the Contract in force until the
sooner of the spouse's death or the Annuity Start Date; or (2) receive the Death
Benefit.
If any Owner dies after the Annuity Start Date, Annuity Payments shall continue
to be paid at least as rapidly as under the method of payment being used as of
the date of the Owner's death.
If the Owner is a Nonnatural Person, the distribution rules set forth above
apply in the event of the death of, or a change in, the Annuitant. This Contract
is deemed to incorporate any provision of Section 72(s) of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor provision. This Contract
is also deemed to incorporate any other provision of the Code deemed necessary
by the Company, in its sole judgment, to qualify this Contract as an annuity.
The application of the distribution rules will be made in accordance with Code
section 72(s), or any successor provision, as interpreted by the Company in its
sole judgment.
The foregoing distribution rules do not apply to a Contract which is: (1)
provided under a plan described in Code section 401(a); (2) described in Code
section 403(b); (3) an individual retirement annuity or provided under an
individual retirement account or annuity; or (4) otherwise exempt from the Code
section 72(s) distribution rules.
ANNUITY PAYMENT PROVISIONS
ANNUITY START DATE
The Owner may choose the Annuity Start Date at the time of application. The
Annuity Start Date may not be prior to the third Contract Anniversary. If no
Annuity Start Date is chosen, the Company will use the later of: (1) the oldest
Annuitant's seventieth birthday; or (2) the tenth Contract Anniversary. The
Annuity Start Date must be prior to the oldest Annuitant's ninety-fifth
birthday.
The Annuity Start Date is the date the first payment will be made to the
Annuitant under one of the Annuity Options.
15
<PAGE> 16
ANNUITY PAYMENT PROVISIONS (Continued)
CHANGE OF ANNUITY START DATE
The Owner may change the Annuity Start Date subject to approval by the Company.
A request for the change must be made in writing. The written request must be
Received by the Company at least 30 days prior to the new Annuity Start Date and
30 days prior to the previous Annuity Start Date.
ANNUITY START AMOUNT
The Annuity Start Amount is applied to one or more of the Annuity Options listed
on page 18. The Annuity Start Amount is: (1) the Contract Value on the Annuity
Start Date; less (2) any Premium Taxes due or paid by the Company; and (3)
Withdrawal Charges, if applicable. Unless otherwise directed by the Owner,
Annuity Start Amount derived from Fixed Account Contract Value will be applied
to purchase a Fixed Annuity Option; that derived from Separate Account Contract
Value will be applied to purchase a Variable Annuity Option.
WITHDRAWAL CHARGES
Withdrawal Charges are not applied to: (1) Annuity payments made under Annuity
Options 1-4, 7 and 8; or (2) those made under Annuity Options 5 and 6 that
provide for payments over a period of at least 5 years. Withdrawal Charges are
applied to annuity payments under Annuity Options 5 and 6 that provide for
payments over a period of less than 5 years. Any Withdrawal Charges are applied
on the Annuity Start Date to that portion of Contract Value that represents
Purchase Payments. See "Withdrawal Provisions" on pages 12-14.
ANNUITY TABLES
Annuity Tables A through C show the guaranteed minimum amount of monthly Annuity
Payment per $1,000 of Annuity Start Amount for Annuity Options 1 through 4, 7
and 8 that applies to the first Variable Annuity Payment and to each payment for
Fixed Annuity Payments. The amount of each Annuity Payment for Annuity Options 1
through 4 and 8 will depend on the Annuitant's sex and age on the Annuity Start
Date.
Tables A and B assume 1900 as the year of birth of the annuitant. To use Tables
A and for an Annuitant born after 1900, the actual age is reduced by 0.1
(one-tenth) of a year for each year the year of birth exceeds 1900. For an
annuitant with a birth year prior to 1900, the actual age is increased in a like
manner. The actual age (in completed months) reduced or increased becomes the
"adjusted age of the Annuitant." The guaranteed payout rate is then found by
interpolating the Annuitant's adjusted age between the ages shown in Tables A
and B. Tables A and B are based on the 1983 Table "A" mortality table and an
interest rate of 3.5% per year. On request the Company will furnish the amount
of monthly Annuity Payment per $1,000 applied for any ages not shown.
For Annuity Options 5 through 7, annuity rates based on age and sex are not used
to calculate annuity payments. Annuity Payments for Options 5 and 6 are computed
without reference to the Annuity Tables.
ANNUITY PAYMENTS
The Annuity Option is shown on page 3. The Owner may choose any form of Annuity
Option that is allowed by the Company. The Owner may choose an Annuity Option by
written request. This request must be Received by the Company at least 30 days
prior to the Annuity Start Date. Several Annuity Options are listed on page 18.
No Annuity Option can be selected that requires the Company to make periodic
payments of less than $100.00. If no Annuity Option is chosen prior to the
Annuity Start Date, the Company will use Life with 10-Year Fixed Period Option.
Each Annuity Option allows for making Annuity Payments annually, semiannually,
quarterly or monthly.
CHANGE OF ANNUITY OPTION
Prior to the Annuity Start Date, the Owner may change the Annuity Option chosen.
The Owner must request the change in writing. This request must be Received by
the Company at least 30 days prior to the Annuity Start Date.
16
V6025 H (1-97)
<PAGE> 17
ANNUITY PAYMENT PROVISIONS (Continued)
FIXED ANNUITY PAYMENTS
With respect to Fixed Annuity Payments, the amounts shown on the Tables are the
guaranteed minimum for each Annuity Payment for Annuity Options 1 through 4, 7
and 8.
VARIABLE ANNUITY PAYMENTS
With respect to Variable Annuity Payments, the amount shown on the Tables is the
guaranteed minimum first Annuity Payment, based on the assumed interest rate of
3.5% for Annuity Options 1 through 4, 7 and 8. The amount of each Annuity
Payment after the first for these options is computed by means of Annuity Units.
ANNUITY UNITS
The number of Annuity Units is found by dividing the first Annuity Payment by
the Annuity Unit Value for the selected Subaccount on the Annuity Start Date.
The number of Annuity Units for the Subaccount then remains constant, unless a
Transfer of Annuity Units is made. After the first Annuity Payment, the dollar
amount of each subsequent Annuity Payment is equal to the number of Annuity
Units times the Annuity Unit Value for the Subaccount on the due date of the
Annuity Payment.
The Annuity Unit Value for each Subaccount was first set at $1.00. The Annuity
Unit Value for any subsequent Valuation Date is equal to (a) times (b) times
(c), where:
(a) is the Annuity Unit Value on the immediately preceding Valuation Date;
(b) is the Net Investment Factor for the Valuation Date;
(c) is a daily factor used to adjust for an assumed interest rate of 3.5% per
year used to determine the Annuity Payment amounts. The assumed interest
rate is reflected in the Annuity Tables.
NET INVESTMENT FACTOR
The Net Investment Factor for any Subaccount as of the end of any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Subaccount,
found as of the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions paid by
the Subaccount's underlying mutual fund that is not included in the net
asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the Company
deems to have resulted from the operation of the Separate Account or the
Subaccounts; the operations of the Company with respect to the Contract;
or the payment of premium or acquisition costs under the Contract.
2. is the net asset value per share of the Subaccount's underlying mutual fund
as of the end of the prior Valuation Period.
3. is a daily factor representing the Mortality and Expense Risk Charge which is
deducted from the Separate Account.
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and losses
from each Subaccount are credited or charged against the Subaccount without
regard to the gains or losses in the Company or other Subaccounts.
ALTERNATE ANNUITY OPTION RATES
The Company may, at the time of election of an Annuity Option, offer more
favorable rates in lieu of the guaranteed rates shown in the Annuity Tables.
17
<PAGE> 18
ANNUITY PAYMENT PROVISIONS (Continued)
ANNUITY OPTIONS
OPTION 1
LIFE OPTION: This option provides payments for the life of the Annuitant. Table
A shows some of the guaranteed rates for this option.
OPTION 2
LIFE WITH FIXED PERIOD OPTION: This option provides payments for the life of the
Annuitant. A fixed period of 5, 10, 15 or 20 years may be chosen. Payments will
be made to the end of this period even if the Annuitant dies prior to the end of
the period. If the Annuitant dies before receiving all the payments during the
fixed period, the remaining payments will be made to the Designated Beneficiary.
Table A shows some of the guaranteed rates for this option.
OPTION 3
LIFE WITH INSTALLMENT OR UNIT REFUND OPTION: This option provides payments for
the life of the Annuitant, with a period certain determined by dividing the
Annuity Start Amount by the amount of the first payment. A fixed number of
payments will be made even if the Annuitant dies. If the Annuitant dies before
receiving the fixed number of payments, any remaining payments will be made to
the Designated Beneficiary. Table A shows some of the guaranteed rates for this
option.
OPTION 4
JOINT AND LAST SURVIVOR OPTION: This option provides payments for the life of
the Annuitant and Joint Annuitant. Payments will be made as long as either is
living. Table B shows some of the guaranteed rates for this option.
OPTION 5
FIXED PERIOD OPTION: This option provides payments for a fixed number of years
between 5 and 20. If the Contract Value is held in the Fixed Account, then the
amount of the payments will vary as a result of the interest rate (as adjusted
periodically) credited on the Fixed Account. This rate is guaranteed to be no
less than the Guaranteed Rate shown on page 3. If the Contract Value is held in
the Separate Account, then the amount of the payments will vary as a result of
the investment performance of the Subaccounts chosen. If all the Annuitants die
before receiving the fixed number of payments, any remaining payments will be
made to the Designated Beneficiary.
OPTION 6
FIXED PAYMENT OPTION: This option provides a fixed payment amount. This amount
is paid until the amount applied, including daily interest adjustments, is paid.
If the Contract Value is held in the Fixed Account, then the number of payments
will vary as a result of the interest rate (as adjusted periodically) credited
on the Fixed Account. This rate is guaranteed to be no less than the Guaranteed
Rate shown on page 3. If the Contract Value is held in the Separate Account,
then the number of payments will vary as a result of the investment performance
of the Subaccounts chosen. If all the Annuitants die before receiving all the
payments, any remaining payments will be made to the Designated Beneficiary.
OPTION 7
PERIOD CERTAIN OPTION: This option provides payments for a fixed period of 5,
10, 15 or 20 years. Payments will be made until the end of this period. If the
Annuitant dies prior to the end of the period, the remaining payments will be
made to the Designated Beneficiary. Table C shows some of the guaranteed rates
for this option.
OPTION 8
JOINT AND CONTINGENT SURVIVOR OPTION: This option provides payments for the life
of the primary Annuitant. Payments will be made to the primary Annuitant as long
as he or she is living. Upon the death of the primary Annuitant, payments will
be made to the contingent Annuitant as long as he or she is living. If the
contingent Annuitant is not living upon the death of the primary Annuitant, no
payments will be made to the contingent Annuitant. Table B shows some of the
guaranteed rates for this option.
18
V6025 I (1-97)
<PAGE> 19
ANNUITY TABLES
- --------------------------------------------------------------------------------
TABLE A
SETTLEMENT OPTIONS ONE, TWO, AND THREE
MINIMUM INITIAL MONTHLY INSTALLMENTS PER $1,000 OF AMOUNT APPLIED
Option Two
Adjusted Option One Life with Fixed Period Option Three
Age Life 5 10 15 20 Unit
of Annuitant Only Years Years Years Years Refund
- --------------------------------------------------------------------------------
MALE
55 4.99 4.97 4.91 4.80 4.66 4.73
56 5.09 5.07 5.00 4.88 4.72 4.81
57 5.20 5.17 5.10 4.97 4.78 4.90
58 5.32 5.29 5.20 5.05 4.85 4.99
59 5.44 5.41 5.31 5.14 4.91 5.08
60 5.57 5.53 5.42 5.23 4.97 5.18
61 5.71 5.67 5.54 5.33 5.04 5.29
62 5.86 5.81 5.67 5.42 5.10 5.40
63 6.02 5.97 5.80 5.52 5.16 5.51
64 6.20 6.13 5.94 5.62 5.22 5.63
65 6.38 6.31 6.08 5.72 5.28 5.76
66 6.58 6.49 6.23 5.82 5.33 5.90
67 6.79 6.69 6.38 5.92 5.38 6.04
68 7.02 6.90 6.54 6.02 5.43 6.19
69 7.26 7.12 6.71 6.12 5.48 6.35
70 7.52 7.35 6.87 6.21 5.52 6.52
71 7.80 7.60 7.05 6.30 5.55 6.69
72 8.09 7.86 7.22 6.39 5.59 6.88
73 8.41 8.13 7.40 6.47 5.62 7.07
74 8.75 8.42 7.57 6.55 5.64 7.27
75 9.12 8.72 7.75 6.62 5.66 7.49
FEMALE
55 4.54 4.53 4.51 4.46 4.38 4.40
56 4.62 4.61 4.58 4.53 4.44 4.47
57 4.71 4.70 4.66 4.60 4.51 4.54
58 4.80 4.79 4.75 4.68 4.57 4.62
59 4.90 4.88 4.84 4.76 4.64 4.70
60 5.00 4.99 4.93 4.84 4.70 4.78
61 5.11 5.09 5.03 4.93 4.77 4.87
62 5.23 5.21 5.14 5.02 4.84 4.96
63 5.36 5.33 5.25 5.12 4.91 5.06
64 5.49 5.46 5.37 5.21 4.98 5.17
65 5.64 5.60 5.50 5.31 5.05 5.28
66 5.79 5.75 5.63 5.42 5.12 5.39
67 5.95 5.91 5.77 5.53 5.19 5.52
68 6.13 6.08 5.91 5.63 5.25 5.65
69 6.32 6.26 6.07 5.74 5.32 5.79
70 6.53 6.46 6.23 5.86 5.37 5.94
71 6.75 6.67 6.40 5.97 5.43 6.09
72 6.99 6.89 6.58 6.08 5.48 6.26
73 7.26 7.13 6.76 6.18 5.52 6.44
74 7.54 7.39 6.95 6.29 5.57 6.63
75 7.85 7.67 7.14 6.39 5.60 6.83
Values not shown will be provided upon request. Annual, semiannual, or
quarterly installments can be determined by multiplying the monthly installments
by 11.812853, 5.9572227, and 2.9914196 respectively.
19
<PAGE> 20
ANNUITY TABLES (Continued)
- --------------------------------------------------------------------------------
TABLE B
SETTLEMENT OPTIONS FOUR AND EIGHT
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
Adjusted Age of Adjusted Age of Male Annuitant
Female Annuitant 55 60 62 65 70 75
- --------------------------------------------------------------------------------
55 4.16 4.27 4.30 4.35 4.42 4.47
60 4.34 4.51 4.57 4.66 4.78 4.86
62 4.41 4.61 4.68 4.79 4.94 5.04
65 4.51 4.76 4.85 4.99 5.20 5.35
70 4.66 4.99 5.13 5.34 5.67 5.95
75 4.78 5.19 5.37 5.66 6.16 6.63
Values not shown will be provided upon request. Annual, semiannual, or
quarterly installments can be determined by multiplying the monthly installments
by 11.812853, 5.9572227, and 2.9914196 respectively.
- --------------------------------------------------------------------------------
TABLE C
SETTLEMENT OPTION SEVEN
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
PERIOD CERTAIN
5 YEARS 10 YEARS 15 YEARS 20 YEARS
- --------------------------------------------------------------------------------
18.11 9.83 7.1 5.75
Values not shown will be provided upon request. Annual, semiannual, or
quarterly installments can be determined by multiplying the monthly installments
by 11.812853, 5.9572227, and 2.9914196 respectively.
20
<PAGE> 21
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.
- - Purchase Payments may be made until the earlier of the Annuity Start Date or
termination of the Contract.
- - A Death Benefit may be paid prior to the Annuity Start Date according to the
Contract provisions.
- - Annuity Payments begin on the Annuity Start Date using the method as
specified in this Contract.
- - This Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
<PAGE> 1
SECURITY BENEFIT LIFE INSURANCE COMPANY
A MUTUAL COMPANY/FOUNDED IN 1892/TOPEKA, KS
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
THE COMPANY'S PROMISE
In consideration for the Purchase Payments and the attached application,
Security Benefit Life Insurance Company (the "Company") will pay the benefits of
this Contract according to its provisions.
LEGAL CONTRACT
PLEASE READ YOUR CONTRACT CAREFULLY. It is a legal Contract between the Owner
and the Company. The Contract's table of contents is on page 2.
FREE LOOK PERIOD-RIGHT TO CANCEL
IF FOR ANY REASON THE OWNER IS NOT SATISFIED WITH THIS CONTRACT, THE OWNER MAY
RETURN IT TO THE COMPANY WITHIN 10 DAYS FROM THE DATE OF RECEIPT. IT MAY BE
RETURNED BY DELIVERING OR MAILING IT TO THE COMPANY. IF RETURNED, THIS CONTRACT
SHALL BE DEEMED VOID FROM THE CONTRACT DATE. THE COMPANY WILL REFUND ANY
PURCHASE PAYMENTS MADE AND ALLOCATED TO THE FIXED ACCOUNT AND WILL REFUND
SEPARATE ACCOUNT CONTRACT VALUE AS OF THE DATE THE RETURNED POLICY IS RECEIVED
BY THE COMPANY.
Signed for Security Benefit Life Insurance Company on the Contract Date.
ROGER K. VIOLA HOWARD R. FRICKE
Secretary President
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM DEFERRED GROUP UNALLOCATED VARIABLE ANNUITY CONTRACT.
*Purchase Payments may be made until termination of the Contract.
*This Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
FORM V6320 (2-97)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CONTRACT SPECIFICATIONS ................................................ 3
DEFINITIONS ............................................................ 4-7
GENERAL PROVISIONS ..................................................... 7,8
The Contract ......................................................... 7
Compliance ........................................................... 7
Incontestability ..................................................... 7
Assignment ........................................................... 7
Transfers ............................................................ 7,8
Claims of Creditors .................................................. 8
Nonforfeiture Values ................................................. 8
Participation ........................................................ 8
Statements ........................................................... 8
OWNERSHIP PROVISIONS ................................................... 8,9
Ownership ............................................................ 8
Joint Ownership ...................................................... 9
Ownership Changes .................................................... 9
PURCHASE PAYMENT PROVISIONS ............................................ 9
Flexible Purchase Payments ........................................... 9
Purchase Payment Limitations ......................................... 9
Purchase Payment Allocation .......................................... 9
Place of Payment ..................................................... 9
CONTRACT VALUE AND EXPENSE PROVISIONS .................................. 10,11
Contract Value ....................................................... 10
Fixed Account Contract Value ......................................... 10
Fixed Account Interest Crediting ..................................... 10
Separate Account Contract Value ...................................... 10
Accumulation Unit Value .............................................. 10
Net Investment Factor ................................................ 11
Determining Accumulation Units ....................................... 11
Mortality and Expense Risk Charge .................................... 11
Premium Tax Expense .................................................. 11
Administration Charge ................................................ 11
Mutual Fund Expenses ................................................. 11
WITHDRAWAL PROVISIONS .................................................. 12,13
Withdrawals .......................................................... 12
Withdrawal Value ..................................................... 12
Withdrawal Charges ................................................... 12
Free Withdrawals ..................................................... 12
Systematic Withdrawals ............................................... 13
Free Systematic Withdrawals .......................................... 13
Date of Request ...................................................... 13
Payment of Withdrawal Benefits ....................................... 13
ANNUITY BENEFIT PROVISIONS ............................................. 14,15
Purchase of Annuity Benefit Provisions ............................... 14
Annuity Tables ....................................................... 14
Fixed Annuity Payments ............................................... 14
Variable Annuity Payments ............................................ 14
Alternate Annuity Option Rates ....................................... 14
Annuity Options ...................................................... 15
ANNUITY TABLES ......................................................... 16,17
AMENDMENTS OR ENDORSEMENTS, IF ANY
</TABLE>
2
<PAGE> 3
VARIABLE ANNUITY CONTRACT SPECIFICATIONS
OWNER NAME: John A Doe CONTRACT NUMBER: Specimen
JOINT OWNER NAME: Mary K. Doe CONTRACT DATE: 6-30-1997
PLAN: Qualified ISSUE DATE: 6-30-1997
ASSIGNEMENT: This policy may not be assigned.
See Assignment Provision of Your
Policy.
INITIAL PURCHASE PAYMENT $25,000
MINIMUM SUBSEQUENT PURCHASE PAYMENTS $500 ($50 pursuant to an automatic
investment program)
MINIMUM SYSTEMATIC WITHDRAWAL $100
MORTALITY AND EXPENSE RISK CHARGE 1.25% Annually
ADMINISTRATION CHARGE .15% Annually
WITHDRAWAL CHARGES:
Contract Year of Withdrawal 1 2 3 4 5 6 7+
Withdrawal Charge 6% 6% 5% 4% 3% 2% 0%
FREE WITHDRAWAL PERCENTAGE 10%
GUARANTEED RATE 3.00%
SUBACCOUNTS:
Money Market Subaccount
High Grade Income Subaccount
High Yield Subaccount
Global Aggressive Bond Subaccount
Growth-Income Subaccount
Equity Income Subaccount
Managed Asset Allocation Subaccount
Specialized Asset Allocation Subaccount
Growth Subaccount
Value Subaccount
Worldwide Equity Subaccount
Social Awareness Subaccount
Emerging Growth Subaccount
Small Cap Subaccount
METHOD FOR DEDUCTIONS:
Deductions for Premium Taxes, and any unallocated partial Withdrawals, including
Systematic Withdrawals, will be made sequentially from the Contract Value in
descending order of the Subaccounts listed above. The Fixed Account is the last
Account charged. The value of each Account will be depleted before the next is
charged.
3
V6320 A (2-97)
<PAGE> 4
DEFINITIONS
ACCOUNT
An Account is one of the Subaccounts or the Fixed Account.
ACCUMULATION UNIT
The Accumulation Unit is a unit of measure. It is used to compute the Separate
Account Contract Value.
ANNUITANT
When Contract Value is distributed to a Participant and used to purchase an
annuity, the Annuitant is the person named by the Participant on whose life the
Annuity Payments depend for Annuity Options 1 through 4 and 8. The Annuitant
receives Annuity Payments under the Participant's Contract. Please see "Annuity
Benefit Provisions" on page 14.
ANNUITY OPTION
An Annuity Option is a set of provisions that form the basis for making Annuity
Payments. Please see "Annuity Options" on page 15.
AUTOMATIC INVESTMENT PROGRAM
A program pursuant to which Purchase Payments are automatically paid from the
Owner's bank account on a specified day of the month, on a monthly, quarterly,
semiannual or annual basis.
AUTOMATIC TRANSFERS
Automatic Transfers are Transfers among the Subaccounts and the Fixed Account.
Such Transfers are made automatically on a periodic basis by the Company at the
written request of the Owner. The Company reserves the right to discontinue,
modify or suspend Automatic Transfers.
COMPANY
The Company is Security Benefit Life Insurance Company, 700 SW Harrison Street,
Topeka, Kansas 66636-0001.
CONTRACT ANNIVERSARY
A Contract Anniversary is a 12-month anniversary of the Contract Date.
CONTRACT DATE
The Contract Date is the date the Contract begins. The Contract Date is shown on
page 3.
CONTRACT YEAR
Contract Years are measured from the Contract Date.
CURRENT INTEREST
The Company may in its discretion pay Current Interest on the Fixed Account at a
rate that exceeds the Guaranteed Rate shown on page 3. The Company will declare
the rate of Current Interest, if any, from time to time.
FIXED ACCOUNT
The Fixed Account is part of the Company's general account. The Company manages
the general account and guarantees that it will credit interest on Fixed Account
Contract Value at an annual rate at least equal to the Guaranteed Rate. This
Rate is shown on page 3.
4
V6320 B (2-97)
<PAGE> 5
DEFINITIONS (Continued)
GUARANTEE PERIOD
Current Interest, if declared, is fixed for rolling periods of one or more
years, referred to as Guarantee Periods. The Company may offer Guarantee Periods
of different durations. The Guarantee Period that applies to any Fixed Account
Contract Value: 1) starts on the date that such Contract Value is allocated to
the Fixed Account pursuant to: (a) a Purchase Payment Received by the Company;
or (b) a Transfer to the Fixed Account; and 2) ends on the last day of the same
month in the year in which the Guarantee Period expires. When any Guarantee
Period expires, a new Guarantee Period shall start for such Contract Value on
the date that follows such expiration date. Such period shall end on the
immediately preceding date in the year in which the Guarantee Period expires.
For example, assuming a one-year Guarantee Period, Contract Value transferred to
the Fixed Account on June 1 would have a Guarantee Period starting on that date
and ending on June 30 of the following year. A new Guarantee Period for such
Contract Value would start on July 1 of that year and end on June 30 of the
following year.
HOME OFFICE
The address of the Company's Home Office is Security Benefit Life Insurance
Company, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
ISSUE DATE
The Issue Date is the date the Company uses to determine the date the Contract
becomes incontestable. The Issue Date is shown on Page 3. Please see
"Incontestability" on page 7.
JOINT OWNER
The Joint Owner, if any, shares an undivided interest in the entire Contract
with the Owner. The Joint Owner, if any, is named on page 3. Please see "Joint
Ownership" provisions on page 9.
NONNATURAL PERSON
Any group or entity that is not a living person, such as a trust or corporation.
OWNER
The Owner is the person, group or entity that possesses all rights under the
Contract. The Owner is named on page 3. Please see "Ownership" provisions on
page 9.
PARTICIPANT
A Participant under the Plan.
PARTICIPANT'S CONTRACT
A Contract purchased with a Participant's distribution from the Plan.
PLAN
The employer-sponsored retirement plan, annuity purchase arrangement or deferred
compensation program for which the Contract is issued.
PREMIUM TAX
Any Premium Taxes levied by a state or other governmental entity will be charged
against this Contract. When Premium Tax is assessed after the Purchase Payment
is applied, it will be deducted as described on page 3.
PURCHASE PAYMENT
A Purchase Payment is money Received by the Company and applied to the Contract.
RECEIVED BY THE COMPANY
The phrase "Received by the Company" means receipt by the Company in good order
at its Home Office, 700 SW Harrison Street, Topeka, Kansas 66636-0001.
5
<PAGE> 6
DEFINITIONS (Continued)
SEPARATE ACCOUNT
Variable Annuity Account VIII (the "Separate Account") is a separate account
established and maintained by the Company under Kansas law. The Separate Account
is registered with the Securities and Exchange Commission under the Investment
Company Act of 1940 as a Unit Investment Trust. It was established by the
Company to support variable annuity contracts. The Company owns the assets of
the Separate Account and maintains them apart from the assets of its general
account and its other separate accounts. The assets held in the Separate Account
equal to the reserves and other Contract liabilities with respect to the
Separate Account may not be charged with liabilities arising from any other
business the Company may conduct.
Income and realized and unrealized gains and losses from assets in the Separate
Account are credited to, or charged against, the Separate Account without regard
to the income, gains or losses from the Company's general account or its other
separate accounts. The Separate Account is divided into Subaccounts shown on
page 3. Income and realized and unrealized gains and losses from assets in each
Subaccount are credited to, or charged against, the Subaccount without regard to
income, gains or losses in the other Subaccounts. The Company has the right to
transfer to its general account any assets of the Separate Account that are in
excess of the reserves and other Contract liabilities with respect to the
Separate Account. The value of the assets in the Separate Account on each
Valuation Date is determined at the end of each Valuation Date.
SUBACCOUNT NET ASSET VALUE
The Subaccount Net Asset Value is equal to: (1) the net asset value of all
shares of the underlying mutual fund held by the Subaccount; plus (2) any cash
or other assets; less (3) all liabilities of the Subaccount.
SUBACCOUNTS
The Separate Account is divided into Subaccounts which invest in shares of
mutual funds. Each Subaccount may invest its assets in a separate class or
series of a designated mutual fund or funds. The Subaccounts are shown on page
3. Subject to the regulatory requirements then in force, the Company reserves
the right to:
1. change or add designated mutual funds or other investment vehicles;
2. add, remove or combine Subaccounts;
3. add, delete or make substitutions for securities that are held or purchased
by the Separate Account or any Subaccount;
4. operate the Separate Account as a management investment company;
5. combine the assets of the Separate Account with other Separate Accounts of
the Company or an affiliate thereof;
6. restrict or eliminate any voting rights of the Owner with respect to the
Separate Account or other persons who have voting rights as to the Separate
Account; and
7. terminate and liquidate any Subaccount.
If any of these changes result in a material change to the Separate Account or a
Subaccount, the Company will notify the Owner of the change. The Company will
not change the investment policy of any Subaccount in any material respect
without complying with the filing and other procedures of the insurance
regulators of the state of issue.
6
V6320 C (2-97)
<PAGE> 7
DEFINITIONS (Continued)
VALUATION DATE
A Valuation Date is each day the New York Stock Exchange and the Company's Home
Office are open for business.
VALUATION PERIOD
A Valuation Period is the interval of time from one Valuation Date to the next
Valuation Date.
GENERAL PROVISIONS
THE CONTRACT
The entire Contract between the Owner and the Company consists of this Contract,
the attached Application, and any Amendments, Endorsements or Riders to the
Contract. All statements made in the Application will, in the absence of fraud,
as ruled by a court of competent jurisdiction, be deemed representations and not
warranties. The Company will use no statement made by or on behalf of the Owner
to void this Contract unless it is in the written Application. Any change in the
Contract can be made only with the written consent of the President, a Vice
President, or the Secretary of the Company.
The Purchase Payment(s) and the Application must be acceptable to the Company
under its rules and practices. If they are not, the Company's liability shall be
limited to a return of the Purchase Payment(s).
COMPLIANCE
The Company reserves the right to make any change to the provisions of this
Contract to comply with or give the Owner the benefit of any federal or state
statute, rule or regulation. This includes, but is not limited to, requirements
for annuity contracts under the Internal Revenue Code or the laws of any state.
The Company will provide the Owner with a copy of any such change and will also
file such a change with the insurance regulatory officials of the state in which
the Contract is delivered.
INCONTESTABILITY
This Contract will not be contested after it has been in force for two years
from the Issue Date.
ASSIGNMENT
Please refer to page 3 to see if this Contract may be assigned. If it may be
assigned, no Assignment under this Contract is binding unless Received by the
Company in writing. The Company assumes no responsibility for the validity,
legality, or tax status of any Assignment. The Assignment will be subject to any
payment made or other action taken by the Company before the Assignment is
Received by the Company. Once filed, the rights of the Owner are subject to the
Assignment. Any claim is subject to proof of interest of the assignee.
TRANSFERS
The Owner may Transfer Contract Value among the Fixed Account and Subaccounts
subject to the following.
The Company reserves the right to: (1) limit the amount that may be subject to
Transfer to $1,000,000 per Transfer without Home Office approval; (2) limit the
number of Transfers allowed each Contract Year to 14; and (3) suspend Transfers.
Transfers must be at least $500.00 or, if less: (i) the remaining balance in a
Subaccount, or (ii) the amount of Fixed Account Contract Value the Guarantee
Period of which expires in the calendar month in which the Transfer is effected.
7
<PAGE> 8
GENERAL PROVISIONS (Continued)
TRANSFERS (Continued)
Contract Value may be transferred from the Fixed Account only: (1) during the
calendar month in which the applicable Guarantee Period expires; (2) pursuant to
an Automatic Transfer. Transfers of Fixed Account Contract Value shall be made:
(1) first from Fixed Account Contract Value for which the Guarantee Period
expires during the calendar month in which the Transfer is effected; (2) then in
the order that starts with Fixed Account Contract Value which has the longest
amount of time before its Guarantee Period expires; and (3) ends with that which
has the least amount of time before its Guarantee Period expires.
The Company will effect a Transfer to or from a Subaccount on the basis of
Accumulation Unit Value determined at the end of the Valuation Period in which
the Transfer is effected. The Company will effect a Transfer from the Fixed
Account on the basis of Fixed Account Contract Value as of the end of the
Valuation Period in which the Transfer is effected.
The Company reserves the right to delay Transfers from the Fixed Account for up
to 6 months as required by most states. The Company will notify you if there
will be a delay.
CLAIMS OF CREDITORS
The Contract Value and other benefits under this Contract are exempt from the
claims of creditors of the Owner to the extent allowed by law.
NONFORFEITURE VALUES
The Withdrawal Values will at least equal the minimum required by law.
PARTICIPATION
The Company is a mutual life insurance company. Therefore, it pays dividends on
some of its contracts. However, the Company does not expect dividends to become
payable on this Contract. At the end of each Contract Year the Company will
determine the Contract's dividend, if any. The Owner may choose to have it: (1)
added to the Contract Value; or (2) paid in cash. If no choice is made, any
dividend will be added to the Contract Value.
STATEMENTS
At least once each Contract Year the Owner shall be sent a statement including
the current Contract Value and any other information required by law. The Owner
may send a written request for a statement at other intervals. The Company may
charge a reasonable fee for such statements.
OWNERSHIP PROVISIONS
OWNERSHIP
All rights and privileges under the Contract may be exercised only by the Owner.
If the purchaser names someone other than himself or herself as Owner, the
purchaser has no rights in the Contract.
8
V6320 D (2-97)
<PAGE> 9
OWNERSHIP PROVISIONS (Continued)
JOINT OWNERSHIP
If a Joint Owner is named in the application, then the Owner and Joint Owner
share an undivided interest in the entire Contract as joint tenants with rights
of survivorship. When an Owner and Joint Owner have been named, the Company will
honor only requests for changes and the exercise of other Ownership rights made
by both the Owner and Joint Owner. When a Joint Owner is named, all references
to "Owner" throughout this Contract should be construed to mean both the Owner
and Joint Owner, except for the "Statements" provision on page 8.
OWNERSHIP CHANGES
Subject to the terms of any existing Assignment, the Owner may name a new Owner.
Any new choice of Owner will revoke any prior choice. Any change must be made in
writing and recorded at the Home Office. The change will become effective as of
the date the written request is signed. The Company may require the Contract be
returned so these changes may be made.
PURCHASE PAYMENT PROVISIONS
FLEXIBLE PURCHASE PAYMENTS
The Contract becomes in force when the initial Purchase Payment is applied. The
Owner is not required to continue Purchase Payments in the amount or frequency
originally planned. The Owner may: (1) increase or decrease the amount of
Purchase Payments, subject to any Contract limits; or (2) change the frequency
of Purchase Payments. A change in frequency or amount of Purchase Payments does
not require a written request.
PURCHASE PAYMENT LIMITATIONS
Purchase Payments exceeding $1,000,000 will not be accepted without prior
approval by the Company. The Minimum Subsequent Purchase Payment amount is shown
on page 3.
PURCHASE PAYMENT ALLOCATION
Purchase Payments may be allocated among the Fixed Account and the Subaccounts.
Purchase Payments will be allocated according to the Owner's instructions in the
Application or more recent instructions, if any. Each allocation to the Fixed
Account and the Subaccounts must be at least 1% of the Purchase Payment. The
allocations must be whole percentage amounts and must total 100%. The Owner may
change the allocations by written notice to the Company.
PLACE OF PAYMENT
All Purchase Payments under this Contract are to be paid to the Company at its
Home Office. Purchase Payments after the initial Purchase Payment are applied as
of the end of the Valuation Period during which they are Received by the
Company.
9
<PAGE> 10
CONTRACT VALUE AND EXPENSE PROVISIONS
CONTRACT VALUE
On any Valuation Date, the Contract Value is the sum of: (1) the Separate
Account Contract Value; and (2) the Fixed Account Contract Value. At any time
after the first Contract Year, the Company reserves the right to pay to the
Owner the Contract Value as a lump sum if it is below $5,000.
FIXED ACCOUNT CONTRACT VALUE
On any Valuation Date, the Fixed Account Contract Value is equal to the first
Purchase Payment allocated under the Contract to the Fixed Account:
PLUS:
1. any other Purchase Payments allocated under the Contract to the Fixed
Account;
2. any Transfers from the Separate Account to the Fixed Account; and
3. any interest credited to the Fixed Account.
LESS:
1. any Withdrawals and applicable Withdrawal Charges deducted from the Fixed
Account;
2. any Transfers from the Fixed Account to the Separate Account; and
3. any applicable Premium Taxes.
FIXED ACCOUNT INTEREST CREDITING
The Company shall credit interest on Fixed Account Contract Value at an annual
rate at least equal to the Guaranteed Rate shown on page 3. Also, the Company
may in its sole judgment credit Current Interest at a rate in excess of the
Guaranteed Rate. The rate of Current Interest, if declared, shall be fixed
during the Guarantee Period. Fixed Account Contract Value shall earn Current
Interest during each Guarantee Period at the rate, if any, declared by the
Company on the first day of the Guarantee Period.
The Company may credit Current Interest on Contract Value that was allocated or
transferred to the Fixed Account during one period at a different rate than
amounts allocated or transferred to the Fixed Account in another period. Also,
the Company may credit Current Interest on Fixed Account Contract Value at
different rates based upon the length of the Guarantee Period. Therefore, at any
time, portions of Fixed Account Contract Value may be earning Current Interest
at different rates based upon the period during which such portions were
allocated or transferred to the Fixed Account and the length of the Guarantee
Period.
SEPARATE ACCOUNT CONTRACT VALUE
On any Valuation Date, the Separate Account Contract Value is the sum of the
then current value of the Accumulation Units allocated to each Subaccount for
this Contract.
ACCUMULATION UNIT VALUE
The initial Accumulation Unit Value for each Subaccount was set at $10. The
Accumulation Unit Value for any subsequent Valuation Date is equal to (1) times
(2) where:
1. is Accumulation Unit Value determined on the immediately preceding Valuation
Date; and
2. is the Net Investment Factor on the Valuation Date with respect to which
Accumulation Unit Value is being determined;
10
V6320 E (2-97)
<PAGE> 11
CONTRACT VALUE AND EXPENSE PROVISIONS (Continued)
NET INVESTMENT FACTOR
The Net Investment Factor for any Subaccount as of the end of any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
1. is equal to:
a. the net asset value per share of the mutual fund held in the Subaccount,
found as of the end of the current Valuation Period; plus
b. the per share amount of any dividend or capital gain distributions paid
by the Subaccount's underlying mutual fund that is not included in the
net asset value per share; plus or minus
c. a per share charge or credit for any taxes reserved for, which the
Company deems to have resulted from the operation of the Separate
Account or the Subaccounts; operations of the Company with respect to
the Contract; or the payment of premiums or acquisition costs under the
Contract.
2. is the net asset value per share of the Subaccount's underlying mutual fund
as of the end of the prior Valuation Period.
3. is a daily factor representing the Mortality and Expense Risk Charge and
Administration Charge which are deducted from the Separate Account.
Underlying mutual funds may declare dividends on a daily basis and pay such
dividends once a month. The Net Investment Factor allows for the monthly
reinvestment of these daily dividends. As described above, the gains and losses
from each Subaccount are credited to or charged against the Subaccounts without
regard to the gains or losses in the Company or other Subaccounts.
The Accumulation Unit Value may increase or decrease from one Valuation Period
to the next.
DETERMINING ACCUMULATION UNITS
The number of Accumulation Units allocated to a Subaccount under this Contract
is found by dividing: (1) the amount allocated to the Subaccount; by (2) the
Accumulation Unit Value for the Subaccount as of the end of the Valuation Period
during which the amount is applied under the Contract. The number of
Accumulation Units allocated to a Subaccount under the Contract will not change
as a result of investment experience. Events that change the number of
Accumulation Units are:
1. Purchase Payments that are applied to the Subaccount.
2. Contract Value that is Transferred into or out of the Subaccount.
3. Withdrawals and any applicable Withdrawal Charges that are deducted from the
Subaccount; and
4. Premium Taxes that are deducted from the Subaccount.
MORTALITY AND EXPENSE RISK CHARGE
The Company will deduct the Mortality and Expense Risk Charge shown on page 3.
This charge will be computed and deducted from each Subaccount on each Valuation
Date. This charge is factored into the Accumulation Unit Values on each
Valuation Date.
PREMIUM TAX EXPENSE
The Company reserves the right to deduct Premium Tax when due or any time
thereafter. Any applicable Premium Taxes will be allocated as described on page
3.
ADMINISTRATION CHARGE
The Company will deduct the Administration Charge shown on page 3. This charge
will be computed and deducted from each Subaccount on each Valuation Date. This
charge is factored into the Accumulation Unit Value on each Valuation Date.
MUTUAL FUND EXPENSES
Each Subaccount invests in shares of a mutual fund. The net asset value per
share of each underlying fund reflects the deduction of any investment advisory
and administration fees and other expenses of the fund. These fees and expenses
are not deducted from the assets of a Subaccount, but are paid by the underlying
funds. The Owner indirectly bears a pro rata share of such fees and expenses. An
underlying fund's fees and expenses are not specified or fixed under the terms
of this Contract.
11
<PAGE> 12
WITHDRAWAL PROVISIONS
WITHDRAWALS
A full or partial Withdrawal of Contract Value is allowed at any time. This
provision is subject to any federal or state Withdrawal restrictions.
Upon the Owner's request for a full Withdrawal, the Company will pay the
Withdrawal Value in a lump sum, and the Contract will terminate.
All Withdrawals must meet the following conditions.
1. The request for Withdrawal must be Received by the Company in writing or
under other methods allowed by the Company, if any.
2. The Owner must apply while this Contract is in force.
3. The amount Withdrawn must be at least $500.00 except that a Withdrawal of
less than $500.00 is allowed: (i) for Systematic Withdrawals, as discussed
on page 13, (ii) for Fixed Account Contract Value the Guarantee Period of
which expires during the calendar month of the Withdrawal, or (iii) when
terminating the Contract.
A partial Withdrawal request must state the allocations for deducting the
Withdrawal from each Account. If no allocation is specified, the partial
Withdrawal will be deducted from the Accounts in the order described on page 3,
"Method for Deductions." Withdrawals of Fixed Account Contract Value shall be
made: (1) first from Fixed Account Contract Value for which the Guarantee Period
expires during the calendar month in which the Withdrawal is effected; (2) then
in the order that starts with Fixed Account Contract Value which has the longest
amount of time before its Guarantee Period expires; and (3) ends with that which
has the least amount of time before its Guarantee Period expires.
WITHDRAWAL VALUE
The Withdrawal Value as of any Valuation Date will be: (1) the Contract Value on
that date; less (2) any Premium Taxes due or paid by the Company; and (3) any
Withdrawal Charges.
WITHDRAWAL CHARGES
If part or all of the Contract Value is Withdrawn, Withdrawal Charges may be
applied at the time of Withdrawal. The Withdrawal Charge is applied to Purchase
Payments withdrawn. The amount of the charge is based on the Contract Year in
which the Withdrawal is made. See the Withdrawal Charges shown on page 3. For
the purpose of determining the Withdrawal Charges, Purchase Payments are
withdrawn before Earnings. The Withdrawal Charge will not be assessed against:
1. any Free Withdrawal amounts;
2. any Free Systematic Withdrawal amounts;
3. any amounts remaining after all Purchase Payments are withdrawn;
The Withdrawal Charge will be assessed against Contract Value allocated to the
Subaccounts and the Fixed Account in the same proportion as the Withdrawal is
allocated.
FREE WITHDRAWALS
A Free Withdrawal is a Withdrawal amount that is not subject to Withdrawal
Charges. The amount of Free Withdrawal available in a Contract Year is
determined as follows. In the first Contract Year, it is equal to: (1)cumulative
Purchase Payments made under the Contract; times (2) the Free Withdrawal
Percentage set forth on page 3; less (3) any Free Withdrawals, including any
Free Systematic Withdrawals, made during the Contract Year. The amount of Free
Withdrawal available in subsequent Contract Years is equal to (1) Contract Value
as of the first day of the current Contract Year; times (2) the Free Withdrawal
Percentage; less (3) any Free Withdrawals, including any Free Systematic
Withdrawals, made during the Contract Year. Unused Free Withdrawal amounts are
not carried from one Contract Year to the next.
12
V6320 F (2-97)
<PAGE> 13
WITHDRAWAL PROVISIONS (Continued)
SYSTEMATIC WITHDRAWALS
Systematic Withdrawals are automatic periodic Withdrawals from the Contract in
substantially equal amounts. In order to start Systematic Withdrawals, the Owner
must make the request in writing. Systematic Withdrawals are subject to any
applicable Withdrawal Charges, except as discussed under "Free Systematic
Withdrawals" below. The Minimum Systematic Withdrawal is shown on page 3. The
Owner must choose the type of payment and its frequency. The Systematic
Withdrawal request must state the allocations for deducting the Withdrawals from
each Account. If no allocation is specified, the Withdrawals will be deducted
from the Accounts in the order described on page 3, "Method for Deductions." The
payment type may be: (1) a percentage of Contract Value; (2) a specified dollar
amount; (3) all earnings in the Contract; (4) over a fixed period of time. The
payment frequency may be: (1) monthly; (2) quarterly; (3) semiannually; or (4)
annually. Systematic Withdrawals may be stopped or changed by the Owner upon
proper written request Received by the Company at least 30 days in advance of
the requested date of termination or change. The Company reserves the right to
stop, modify, suspend or charge a fee for Systematic Withdrawals at any time.
FREE SYSTEMATIC WITHDRAWALS
Free Systematic Withdrawals are not subject to a Withdrawal Charge. The amount
of Free Systematic Withdrawals available in a Contract Year is determined as
follows. The amount of Systematic Withdrawals that, when combined with any Free
Withdrawals in the current Contract Year, does not exceed the Free Withdrawal
amount available in that Contract Year.
DATE OF REQUEST
The Company will effect a Withdrawal of Separate Account Contract Value on the
basis of Accumulation Unit Value determined as of the end of the Valuation
Period in which all the required information is Received by the Company. The
Company will effect Systematic Withdrawals of Separate Account Contract Value on
the basis of Accumulation Unit Value determined as of the end of the Valuation
Period in which such Withdrawal is scheduled.
PAYMENT OF WITHDRAWAL BENEFITS
The Company reserves the right to suspend a Transfer or delay payment of a
Withdrawal from the Separate Account for any period:
1. when the New York Stock Exchange is closed; or
2. when trading on the New York Stock Exchang is restricted; or
3. when an emergency exists as a result of which: (a) disposal of securities
held in the Separate Account is not reasonably practicable; or (b) it is not
reasonably practicable to fairly value the net assets of the Separate
Account; or
4. during any other period when the Securitie and Exchange Commission, by
order, so permits to protect owners of securities.
Rules and regulations of the Securities and Exchange Commission will govern as
to whether the conditions set forth above exist.
The Company further reserves the right to delay payment of a Withdrawal from the
Fixed Account for up to six months as required by most states. The Company will
notify you if there will be a delay.
13
<PAGE> 14
ANNUITY BENEFIT PROVISIONS
PURCHASE OF ANNUITY BENEFIT PROVISIONS
The Company agrees to make available to any Participant under the Owner's Plan
who receives an eligible rollover distribution (or in the case of a Plan
described in Section 457 of the Internal Revenue Code, any distribution) from
the Plan, an annuity contract for purchase with such distribution. The Annuity
Contract will offer the annuity options and rates set forth below. A
Participant's purchase payment and application for such annuity contract must be
acceptable to the Company under its rules and practices and the provisions of
the contract applied for.
ANNUITY TABLES
Annuity Tables A through C show the guaranteed minimum amount of monthly Annuity
Payment per $1,000 applied, which for Annuity Options 1 through 4, 7 and 8
determine the amount of the first Variable Annuity Payment and the amount of
each Fixed Annuity Payment. The amount of each Annuity Payment for Annuity
Options 1 through 4, and 8 will depend on the Annuitant's sex and age.
Tables A through B assume 1900 as the year of birth of the Annuitant. To use
Tables A through B for an Annuitant born after 1900, the actual age is reduced
by 0.1 (one-tenth) of a year for each year the year of birth exceeds 1900. For
an Annuitant with a birth year prior to 1900, the actual age is increased in a
like manner. The actual age (in completed months) reduced or increased becomes
the "adjusted age of the Annuitant." The guaranteed payout rate is then found by
interpolating the Annuitant's adjusted age between the ages shown in Tables A
through B. Tables A through B are based on the 1983 Table "A" mortality table
and an interest rate of 3.5% per year. On request the Company will furnish the
amount of monthly Annuity Payment per $1,000 applied for any ages not shown.
For Annuity Options 5 through 7, annuity rates based on age and sex are not used
to calculate annuity payments. Annuity Payments for Options 5 and 6 are computed
without reference to the Annuity Tables.
FIXED ANNUITY PAYMENTS
With respect to Fixed Annuity Payments, the amounts shown on the Tables are the
guaranteed minimum for each Annuity Payment for Annuity Options 1 through 4, 7
and 8.
VARIABLE ANNUITY PAYMENTS
With respect to Variable Annuity Payments, the amounts shown on the Tables are
the guaranteed minimum first Annuity Payment, based on the assumed interest rate
of 3.5% for Annuity Options 1 through 4, 7 and 8. The amount of each Annuity
Payment after the first for these options is computed by means of Annuity Units.
ALTERNATE ANNUITY OPTION RATES
The Company may, at the time of election of an Annuity Option, offer more
favorable rates in lieu of the guaranteed rates shown in the Annuity Tables.
14
V6320 G (2-97)
<PAGE> 15
ANNUITY PAYMENT PROVISIONS (Continued)
ANNUITY OPTIONS
OPTION 1
LIFE OPTION: This option provides payments for the life of the Annuitant. Table
A shows some of the guaranteed rates for this option.
OPTION 2
LIFE WITH FIXED PERIOD OPTION: This option provides payments for the life of the
Annuitant. A fixed period of 5, 10, 15 or 20 years may be chosen. Payments will
be made to the end of this period even if the Annuitant dies prior to the end of
the period. If the Annuitant dies before receiving all the payments during the
fixed period, the remaining payments will be made to the Designated Beneficiary.
Table A shows some of the guaranteed rates for this option.
OPTION 3
LIFE WITH INSTALLMENT OR UNIT REFUND OPTION: This option provides payments for
the life of the Annuitant, with a period certain determined by dividing the
Annuity Start Amount by the amount of the first payment. A fixed number of
payments will be made even if the Annuitant dies. If the Annuitant dies before
receiving the fixed number of payments, any remaining payments will be made to
the Designated Beneficiary. Table A shows some of the guaranteed rates for this
option.
OPTION 4
JOINT AND LAST SURVIVOR OPTION: This option provides payments for the life of
the Annuitant and Joint Annuitant. Payments will be made as long as either is
living. Table B shows some of the guaranteed rates for this option.
OPTION 5
FIXED PERIOD OPTION: This option provides payments for a fixed number of years
between 5 and 20. If the Contract Value is held in the Fixed Account, then the
amount of the payments will vary as a result of the interest rate (as adjusted
periodically) credited on the Fixed Account. This rate is guaranteed to be no
less than the Guaranteed Rate shown on page 3. If the Contract Value is held in
the Separate Account, then the amount of the payments will vary as a result of
the investment performance of the Subaccounts chosen. If all the Annuitants die
before receiving the fixed number of payments, any remaining payments will be
made to the Designated Beneficiary.
OPTION 6
FIXED PAYMENT OPTION: This option provides a fixed payment amount. This amount
is paid until the amount applied, including daily interest adjustments, is paid.
If the Contract Value is held in the Fixed Account, then the number of payments
will vary as a result of the interest rate (as adjusted periodically) credited
on the Fixed Account. This rate is guaranteed to be no less than the Guaranteed
Rate shown on page 3. If the Contract Value is held in the Separate Account,
then the number of payments will vary as a result of the investment performance
of the Subaccounts chosen. If all the Annuitants die before receiving all the
payments, any remaining payments will be made to the Designated Beneficiary.
OPTION 7
PERIOD CERTAIN OPTION: This option provides payments for a fixed period of 5,
10, 15 or 20 years. Payments will be made until the end of this period. If the
Annuitant dies prior to the end of the period, the remaining payments will be
made to the Designated Beneficiary. Table C shows some of the guaranteed rates
for this option.
OPTION 8
JOINT AND CONTINGENT SURVIVOR OPTION: This option provides payments for the life
of the primary Annuitant. Payments will be made to the primary Annuitant as long
as he or she is living. Upon the death of the primary Annuitant, payments will
be made to the contingent Annuitant as long as he or she is living. If the
contingent Annuitant is not living upon the death of the primary Annuitant, no
payments will be made to the contingent Annuitant. Table B shows some of the
guaranteed rates for this option.
15
<PAGE> 16
ANNUITY TABLES
TABLE A
SETTLEMENT OPTIONS ONE, TWO, AND THREE
MINIMUM INITIAL MONTHLY INSTALLMENTS PER $1,000 OF AMOUNT APPLIED
<TABLE>
<CAPTION>
Option Two
Adjusted Option One Life with Fixed Period Option Three
Age Life 5 10 15 20 Unit
of Annuitant Only Years Years Years Years Refund
- --------------------------------------------------------------------------------
UNISEX
<S> <C> <C> <C> <C> <C> <C>
55 4.54 4.53 4.51 4.46 4.38 4.40
56 4.62 4.61 4.58 4.53 4.44 4.47
57 4.71 4.70 4.66 4.60 4.51 4.54
58 4.80 4.79 4.75 4.68 4.57 4.62
59 4.90 4.88 4.84 4.76 4.64 4.70
60 5.00 4.99 4.93 4.84 4.70 4.78
61 5.11 5.09 5.03 4.93 4.77 4.87
62 5.23 5.21 5.14 5.02 4.84 4.96
63 5.36 5.33 5.25 5.12 4.91 5.06
64 5.49 5.46 5.37 5.21 4.98 5.17
65 5.64 5.60 5.50 5.31 5.05 5.28
66 5.79 5.75 5.63 5.42 5.12 5.39
67 5.95 5.91 5.77 5.53 5.19 5.52
68 6.13 6.08 5.91 5.63 5.25 5.65
69 6.32 6.26 6.07 5.74 5.32 5.79
70 6.53 6.46 6.23 5.86 5.37 5.94
71 6.75 6.67 6.40 5.97 5.43 6.09
72 6.99 6.89 6.58 6.08 5.48 6.26
73 7.26 7.13 6.76 6.18 5.52 6.44
74 7.54 7.39 6.95 6.29 5.57 6.63
75 7.85 7.67 7.14 6.39 5.60 6.83
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
16
<PAGE> 17
ANNUITY TABLES (Continued)
TABLE B
SETTLEMENT OPTIONS FOUR AND EIGHT
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
<TABLE>
<CAPTION>
Adjusted Age of Adjusted Age of Male Annuitant
Female Annuitant 55 60 62 65 70 75
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 4.16 4.27 4.30 4.35 4.42 4.47
60 4.34 4.51 4.57 4.66 4.78 4.86
62 4.41 4.61 4.68 4.79 4.94 5.04
65 4.51 4.76 4.85 4.99 5.20 5.35
70 4.66 4.99 5.13 5.34 5.67 5.95
75 4.78 5.19 5.37 5.66 6.16 6.63
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
TABLE C
SETTLEMENT OPTION SEVEN
MINIMUM INITIAL MONTHLY INSTALLMENT PER $1,000 OF AMOUNT APPLIED
PERIOD CERTAIN
<TABLE>
<CAPTION>
5 YEARS 10 YEARS 15 YEARS 20 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
18.11 9.83 7.1 5.75
</TABLE>
Values not shown will be provided upon request. Annual, semiannual, or quarterly
installments can be determined by multiplying the monthly installments by
11.812853, 5.9572227, and 2.9914196 respectively.
17
<PAGE> 18
A BRIEF DESCRIPTION OF THIS CONTRACT
This is a FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT.
* Purchase Payments may be made until termination of the Contract.
* This Contract is Participating.
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND MAY INCREASE OR DECREASE IN
ACCORDANCE WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. THERE ARE NO
GUARANTEED MINIMUM PAYMENTS OR CASH VALUES. (SEE "CONTRACT VALUE AND EXPENSE
PROVISIONS" AND "ANNUITY PAYMENT PROVISIONS" FOR DETAILS.)
[SBL LOGO]
SECURITY BENEFIT LIFE INSURANCE COMPANY
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, KS 66636-0001
1-800-888-2461
<PAGE> 1
ENDORSEMENT
ANNUITY LOAN PROVISIONS
LOAN ENDORSEMENT
This endorsement is attached to and made part of your Contract as of its Issue
Date or, if later, the date shown below. Notwithstanding any other provision of
the Contract to the contrary, the following provisions shall apply.
GENERAL PROVISIONS
Prior to the start of retirement annuity installments (the "maturity date"), the
Company shall lend an amount applied for to the Owner subject to the
limitations, interest rates, and repayment procedures set forth herein and in
the loan agreement between the Owner and the Company. Any loan applied for must
be for a minimum of $1,000. Only two loans shall be permitted per contract year.
All loans must be repaid as specified herein before the maturity date. Except
for loans that qualify under the Code for a longer repayment period, as
determined by the Company, all loans must be repaid within five years of
approval. All loan repayments must be scheduled to be paid in equal amounts on
the same day of each month or quarter. For monthly repayments the first
scheduled repayment may not be later than 30 days after the date of approval of
the loan application by the Company. For quarterly repayments the first
scheduled repayment may not be later than 90 days after the date of approval of
the loan application by the Company. Before a loan is permitted a written
application and loan agreement on a form acceptable to the Company must be
Received by the Company. The Company may postpone final approval or disapproval
of a loan for up to six months after the application for a loan is received.
TAX CONSEQUENCES
The Company makes no representations or guarantees as to the tax consequences of
a loan to the Owner. The Owner should consult his or her tax counsel for
specific advice.
MAXIMUM LOAN AMOUNT
The maximum loan amount for all contracts combined, is generally equal to the
lesser of: (1) $50,000 reduced by the excess of: (a) the highest outstanding
loan balance within the preceding 12-month period ending on the day before the
date the loan is made; over (b) the outstanding loan balance on the date the
loan is made; or (2) 50% of your account value or $10,000, whichever is greater.
However, you may not borrow an amount which exceeds your contract value minus
the amount needed as security described below.
LOAN ACCOUNT, AND INTEREST EARNED ON LOAN ACCOUNT
When your loan is approved, the Company will transfer to an account within the
Fixed Amount, referred to as the Loan Account, an amount equal to the loan
amount. Amounts allocated to the Loan Account earn the Maximum Guaranteed
Interest Rate specified in the Contract. In addition, 10% of the loaned amount
will be held in the Fixed Account as security for the loan. Amounts acting as
security will earn the Current Rate.
LOAN INTEREST RATE
The Owner must pay interest on the outstanding loan balance. Interest shall
accrue on the loan balance from the effective date of any loan. The loan
interest rate shall be the Minimum Guaranteed Interest Rate plus 2.5%.
LOAN PAYMENTS
Each loan payment must be labeled as such. If not labeled as a loan payment,
amounts received by the Company will be treated as Purchase Payments. Each loan
payment will reduce the Loan Account by the amount the payment reduces the
outstanding loan balance. The amount held as security will also be reduced by
each loan payment so that the security is again equal to 10% of the outstanding
loan balance immediately after the loan payment is made. Amounts which are no
longer needed in the Loan Account will be transferred to the Fixed Account
and/or the Subaccounts in accordance with current allocation instructions for
purchase payments. However, amounts which are no longer needed as security will
NOT automatically be allocated in accordance with purchase payment instructions.
The loan may be repaid in full at any time, in which event, the Loan Account
shall be reduced to $0.
V6846-1 (R7-97) NON-ERISA
<PAGE> 2
ANNUITY LOAN PROVISIONS (Continued)
FAILURE TO MAKE PAYMENTS
If any required loan payment is not paid, within 30 days of the due date for
loans with a monthly repayment schedule or within 90 days of the due date for
loans with a quarterly repayment schedule, the TOTAL OUTSTANDING LOAN BALANCE
will be deemed to be in default. The entire loan balance, with any accrued
interest, will be reported to the Internal Revenue Service ("IRS") on Form
1099-R for the year the default occurred. Once a loan has gone into default,
regularly scheduled payments will not be accepted. However, the principal plus
accrued interest may be paid in full at any time. Notwithstanding any other
provision of the Contract or this endorsement to the contrary, no new loans will
be allowed when there is a loan in default.
Interest will continue to accrue on a loan in default. You may pay accrued
interest each year when notified by SBL. If such interest is not paid by
December 31st of each year, it will be added to the outstanding balance of the
loan and will be reported to the IRS on Form 1099-R. Account value equal to the
amount of the accrued interest will be transferred to the Loan Account. Account
value held in the Fixed Account as security for the loan will also be increased
so that the security is again equal to 10% of the outstanding loan. If a loan
continues to be in default when you attain age 59 1/2, the total outstanding
balance will be deducted from your account value. The Contract will be
automatically terminated if the outstanding loan balance on a loan in default
equals or exceeds the amount for which the Contract may be surrendered. The
proceeds from the Contract will be used to repay the debt and any applicable
surrender or withdrawal charges.
WITHDRAWAL VALUE, ANNUITY PAYOUT AMOUNT, AND DEATH BENEFIT
If the Contract is surrendered, or if a death benefit becomes payable, the
amount otherwise receivable will be reduced by the amount of the outstanding
loan, plus any accrued interest. In addition, no partial withdrawal request will
be processed which would result in the withdrawal of account value from the Loan
Account.
SECURITY BENEFIT LIFE INSURANCE COMPANY
ROGER K. VIOLA
SECRETARY
________________________________________
Endorsement Effective Date
(If Other Than Issue Date)
<PAGE> 1
[SBL LOGO]
A Member of The Security 700 SW Harrison St.
Benefit Group of Companies Topeka, Kansas 66636-0001
VARIFLEX SIGNATURE APPLICATION
1. OWNER (Applicant)
Name______________________________________________
Address___________________________________________
__________________________________________________
Sex M [ ] F [ ] Date of Birth____________________
Tax I.D. or SSN___________________________________
Annuity Start Date________________________________
2. JOINT OWNER
Name______________________________________________
Address___________________________________________
__________________________________________________
Date of Birth_____________________________________
Tax I.D. or SSN___________________________________
Relationship to Owner_____________________________
3. INITIAL PURCHASE PAYMENT
(min. $25,000)____________________________________
4. ALLOCATION OF PURCHASE PAYMENTS
Emerging Growth Subaccount* ___________%
Worldwide Equity Subaccount* ___________%
Social Awareness Subaccount* ___________%
Value Subaccount* ___________%
Growth Subaccount* ___________%
Specialized Asset Allocation Subaccount* ___________%
Managed Asset Allocation Subaccount* ___________%
Equity Income Subaccount* ___________%
Growth-Income Subaccount* ___________%
Global Aggressive Bond Subaccount* ___________%
High Yield Subaccount* ___________%
High Grade Income Subaccount* ___________%
Money Market Subaccount* ___________%
Small Cap Subaccount* ___________%
Fixed Account ___________%
100%
5. ANNUITANT (if different from Owner)
Name______________________________________________
Address___________________________________________
__________________________________________________
Sex M [ ] F [ ] Date of Birth____________________
Tax I.D. or SSN___________________________________
6. PRIMARY BENEFICIARY
Name______________________________________________
Address___________________________________________
__________________________________________________
Relationship to Owner_____________________________
Date of Birth_____________________________________
SSN_______________________________________________
(Upon the death of any owner, the Primary Beneficiary will receive any death
benefit which is payable, only if there is no surviving joint owner. See
prospectus for details.)
7. SECONDARY BENEFICIARY
Name______________________________________________
Address___________________________________________
__________________________________________________
Relationship to Owner_____________________________
Date of Birth_____________________________________
SSN_______________________________________________
8. TYPE OF ANNUITY CONTRACT
(check one box for each of A. and B.)
A. [ ] Individual or [ ] Group
B. [ ] Non Qualified [ ] 401(a) (Qual. Pension/Profit Sharing)
[ ] 403(b) (TSA) [ ] 401(k) (Qual. Savings Plan)
[ ] 408 (IRA) Type of Plan:
[ ] 408(k) - (SEP) ______________________________________
[ ] 408 (SIMPLE) ______________________________________
[ ] 457 (Def. Comp.)
NOTE: Items 5 through 7 are not applicable in applying for a group contract.
9. Will this annuity replace or change any other insurance or annuity? Yes [ ]
No [ ]
If yes, state company(ies) and contract number(s)___________________________
Type of contract____________________________________________________________
If 1035 exchange or other transfer of assets, attach: (1) exchange form(s)
or letter(s); and (2) replacement form(s) if applicable.
10. Special Instructions________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
11. PLEASE CHECK THE FOLLOWING SERVICES THAT YOU WISH TO ELECT:
Telephone Transfer Privilege
[ ] I (We) authorize SBL to make transfers among accounts, change the
allocation of future purchases and make changes to an existing Asset
Reallocation or Dollar Cost Averaging option, based on telephone
instructions. SBL has procedures to confirm that such instructions are
genuine and will not be liable for any losses due to fraudulent or
unauthorized instructions provided it complies with its procedures,
which are set forth in the prospectus.
V7552 (2-97)
<PAGE> 2
12. [ ] AUTOMATIC DOLLAR COST AVERAGING
Please establish an automatic transfer from_______________________________
(Subaccount or Fixed Account)
to (1)_____________________________________
(Subaccount or Fixed Account)
(Please indicate the dollar or percentage split if going to one or more
Subaccounts) (2)_____________________________________
(Subaccount or Fixed Account)
Please establish the transfer under the following option:
Check only one:
A. [ ] $______________________ per transfer over _____________ months/years
B. [ ] Fixed Period _____________ months/years
C. [ ] Only Interest/Earnings over ___________ months/years. Earnings
will accrue for one time period (a month or quarter) from the
effective date before the first transfer occurs.
Please make transfers: [ ] Monthly [ ] Quarterly
I understand that automatic transfers are subject to: (1) the terms of my
contract; (2) the current prospectus; and (3) such other rules as SBL shall
enact. I also understand that any automatic transfer from the Fixed Account
may not exceed an amount in which would exhaust that account within 12
months.
13. [ ] ASSET REALLOCATION REQUEST (Subaccounts)
Emerging Growth ___________%
Worldwide Equity ___________%
Social Awareness ___________%
Value ___________%
Growth ___________%
Specialized Asset Allocation ___________%
Managed Asset Allocation ___________%
Equity Income ___________%
Growth-Income ___________%
Global Aggressive Bond ___________%
High Yield ___________%
High Grade Income ___________%
Money Market ___________%
Small Cap Subaccount ___________%
Fixed Account ___________%
Please establish the Asset Reallocation option as follows:
Please make my first transaction on ___________________________and every 3
Month Day Year
months thereafter.
The Fixed Account may not be used if the reallocation would violate the transfer
provisions of the Fixed Account as stated in the prospectus. INITIAL PURCHASE
PAYMENT WILL BE ALLOCATED BASED ON INSTRUCTIONS IN SECTION 4, UNLESS OTHERWISE
INDICATED.
I have been given an effective prospectus that describes the contract for which
I am applying. I have been given an effective prospectus for the fund underlying
each Subaccount above. If my annuity contract qualifies under Section 403(b), I
declare that I know: (1) the limits on redemption imposed by Section 403(b)(11)
of the IRS Code; and (2) the investment choices available under my employer's
Section 403(b) arrangement to which I may elect to transfer my account balance.
*I KNOW THAT ANNUITY PAYMENTS AND WITHDRAWAL VALUES, IF ANY, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT OF SBL ARE VARIABLE AND DOLLAR
AMOUNTS ARE NOT GUARANTEED. The amount paid and the application must be
acceptable to SBL under its rules and practices. If they are, the contract
applied for will be effective on its Contract Date. If they are not, SBL's
liability will be limited to a return of amount paid.
TAX IDENTIFICATION NUMBER CERTIFICATION**
UNDER PENALTIES OF PERJURY I CERTIFY THAT:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me); and
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
Dated at______________________________________________
this __________ day of _______________________, 19____
______________________________________________________
Owner Signature
______________________________________________________
Joint Owner/Signature
REPRESENTATIVE'S STATEMENT - To the best of knowledge, this application is not
involved in replacement of life insurance or annuities, as defined in applicable
Insurance Department Regulations, except as stated in question 9 above. I have
complied with the requirements for disclosure and/or replacement.
______________________________________________________
Representative Signature and Number
______________________________________________________
Print Representative's Full Name and Phone and Number
______________________________________________________
Broker/Dealer Name and Number
**CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have
<PAGE> 3
been notified by IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. For
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN.
[ ] Check this box if you would like a Statement of Additional Information.
<PAGE> 1
BYLAWS OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
KNIGHTS & LADIES OF SECURITY - FEBRUARY 22, 1892
SECURITY BENEFIT ASSOCIATION - SEPTEMBER 24, 1919
SECURITY BENEFIT LIFE INSURANCE COMPANY - JANUARY 2, 1950
<PAGE> 2
BYLAWS OF
SECURITY BENEFIT LIFE INSURANCE COMPANY
ARTICLE I - OFFICES
1. The Home Office and principal place of business of the Company shall be
in the city of Topeka, state of Kansas. The Company may also establish
branch offices at such other places as the Board of Directors may from
time to time determine.
ARTICLE II - MEETINGS OF POLICYHOLDERS
1. A meeting of the policyholders for the election of directors shall be
held annually at the home office of the company at two o'clock p.m. on
the first Tuesday in June. The first annual meeting shall be held on the
first Tuesday in June in the year 1952. Subsequent annual meetings shall
be held on the first Tuesday in June in each year thereafter.
2. Notice of the time and place of the annual meeting shall be given by
imprinting the same on either premium notices, premium receipts, premium
record stubs, or on annual reports mailed to the policyholders.
3. Special meetings of policyholders may be called at any time, for any
purpose or purposes whatsoever, by the President, the Chief Executive
Officer, the Chairman of the Board or by the vote of a majority of the
entire number of the members of the board of directors.
4. Notice of the time and place of any special meeting shall be given to
all policyholders who were shown on the records of the Company to be
policyholders on the date fixed by the Board for the purpose of
determining the members entitled to notice of and to vote at the special
meeting (the "Record Date"), which date shall be not less than 10 nor
more than 90 days before the date of such meeting, in writing and mailed
to the policyholder at his or her last known address as indicated by the
Company's records. Notice of any special meeting shall specify the
place, the day and the hour of the meeting and the general nature of the
business to be transacted. Such notice shall be given not less than 10
nor more than 60 days before the date of the meeting.
ARTICLE III - VOTING
1. The qualified voters of the company shall consist of every policyholder.
For the purpose of this section the term "policyholder" shall mean (1)
the person insured under an individual policy of insurance issued upon
the application of such person; (2) the person who effectuates any such
policy upon the life of another; (3) the person to whom any annuity or
pure endowment is presently or prospectively payable by the terms of an
individual annuity or pure endowment policy, except where the policy
declares some other person to be the owner thereof, in which case such
owner shall be deemed to be the policyholder; or (4) the employer, firm,
group or association to whom or in whose name a master policy or
contract of group insurance or other from of group hospital or
disability insurance, including group
<PAGE> 3
annuity, shall have been issued and held, which employer, firm, group or
association shall be deemed to be one policyholder within the meaning of
this section. No other person shall be deemed to be a "policyholder" for
the purpose of this section. A policyholder as defined in this section
shall be entitled to only one vote regardless of the number or size of
his policies or contracts. The policyholder may vote in person; or may
vote by proxy signed by the person legally entitled to vote the same,
provided the proxy shall be received by the Company by the close of
business on the day preceding the date of the meeting at which such
proxy is to be voted.
2. The qualified policyholders present, in person or by proxy, at any
annual or special meeting shall constitute a quorum and any matter
properly before the meeting shall be decided by a majority of the
policyholders present, unless a different percentage is prescribed by
law.
3. Each qualified policyholder present at the annual meeting shall have the
right to cast as many votes in the aggregate as shall equal the number
of directors to be regularly elected. Each qualified policyholder, in
person or by proxy, may cast the whole number of votes for one candidate
or may divide his votes among two or more candidates.
4. Notwithstanding any inconsistent provisions of this section, if the
company by action of its directors establishes one or more separate
accounts for purposes of issuing contracts providing benefits which vary
directly according to the investment experience of such separate account
or accounts, the directors, upon approval of the rules and regulations
for each separate account will set forth the special voting rights and
procedures for owners of variable contracts under such separate account
relating to investment policy, investment advisory services, selection
of independent public accountants, and such other matters as they deem
appropriate in relation to the administration of the assets of such
separate account.
ARTICLE IV - BOARD OF DIRECTORS
1. The management of all the affairs, property and business of the company
shall be vested in and exercised by a board of directors of ten (10)
persons, all of whom shall be policyholders in the company. The board of
directors may from time to time appoint an executive committee and other
committees with such powers as it may see fit, subject to such
conditions as may be prescribed by the board. All committees so
appointed shall report their acts and doings to the board of directors
at its next meeting. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member.
2. The directors now in office shall continue to hold office for the
remainder of the terms for which they were severally elected.
<PAGE> 4
3. At each annual meeting there shall be elected not less than one-fifth
nor more than one-third of the members of the board of directors to
serve for not more than five years nor more than three years
respectively.
4. The board of directors shall, at least ninety days prior to any annual
meeting, nominate candidates for each vacancy in the board to be filled
at such annual meeting.
5. Any group of qualified policyholders equal in number to or greater in
number than one percent of the total number of policies of the company
in force may make other nominations for one or more vacancies in the
board of directors by filing with the secretary, at least ninety days
prior to any annual meeting, a duly signed and acknowledged certificate
giving the names and addresses of the candidates nominated. Upon
receiving such certificate, the secretary shall thereupon report the
receipt thereof to the board of directors at its first regular meeting
following receipt of such certificate.
6. Should the board of directors fail to nominate candidates for vacancies
in the board of directors to be filled at the annual meeting as provided
in Section 4 hereof, and should the policyholders fail to nominate
candidates for vacancies in the board of directors to be filled at the
annual meeting then, and in such case, vacancies to be filled at the
annual meeting may be filled by the policyholders.
7. Any vacancy in the board occurring in the interim between annual
meetings shall be filled by the remaining members thereof until the next
annual meeting, at which time a successor shall be elected to fill the
unexpired term except vacancies occurring by reason of increase in
number of directors, in which event such vacancies shall be filled at
the annual meeting.
8. Regular and special meetings of the board of directors may be held at
such place or places within or without the state of Kansas as the board
of directors may from time to time designate. Special meetings of the
board of directors may be called at any time by the president or by any
three directors. The secretary shall give notice of each special meeting
by mailing the same at least two days before the meeting or by
telegraphing the same at least one day before the meeting to each
director, but such notice may be waived by any director. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting. The number of directors necessary to
constitute a quorum shall be not less than five; except that if the
board of directors consists of nine members or less, a majority may
constitute a quorum.
9. The fee to be paid to the directors for their services shall be fixed by
resolution of the board.
10. The board of directors may appoint advisory directors to serve for a
period of not more than one year. Such appointed directors shall act
only in an advisory capacity without right to vote. An advisory director
may be removed by the board of directors whenever in its judgment the
best interests of the company would be served thereby. The fee to be
paid advisory directors for their services shall be fixed by resolution
of the board.
<PAGE> 5
11. Nothing in this Article, however, should be construed as to prevent the
directors from establishing one or more separate accounts for purposes
of issuing contracts with variable benefits and approving such
additional voting rights for variable contract owners as may be
authorized or required by the law.
ARTICLE V - OFFICERS
1. The officers of the company shall be a chairman of the board, a
president, one or more vice presidents, a treasurer, a secretary, an
actuary, and such other officers as may be appointed by the board of
directors. Any two or more offices may be held by the same person,
except the offices of president and secretary. All officers of the
company, except appointed officers, shall be elected annually by the
board of directors at the first meeting of the board of directors held
after each annual meeting of the policyholders. If the election of
officers shall not be held at such meeting, such election shall be held
as soon thereafter as conveniently may be. Vacancies may be filled or
new offices filled at any meeting of the board of directors. Each
officer shall hold office until his successor shall have been duly
elected or appointed and shall have qualified, or until his death, or
until he shall have resigned or shall have been removed in the manner
hereinafter provided.
Any officer elected or appointed by the board of directors may be
removed by the board of directors whenever in its judgment the best
interest of the company would be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so
removed.
2. The chairman of the board shall preside at all meetings of policyholders
or directors and shall perform such other duties as shall be assigned to
him by the board of directors. In the absence of the chairman of the
board, the president shall preside over meetings of policyholders or
directors.
3. The president shall be chief executive officer of the company, unless
the chairman of the board is so designated, and he shall perform such
other duties as are incident to the office of the president or are
properly assigned to him by the board of directors.
4. The vice presidents shall have such powers and discharge such duties as
may be assigned to them from time to time by the board of directors.
5. The treasurer shall have charge and custody of and be responsible for
all funds and securities of the company; shall disburse the funds of the
company in payments of just demands against it or as may be ordered by
the board of directors, and in general perform all the duties incident
to the office of treasurer and such other duties as may from time to
time be assigned to him by the board of directors. The assistant
treasurer, if any, may sign in place of the treasurer with the same
force and effect as the treasurer is authorized to sign.
6. The secretary shall keep the minutes of meetings of the policyholders
and of the board of directors, see that all notices are duly given in
accordance with the provisions of these
<PAGE> 6
bylaws or as required by law; shall be custodian of the corporate
records and seal of the company, and in general perform all duties
incident to the office of secretary and such other duties as may from
time to time be assigned to him by the board of directors. The assistant
secretary, if any, may sign and attest documents with the same force and
effect as the secretary is authorized to sign and attest.
7. The actuary shall have general supervision over all computations
relating to premium rates, policy dividends, reserves and surrender
values, preparation of the annual statement of the company, perform such
other duties as are incident to his office and such other duties as may
from time to time be assigned to him by the board of directors. In
absence or inability of the actuary, his duties may be performed by an
associate actuary or by an assistant actuary.
8. The salaries of the officers shall be fixed from time to time by the
board of directors, and no officer shall be prevented from receiving
such salary by reason of the fact that he is also a director of the
company.
9. The company shall indemnify every person, his heirs, executors or
administrators, who is or was a director, officer, or employee of the
company, or is or was serving at the request of the company as a
director, officer or employee of another business entity, to the full
extent permitted or authorized by the laws of the state of Kansas, as
now in effect and as hereafter amended, against any liability, judgment,
fine, amount paid in settlement, cost or expense (including attorney's
fees) asserted or threatened against and incurred by such person in his
capacity as or arising out of his status as a director, officer, or
employee of the company or, if serving at the request of the company as
a director, officer or employee of another business entity. The
indemnification provided by this bylaw provision shall not be exclusive
of any other rights to which those indemnified may be entitled under any
other bylaw or under any agreement, vote of stockholders or
disinterested directors or otherwise, and shall not limit in any way any
right which the company may have to make different or further
indemnifications with respect to the same or different persons or
classes of persons.
ARTICLE VI - SEAL
1. The corporate seal of the company shall consist of two concentric
circles between which shall be the name of the company and in the center
of which shall be inscribed the year of its incorporation.
ARTICLE VII - FRATERNAL CERTIFICATES
1. The gross premium payable with respect to each fraternal certificate
issued by the corporation shall be the sum designated prior to
transformation of the corporation from a fraternal benefit society to a
mutual life insurance company as home office premium plus a collection
charge equal to the sum paid prior to such transformation as subordinate
council dues or collection fee. Provided, however, that the annual
collection charge payable with respect to each fraternal certificate
shall not in any case exceed $2.40.
<PAGE> 7
2. The gross premium for each fraternal certificate shall become due and
payable, without notice, on the first day of the calendar month
following the period for which prior payment has been made. The first
calendar month following the period for which payment has been made
shall be allowed as a grace period during which the certificate shall
remain in full force and effect. If the gross premium for any
certificate is not paid when due or within the grace period, such
certificate shall be in default and all rights and benefits thereunder
shall be forfeited, without notice, except as may otherwise be provided
by the terms of such certificate.
3. Every fraternal certificate which shall become in default on account of
nonpayment of gross premiums may be reinstated at any time within sixty
days after the date of such default by payment in full of the gross
premiums in arrears, provided the insured under such certificate is in
sound mental and physical condition on the date of such payment. Any
payment of gross premiums made for the purpose of effecting
reinstatement under the provisions of this section shall constitute a
representation by the insured making such payment that he or she is in
sound mental and physical condition; and the receipt and retention of
such payment shall not effect reinstatement of the certificate if the
insured is not in sound mental and physical condition.
4. Every fraternal certificate which shall become in default on account of
nonpayment of gross premiums, and which shall not have been reinstated
within sixty days after the date of such default, may be reinstated only
in accordance with and as permitted by the rules and regulations for
reinstatement prescribed by the board of directors.
5. Any person or corporation may be appointed as a beneficiary in a
fraternal certificate, except as eligibility with respect to
beneficiaries may be restricted by the laws of the state in which the
certificate was first delivered to the insured.
6. The owner of a fraternal certificate in force may at any time change the
beneficiary by filing a satisfactory written notice therefor with the
company at its home office. The fraternal certificate need not be
presented for endorsement except upon written request of the company. A
change of beneficiary shall not be effective until it has been recorded
by the company at its home office. After such recordation, the change
shall relate back to and take effect as of the date the owner signed
said written request, whether or not the insured be living at the time
of such recordation, but without prejudice to the company on account of
any payment made by it before receipt of such written request at its
home office. If there be more than one beneficiary the interest of any
deceased beneficiary shall pass to the survivor or survivors, unless
otherwise directed by the owner and recorded at the home office. If no
designated beneficiary survives the insured, the amount payable under
the certificate shall be paid in a lump sum to the executors or
administrators of the insured.
7. Whenever the age of an insured in a fraternal certificate has been
understated in his or her application for insurance, and the correct age
was within the age limits of the corporation, the amount of the death
benefit payable under such certificate shall be such as the premiums
<PAGE> 8
paid would have purchased at the correct age according to the
corporation's premium rates in force on the issue date of the
certificate. If the correct age of the insured was not within the age
limits of the corporation, the liability of the corporation under his or
her certificate shall be the premiums paid thereon. If the age has been
overstated in the application, no additional amount of insurance or
other values shall be granted on account of any excess premium paid, but
such excess premium shall be returned without interest.
8. That part of the gross premium designated prior to transformation of the
corporation as home office premium shall, with respect to fraternal
certificates issued on the pure assessment plan, be payable in
accordance with the following premium table:
PREMIUMS PER $1,000 OF INSURANCE
AGE NEAREST AGE NEAREST
BIRTHDAY MONTHLY ANNUAL BIRTHDAY MONTHLY ANNUAL
16 $1.15 $13.25 49 $3.25 $37.45
17 1.20 13.50 50 3.40 39.25
18 1.20 13.80 51 3.60 41.10
19 1.20 14.10 52 3.75 43.10
20 1.25 14.40 53 3.95 45.30
21 1.30 14.75 54 4.15 47.55
22 1.30 15.10 55 4.35 50.00
23 1.35 15.45 56 4.60 52.65
24 1.40 15.80 57 4.85 55.45
25 1.40 16.20 58 5.10 58.45
26 1.45 16.65 59 5.40 61.65
27 1.50 17.10 60 5.70 65.05
28 1.50 17.55 61 6.00 67.25
29 1.55 18.05 62 6.40 71.10
30 1.60 18.55 63 6.80 75.30
31 1.65 19.10 64 7.20 79.85
32 1.70 19.70 65 7.65 84.70
33 1.75 20.30 66 8.15 89.95
34 1.80 20.95 67 8.65 95.60
35 1.90 21.65 68 9.25 101.70
36 1.95 22.40 69 9.85 108.30
37 2.00 23.15 70 10.55 115.45
38 2.10 24.00 71 11.30 123.15
39 2.15 24.85 72 12.15 131.55
40 2.25 25.80 73 13.00 140.60
<PAGE> 9
AGE NEAREST AGE NEAREST
BIRTHDAY MONTHLY ANNUAL BIRTHDAY MONTHLY ANNUAL
41 2.30 26.80 74 14.00 150.50
42 2.40 27.85 75 15.10 161.20
43 2.50 28.95 76 16.25 172.85
44 2.60 30.15 77 17.55 185.55
45 2.70 31.45 78 19.00 199.35
46 2.85 32.80 79 20.60 214.45
47 2.95 34.25 80 and over 22.35 230.90
48 3.10 35.90
The premium rates as stated in said table shall be based upon the
attained age nearest birthday of the insured as of July 1, 1935. Each
insured under a pure assessment fraternal certificate shall, after
premiums in accordance with the above table have been paid for three
full years, be entitled to the nonforfeiture options of extended term
insurance, paid up insurance or certificate loans to the extent of the
tabular reserve to the credit of such certificate.
9. Any insured under a pure assessment fraternal certificate may, in lieu
of making premium payments in accordance with the premium table
specified in the preceding section, elect to continue to make monthly
payments upon his certificate at the rate paid for the month of January,
1935. In the event of such election, the certificate upon which such
payment is made shall automatically be reduced to such face amount of
whole life insurance (with the reserve thereon computed according to the
American Experience Table of Mortality with an interest assumption of
4%) as the payment actually made would purchase at the rates specified
in said premium table for the attained age nearest birthday of the
insured as of July 1, 1935. The payment by any insured for the month of
July, 1935, and subsequent months at the rate paid by such insured for
the month of January, 1935, shall be considered an election by such
insured to reduce the amount of his certificate and continue the same in
force for such reduced face amount. Each insured who elects to continue
to make monthly payments upon his certificate at the rate paid for the
month of January, 1935, shall, after such payments have been made for
three full years, be entitled to the nonforfeiture options of extended
term insurance, paid up insurance or certificate loans to the extent of
the tabular reserve to the credit of such certificate.
10. Every fraternal certificate issued prior to January 1, 1938, which
contains nonforfeiture provisions is, with respect to such provisions,
hereby amended as follows:
In the event the owner does not within sixty days after the due date
of any premium in default elect in writing any of the other
available nonforfeiture options, the insurance will be automatically
continued in force as nonparticipating extended term insurance in
accordance with the extended term insurance provision of the
certificate: Provided, however, that the insurance under a
certificate which does not contain an extended term insurance
provision will be automatically continued in
<PAGE> 10
force as nonparticipating paid up insurance in accordance with the
paid up insurance provision of the certificate.
11. The owner of each fraternal certificate in good standing prior to the
transformation of the corporation from a fraternal benefit society to a
mutual life insurance company shall have the right after such
transformation to transfer the insurance evidenced by such certificate
to the mutual life plan in the manner provided by law. The company shall
not have the right to levy an assessment against the owner of such
transferred insurance or impose a lien against the reserve standing to
the credit thereof.
12. The right and power heretofore existing in the corporation to levy an
assessment in addition to the gross premiums payable with respect to
each fraternal certificate is hereby irrevocably waived.
13. The term "fraternal certificate," wherever the same appears in these
bylaws, shall mean and apply to all beneficiary certificates issued by
the corporation prior to its transformation from a fraternal benefit
society to a mutual life insurance company.
ARTICLE VIII - AMENDMENTS
1. These bylaws may be amended, changed or repealed by a majority of the
board of directors at any regular or special meeting of the board. They
may also be amended, changed or repealed at any annual meeting of the
policyholders by a majority vote of the policyholders at any annual
meeting, provided that such proposed amendment, change or repeal to be
considered at the annual meeting of the policyholders shall have been
submitted in writing and filed with the secretary at least ninety days
before the time for holding the annual meeting at which action thereon
is to be taken.
<PAGE> 1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and to
the use of our reports dated February 7, 1997, to the financial statements of
Security Benefit Life Insurance Company and Subsidiaries and the financial
statements of Variable Annuity Account VIII included in Amendment No. 1 to the
Registration Statement on (Form N-4 No. 333-23723) and the related Statement of
Additional Information accompanying the Prospectus of Variflex Signature
Variable Annuity.
Ernst & Young LLP
Kansas City, Missouri
October 15, 1997
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<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
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<REALIZED-GAINS-CURRENT> 1,899
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<EQUALIZATION> 0
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